**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10 - QSB**




**x
      QUARTERLY REPORT
      PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934**





**For
      the quarterly period ended March 31, 2007**




**o
      TRANSITION REPORT UNDER
      SECTION 13 OR 15(d) OF THE EXCHANGE ACT**




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 a shell company (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 May 11, 2007,
      was 2,281,700 shares.




Transitional
      Small Business Disclosure Format  Yes
o
      No x










**PACIFIC
      COAST NATIONAL BANCORP**




INDEX




PART
      I -
      FINANCIAL INFORMATION


PAGEItem
                  1 - Financial StatementsConsolidated
                  Balance Sheets at March 31, 2007 (unaudited) and December 31, 2006
              3Consolidated
                  Statements of Operations for the three months ended
                March
                  31, 2007 (unaudited) and 2006 (unaudited)
              4Consolidated
                  Statement of Cash Flows for the three months ended
                  March
                    31, 2007 (unaudited) and 2006 (unaudited)
              5Consolidated
                  Statement of Shareholders Equity as of March 31, 2007 (unaudited)
              6Condensed
                  Notes to Unaudited Consolidated Financial Statements
              7Item
                  2 -Management’s
                  Discussion and Analysis or Plan of Operation
              9Item
                  3 -Controls
                  and Procedures
              22PART
                  II - OTHER INFORMATIONItem
                  1 -Legal
                  Proceedings
              22Item
                  2 -Unregistered
                  Sales of Equity Securities and Use of Proceeds
              23Item
                  3 -Defaults
                  upon Senior Securities
              23Item
                  4 -Submission
                  of Matters to a Vote of Security Holders
              23Item
                  5 -Other
                  Information
              23Item
                  6 -Exhibits
                  and Reports on Form 8-K
              23Signatures
              23




i




**INTRODUCTORY
      NOTE**




This
      report contains certain statements that are forward-looking within the meaning
      of section 21E of the Securities Exchange Act of 1934, as amended. These
      statements are not guarantees of future performance and involve certain risks,
      uncertainties and assumptions that are difficult to predict. Actual outcomes
      and
      results may differ materially from those expressed in, or implied by, the
      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 other similar
      expressions or future or conditional verbs. Readers of this quarterly report
      should not rely solely on the forward-looking statements and should consider
      all
      uncertainties and risks throughout this report. The statements are
      representative only as of the date they are made, and Pacific Coast National
      Bancorp (sometimes referred to herein as on a consolidated basis as the Company,
      we, us, or similar phrasing) undertakes no obligation to update any
      forward-looking statement.




These
      forward-looking statements, implicitly and explicitly, include the assumptions
      underlying the statements and other information with respect to the Company’s
      beliefs, plans, objectives, goals, expectations, anticipations, estimates,
      financial condition, results of operations, future performance and business,
      including management’s expectations and estimates with respect to revenues,
      expenses, return on equity, return on assets, efficiency ratio, asset quality
      and other financial data and capital and performance ratios.




Although
      the Company believes that the expectations reflected in the forward-looking
      statements are reasonable, these statements involve risks and uncertainties
      that
      are subject to change based on various important factors, some of which are
      beyond the control of the Company and the Board. The following factors, among
      others, could cause the Company’s results or financial performance to differ
      materially from its goals, plans, objectives, intentions, expectations and
      other
      forward-looking statements:


·
              the
                  loss of key personnel;
  ·
              the
                  failure of assumptions;
  ·
              changes
                  in various monetary and fiscal policies and regulations;
  ·
              changes
                  in general economic conditions and economic conditions in Southern
                  California and industries in which our subsidiary, Pacific Coast
                  National
                  Bank, or the Bank, operates;
  ·
              adverse
                  changes in the local real estate market and the value of real estate
                  collateral securing a substantial portion of the Bank’s loan portfolio;
  ·
              changes
                  in the availability of funds resulting in increased costs or reduced
                  liquidity;
  ·
              geopolitical
                  conditions, including acts or threats of terrorism, actions taken
                  by the
                  United States or other governments in response to acts or threats
                  of
                  terrorism and/or military conflicts which could impact business
                  and
                  economics in the United States and
                  abroad;
  ·
              changes
                  in market rates and prices which may adversely impact the value
                  of
                  financial products including securities, loans, deposits, debt
                  and
                  derivative financial instruments and other similar financial
                  instruments;
  ·
              changes
                  in the interest rate environment, which may reduce interest margins
                  and
                  impact funding sources;
  ·
              increased
                  asset levels and changes in the composition of assets and the resulting
                  impact on the capital levels and regulatory capital ratios of the
                  Company
                  or the Bank;
  ·
              competition
                  from bank and non-bank competitors;
  1
  ·
              the
                  ability to develop and introduce new banking-related products,
                  services
                  and enhancements and gain market acceptance of such
                  products;
  ·
              the
                  ability to grow the Bank’s core
                  businesses;
  ·
              decisions
                  to change or adopt new business
                  strategies;
  ·
              changes
                  in tax laws, rules and interpretations
                  thereof;
  ·
              technological
                  changes;
  ·
              changes
                  in consumer spending and savings habits;
                  and
  ·
              management’s
                  ability to manage these and other
                  risks.


These
      factors and the risk factors referred to in “Business-Risk Factors” in the
      Company’s Annual Report on Form 10-KSB filed with the SEC (and available free of
      charge through www.sec.gov )
      for the
      year ended December 31, 2006 could cause actual results or outcomes to differ
      materially from those expressed in any forward-looking statements made by the
      Company, 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 the Company undertakes no 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 factors, if any, will arise. In addition, the Company cannot
      assess the impact of each factor on the Company’s 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.




2




**PART
      I -** **FINANCIAL
      INFORMATION**




**ITEM
      1.**  **Financial
      Statements**




**PACIFIC
      COAST NATIONAL BANCORP**


**CONSOLDIATED
      BALANCE SHEETS**





**ASSETS**


March
                    31, 2007(unaudited)
              
              December
                  31, 2006Cash
                  and due from banks
              
              $
              2,007,205
              
              $
              1,556,151Federal
                  funds sold
              
              
              14,235,000
              
              
              9,360,000**TOTAL
                  CASH AND CASH EQUIVALENTS**
              
              
              16,242,205
              
              
              10,916,151Interest-bearing
                  deposits in other financial institutions
              
              
              -
              
              
              1,000,000Securities
                  held to maturity
              
              
              -
              
              
              7,943,375Securities
                  available for sale
              
              
              3,989,458
              
              
              -Loans
              
              
              39,817,732
              
              
              34,795,405Less:
                  Allowance for loan losses
              
              
              (516,815
              )
              
              (431,640
              )Loans,
                  net of allowance for loan losses
              
              
              39,300,917
              
              
              34,363,765Premises
                  and equipment, net
              
              
              1,062,265
              
              
              1,145,105Federal
                  Reserve Bank stock, at cost
              
              
              454,000
              
              
              493,800Accrued
                  interest receivable and other assets
              
              
              354,564
              
              
              332,051**TOTAL
                  ASSETS**
              
              $
              61,403,409
              
              $
              56,194,247
  **LIABILITIES
        AND SHAREHOLDERS’**
 **EQUITY**


DepositsNoninterest-bearing
                  demand
              
              $
              15,375,721
              
              $
              12,071,916Interest-bearing
                  demand and NOW accounts
              
              
              3,731,644
              
              
              3,061,772Money
                  market
              
              
              20,379,438
              
              
              19,329,525Savings
              
              
              200,810
              
              
              170,765Time
                  certificates of deposit of $100,000 or more
              
              
              4,157,538
              
              
              3,137,238Other
                  time certificates of deposit
              
              
              1,973,093
              
              
              2,078,856**TOTAL
                  DEPOSITS**
              
              
              45,818,244
              
              
              39,850,072Accrued
                  interest payable and other liabilities
              
              
              295,885
              
              
              324,592**TOTAL
                  LIABILITIES**
              
              
              46,114,129
              
              
              40,174,664Shareholders'
                  equityCommon
                  stock - $0.01 par value; 10,000,000 shares authorized;issued
                  and outstanding: 2,281,700 shares at March 31,2007
                  and 2,281,500 at December 31, 2006
              
              
              22,817
              
              
              22,815Additional
                  paid-in capital
              
              
              25,069,977
              
              
              24,788,356Accumulated
                  other comprehensive income
              
              
              4,758
              
              
              -Accumulated
                  deficit
              
              
              (9,808,272
              )
              
              (8,791,588
              )**TOTAL
                  SHAREHOLDERS' EQUITY**
              
              
              15,289,280
              
              
              16,019,583**TOTAL
                  LIABILITIES & SHAREHOLDERS' EQUITY**
              
              $
              61,403,409
              
              $
              56,194,247




See
      accompanying condensed notes to unaudited consolidated financial
      statements




3


**PACIFIC
      COAST NATIONAL BANCORP**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS (UNAUDITED)**


Three
                  Months
                Ended
                  March 31,
                2007
              
              Three
                  Months
                Ended
                  March 31,
                2006Interest
                  incomeInterest
                  and fees on loans
              
              $
              764,334
              
              $
              277,465Federal
                  funds sold
              
              
              147,990
              
              
              62,284Investment
                  securities
              
              
              87,442
              
              
              84,986Other
              
              
              16,000
              
              
              30,008Total
                  interest income
              
              
              1,015,766
              
              
              454,743Interest
                  expenseTime
                  certificates of deposit of $100,000 or more
              
              
              42,930
              
              
              31,076Other
                  deposits
              
              
              264,148
              
              
              48,972Total
                  interest expense
              
              
              307,078
              
              
              80,048Net
                  interest income before provision for loan losses
              
              
              708,688
              
              
              374,695Provision
                  for loan losses
              
              
              85,175
              
              
              49,572Net
                    interest income afterprovision
                    for loan losses
              
              
              623,513
              
              
              325,123Noninterest
                  incomeService
                  charges and fees
              
              
              12,396
              
              
              5,601Other
                  income
              
              
              4,225
              
              
              82,50016,621
              
              
              88,101Noninterest
                  expenseSalaries
                  and employee benefits
              
              
              1,001,828
              
              
              567,751Occupancy
              
              
              217,991
              
              
              179,566Professional
                  services
              
              
              100,142
              
              
              57,159Data
                  processing
              
              
              101,171
              
              
              99,599Office
                  expenses
              
              
              109,346
              
              
              92,196Marketing
              
              
              60,720
              
              
              29,071Other
              
              
              65,620
              
              
              19,7901,656,818
              
              
              1,045,132Loss
                  before income taxes
              
              
              (1,016,684
              )
              
              (631,908
              )Provision
                  for income taxes
              
              
              -
              
              
              -Net
                  loss
              
              $
              (1,016,684
              )
              $
              (631,908
              )Comprehensive
                  loss
              
              $
              (1,011,926
              )
              $
              (631,908
              )Per
                  share dataWeighted-average
                  shares outstanding
              
              
              2,281,644
              
              
              2,280,246Net
                  loss, basic and diluted
              
              $
              (0.45
              )
              $
              (0.28
              )





See
      accompanying condensed notes to unaudited consolidated financial
      statements





4





**PACIFIC
      COAST NATIONAL BANCORP**


**CONSOLIDATED
      STATEMENT OF CASH FLOWS (UNAUDITED)**


Three
                  Months
                Ended
                  March 31,
              
              Three
                  Months
                Ended
                  March 31,2007
              
              2006Cash
                  flows from operating activities:Net
                  loss
              
              $
              (1,016,684
              )
              $
              (631,908
              )Adjustments
                  to reconcile net loss to net cashused
                  by operating activities:Depreciation
                  and amortization
              
              
              104,141
              
              
              91,899Provision
                  for loan losses
              
              
              85,175
              
              
              49,572Provision
                  for off balance sheet contingencies
              
              
              7,842
              
              
              5,205Amortization
                  (accretion) of investment securities
              
              
              (4,890
              )
              
              97Gain
                  on sale of loans
              
              
              -
              
              
              82,500Stock-based
                  compensation
              
              
              279,123
              
              
              -Other
                  items, net
              
              
              (59,062
              )
              
              71,034Net
                  cash used in operating activities
              
              
              (604,355
              )
              
              (331,601
              )Cash
                  flows from investing activities:Maturity
                  of interest-bearing deposits in other financial
                  institutions
              
              
              1,000,000
              
              
              750,000Proceeds
                  from sale of available for sale investment securities
              
              
              3,963,565
              
              
              -Purchase
                  or redemption of Federal Reserve Bank stock
              
              
              39,800
              
              
              -Proceeds
                  from sale of loans
              
              
              -
              
              
              1,500,000Net
                  increase in loans
              
              
              (5,022,327
              )
              
              (6,299,391
              )Purchases
                  of bank premises and equipment
              
              
              (21,301
              )
              
              (
                  114,893
              )Net
                  cash used in investing activities
              
              
              (40,263
              )
              
              (4,164,284
              )Cash
                  flows from financing activities:Net
                  increase in demand deposits and savings accounts
              
              
              5,053,635
              
              
              3,729,129Net
                  increase in time deposits
              
              
              914,537
              
              
              1,658,933Proceeds
                  from exercise of warrants
              
              
              2,500
              
              
              16,250Net
                  cash provided by financing activities
              
              
              5,970,672
              
              
              5,404,312Net
                  increase in cash and cash equivalents
              
              
              5,326,054
              
              
              908,427Cash
                  and cash equivalents at beginning of period
              
              
              10,916,151
              
              
              8,279,481Cash
                  and cash equivalents at end of period
              
              $
              16,242,205
              
              $
              9,187,908Supplemental
                  disclosure of cash flow information:Interest
                  paid
              
              $
              316,261
              
              $
              36,247Income
                  taxes paid
              
              $
              -
              
              $
              -Supplemental
                  schedule of non-cash investing activitiesTransfer
                  of held-to-maturity securities to available for sale
              
              $
              7,943,507
              
              $
              -





See
      accompanying condensed notes to unaudited consolidated financial
      statements




5




**PACIFIC
      COAST NATIONAL BANCORP AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)**


**As
      of March 31, 2007**


AccumulatedAdditional
              
              OtherShares
              
              Common
              
              Paid-in
              
              Comprehensive
              
              AccumulatedOutstanding
              
              Stock
              
              Capital
              
              Income
              
              Deficit
              
              Total**Balance
                  at December 31, 2006**
              
              
              2,281,500
              
              $
              22,815
              
              $
              24,788,356
              
              $
              -
              
              $
              (8,791,588
              )
              $
              16,019,583Warrants/Options
                  Exercised
              
              
              200
              
              
              2
              
              
              2,498
              
              
              -
              
              
              -
              
              
              2,500Stock-based
                  Compensation
              
              
              -
              
              
              -
              
              
              279,123
              
              
              -
              
              
              -
              
              
              279,123Other
                  Comprehensive Income
              
              
              
              
              
              
              
              
              
              
              
              4,758
              
              
              
              
              
              4,758Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              (1,016,684
              )
              
              (1,016,684
              )**Balance
                  at March 31, 2007**
              
              
              2,281,700
              
              $
              22,817
              
              $
              25,069,977
              
              $
              4,758
              
              $
              (9,808,272
              )
              $
              15,289,280





See
      accompanying condensed notes to unaudited consolidated financial
      statements




6





**PACIFIC
      COAST NATIONAL BANCORP**


**CONDENSED
      NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS******





**Note
      1 - Basis of Presentation & Use of Estimates**




The
      consolidated financial statements include the Company and its wholly-owned
      subsidiary, Pacific Coast National Bank. All significant inter-company accounts
      have been eliminated on consolidation.




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, or 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
      estimation of compensation expense related to stock options granted to employees
      and directors, 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 March 31, 2007, 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,
      2006.




**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. In 2007, the conversion of 495,524 common shares issuable upon
      exercise of the employee stock options and common stock warrants have not been
      included in the 2007 computation because their inclusion would have been
      antidilutive on earnings per share.




**Note
      3 - Stock-Based Compensation**




Effective
      January 1, 2006, the Company adopted SFAS 123(R), “Share-Based Payment”
utilizing the modified prospective approach. Prior to the adoption of SFAS
      123(R) we accounted for stock option grants in accordance with APB Opinion
      No.
      25, “Accounting for Stock Issued to Employees” (the intrinsic value method),
      and, accordingly, recognized no compensation expense for stock option grants.




Under
      the
      modified prospective approach, SFAS 123(R) applies to new awards and to awards
      that were outstanding on January 1, 2006 that are subsequently repurchased
      or
      cancelled. Under the modified prospective approach, compensation cost recognized
      includes compensation cost for all share-based payments granted prior to, but
      not yet vested as of January 1, 2006, based on the grant-date fair value
      estimated in accordance with the original provisions of SFAS 123, and
      compensation cost for all share-based payments granted subsequent to January
      1,
      2006, based on the grant-date fair value estimated in accordance with the
      provisions of SFAS 123(R). Prior periods were not restated to reflect the impact
      of adopting the new standard.




As
      of
      March 31, 2007, there was $565 thousand of unrecognized compensation cost
      related to unvested stock options. This cost is expected to be recognized over
      a
      weighted average period of approximately 1 year.




Under
      SFAS 123(R), the fair value at the grant date of stock-based awards to employees
      is calculated through the use of option-pricing models, even though such models
      were developed to estimate the fair value of freely tradable fully transferable
      options with vesting restrictions which significantly differ from the Company’s
      stock option awards. These models also require subjective assumptions, including
      future stock price volatility and expected time to exercise, which greatly
      affect the calculated value. The Company’s actual fair value calculations for
      the options granted were made using the Black-Scholes option-pricing model.




Outstanding
      unvested stock options generally vest ratably over three years based upon
      continuous service. The Company accounts for these grants as separate grants
      and
      recognizes share-based compensation cost using the straight-line method for
      each
      separate vesting portion. In addition, a forfeiture rate of 1% was used on
      options granted in 2007. There were no material differences from the stock
      option information that was presented in **Footnote
      H** - **Stock
      Options** in the
      Notes to Consolidated Financial Statements of the December 31, 2006
      10-KSB.




7




**Note
      4 - Securities Available for Sale**




The
          amortized cost, gross unrealized gains and losses and fair value of securities
          available for sale as of March 31, 2007, are as follows:
 Gross
                  
                  GrossAmortized
                  
                  Unrealized
                  
                  Unrealized
                  
                  EstimatedCost
                  
                  Gains
                  
                  Losses
                  
                  Fair
                      ValueU.S.
                      Government andAgency
                      Securities
                  
                  $
                  3,984,700
                  
                  $
                  5,838
                  
                  $
                  (1,080
                  )
                  $
                  3,989,458


The
      contractual maturity distribution based on amortized cost and fair value of
      the
      securities available for sale as of March 31, 2007, is shown below.


Book
                  Value
              
              Market
                  Value
              
              Weighted
                  Average Yield**Securities
                  available for sale:****U.S.
                  Government and Agency Securities:**Within
                  One Year
              
              $
              2,000,000
              
              $
              1,998,920
              
              
              4.51
              %One
                  to Five Years
              
              
              1,984,700
              
              
              1,990,538
              
              
              5.04
              %**Total
                  Securities available for sale**
              
              $
              3,984,700
              
              $
              3,989,458
              
              
              4.77
              %





All
      individual securities that have been in a continuous unrealized loss position
      for 12 months or longer at March 31, 2007, were securities that have been issued
      by U.S. agencies and government-sponsored entities and have a AAA credit rating
      as determined by various rating agencies. These securities have fluctuated
      in
      value since their purchase dates because of changes in market interest rates.
      We
      concluded that the continuous unrealized loss position for the past 12 months
      on
      our securities is a result of the level of market interest rates and not a
      result of the underlying issuers’ ability to repay and are, therefore,
      temporarily impaired. In addition, we have the ability to hold these securities
      until their fair value recovers to their cost. Accordingly, we have not
      recognized the temporary impairment in our statement of operations.




**Note
      5 - Loans**




The
      composition of the loan portfolio at March 31, 2007 and December 31, 2006,
      was
      as follows:


March
                  31, 2007
              
              December
                  31, 2006Amount
              
              %
                  of Total
              
              Amount
              
              %
                  of TotalReal
                  estateCommercial
              
              $
              21,775,910
              
              
              54.5
              %
              $
              18,544,368
              
              
              53.1
              %Construction
              
              
              4,951,328
              
              
              12.4
              %
              
              3,881,815
              
              
              11.1
              %1-4
                  residential
              
              
              2,278,338
              
              
              5.7
              %
              $
              2,395,422
              
              
              6.9
              %Commercial
              
              
              10,894,844
              
              
              27.3
              %
              
              9,844,022
              
              
              28.2
              %Consumer
              
              
              53,527
              
              
              0.1
              %
              
              238,064
              
              
              0.7
              %Gross
                  Loans
              
              
              39,953,947
              
              
              100
              %
              
              34,903,691
              
              
              100
              %Deferred
                  loan fees
              
              
              (136,215
              )
              
              
              
              
              (108,286
              )Allowance
                  for loan losses
              
              
              (516,815
              )
              
              
              
              
              (431,640
              )Net
                  Loans
              
              $
              39,300,917
              
              
              
              
              $
              34,363,765




At
      March
      31, 2007, and December 31, 2006, the Bank had total commitments to lend
      outstanding of $14.3 million and $8.6 million respectively.




The
      Bank
      did not have any loans that were delinquent more than 90 days at March 31,
      2007
      or at December 31, 2006. The Bank did not have any loans which were not accruing
      interest at March 31, 2007 or December 31, 2006.




**Note
      6 - Income Taxes**




We
      adopted the provision of Financials Accountings Standards Board, or FASB,
      Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - an interpretation of FASB State No.
      109* ,
      or FIN
      48, on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in
      income taxes recognized in an enterprise’s financial statements in accordance
      with FASB Statement No. 109, *Accounting
      for Income Taxes* .
      FIN 48
      prescribes a threshold and a measurement process for recognizing in the
      financial statements a tax position taken or expected to be taken in a tax
      return. FIN 48 also provides guidance on derecognition, classification, interest
      and penalties, accounting in interim periods, disclosure and transition. We
      have
      determined that there are no significant uncertain tax positions requiring
      recognition in our financial statements.




8




The
      Company adopted FIN 48 as of January 1, 2007. The Company has two tax
      jurisdictions: The U.S. Government and the State of California. As of January
      1,
      2007, and March 31, 2007, the Bank had no unrecognized tax benefits. The Bank
      still has the tax years of 2003, 2004, 2005, and 2006 subject to examination
      by
      either the Internal Revenue Service of the Franchise Tax Board of the State
      of
      California.




The
      Company will classify any interest required to be paid on an underpayment of
      income taxes as interest expense. Any penalties assess by a taxing authority
      will be classified as other expense.




**Note
      7 - Current Accounting Pronouncements**





In
      September 2006, the Financial Accounting Standards Board, or FASB, issued
      Statement No. 157, “Fair Value Measurements” (SFAS 157). SFAS No. 157 defines
      the fair value, establishes a framework for measuring fair value and expands
      disclosure of fair value measurements. SFAS No. 157 applies under other
      accounting pronouncements that require or permit fair value measurements and
      accordingly, does not require any new fair value measurements. SFAS No. 157
      is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007. Management is currently evaluating the effect of adoption
      of
      SFAS No. 159, but does not expect the adoption to have a material effect on
      the Company’s consolidated financial condition or results of operations.





In
      February 2007, the FASB issued SFAS 159, the Fair Value Option for Financial
      Assets and Financial Liabilities. Including an Amendment of FSAB Statement
      No.
      115, SFAS 159 permits an entity to choose to measure many financial instruments
      and certain other items at fair value. Most of the provisions of SFAS 159 are
      elective; however, the amendment to SFAS 115, Accounting for Certain Investments
      in Debt and Equity Securities, applies to all entities with available for sale
      or trading securities. For financial instruments elected to be accounted for
      at
      fair value, an entity will report the unrealized gains and losses in earnings.
      SFAS 159 is effective as of the beginning of an entity’s first fiscal year that
      begins after November 15, 2007. Management is currently evaluating the effect
      of
      adoption of SFAS No. 159, but does not expect the adoption to have a material
      effect on the Company’s consolidated financial condition or results of
      operations.





**ITEM
        2.** **Management’s
        Discussion and Analysis of Financial Condition and Results of
        Operations**




**MANAGEMENT’S
      DISCUSSION AND ANALYSIS**


**OR
      PLAN OF OPERATION**




The
      following discussion and analysis presents the Company’s consolidated financial
      condition as of March 31, 2007 and results of operations for the three months
      ended March 31, 2007 and 2006. The discussion should be read in conjunction
      with
      the financial statements and the notes related thereto which appear elsewhere
      in
      this Quarterly Report on Form 10-QSB.




**Critical
      Accounting Policies**





Our
      accounting policies are integral to understanding the results reported. In
      preparing our consolidated financial statements, the Company is required to
      make
      judgments and estimates that may have a significant impact upon our 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 the Company’s
      current accounting policies involving significant management valuation
      judgments.





*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.





9


Loans
      are
      considered impaired if, based on current information and events, it is probable
      that the Company 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.





*Stock-Based
      Compensation*





The
      Company accounts for stock-based employee compensation as prescribed by SFAS
      123
      (R), *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 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.




The
      estimates that are a part of the calculation for the compensation costs include
      the average life of the stock options, the future price of the Company’s stock
      when the options are exercised, and the average forfeiture of pre-vested
      options. These estimates have significant influence over the final expense
      and
      the Company does not have a history on which to base these assumptions. Please
      refer to **Note
      H - Stock Options** of
      the
      Notes to Consolidated Financial Statements of the December 31, 2006 10-KSB.





*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 its 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 March 31, 2007, the Company had, on a consolidated basis, total
      assets of $61.4 million, net loans of $39.3 million, total deposits of $45.8
      million, and shareholders’ equity of $15.3 million. The Bank currently operates
      through a main office located at 905 Calle Amanecer in San Clemente, California
      and a branch office at 499 North El Camino Real in 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, the
      Company completed an initial public offering of its common stock, 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 March
      31, 2007 and results of operations for the three months ended March 31, 2007
      and
      2006.




**Results
      of Operations**




***Net
      Interest Income and Net Interest Margin***




Net
      interest income is the difference between interest income, principally from
      loan
      and investment securities portfolios, and interest expense, principally on
      customer deposits and borrowings. Net interest income is the Bank’s 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. During
      the time period between the first quarter of 2006 and 2007, the Board of
      Governors of the Federal Reserve Bank raised specific interest rates by 75
      basis
      points, or 0.75%. This had an impact on yields of earning assets as well as
      the
      cost of interest-bearing liabilities.




10




Net
      interest income was $709 thousand for the three months ended March 31, 2007
      compared to $375 thousand for the same time period in 2006. The net interest
      margin increased to 5.06% for the first quarter of 2007 from 4.97% for the
      first
      quarter of 2006. The Company earned 7.25% on its average interest-earning assets
      of $56.9 million for the first quarter of 2007 compared to 6.03% on $30.6
      million in average earning assets for the first quarter of 2006. The significant
      growth in the loan portfolio and overnight fed funds investment accounted
      primarily for the increase in interest income to $1.0 million in 2007 from
      $454.7 thousand in 2006.




During
      the first quarter of 2007, loans accounted for 61% of average earning assets,
      with an average yield of 8.41%, compared to the first quarter of 2006 when
      43%
      of the average earning assets were loans, with a yield of 7.96%. Total loan
      income was $764 thousand, including loan fees of $23 thousand, for the first
      quarter of 2007 compared to $277 thousand in total loan income, including $6
      thousand in loan fees, in the first quarter of 2006.




Other
      earning assets consisting of investments, capital stock of the Federal Reserve
      Bank, time deposits with other financials institutions and overnight fed funds
      were $20.0 million for the first quarter of 2007 with an average yield of 5.10%
      compared to $16.4 million with an average yield of 4.4% for the first quarter
      of
      2006.




Interest-bearing
      liabilities, consisting entirely of deposits, averaged $30.0 million with an
      average yield of 4.15% during the first quarter of 2007, compared with $10.3
      million in interest-bearing deposits at a yield of 3.15% for the same period
      in
      2006. The increase in yield on deposit products is the result of an increase
      in
      market rates, competitive pressures within the Bank’s market areas, and a
      marketing campaign designed to increase money market accounts at the Bank.
      Average non-interest bearing demand accounts as a percentage of average total
      deposits remained at 33% for both time periods.




The
      following table sets forth the Company’s average balances of assets, liabilities
      and shareholders’ equity, in addition to the major components of net interest
      income and the net interest margin for the quarters indicated.




11


Three
                  Months Ended March 31, 2007
              
              Three
                  Months Ended March 31, 2006Average
                  Balance
              
              Interest
              
              Average
                Yield
                  /
                Cost(4)
              
              Average
                  Balance
              
              Interest
              
              Average
                Yield
                  /
                Cost(4)Assets:Interest-earning
                  Assets:Net
                  Loans Receivable(1)
              
              $
              36,843,232
              
              $
              764,334
              
              
              8.41
              %
              $
              14,142,657
              
              $
              277,465
              
              
              7.96
              %Investment
                  Securities
              
              
              7,240,735
              
              
              87,442
              
              
              4.90
              %
              
              7,997,994
              
              
              84,986
              
              
              4.31
              %Investment
                  in capital stock of Federal Reserve Bank
              
              
              476,111
              
              
              7,102
              
              
              6.05
              %
              
              553,700
              
              
              8,260
              
              
              6.05
              %Time
                  Deposits in other financial institutions
              
              
              822,240
              
              
              8,898
              
              
              4.39
              %
              
              2,168,000
              
              
              21,748
              
              
              4.07
              %Cash,
                  fed funds and other
              
              
              11,472,167
              
              
              147,990
              
              
              5.23
              %
              
              5,701,722
              
              
              62,284
              
              
              4.43
              %Total
                  interest-earning assets
              
              
              56,854,485
              
              
              1,015,766
              
              
              7.25
              %
              
              30,564,073
              
              
              454,743
              
              
              6.03
              %Noninterest-earning
                  assets
              
              
              3,149,023
              
              
              
              
              
              
              
              
              2,556,426Total
                  Assets
              
              $
              60,003,508
              
              
              
              
              
              
              
              $
              33,120,499Liabilities
                  and Shareholders' EquityMoney
                  Market and Savings Deposits
              
              $
              21,338,448
              
              $
              232,089
              
              
              4.41
              %
              $
              4,449,337
              
              
              29,922
              
              
              2.73
              %Interest-bearing
                  Checking
              
              
              2,980,002
              
              
              9,893
              
              
              1.35
              %
              
              1,047,344
              
              
              3,380
              
              
              1.31
              %Time
                  Deposits of $100,000 or more
              
              
              3,530,478
              
              
              42,930
              
              
              4.93
              %
              
              3,104,109
              
              
              30,282
              
              
              3.96
              %Other
                  Deposits
              
              
              2,190,781
              
              
              22,166
              
              
              4.10
              %
              
              1,707,389
              
              
              16,464
              
              
              3.91
              %Total
                  Interest-bearing liabilities
              
              
              30,039,710
              
              
              307,078
              
              
              4.15
              %
              
              10,308,180
              
              
              80,048
              
              
              3.15
              %Non-interest
                  bearing checking accounts
              
              
              14,865,843
              
              
              
              
              
              
              
              
              5,176,362Non-interest
                  bearing liabilities
              
              
              355,944
              
              
              
              
              
              
              
              
              173,991Shareholders'
                  Equity
              
              
              14,742,011
              
              
              
              
              
              
              
              
              17,461,966Total
                  Liabilities andShareholders'
                  Equity
              
              $
              60,003,508
              
              
              
              
              
              
              
              $
              33,120,499Net
                  Interest Income
              
              
              
              
              $
              708,688
              
              
              
              
              
              
              
              $
              374,695Net
                  Interest Spread(2)
              
              
              
              
              
              3.10
              %
              
              
              
              
              
              
              
              2.88
              %Net
                  Interest Margin(3)
              
              
              
              
              
              5.06
              %
              
              
              
              
              
              
              
              4.97
              %
  (1)Loan
                  fees are included in total interest income as follows: 2007 $23
                  thousand;
                  2006 $6 thousand.(2)Net interest spread represents the yield earned on average total
                  interest-earning assets less therate paid on average interest-bearing liabilities(3)Net interest margin is computed by dividing annualized net interest
                  income
                  by average totalinterest-earning assets.(4)Annualized




The
      following table presents the extent to which changes in interest rates and
      changes in the volume of interest-earning assets and interest-bearing
      liabilities have affected interest income and interest expense in the first
      quarter of 2007 compared to the first quarter of 2006. Because the Bank is
      still
      expanding in its market areas, changes due to volume in the first quarter of
      2007 account for a significant portion of the overall change. Information is
      provided in each category with respect to (i) changes attributable to changes
      volume (changes in volume multiplied by prior rate) and (ii) changes
      attributable to changes in rate (changes in rate multiplied by prior volume),
      and (iii) the net change. The changes attributable to the combined impact of
      volume and rate have been allocated proportionately to the changes due to volume
      and the changes due to rate.




12


Three
        Months Ended March 31, 2007 Compared to Three Months Ended March 31,
        2006


Increase/(Decrease)
        in Net Interest Income
 Due
                  ToRate
              
              Volume
              
              NetInterest-earning
                  Assets:Net
                  Loans Receivable
              
              $
              15,933
              
              $
              470,936
              
              $
              486,869Investment
                  Securities
              
              
              11,601
              
              
              (9,145
              )
              
              2,456Investment
                  in capital stock of Federal Reserve Bank
              
              
              (1
              )
              
              (1,157
              )
              
              (1,158
              )Time
                  Deposits in other financial institutions
              
              
              1,713
              
              
              (14,563
              )
              
              (12,850
              )Cash,
                  fed funds and other
              
              
              11,268
              
              
              74,438
              
              
              85,706Total
              
              
              40,514
              
              
              520,509
              
              
              561,023Interest-bearing
                  Liabilities:Money
                  Market and Savings Deposits
              
              
              18,471
              
              
              183,696
              
              
              202,167Interest-bearing
                  Checking
              
              
              97
              
              
              6,416
              
              
              6,513Time
                  Deposits of $100,000 or more
              
              
              7,463
              
              
              5,185
              
              
              12,648Other
                  Deposits
              
              
              811
              
              
              4,891
              
              
              5,702Total
              
              
              26,843
              
              
              200,187
              
              
              227,030Net
                  Change in Net Interest Income
              
              $
              13,671
              
              $
              320,322
              
              $
              333,993




***Provision
      for Loan Losses***




A
      provision for loan losses is established that we consider sufficient to maintain
      an allowance to absorb probable losses inherent in the loan 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.”*




For
      the
      three months ended March 31, 2007 and 2006, the provision for loan and lease
      losses was $85 thousand and $50 thousand respectively. There were no charge-offs
      during the first quarter of 2007 or 2006.




***Noninterest
      Income***




The
      non-interest income for the quarter ended March 31, 2007, was $17 thousand,
      related entirely to service charges on deposit accounts and merchant discount
      income. For the same period ended March 31, 2006, non-interest income was $88
      thousand. Of this, $83 thousand resulted from the gain on sale of SBA loans.
      Fees on deposit accounts and merchant discount income made up the remaining
      $5
      thousand of the noninterest income.




***Noninterest
      Expense***




Total
      noninterest expense was $1.7 million in the first quarter of 2007 compared
      to
      $1.0 million for the first quarter of 2006. Included in the 2007 first quarter
      expense is $279 thousand representing the compensation expense for outstanding
      employee and director stock options. There was no corresponding expense
      recognized in the first quarter of 2006 because the Stock Option Plan was not
      approved by the shareholders until April of 2006. For additional information
      concerning this accounting treatment, see *Condensed
      Notes to the Unaudited Financials Statements, Note 3 - Stock-Based Compensation.* ****




The
      major
      components of the 2007 and 2006 first quarter expenses are discussed below.
      As
      the Bank grows, management is committed to controlling costs and expects to
      moderate noninterest expenses relative to revenue growth.




13




Salaries
      and employee benefits totaled $1.0 million for the first quarter of 2007
      compared to $568 thousand for the same period in 2006. Included in this category
      for 2007, is $270 thousand compensation expense for outstanding employee stock
      options. The remaining increase in this category is due primarily to the
      increase in the number of full-time equivalent staff, from 24 at March 31,
      2006
      to 35 at March 31, 2007.




Employee
      benefit costs including employer taxes and group insurance accounted for
      approximately 13% of this expense for the first quarter of 2007 compared to
      18%
      for the first quarter of 2006. The volume of assets per employee as of the
      end
      of the first quarter of 2007 was $1,754,000 compared to $1,501,000 at the end
      of
      the first quarter of 2006.




Occupancy
      and equipment expenses totaled $218 thousand and $180 thousand for the three
      months ended March 31, 2007 and 2006 respectively. Rent and CAM, or common
      area
      maintenance, charges rose to $102 thousand for the first quarter of 2007
      compared to $83 thousand for the first quarter of 2006. The increase is due
      to
      the leasing of additional space in the San Clemente office to house the lending
      and credit administration staff. Other significant expense items for the three
      months ended March 31, 2007 and 2006 included depreciation expense of $91 and
      $76 thousand respectively, and utility and telephone charges of $19 thousand
      and
      $10 thousand, respectively.




Professional
      fees of $100 thousand for the first quarter of 2007 were primarily attributable
      to internal and external auditing fees of $38 thousand, legal fees of $18
      thousand, consulting fees of $37 thousand, and compliance-related fees of $7
      thousand. In the first quarter of 2006, professional fees of $57 thousand
      consisted primarily of $15 thousand in legal fees, $26 thousand of audit-related
      fees, shareholder-related expenses of $7 thousand, and compliance-related fees
      of $7 thousand.




Data
      processing expense was $101 thousand for the first quarter of 2007, attributable
      primarily to costs associated with the core processing system of $35 thousand,
      network maintenance and security of $20 thousand, software amortization of
      $17
      thousand, website maintenance of $16 thousand, and software licensing fees
      of $8
      thousand. For the first quarter of 2006, data processing expenses were $100
      thousand attributable primarily to costs associated with the core processing
      system of $41 thousand, network maintenance and security of $20 thousand,
      software amortization of $15 thousand, website maintenance of $10 thousand,
      and
      software licensing fees of $4 thousand. Most of these expenses are routine
      in
      nature and are expected to be fairly consistent. Network administration and
      security expense can fluctuate as new employees and new products are
      added.




Office
      expenses of $109 thousand for the first quarter of 2007 included fidelity bond
      and workers compensation insurance premiums of $30 thousand; auto and mileage
      expense of $27 thousand; office supplies of $17 thousand; armored car and
      courier expense of $13 thousand; waived check printing charges of $8 thousand;
      and postage expense of $6 thousand. For the three months ended March 31, 2006,
      these same expenses were $92 thousand consisting of fidelity bond and workers
      compensation insurance premiums of $30 thousand; auto and mileage expense of
      $22
      thousand; office supplies of $14 thousand; armored car and courier expense
      of $9
      thousand; waived check printing charges of $9 thousand; and postage expense
      of
      $1 thousand.




Promotional
      expenses were $61 thousand for the first quarter of 2007 and $29 thousand for
      the first quarter of 2006. For both years, this included expenses related to
      direct mail campaigns to local businesses, sponsorship of key community events,
      and specific officer-calling programs in the bank’s target market.




Other
      expenses for the first quarter of 2007 of $66 thousand consisted of $33 thousand
      in recruiting costs; $10 thousand related to director training, regulatory
      assessments of $7 thousand, $9 thousand related to compensation expense for
      the
      outstanding directors’ stock options, and $7 thousand for contingent
      liabilities. For the same three months ended March 31, 2006, other expenses
      totaled $20 thousand which included $5 thousand for contingent liabilities,
      $7
      thousand in loan-related costs, and $6 thousand related to regulatory
      assessments.




***Income
      Taxes***




No
      federal or state tax expense or federal or state tax benefit has been recorded
      for the quarters ended March 31, 2007, and 2006 based upon its available net
      operating losses. The Company will begin to recognize income tax benefit at
      the
      time it becomes profitable and recognizes its available deferred tax assets.




14




**Financial
      Condition as of March 31, 2007**




Total
      assets as of March 31, 2007, were $61.4 million, consisting primarily of cash
      and investments of $16.2 million and net loans of $39.3 million. Total deposits
      were $45.8 million and shareholder’s equity was $15.3 million.




***Short-Term
      Investments and Interest-bearing Deposits in Other Financial
      Institutions***




At
      March
      31, 2007, we had $14.2 million in federal funds, or fed funds, sold. Federal
      funds sold allow us to meet liquidity requirements and provide temporary
      holdings until the funds can be otherwise deployed or invested. At December
      31,
      2006, the Bank had an interest-bearing deposit of $1 million with Western
      Commercial Bank. This deposit had an unspecified term and a rate equal to the
      overnight fed funds rate. This deposit was closed on March 30, 2007 in order
      to
      have the funds available for outstanding loan commitments.




***Investment
      Securities***




The
      investment portfolio serves primarily as a source of interest income and,
      secondarily, as a source of liquidity and a management tool for our interest
      rate sensitivity. The investment portfolio is managed according to a written
      investment policy established by our bank’s Board of Directors and implemented
      by its Investment/Asset-Liability Committee.




During
      the first quarter of 2007, we made the decision to sell specific investments
      issued by the Federal National Mortgage Association, or FNMA or Fannie Mae,
      based on concerns that the underlying mortgages could be impacted by the events
      in the sub-prime lending arena. These securities had been designated as “held to
      maturity”. Because the securities were sold prior to maturity, we are required
      by the OCC, our primary regulator, to designate the entire investment portfolio
      as “available for sale” for the next 24 months. This designation requires that
      the securities be held at market value rather than book value. The offsetting
      entry each quarter is made to additional paid-in capital and is not reflected
      in
      operating earnings or losses.




At
      March
      31, 2007, our investment securities consisted of securities in U.S.
      government-sponsored agencies, with a book and fair value of $4.0 million and
      a
      weighted average yield of 4.8%, and $454 thousand in Federal Reserve Bank Stock,
      having a book and fair value of $454 thousand and a weighted average yield
      of
      6.0%. At March 31, 2007, none of these investment securities were pledged as
      collateral for any purpose.




The
      table
      below sets forth the amounts and distribution of the investment securities
      and
      the weighted average yields as of the dates indicated.


**As
                  of March 31, 2007:**
              
              Book
                  Value
              
              Market
                  Value
              
              Weighted
                  Average Yield**Securities
                  available for sale:****U.S.
                  Government and Agency Securities:**Within
                  One Year
              
              $
              2,000,000
              
              $
              1,998,920
              
              
              4.51
              %One
                  to Five Years
              
              
              1,984,700
              
              
              1,990,538
              
              
              5.04
              %**Total
                  Securities available for sale**
              
              $
              3,984,700
              
              $
              3,989,458
              
              
              4.77
              %**As
                  of December 31, 2006:**
              
              
              Book
                  Value
              
              
              Market
                  Value
              
              
              Weighted
                  Average Yield**Securities
                  held to maturity:****U.S.
                  Government and Agency Securities:**Within
                  One Year
              
              $
              3,998,738
              
              $
              3,986,180
              
              
              4.43
              %One
                  to Five Years
              
              
              3,944,637
              
              
              3,958,120
              
              
              4.50
              %**Total
                  Securities held to maturity**
              
              $
              7,943,375
              
              $
              7,944,300
              
              
              4.46
              %




All
      individual securities that have been in a continuous unrealized loss position
      for 12 months or longer at March 31, 2007, were securities that have been issued
      by U.S. agencies and government-sponsored entities and have a AAA credit rating
      as determined by various rating agencies. These securities have fluctuated
      in
      value since their purchase dates because of changes in market interest rates.
      We
      concluded that the continuous unrealized loss position for the past 12 months
      on
      our securities is a result of the level of market interest rates and not a
      result of the underlying issuers’ ability to repay and are, therefore,
      temporarily impaired. In addition, we have the ability to hold these securities
      until their fair value recovers to their cost. Accordingly, we have not
      recognized the temporary impairment in our statement of operations.




15




***Loan
      Portfolio***




Our
      primary source of income is interest on loans. The following table presents
      the
      composition of the loan portfolio by category as of the dates indicated. The
      breakdown is based on collateral type.


March
                  31, 2007
              
              December
                  31, 2006Amount
              
              %
                  of Total
              
              Amount
              
              %
                  of TotalReal
                  estateCommercial
              
              $
              21,775,910
              
              
              54.5
              %
              $
              18,544,368
              
              
              53.1
              %Construction
              
              
              4,951,328
              
              
              12.4
              %
              
              3,881,815
              
              
              11.1
              %1-4
                  residential
              
              
              2,278,338
              
              
              5.7
              %
              $
              2,395,422
              
              
              6.9
              %Commercial
              
              
              10,894,844
              
              
              27.3
              %
              
              9,844,022
              
              
              28.2
              %Consumer
              
              
              53,527
              
              
              0.1
              %
              
              238,064
              
              
              0.7
              %Gross
                  Loans
              
              
              39,953,947
              
              
              100
              %
              
              34,903,691
              
              
              100
              %Deferred
                  loan fees
              
              
              (136,215
              )
              
              
              
              
              (108,286
              )Allowance
                  for loan losses
              
              
              (516,815
              )
              
              
              
              
              (431,640
              )Net
                  Loans
              
              $
              39,300,917
              
              
              
              
              $
              34,363,765




Net
      loans
      as a percentage of total assets were 64.0% as of March 31, 2007, and 61.2%
      as of
      December 31, 2006.




The
      real
      estate loan portfolio is comprised of short-term mortgage loans secured
      typically by commercial properties, occupied by the borrower, have terms of
      three to seven years with both fixed and floating rates, and revolving lines
      of
      credit granted to consumers, secured by equity in residential properties, as
      well as construction 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. At March 31, 2007, we held $21.8 million in commercial real
      estate loans outstanding, representing 54.5% of gross loans receivable, and
      undisbursed commitments of $1.2 million. Of this total, $2.2 million were SBA
      loans with undisbursed commitments of $399 thousand. The remaining real estate
      portfolio was comprised of $5.0 million in construction loans representing
      12.4%
      of gross loans receivable with undisbursed commitments of $953 thousand, and
      $2.3 million in revolving lines secured by 1-4 family residences, including
      $397
      thousand in SBA loans which were fully disbursed, representing 5.7% of gross
      loans receivable with undisbursed commitments of $2.8 million.




The
      commercial loan portfolio is 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 March 31, 2007, we held $10.9 million in commercial
      loans outstanding, representing 27.3% of gross loans receivable, and undisbursed
      commitments of $9.3 million. Of this total, $2.4 million were SBA loans with
      undisbursed commitments of $180 thousand.




The
      consumer loan portfolio consists 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
      March
      31, 2007, consumer loans totaled $54 thousand, representing 0.1% of gross loans
      receivable and undisbursed commitments of $53 thousand.




16




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. We have 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 our potential risk in its portfolio, the overall concentration
      results are not yet meaningful.




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 our best interest. We require 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 March 31, 2007:


**As
                  of March 31, 2007****(Dollars
                  in thousands)****One
                  Year**
                **or
                  Less**
              
              **Over
                  1 Year**
                **throught
                  5
                  Years**
              
              **Over
                  5 Years**
              
              **Total****Fixed
                  Rate**
              
              **Floating
                  or Adjustable Rate**
              
              **Fixed
                  Rate**
              
              **Floating
                  or Adjustable Rate**Real
                  estate — construction
              
              $
              4,951
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              4,951Real
                  estate — secured
              
              
              6,768
              
              
              19
              
              
              14,019
              
              
              1,882
              
              
              1,366
              
              
              24,054Commercial
                  and industrial
              
              
              4,122
              
              
              4,838
              
              
              296
              
              
              1,639
              
              
              -
              
              
              10,895Consumer
              
              
              14
              
              
              40
              
              
              -
              
              
              -
              
              
              -
              
              
              54Total
              
              $
              15,855
              
              $
              4,897
              
              $
              14,315
              
              $
              3,521
              
              $
              1,366
              
              $
              39,954




***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, other real estate
      owned, and other repossessed assets. As of March 31, 2007, 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.




As
      of
      March 31, 2007, we had $1.7 million in loans classified as “special mention”,
      with no loans classified in the other categories.




***Allowance
      for Loan Losses***




Implicit
      in our 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, we add
      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.




17




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. Because we have no loss history on which to build
      assumptions of future loan losses, the adequacy of our allowance for loan losses
      has been determined through a comparison to the Bank’s peer group as defined by
      the Office of the Comptroller of the Currency, or OCC. We will continue to
      maintain an equivalent allowance until management has adequate historical data
      upon which to base a different level. At December 31, 2006, the peer group
      maintained an average allowance for loan losses of approximately 1.23% of the
      outstanding principal. As of March 31, 2007, our allowance was $517 thousand,
      or
      1.29% of outstanding principal.




In
      addition, we maintain a separate allowance for credit losses on off-balance
      sheet credit exposures for the undisbursed portion of approved loans. Although
      our loss exposure is reduced because the funds have not been released to the
      borrower, under certain circumstances we may be required to continue to disburse
      funds on a troubled credit. As of March 31, 2007, this allowance was $32
      thousand.




We
      make
      credit and loan decisions in conformity with loan policies established by our
      board of directors. Our 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 first quarter of 2007, there were no charge-offs.




***Nonearning
      Assets***




Premises,
      leasehold improvements and equipment totaled $1.1 million at March 31, 2007,
      net
      of accumulated depreciation of $612 thousand. There are no definitive agreements
      regarding acquisition or disposition of owned or leased facilities.




***Deposits***




Deposits
      are our primary source of funds. The following table sets forth, for the period
      indicated, the distribution of the average deposit account balances and average
      cost of funds on each category of deposits:


**Three
                  Months Ended March 31, 2007****Average
                  Balance**
              
              **Percent
                  of Deposits**
              
              **Average
                  Rate****(Dollars
                  in thousands)**Noninterest-bearing
                  demand deposits
              
              $
              14,866
              
              
              33
              %
              
              0.00
              %Money
                  market & savings deposits
              
              
              21,338
              
              
              48
              %
              
              4.41
              %NOW
                  deposits
              
              
              2,980
              
              
              7
              %
              
              1.35
              %Time
                  certificates of deposit in denominations of $100,000 or more
              
              
              3,530
              
              
              8
              %
              
              4.93
              %Other
                  time deposits
              
              
              2,191
              
              
              5
              %
              
              4.10
              %Total
                  deposits
              
              $
              44,906
              
              
              100
              %
              
              4.15
              %




The
      following table sets forth the amount and maturities of the time deposits as
      of
      March 31, 2007:




18


**At
                  March 31, 2007****Time
                  Deposits of $100,00 or more**
              
              **Other
                  Time Deposits**
              
              **Total
                  Time Deposits****(Dollars
                  in thousands)**Three
                  months or less
              
              $
              1,733
              
              
              573
              
              $
              2,306Over
                  three months through six months
              
              
              600
              
              
              463
              
              
              1,063Over
                  six months through 12 months
              
              
              404
              
              
              399
              
              
              803Over
                  12 months
              
              
              1,421
              
              
              538
              
              
              1,959Total
              
              $
              4,158
              
              $
              1,973
              
              $
              6,131




**Return
      on Equity and Assets**




The
      following table sets forth certain information regarding the Company’s return on
      equity and assets for the three months ended March 31, 2007:


**At
                  March 31, 2007**Return
                  on assets
              
              
              -6.87
              %Return
                  on equity
              
              
              -27.97
              %Dividend
                  payout ratio
              
              
              0
              %Equity
                  to assets ratio
              
              
              24.6
              %




***Off-Balance
      Sheet Arrangements and Loan Commitments***




In
      the
      ordinary course of business, we enter into various off-balance sheet commitments
      and other arrangements to extend credit that are not reflected in the
      consolidated balance sheets of the Company. The business purpose of these
      off-balance sheet commitments is the routine extension of credit. As of March
      31, 2007, commitments to extend credit included approximately $384 thousand
      for
      letters of credit, $4.9 million for revolving lines of credit arrangements
      including $2.8 million in real-estate secured lines, and $2.1 million in unused
      commitments for commercial and real estate secured loans. We face the risk
      of
      deteriorating credit quality of borrowers to whom a commitment to extend credit
      has been made; however, we currently expect no significant credit losses from
      these commitments and arrangements.




***Borrowings***




The
      Company has access to a variety of borrowing sources including federal funds
      purchased. As of March 31, 2007, there were no borrowings
      outstanding.




***Capital
      Resources and Capital Adequacy Requirements***




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 Company’s financial statements.




As
      of
      March 31, 2007, 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.




19




The
      following table sets forth the Bank’s capital ratios as of the dates
      specified:


To
                  Be WellCapitalized
                  UnderFor
                  Capital
              
              Prompt
                  CorrectiveActual
              
              Adequacy
                  Purposes
              
              Action
                  ProvisionsAmount
              
              
              
              Amount
              
              
              
              Amount(Thousands)
              
              Ratio
              
              (Thousands)
              
              Ratio
              
              (Thousands)
              
              Ratio**As
                  of March 31, 2007:**Total
                  Capital (to Risk-Weighted Assets)
              
              $
              14,946
              
              
              33.4
              %
              $
              3,585
              
              
              8.0
              %
              $
              4,481
              
              
              10.0
              %Tier
                  1 Capital (to Risk-Weighted Assets)
              
              $
              14,429
              
              
              32.2
              %
              $
              1,792
              
              
              4.0
              %
              $
              2,688
              
              
              6.0
              %Tier
                  1 Capital (to Average Assets)
              
              $
              14,429
              
              
              24.1
              %
              $
              2,400
              
              
              4.0
              %
              $
              3,000
              
              
              5.0
              %**As
                  of December 31, 2006:**Total
                  Capital (to Risk-Weighted Assets)
              
              $
              15,529
              
              
              50.2
              %
              $
              2,470
              
              
              8.0
              %
              $
              3,088
              
              
              10.0
              %Tier
                  1 Capital (to Risk-Weighted Assets)
              
              $
              15,133
              
              
              49.0
              %
              $
              1,235
              
              
              4.0
              %
              $
              1,853
              
              
              6.0
              %Tier
                  1 Capital (to Average Assets)
              
              $
              15,133
              
              
              27.5
              %
              $
              2,204
              
              
              4.0
              %
              $
              2,755
              
              
              5.0
              %




In
      February 2006, the Federal Reserve Bank eliminated the requirement for bank
      holding companies with assets less than $500 million to maintain and report
      minimum regulatory capital ratios. As a result, the Company has not included
      these amounts as of March 31, 2007.




***Liquidity
      Management***




At
      March
      31, 2007, the Company (excluding the Bank) had approximately $858 thousand
      in
      cash. 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 due
      to
      the accumulated deficit.




The
      Bank’s liquidity is monitored by its staff, the Investment/Asset-Liability
      Committee and the Board of Directors, who 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 are 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 maintains 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.




It
      is
      management’s intention to maintain a conservative loan to deposit ratio in the
      range of 80% - 85% 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
      March 31, 2007, the loan to deposit ratio was 86%.




The
      Bank
      had cash and cash equivalents of $16.2 million, or 26% of total Bank assets,
      at
      March 31, 2007. Management feels that the Bank has 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 March 31,
      2007,
      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.




20




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 March 31, 2007, an analysis was performed using the Risk Monitor
      model
      provided by Fidelity Regulatory Solutions and utilizing the Bank’s March 31,
      2007, Call Report data. The table below shows the impact of rising and declining
      interest rate simulations in 100 basis point increments over a 12-month period.
      Changes in net interest income in the rising and declining rate scenarios are
      measured against the current net interest income. The changes in equity capital
      represent the changes in the present value of the balance sheet without regards
      to business continuity, otherwise known as “liquidation value”. Because the Bank
      is asset-sensitive, the net interest margin improves as rates rise and declines
      as rates decline.


Interest
                  Rate ShockShock
              
              
              -2
              %
              
              -1
              %
              
              Annualized
              
              
              +1
              %
              
              +2
              %Fed
                  Funds Rate
              
              
              3.25
              %
              
              4.25
              %
              
              5.25
              %
              
              6.25
              %
              
              7.25
              %Net
                  Interest Income Change
              
              
              (230
              )
              
              (114
              )
              
              -
              
              
              58
              
              
              112%
                  Change
              
              
              -7.7
              %
              
              -3.8
              %
              
              -
              
              
              1.9
              %
              
              3.8
              %Equity
                  Capital Change %
              
              
              -2.3
              %
              
              -1.0
              %
              
              -
              
              
              0.6
              %
              
              0.9
              %Net
                  Interest Margin
              
              
              4.75
              %
              
              5.05
              %
              
              5.15
              %
              
              5.25
              %
              
              5.34
              %




The
      following table sets forth, on a stand-alone basis, the Bank’s amounts of
      interest-earning assets and interest-bearing liabilities outstanding at March
      31, 2007, 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.




21


**As
                  of March 31, 2007****Volumes
                  Subject to Repricing Within****0-1
                  Days**
              
              **2-90
                  Days**
              
              **91-365
                  Days**
              
              **1-3
                  Years**
              
              **Over
                  3 Years**
              
              **Non-Interest
                  Sensitive**
              
              **Total****Assets:**
              
              **(Dollars
                  in thousands)**Cash,
                  fed funds and other
              
              $
              14,235
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              2,007
              
              $
              16,242Investments
                  and FRB Stock
              
              
              -
              
              
              
              
              
              1,999
              
              
              1,990
              
              
              454
              
              
              -
              
              
              4,443Loans
                  (1)
              
              
              -
              
              
              12,250
              
              
              3,606
              
              
              5,136
              
              
              18,962
              
              
              -
              
              
              39,954Fixed
                  and other assets
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              764
              
              
              764Total
                  Assets
              
              $
              14,235
              
              $
              12,250
              
              $
              5,605
              
              $
              7,126
              
              $
              19,416
              
              $
              2,771
              
              $
              61,403**Liabilities
                  and Stockholders’ Equity:**Interest-bearing
                  checking, savings and money market accounts
              
              $
              24,312
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              15,376
              
              $
              39,688Certificates
                  of deposit
              
              
              -
              
              
              2,306
              
              
              2,587
              
              
              1,156
              
              
              82
              
              
              -
              
              
              6,131Borrowed
                  funds
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Other
                  liabilities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              295
              
              
              295Stockholders’
                  equity
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              15,289
              
              
              15,289Total
                  liabilities and stockholders’ equity
              
              $
              24,312
              
              $
              2,306
              
              $
              2,587
              
              $
              1,156
              
              $
              82
              
              $
              30,960
              
              $
              61,403Interest
                  rate sensitivity gap
              
              $
              (10,077
              )
              $
              9,944
              
              $
              3,018
              
              $
              5,970
              
              $
              19,334Cumulative
                  interest rate sensitivity gap
              
              $
              (10,077
              )
              $
              (133
              )
              $
              2,885
              
              $
              8,855
              
              $
              28,189Cumulative
                  gap to total assets
              
              
              -16.4
              %
              
              -0.2
              %
              
              4.7
              %
              
              14.4
              %
              
              45.9
              %Cumulative
                  interest-earning assets to cumulative interest-bearing liabilities
              
              
              58.6
              %
              
              99.5
              %
              
              109.9
              %
              
              129.2
              %
              
              192.6
              %(1)
                  Excludes deferred fees and allowance for loan losses




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.




**ITEM
      3.**  **Controls
      and Procedures**




A
      of the
      end of the period covered by this Quarterly Report on Form 10-QSB, management
      of
      the Company, with the participation of the Company’s chief executive officer and
      chief financial officer, evaluated the effectiveness of the Company’s disclosure
      controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
      Securities Exchange Act of 1934, as amended). Based on that evaluation, the
      Company’s chief executive officer and chief financial officer concluded that the
      disclosure controls and procedures were effective as of the end of such
      quarterly period. No changes were made to the Company’s internal control over
      financial reporting (as defined by Rule 13a-15(f) under the Securities Exchange
      Act of 1934, as amended) during the last fiscal quarter that materially affect,
      or are reasonably likely to materially affect, the Company’s internal control
      over financial reporting.




**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 their respective 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.




22




**ITEM
        2.** **Unregistered
        Sales of Equity Securities a** **nd
        Use of Proceeds**




Not
      Applicable.




**ITEM
        3.** **Defaults
        Upon Senior Securities**




Not
      Applicable.




**ITEM
        4.** **Submission
        of Matters to a Vote of Security Holders**




Not
      Applicable.




**ITEM
        5.** **Other
        Information**




Not
      applicable.




**ITEM
        6.** **Exhibits** **and Reports**


(a) Exhibits




**Exhibit
                Number**
            **Description
                of Exhibit**31.1
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a), as adopted
                pursuant
                to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a), as adopted
                pursuant
                to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
            Certification
                furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of
                2002.




SIGNATURES




In
      accordance with the requirements of the Securities Exchange Act of 1934, the
      registrant caused this Report to be signed on its behalf by the undersigned,
      thereunto duly authorized.




PACIFIC
              COAST
              NATIONAL BANCORPDate:
              May 14, 2007
            By:
            /s/ Colin
              M.
              ForknerColin
              M. ForknerChief
              Executive Officer


Date:
              May 14, 2007
            By:
            /s/ Terry
              StalkTerry
              StalkChief
              Financial Officer




23