**UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549**

**FORM 10 - QSB**

**(Mark One)**

**[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934**

For the quarterly period ended September 30, 2007

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _______ to _____

Commission File Number: 000-51960

PACIFIC COAST NATIONAL BANCORP
(Exact name of small business issuer as specified in its charter)

|**California**                                                |  | **61-1453556**     
|------------------------------------------------------------- |  | -------------------
|(State or other jurisdiction of                               |  | (I.R.S. Employer   
|incorporation or organization)                                |  | Identification No.)
|                                                              |  |                    
|905 Calle Amanecer, Suite 100, San Clemente, California 92673
|(Address of principal executive offices)                     
|                                                             
|(949) 361- 4300                                              
|(Issuer's telephone number)                                  
|                                                             
|                                                             
|                                                             

Check whether the issuer: (i) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

The number of shares outstanding of the issuer's Common Stock as of November 9, 2007, was 2,281,700 shares.

Transitional Small Business Disclosure Format    Yes [  ] No [X]



**PACIFIC COAST NATIONAL BANCORP**

INDEX

PART I - FINANCIAL INFORMATION

|                                                                     |                                                                                                                                        | PAGE
|-------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ----
|Item 1 - Financial Statements                                        |                                                                                                                                       
|                                                                     | Consolidated Balance Sheet at September 30, 2007 (unaudited) and December 31, 2006                                                     | 3   
|                                                                     | Consolidated Statements of Operations for the three months and nine months ended    September 30, 2007(unaudited) and 2006 (unaudited) | 4   
|                                                                     | Consolidated Statement of Cash Flows for the nine months ended    September 30, 2007 (unaudited) and 2006 (unaudited)                  | 5   
|                                                                     | Consolidated Statement of Shareholders Equity as of September 30, 2007 (unaudited)                                                     | 6   
|                                                                     | Condensed Notes to Unaudited Consolidated Financial Statements                                                                         | 7   
|Item 2 - Management's Discussion and Analysis or Plan of Operation   | 10                                                                                                                                    
|Item 3 - Controls and Procedures                                     | 26                                                                                                                                    
|                                                                     |                                                                                                                                        |     
|PART II - OTHER INFORMATION                                         
|Item 1 - Legal Proceedings                                           | 27                                                                                                                                    
|Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds | 27                                                                                                                                    
|Item 3 - Defaults upon Senior Securities                             | 27                                                                                                                                    
|Item 4 - Submission of Matters to a Vote of Security Holders         | 27                                                                                                                                    
|Item 5 - Other Information                                           | 27                                                                                                                                    
|Item 6 - Exhibits                                                    | 27                                                                                                                                    
|                                                                     |                                                                                                                                        |     
|Signatures                                                           | 28                                                                                                                                    



**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;the credit risks of our lending activities and the unseasoned nature of our loan products;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, (referred to as 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;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;the cost and outcome of any litigation;changes in consumer spending and savings habits; andmanagement'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.






**Part I - FINANCIAL INFORMATION**

**Item 1.  Financial Statements**

**PACIFIC COAST NATIONAL BANCORP
CONSOLDIATED BALANCE SHEETS**

|**ASSETS**                                                   
|-------------------------------------------------------------
|                                                             
|                                                             
|Cash and due from banks                                      
|Federal funds sold                                           
|                                                             
|Interest-bearing deposits in other financial institutions    
|Securities held to maturity                                  
|Loans                                                        
|Less: Allowance for loan losses                              
|Loans, net of allowance for loan losses                      
|Premises and equipment, net                                  
|Federal Reserve Bank stock, at cost                          
|Accrued interest receivable and other assets                 
|**TOTAL ASSETS**                                             
|                                                             
|**LIABILITIES AND SHAREHOLDERS' EQUITY**                     
|Deposits                                                     
|Noninterest-bearing demand                                   
|Interest-bearing demand and NOW accounts                     
|Money market                                                 
|Savings                                                      
|Time certificates of deposit of $100,000 or more             
|Other time certificates of deposit                           
|                                                             
|Accrued interest and other liabilities                       
|                                                             
|Shareholders' equity                                         
|Common stock - $0.01 par value; 10,000,000 shares
authorized;
|issued and outstanding: 2,281,700 shares at September 30,    
|2007 and 2,281,500 at December 31, 2006                      
|Additional paid-in capital                                   
|Accumulated deficit                                          
|                                                             
|**TOTAL LIABILITIES & SHAREHOLDERS' EQUITY**                 

See accompanying condensed notes to unaudited consolidated financial statements





**PACIFIC COAST NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**

|                                    |                                |                                                      |                     | Three MonthsEndedSeptember 30,2007 | Three MonthsEndedSeptember 30,2006 | Nine MonthsEndedSeptember 30,2007 | Nine MonthsEndedSeptember 30,2006
|----------------------------------- | ------------------------------ | ---------------------------------------------------- | ------------------- | ---------------------------------- | ---------------------------------- | --------------------------------- | ---------------------------------
|Interest income                    
|                                    | Interest and fees on loans     |                                                      | $         1,408,465 |                                    | $         469,616                  |                                   | $         3,024,384              
|                                    | Federal funds sold             |                                                      | 114,481             |                                    | 210,010                            |                                   | 465,479                          
|                                    | Investment securities, taxable |                                                      | -                   |                                    | 87,967                             |                                   | 128,488                          
|                                    | Other                          |                                                      | 7,068               |                                    | 17,431                             |                                   | 32,233                           
|Total interest income               |                                | 1,530,014                                            |                     | 785,024                            |                                    | 3,650,584                         |                                  
|Interest expense                   
|                                    | Time certificates of deposit  
|                                    | of $100,000 or more            |                                                      | 36,094              |                                    | 51,556                             |                                   | 126,424                          
|                                    | Other deposits                 |                                                      | 507,630             |                                    | 150,480                            |                                   | 1,086,480                        
|Total interest expense              |                                | 543,724                                              |                     | 202,036                            |                                    | 1,212,904                         |                                  
|                                    |                                | Net interest income before
provision for loan losses | 986,290             |                                    | 582,988                            |                                   | 2,437,680                        
|Provision for loan losses           |                                | 254,049                                              |                     | 72,462                             |                                    | 572,409                           |                                  
|                                    |                                | Net interest income after                            |                     |                                    |                                    |                                   |                                  
|                                    |                                | provision for loan losses                            |                     | 732,241                            |                                    | 510,526                           |                                  
|Noninterest income                 
|Service charges and fees            |                                | 130,826                                              |                     | 5,192                              |                                    | 156,978                           |                                  
|Gain on Sale of SBA loans           |                                | 186,756                                              |                     | -                                  |                                    | 320,467                           |                                  
|Gain (loss) on sale of investment  
|securities                          |                                | -                                                    |                     | -                                  |                                    | (12,047)                          |                                  
|                                    |                                |                                                      |                     | 317,582                            |                                    | 5,192                             |                                  
|Noninterest expense                
|Salaries and employee benefits      |                                | 902,611                                              |                     | 936,485                            |                                    | 2,707,273                         |                                  
|Occupancy                           |                                | 228,653                                              |                     | 203,622                            |                                    | 740,915                           |                                  
|Professional services               |                                | 158,538                                              |                     | 39,984                             |                                    | 393,821                           |                                  
|Data processing                     |                                | 115,468                                              |                     | 99,062                             |                                    | 311,394                           |                                  
|Office expenses                     |                                | 119,195                                              |                     | 83,020                             |                                    | 324,551                           |                                  
|Marketing                           |                                | 66,324                                               |                     | 55,312                             |                                    | 193,131                           |                                  
|Other                               |                                |                                                      | 39,114              |                                    | 48,920                             |                                   | 199,191                          
|                                    |                                |                                                      |                     | 1,629,903                          |                                    | 1,466,405                         |                                  
|                                    |                                | (Loss) before income taxes                           |                     | (580,080)                          |                                    | (950,687)                         |                                  
|Provision for income taxes          |                                | -                                                    |                     | -                                  |                                    | 1,600                             |                                  
|                                    |                                | Net (loss)                                           |                     | $(580,080)                         |                                    | $(950,687)                        |                                  
|Comprehensive (loss)                |                                | $(580,080)                                           |                     | $(950,687)                         |                                    | $(2,541,207)                      |                                  
|Per share data                     
|Weighted-average shares outstanding | 2,281,700                      |                                                      | 2,281,300           |                                    | 2,281,682                          |                                   | 2,280,952                        
|Net (loss), basic and diluted       |                                | $(0.25)                                              |                     | $(0.42)                            |                                    | $(1.11)                           |                                  

See accompanying condensed notes to unaudited consolidated financial statements.





**PACIFIC COAST NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)**

|                                                       |                                                                       |                                                          |                                           | Nine Months EndedSeptember 30,2007 | Nine Months EndedSeptember 30,2006
|------------------------------------------------------ | --------------------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------------- | ---------------------------------- | ----------------------------------
|Cash flows from operating activities:                 
|                                                       | Net loss                                                              |                                                          |                                           | $(2,541,207)                       |                                   
|                                                       | Adjustments to reconcile net loss to net cash                        
|                                                       | used by operating activities:                                        
|                                                       |                                                                       | Depreciation and amortization                            |                                           | 313,681                            |                                   
|                                                       |                                                                       | Provision for loan losses                                |                                           | 572,409                            |                                   
|                                                       |                                                                       | Provision for off balance sheet contingencies            |                                           | 38,477                             |                                   
|                                                       |                                                                       | (Accretion) of investment securities                     |                                           | (
6,486)                           |                                   
|                                                       |                                                                       | Loss on sale of available for sale investment securities |                                           | 12,047                             |                                   
|                                                       |                                                                       | Gain on sale of loans                                    |                                           | (320,467)                          |                                   
|                                                       |                                                                       | Stock-based compensation                                 |                                           | 678,260                            |                                   
|                                                       |                                                                       | Other items, net                                         |                                           | (10,660)                           |                                   
|                                                       |                                                                       |                                                          | Net cash used in operating activities     |                                    | (1,263,946)                       
|                                                      
|Cash flows from investing activities:                 
|                                                       | Maturity of interest-bearing deposits in other financial institutions | 1,000,000                                                |                                           | 2,750,000                         
|                                                       | Purchases of investment securities held to maturity                   |                                                          | -                                         |                                    | (3,938,720)                       
|                                                       | Maturity of investment securities held to maturity                    |                                                          | -                                         |                                    | 2,000,000                         
|                                                       | Proceeds from sale of available for sale investment securities        |                                                          | 7,937,814                                 |                                    | -                                 
|                                                       | Purchase or redemption of Federal Reserve Bank stock                  |                                                          | 39,800                                    |                                    | 59,900                            
|                                                       | Proceeds from sale of loans                                           |                                                          | 5,856,224                                 |                                    | 1,558,650                         
|                                                       | Net increase in loans                                                 |                                                          | (47,824,261)                              |                                    | (16,567,012)                      
|                                                      
|                                                       | Purchases of bank premises and equipment                              |                                                          | (92,038)                                  |                                    | (348,510)                         
|                                                       |                                                                       |                                                          | Net cash used in investing activities     |                                    | (33,082,461)                      
|Cash flows from financing activities:                 
|                                                       | Net increase in demand deposits and savings accounts                  |                                                          | 22,148,101                                |                                    | 21,330,934                        
|                                                      
|                                                       | Net increase in time deposits                                         |                                                          | 12,957,508                                |                                    | 2,447,922                         
|                                                      
|                                                       | Proceeds from exercise of warrants                                    |                                                          | 2,500                                     |                                    | 16,250                            
|                                                       |                                                                       |                                                          | Net cash provided by financing activities |                                    | 35,108,109                        
|                                                       |                                                                       |                                                          | Net increase in cash and cash equivalents |                                    | 761,702                           
|                                                      
|Cash and cash equivalents at beginning of period       |                                                                       | 10,916,151                                               |                                           | 8,279,481                         
|Cash and cash equivalents at end of period             |                                                                       | $           11,677,853                                   |                                           | $           16,067,611            
|                                                      
|Supplemental disclosure of cash flow information:     
|                                                       | Interest paid                                                         |                                                          |                                           | $   1,174,930                      |                                   
|                                                       | Income taxes paid                                                     |                                                          |                                           | $          1,600                   |                                   
|Supplemental schedule of non-cash investing activities
|                                                       | Transfer of held-to-maturity securities to available for sale         |                                                          | $   7,937,275                             |                                    | $                 -               

See accompanying condensed notes to unaudited consolidated financial statements





**PACIFIC COAST NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007**

|                                  |      |             |  |           |  | Additional   
|--------------------------------- | ---- | ----------- |  | --------- |  | -------------
|                                  |      | Shares      |  | Common    |  | Paid-in      
|                                  |      | Outstanding |  | Stock     |  | Capital      
|**Balance at December 31, 2006**  | **** | 2,281,500   |  | $ 22,815  |  | $ 24,788,356 
|Warrants/Options Exercised        |      | 200         |  | 2         |  | 2,498        
|Stock-based Compensation          |      | -           |  | -         |  | 678,260      
|Net (Loss)                        |      | -           |  | -         |  | -            
|**Balance at September 30, 2007** | **** | 2,281,700   |  | $  22,817 |  | $  25,469,114

See accompanying condensed notes to unaudited consolidated financial statements





**PACIFIC COAST NATIONAL BANCORP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**Note 1 - Basis of Presentation**

The consolidated financial statements include the Company and its wholly-owned subsidiary, the 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 three and nine month periods ended September 30, 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. For the three and
nine months ended September 30, 2007, the conversion of approximately 12,500 and 552,900, respectively,
common shares issuable upon exercise of the employee stock options and common stock warrants have not been
included in the 2007 loss per diluted share computation because their inclusion would have been antidilutive on loss
per diluted 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 September 30, 2007, there was approximately $320 thousand of unrecognized compensation cost
related to unvested stock options. This cost is expected to be recognized over a weighted average period of
approximately 14 months. 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 during the nine months ended September 30, 2007 were made using the Black-Scholes






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, an average forfeiture rate of 5% was used on
options granted in 2007. A summary of the status of the Bank's stock option plan as of September 30, 2007 and the changes since
December 31, 2006, is presented below:


|                                                                                               |          | 2007    
|---------------------------------------------------------------------------------------------- | -------- | --------
|                                                                                               |          |         
|                                                                                               |          |         
|                                                                                               |          | Shares  
|                                                                                               |          |         
|Outstanding at December 31,
2006                                                               | 384,965  |         
|Granted                                                                                        |          | 55,048  
|Exercised                                                                                      |          | -       
|Forfeited                                                                                      |          | (39,917)
|Outstanding as of September
30, 2007                                                           | 400,096  |         
|                                                                                               |          |         
|Options exercisable at
September 30, 2007                                                      | 250,680  |         
|                                                                                               |          |         
|Weighted-average fair value of
options granted during the
ninemonths ended September
30, 2007. | $   3.47 |         

**Note 4 - Securities Available for Sale**

We owned no investment securities as of September 30, 2007. For the nine months ended September
30, 2007, we sold $7.9 million in securities held as available for sale resulting in a net loss of $12 thousand.


**Note 5 - Loans**

The composition of the loan portfolio at September 30, 2007 and December 31, 2006, was as follows:


|                          |                              |              |            | September 30, 2007     | December 31, 2006
|------------------------- | ---------------------------- | ------------ | ---------- | ---------------------- | -----------------
|                          |                              |              |            | Amount                 | % of Total       
|Real estate               |                              |              |            |                       
|                          | Multi-Family & Commercial    | $
30,222,145 | 39.2%      | $
18,544,368           | 53.1%            
|                         
|                          | 1-4 residential Equity loans | 3,068,312    | 4.0%       | 2,395,422              | 6.9%             
|                          | Construction                 |              | 22,353,187 | 29.0%                  | 3,881,815        
|Commercial                |                              | 21,335,138   | 27.7%      | 9,844,022              | 28.2%            
|Consumer                  |                              | 47,289       | 0.1%       | 238,064                | 0.7%             
|                          |                              | Gross Loans  |            | 77,026,071             | 100%             
|Net deferred loan costs, 
|premiums and discounts    |                              | 57,839       |            | (108,286)             
|Allowance for loan losses |                              | (1,004,050)  |            | (431,640)             
|                          |                              | Net Loans    |            | $           76,079,860 |                  





At September 30, 2007, and December 31, 2006, the Bank had total commitments to lend outstanding of
$25.2 million and $8.6 million respectively. The Bank did not have any loans that were delinquent more than 90 days at September 30, 2007 or at
December 31, 2006. The Bank did not have any loans which were not accruing interest at September 30, 2007 or
December 31, 2006. During the second quarter of 2007 the Bank properly implemented the accounting for loan fees and
costs as required under SFAS No. 91, *Accounting for Nonrefundable Fees and Costs Associated with Originating
or Acquiring Loans and Initial Direct Costs of Leases*.  Prior to this, loan fees had been deferred as required under
SFAS No. 91 but the associated loan costs had not been deferred.  In order to properly record the deferred loan
costs as of June 30, 2007, $208 thousand in costs primarily related to salaries and benefits, net of $74 thousand in
amortization, were deferred, bringing deferred loan fees and costs to a net cost position.  Of the $208 thousand of
net deferred costs recorded during the quarter ended June 30, 2007, approximately $156 thousand ($0.06 per share
at December 31, 2006) related to the year ended December 31, 2006 and $36 thousand ($0.02 per share at March
31, 2007) related to the quarter ended March 31, 2007.  As the effect of the initial recording of deferred costs was
not material to the overall financial statements, we did not restate earnings for the year ended December 31, 2006 or
the quarter ended March 31, 2007.


**Note 6 - Other Expenses**

A summary of other expenses for the three and nine months ended September 30, 2007 and 2006 is as
follows:


|                                                                                                             |       | Three Months
Ended September
30, 2007 | Three Months
Ended September
30, 2006 | Nine MonthsEnded
September30, 2007 | Nine Months
Ended September
30, 2006
|------------------------------------------------------------------------------------------------------------ | ----- | ------------------------------------- | ------------------------------------- | ---------------------------------- | ------------------------------------
|Regulatory Assessments                                                                                       |       | $              2,694                  |                                       | $              7,417               |                                     
|Director Training                                                                                            |       | 2,817                                 |                                       | 5,382                              |                                     
|Compensation Expense related todirector
stock options                                                        | 4,046 |                                       | 8,567                                 |                                    | 60,442                              
|Loan-related costs(1)                                                                                        |       | 6,258                                 |                                       | 13,117                             |                                     
|Recruiting Costs                                                                                             |       | 4,506                                 |                                       | 5,317                              |                                     
|Costs associated with Annual Meeting                                                                         |       | 17,775                                |                                       | 9,120                              |                                     
|                                                                                                             |       | $             38,096                  |                                       | $             48,920               |                                     
|                                                                                                            
|(1)  Primarily consists of appraisal fees, environmental reports and provision for unfunded loan commitments

**Note 7 - Income Taxes**

We adopted the provisions of Financial Accounting Standards Board, or FASB, Interpretation No. 48,
*Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement 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. The Company has two tax jurisdictions: The U.S. Government and the State of California. As of
January 1, 2007, and September 30, 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 or 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 assessed by a taxing authority will be classified as other expense.






**Note 8 - 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. 157, 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 FASB 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.


**Note 9 - Subsequent Event**

On October 21, 2007, wildfires began in several locations throughout Southern California, including
Fallbrook and Poway. These areas are home to many of the Company's shareholders and customers. In response to
the disaster and in an effort to assist those who had been displaced by the fires, a temporary banking office was
opened in Fallbrook on November 5, 2007. This full-service office will offer the full array of the Bank's products,
but specialize in construction loans, SBA disaster loans, and insurance disbursement accounts. The Office of the
Comptroller of the Currency has given approval for this office to operate for six months. The trailer that houses the
office has been leased for a minimum of 60 days and the land has been donated by a local citizen.


**Item 2.  Management's Discussion and Analysis of Plan of Operation**

**MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS**

The following discussion and analysis presents the Company's consolidated financial condition as of
September 30, 2007 and results of operations for the three and nine months ended September 30, 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 reported 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 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






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
rate 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. 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 Bank's principal markets include the coastal regions of Southern Orange County and Northern San
Diego County.   As of September 30, 2007, the Company had, on a consolidated basis, total assets of $89.7 million,
net loans of $76.1 million, total deposits of $75.0 million, and shareholders' equity of $14.2 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.  On October 21, 2007, wildfires began in several
locations throughout Southern California, including Fallbrook and Poway. These areas are home to many of the
Company's shareholders and customers. In response to the disaster and in an effort to assist those who had been
displaced by the fires, a temporary banking office was opened in Fallbrook on November 5, 2007. This full-service
office will offer the full array of the Bank's products, but specialize in construction loans, SBA disaster loans, and
insurance disbursement accounts. The Office of the Comptroller of the Currency has given approval for this office
to operate for six months. The trailer that houses the office has been leased for a minimum of 60 days and the land
has been donated by a local citizen.






The Company incurred a net loss for the third quarter of 2007 of $580 thousand or $0.25 per
share, as compared to a net loss of $951 thousand, or $0.42 per share, during the same period of 2006.
The improvement in loss per share for the quarter was primarily attributable to a 69% increase in net
interest income, a significant increase in non-interest income and a reduction in non-cash expense
related to the Company  adoption of Statement of Financial Accounting Standards No.123(R) ("SFAS
123R") to $96 thousand as compared to $279 thousand for the same period last year. Net loss for the first nine months of fiscal 2007 was $2.5 million or $1.11 per share loss, as
compared to $3.2 million, or $1.42 per share loss during the same period of 2006. The improvement in
loss per share was primarily attributable to a 75% increase in net interest income and a 305% increase
in non-interest income, partially offset by a 8% increase in non-interest expense income and a reduction
in non-cash expense related to the Company  adoption of FAS 123R to $678 thousand compared to
$1.2 million for the same period last year. The following discussion focuses on the Company's financial condition as of September 30,
2007 and results of operations for the three and nine months ended September 30, 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. 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. Net interest income for the three and nine months ended September 30, 2007 before the
provision for loan losses was $986 thousand and $2.4 million compared to $583 thousand and $1.4
million for the same time periods in 2006. This growth is attributable to the increase in the volume of
earning assets and the greater percentage of loans as a part of earning assets in 2007. During the second quarter of 2007 we implemented the accounting for loan fees and costs as
required under SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases". Prior to this, loan fees had been
deferred as required under FAS No. 91 but the associated loan costs had not been recognized.  In order
to bring the deferred loan costs current to June 30, 2007, $74 thousand in costs was recognized,
bringing net loan fees and costs to a negative, or cost, position. In order to properly record the deferred loan costs as of June 30, 2007, $208 thousand in costs
primarily related to salaries and benefits, net of $74 thousand in amortization, were deferred, bringing
deferred loan fees and costs to a net cost position.  Of the $208 thousand of net deferred costs recorded
during the quarter ended June 30, 2007, approximately $156 thousand ($0.06 per share at December
31, 2006) related to the year ended December 31, 2006 and $36 thousand ($0.02 per share at March
31, 2007) related to the quarter ended March 31, 2007.  As the effect of the initial recording of deferred
costs was not material to the overall financial statements, we did not restate earnings for the year ended
December 31, 2006 or the quarter ended March 31, 2007. The charging or waiving of loan fees is often negotiated during initial discussions with the
borrower. It is not unusual for a new bank to have more costs than fees in the first few years of
operations. The Bank had deferred costs, net of unearned income, of $58 thousand at September 30,
2007. During the third quarter of 2007, loans accounted for 88% of average earning assets, with an
average yield of 8.33%, compared to the third quarter of 2006 when 47% of the average earning assets
were loans, with a yield of 8.63%. The increase in loans as a percentage of average earning assets
occurred as a result of significantly increased loan originations in 2007 and a reduction in investment
securities in 2007 in order to provide funding for the loan growth. The decrease in the average yield
resulted from the competitive pricing environment. Total loan income was $1.4 million, including net loan
fees of $16 thousand, for the third quarter of 2007 compared to $470 thousand in total loan interest
income, including $24 thousand in loan fees, in the third quarter of 2006. For the first nine months of 2007, loans accounted for 77% of average earning assets, with an
average yield of 8.22%, compared to the first nine months of 2006 when 47% of the average earning
assets were loans, with a






Other earning assets consist of investments, capital stock of the Federal Reserve Bank, time
deposits with other financial institutions and overnight fed funds. These other earning assets averaged
$9.4 million with a yield of 5.1% for the third quarter of 2007 compared to the third quarter of 2006 with
average other earning assets of $16.6 million with a yield of 5.4%. For the first nine months of 2007,
average other earning assets were $15.0 million with an average yield of 5.6% compared to $19.8
million with an average yield of 4.7% for the nine months of 2006. The increase in the average yield for
the nine months ended September 30 occurred as result of higher yields on the investment securities
and on other investments, primarily time deposits with other financial institutions. Interest-bearing liabilities, consisting entirely of deposits, averaged $48.0 million with an average
rate of 4.50% during the third quarter of 2007, compared with $21.6 million in interest-bearing deposits at
a rate of 3.70% for the same period in 2006. For the first nine months of 2007 and 2006, interest-bearing
deposits averaged $37.9 million and $15.5 million with an average cost of 4.28% and 3.45%
respectively. The increase in the average rate on deposit products was the result of competitive
pressures within our market areas and a high-yield money market account with the rate tied to the fed
funds rate for large-balance customers. The increase in deposits in the 2007 periods occurred as a
result of our marketing campaigns, the cross-selling of deposit products to our borrowers, and direct
sales calls. Due to strong loan demand, we began utilizing brokered deposits in the second quarter of 2007.
As discussed under "Capital Resources and Capital Adequacy Management", we seek to limit the
amount of brokered deposits as their utilization typically would be expected to increase our overall cost
of funds. As of September 30, 2007, $11.2 million in brokered funds were on deposit with an average
rate of 5.4%. These deposits are included in Other time certificate of deposits. The net interest margin was 5.11% for the third quarter of 2007 compared to 5.03% for the third
quarter of 2006, and 5.07% and 4.96% for the nine months ended September 30, 2007 and 2006
respectively. Non-interest bearing demand account balances averaged $17.8 million and $16.4 million
for the three and nine months ended September 30, 2007, representing 27% and 30% of total deposits
respectively. For the same time periods in 2006, non-interest bearing demand accounts averaged $10.8
million and $7.6 million, representing 33% of total deposits for both time periods. While the dollar amount
of demand deposits has continually increased, the percentage of demand deposits to total deposits has
decreased. This is the result of an increase in money market accounts in response to the new high-yield
variable-rate account and the increase in time deposits to maintain liquidity as the loan portfolio has
grown. We earned $986 thousand, or 5.11%, in net interest income on average interest-earning assets
of $76.5 million for the third quarter of 2007 compared to $583 thousand, or 5.03%, in net interest
income on $46.0 million in average earning assets for the third quarter of 2006. Net interest income
increased by $470 thousand due to the increase in volume of earning assets, and decreased by $67
thousand due to changes in interest rates. For the nine months ended September 30, 2007 and 2006, net interest income was $2.4 million
and $1.4 million, and average earning assets were $64.2 million with a yield of 5.07% and $37.5 million
with a yield of 4.96% respectively. Net interest income increased by $994 thousand due to the increase
in volume of earning assets, and increased by $53 thousand due to changes in interest rates. The following table sets forth our average balances of assets, liabilities and shareholders' equity,
in addition to the major components of net interest income and the net interest margin for the three
month periods indicated.






|                                                                                                                                                       |                                                                           |              | Three Months Ended
September 30, 2007 | Three Months Ended
September 30, 2006
|------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------- | ------------ | ------------------------------------- | -------------------------------------
|                                                                                                                                                       |                                                                           |              | Average Balance                       | Interest                             
|Assets:                                                                                                                                               
|Interest-earning Assets:                                                                                                                              
|                                                                                                                                                       | Net Loans Receivable(1)                                                   | $ 67,091,568 |                                       | $ 1,408,465                          
|                                                                                                                                                       | Investment Securities                                                     | -            |                                       | 258                                  
|                                                                                                                                                       | Investment in
capital stock of
Federal Reserve
Bank and Other
Investments | 454,000      |                                       | 7,068                                
|                                                                                                                                                       | Fed funds                                                                 |              | 8,967,989                             |                                      
|                                                                                                                                                       | Total
interest-earning
assets                                             | 76,513,557   |                                       | 1,530,272                            
|Noninterest-earning
assets                                                                                                                             | 3,426,197                                                                 |              |                                       |                                      
|                                                                                                                                                       | Total
Assets                                                              | $
79,939,754 |                                       |                                      
|                                                                                                                                                      
|Liabilities and Shareholders' Equity                                                                                                                  
|                                                                                                                                                       | Money Market and Savings Deposits                                         | $ 32,364,858 |                                       | $ 371,925                            
|                                                                                                                                                       | Interest-bearing
Checking                                                 | 3,229,688    |                                       | 10,685                               
|                                                                                                                                                       | Time Deposits of
$100,000 ormore                                          | 2,844,053    |                                       | 36,094                               
|                                                                                                                                                       | Other Deposits                                                            |              | 9,546,819                             |                                      
|                                                                                                                                                       | Total
Interest-bearing        
liabilities                                | 47,985,419   |                                       | 543,724                              
|Non-interest bearing
checking accounts                                                                                                                 | 17,834,934                                                                |              |                                       |                                      
|Non-interest bearing
liabilities                                                                                                                       | 414,587                                                                   |              |                                       |                                      
|Shareholders' Equity                                                                                                                                   |                                                                           | 13,704,814   |                                       |                                      
|                                                                                                                                                       | Total Liabilities and                                                     |              |                                       |                                      
|                                                                                                                                                       | Shareholders'
Equity                                                      | $ 79,939,754 |                                       |                                      
|Net Interest Income                                                                                                                                    |                                                                           |              |                                       | $   986,548                          
|Net Interest Spread(2)                                                                                                                                 |                                                                           | 3.44%        |                                       |                                      
|Net Interest Margin(3)                                                                                                                                 |                                                                           | 5.12%        |                                       |                                      
|                                                                                                                                                      
|(1) Loan fees (costs) are included in total interest income as follows: 2007
$16 thousand; 2006 $24 thousand.                                         
|(2)Net interest spread represents the yield earned on average total
interest-earning assets less the rate paid on average interest-bearing liabilities |                                                                           |             
|(3)Net interest margin is computed by dividing annualized net interest
income by average total   interest-earning assets.                             
|(4)Annualized                                                                                                                                         

The following table sets forth our average balances of assets, liabilities and shareholders' equity,
in addition to the major components of net interest income and the net interest margin for the nine month
periods indicated.






|                                                                                                                                                       |                                                                           |              | Nine Months Ended
September 30, 2007 | Nine Months Ended
September 30, 2006
|------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------- | ------------ | ------------------------------------ | ------------------------------------
|                                                                                                                                                       |                                                                           |              | Average Balance                      | Interest                            
|Assets:                                                                                                                                               
|Interest-earning Assets:                                                                                                                              
|                                                                                                                                                       | Net Loans Receivable(1)                                                   | $
49,198,972 |                                      | $
3,024,384                         
|                                                                                                                                                       | Investment
Securities                                                     | 2,751,843    |                                      | 128,488                             
|                                                                                                                                                       | Investment in
capital stock of
Federal Reserve
Bank and Other
Investments | 732,357      |                                      | 32,233                              
|                                                                                                                                                       | Fed Funds                                                                 |              | 11,541,015                           |                                     
|                                                                                                                                                       | Total
interest-earning
assets                                             | 64,224,187   |                                      | 3,650,584                           
|Noninterest-earning
assets                                                                                                                             | 4,560,706                                                                 |              |                                      |                                     
|                                                                                                                                                       | Total
Assets                                                              | $
68,784,893 |                                      |                                     
|Liabilities and Shareholders' Equity                                                                                                                   |                                                                           |              |                                      |                                     
|                                                                                                                                                       | Money Market and
Savings Deposits                                         | $
26,427,531 |                                      | $
879,779                           
|                                                                                                                                                       | Interest-bearing
Checking                                                 | 3,207,858    |                                      | 31,999                              
|                                                                                                                                                       | Time Deposits of
$100,000 or more                                         | 3,434,836    |                                      | 126,424                             
|                                                                                                                                                       | Other Deposits                                                            |              | 4,812,384                            |                                     
|                                                                                                                                                       | Total
Interest-bearing
liabilities                                        | 37,882,609   |                                      | 1,212,904                           
|Non-interest bearing
checking accounts                                                                                                                 | 16,353,319                                                                |              |                                      |                                     
|Non-interest bearing
liabilities                                                                                                                       | 374,048                                                                   |              |                                      |                                     
|Shareholders' Equity                                                                                                                                   |                                                                           | 14,174,917   |                                      |                                     
|                                                                                                                                                       | Total Liabilities and                                                     |              |                                      |                                     
|                                                                                                                                                       | Shareholders'
Equity                                                      | $
68,784,893 |                                      |                                     
|Net Interest Income                                                                                                                                    |                                                                           |              |                                      | $
2,437,680                         
|Net Interest Spread(2)                                                                                                                                 |                                                                           | 3.32%        |                                      |                                     
|Net Interest Margin(3)                                                                                                                                 |                                                                           | 5.07%        |                                      |                                     
|                                                                                                                                                      
|(1) Loan fees  (costs) are included in total interest income as follows: 2007
($5) thousand; 2006 $42 thousand.                                       
|(2)Net interest spread represents the yield earned on average total
interest-earning assets less the rate paid on average interest-bearing liabilities |                                                                           |             
|(3)Net interest margin is computed by dividing annualized net interest
income by average total interest-earning assets.                               
|(4)Annualized                                                                                                                                         

The following tables present 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 three and nine months ended September 30, 2007 compared to the same
periods in 2006. Because of the Bank's significant loan and deposit growth, changes due to volume in
2007 account for most of the overall change. Information is provided in each category with respect to (i)
changes attributable to changes in 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.






|Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006
Increase/(Decrease)  in Net Interest Income
|-----------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                   
|                                                                                                                                   
|Interest-earning Assets:                                                                                                           
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|Interest-bearing Liabilities:                                                                                                      
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|Net Change in Net Interest Income                                                                                                  
|                                                                                                                                   
|Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006Increase/(Decrease)  in Net Interest Income   
|                                                                                                                                   
|                                                                                                                                   
|Interest-earning Assets:                                                                                                           
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|Interest-bearing Liabilities:                                                                                                      
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|Net Change in Net Interest Income                                                                                                  

***Provision for Loan Losses***

A provision for loan losses is determined that is considered 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."* In the three and nine months ended September 30, 2007, the provision for loan losses was $254
thousand and $572 thousand, respectively. For the same time periods ending September 30, 2006, the
provision was $72






***Noninterest Income***

The non-interest income for the quarter ended September 30, 2007 was $317 thousand including $187
thousand from gain on sale of the guaranteed portion of SBA loans and loan referral fees of $114
thousand, compared to non-interest income of $5 thousand for the quarter ended September 30, 2006.
To supplement our net interest income and diversify the Bank's income stream, we recently established
a Real Estate Industries Group ("REIG") to generate non- interest fee income by brokering commercial
real estate loans in excess of our legal lending limit. For the nine months ended September 30, 2007,
non-interest income was $464 thousand which included, in addition to the $320 thousand in gains on
sale of SBA loans, a net loss on the sale of investments of $12 thousand and loan referral fees of $114
thousand. For the nine months ended September 30, 2006, non-interest income was $115 thousand
including $87 thousand from gain on sale of SBA loans. Fees on deposit accounts and merchant
discount income make up the remainder of the noninterest income for all periods.


***Noninterest Expense***

Total noninterest expense was $1.6 million in the third quarter of 2007, and $4.9 million for the
first nine months of 2007. For the same periods in 2006, noninterest expense was $1.5 million and $4.5
million respectively. The major components of the 2007 expense are discussed below. As the Bank
grows, management is committed to controlling costs and expects to moderate noninterest expenses
relative to revenue growth. Salaries and employee benefits totaled $903 thousand for the third quarter, and $2.7 million for
the first nine months of 2007 compared to $936 thousand and $2.9 million for the third quarter and first
nine months of 2006. Included in this category for the three and nine months ended September 30, 2007
were $92 thousand and $618 thousand representing a portion of the expense for the employee stock
options granted from May 16, 2005, through September 30, 2007. In the three and nine months ended
September 30, 2006, this expense was $271 thousand and $1.2 million. SFAS No. 123 (R) requires
compensation costs related to share-based payment transactions to be recognized in the financial
statements over the period that an employee provides service in exchange for the award. Excluding the
expense associated with SFAS No. 123 (R), salaries and employee benefits increased by $146
thousand and $382 thousand, respectively in the three and nine months ended September 30, 2007
compared with the same periods in 2006. The increase in expense is the direct result of hiring additional
personnel to accommodate the growth in the Bank's operations. Employee benefit costs, including
employer taxes and group insurance, accounted for approximately 18% and 13% of the salary and
employee benefits expense in the three and nine months ended September 30, 2007, compared to 6%
and 11% in the same periods in 2006. The increase in the ratio in 2007 is due to the lower amortization
costs for the fair value of the stock options. The Bank employed 38 full-time equivalent (FTE) employees
as of September 30, 2007 compared to 29 FTE as of September 30, 2006. The Bank continues to
improve its efficiency as measured by the ratio of assets per employee.  The volume of assets per
employee as of the end of the third quarter of 2007 was $2,362,000 compared to $1,831,000 at the end
of September 2006. Occupancy and equipment expenses totaled $229 thousand and $741 thousand for the three
and nine months ended September 30, 2007, compared to $204 thousand and $576 thousand for the
three and nine month periods ended September 30, 2006. The increase is primarily attributable to the
addition of more space in the San Clemente location beginning in August 2006.  Depreciation expense
of fixed asset and tenant improvements for the three and nine months ended September 30, 2007, was
$89 thousand and $265 thousand compared to the same periods in 2006 of $99 thousand and $235
thousand. Professional fees for the three and nine months ended September 30, 2007 were $159 thousand
and $394 thousand compared to $40 thousand and $144 thousand for the same time periods in 2006.
Legal fees represent $60 thousand, $109 thousand, $4 thousand and $45 thousand, respectively. The
increase in legal expense in 2007 is due primarily to corporate issues, including personnel matters and a
review of stock option grants. Internal and external






Data processing expense was $115 thousand and $311 thousand for the three and nine months
ended September 30, 2007 compared to $99 thousand and $311 thousand for the same time periods in
2006. The increase in expenses in 2007 is primarily attributable to website support related to cash
management products including the development of remote deposit capture products. Most of the other
expenses in this category are routine in nature and are expected to be fairly consistent, however network
administration and security expense can fluctuate as new employees and new products are added. Office expenses of $119 thousand for the third quarter of 2007 included auto and mileage
expense of $27 thousand; office supplies of $19 thousand; fidelity bond and other insurance premiums
including workers compensation premiums of $25 thousand; armored car and courier expense of $18
thousand; waived check printing charges of $9 thousand; and postage expense of $8 thousand. Office
expenses of $83 thousand for the third quarter of 2006 included auto and mileage expense of $21
thousand; office supplies of $19 thousand; fidelity bond and other insurance premiums including workers
compensation  premiums of $10 thousand; armored car and courier expense of $6 thousand; waived
check printing charges of $11 thousand. The increase in auto expense is directly related to the increase
in calling officers at the Bank and the price of gasoline. The increase in insurance costs is due to the
increase in the Bank's payroll and the timing of the renewal of the workers compensation insurance
policy. The increases in courier expense and waived check printing costs are due to the increased
customer base that the Bank serves. For the nine months ended September 30, 2007, these same expenses were $325 thousand
consisting of auto and mileage expense of $72 thousand; office supplies of $51 thousand; fidelity bond
and other insurance premiums including workers compensation premiums of $80 thousand; armored car
and courier expense of $48 thousand; waived check printing charges of $26 thousand; and postage
expense of $19 thousand. For the nine months ended September 30, 2006, these same expenses were
$248 thousand consisting of auto and mileage expense of $60 thousand; office supplies of $49
thousand; fidelity bond and other insurance premiums including workers compensation premiums of $41
thousand; armored car and courier expense of $24 thousand; waived check printing charges of $23
thousand; and postage expense of $7 thousand. The explanations above for the quarter to quarter
variances also relate to nine-month comparisons. In addition, postage expense has increased as a result
of the increase in customers, the increase in postage rates, and quarterly mailing of a newsletter to all
shareholders. Promotional expenses were $66 thousand for the third quarter of 2007, and $193 thousand for
the first nine months of 2007. This compares to $55 thousand for the third quarter of 2006 and $160
thousand for the first nine months of 2006. This included expenses related to publication of a quarterly
newsletter, periodic shareholder mailings, direct mail campaigns to local businesses, and sponsorship of
key community events. Other expenses for the third quarter of 2007 of $38 thousand included regulatory assessments
of $3 thousand, $4 thousand related to compensation expense for the outstanding directors' stock
options, $18 thousand in costs related to the annual shareholders' meeting and $6 thousand for loan-related costs including appraisal fees, environmental reports and provision for unfunded loan
commitments.  For the three months ended September 30, 2006, other expenses of $49 thousand
consisted of regulatory assessments of $7 thousand, $9 thousand related to compensation expense for
the outstanding directors' stock options, $9 thousand in costs related to the annual shareholders'
meeting and $13 thousand for loan-related costs including appraisal fees, environmental reports and
provision for unfunded loan commitments. Other expenses for the first nine months of 2007 of $198 thousand included $38 thousand in
recruiting costs, $14 thousand related to director training, regulatory assessments of $28 thousand, $60
thousand related to compensation expense for the outstanding directors' stock options, and $20
thousand for loan-related costs including appraisal fees, environmental reports and provision for
unfunded loan commitments. For the same nine months ended September 30, 2006, other expenses of
$126 thousand included $13 thousand in recruiting costs, $15 thousand related to director training, $14
thousand related to compensation expense for the outstanding directors' stock options, regulatory
assessments of $20 thousand, $27 thousand for loan-related costs including appraisal fees,
environmental reports and provision for unfunded loan commitments, and $36 thousand related to the
annual meeting.






***Income Taxes***

Two thousand in state taxes were paid during the second quarter of 2007 and 2006. No federal
tax expense or federal or state tax benefit has been recorded for the quarters ended September 30,
2007 and 2006 based upon net operating losses.  The Company will begin to recognize an income tax
benefit at the time it becomes profitable.


****Financial Condition as of September 30, 2007**

Total assets as of September 30, 2007, were $89.7 million, consisting primarily of cash and
investments of $11.7 million and net loans of $76.1 million compared with total assets as of December
31, 2006 of $56.2 million, consisting primarily of cash and cash equivalents of $10.9 million, securities
held to maturity of $7.9 million and net loans of $34.4 million  Total deposits as of September 30, 2007
were $75.0 million compared with $39.9 million as of December 31, 2006, and shareholder's equity as of
September 30, 2007 was $14.2 million compared with $16.0 million as of December 31, 2006.


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

At September 30, 2007, the Bank had $9.0 million in federal funds ("fed funds") sold and no
interest-bearing deposits at other financial institutions. Federal funds sold allow the Bank to meet
liquidity requirements and provide temporary holdings until the funds can be otherwise deployed or
invested. At December 31, 2006, the Bank had $9.4 million in fed funds and $1.0 million in interest-bearing deposits in other institutions. The decrease in fed funds and interest-bearing deposits in other
financial institutions was due to the increase in outstanding loans.


***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 the Bank's interest rate sensitivity.  The investment
portfolio is managed according to a written investment policy established by the Bank's Board of
Directors and implemented by the 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 to
designate the entire investment portfolio as "available for sale" for 24 months following the sale. 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. We owned no securities as of September 30, 2007. For the nine months ended September 30,
2007, we sold $7.9 million in securities held as available for sale, at a net loss of $12 thousand. At September 30, 2007 our securities consisted solely of $454 thousand in Federal Reserve
Bank Stock, having a book and estimated fair value of $454 thousand and a weighted average yield of
6.0%. At September 30, 2007, this stock was not pledged as collateral for any purpose.


***Loan Portfolio***

The Bank's 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:






|                          |                              |              |            | September 30, 2007 |       | December 31, 2006
|------------------------- | ---------------------------- | ------------ | ---------- | ------------------ | ----- | -----------------
|                          |                              |              |            | Amount             |       | % of Total       
|Real estate               |                              |              |            |                    |       |                  
|                          | Multi-Family & Commercial    | $ 30,222,145 |            | 39.2%              |       | $ 18,544,368     
|                          | 1-4 residential Equity loans | 3,068,312    |            | 4.0%               |       | 2,395,422        
|                          | Construction                 |              | 22,353,187 |                    | 29.0% |                  
|Commercial                |                              | 21,335,138   |            | 27.7%              |       | 9,844,022        
|Consumer                  |                              | 47,289       |            | 0.1%               |       | 238,064          
|                          |                              | Gross Loans  |            | 77,026,071         |       | 100%             
|Net deferred loan costs,  |                              |              |            |                    |       |                  
|premiums and discounts    |                              | 57,839       |            |                    |       | ( 108,286)       
|Allowance for loan losses |                              | ( 1,004,050) |            |                    |       | ( 431,640)       
|                          |                              | Net Loans    |            | $ 76,079,860       |       |                  

Net loans as a percentage of total assets were 84.8% as of September 30, 2007, and 61.2% as of December 31, 2006. The real estate portion of the loan portfolio is comprised of the following: mortgage loans secured typically by commercial and multi-family residential properties, occupied by the
borrower, having terms of three to seven years with both fixed and floating rates; revolving lines of credit granted to consumers, secured by equity in residential properties; and construction loans.
Construction loans consist primarily of high-end, single-family residential properties, primarily located in the coastal communities, and commercial properties for owner-occupied, 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
September 30, 2007, we held $30.2 million in commercial and multi-family real estate loans outstanding, representing 39.2% of gross loans receivable, and undisbursed commitments of $115 thousand. Of
this total, $3.9 million were SBA loans with no undisbursed commitments. The remaining real estate portfolio was comprised of $22.4 million in construction loans representing 29.0% of gross loans
receivable with undisbursed commitments of $8.7 million, and $3.1 million in revolving lines secured by equity in 1-4 family residences, representing 4.0% of gross loans receivable with undisbursed
commitments of $3.0 million. Included in the 1-4 family residences total were SBA loans totaling $97 thousand with no undisbursed commitments. 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 September 30, 2007, we held $22.3 million in commercial loans outstanding, representing 27.7% of gross loans receivable, and undisbursed commitments of
$13.3 million. Of this total, $3.2 million were SBA loans with no undisbursed commitments. 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 September 30, 2007, consumer loans totaled $47 thousand, representing 0.1%
of gross loans receivable and undisbursed commitments of $91 thousand. 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 concentration percentages within the loan portfolio. It also includes groups of credit considered of either higher risk or worthy
of further review as part of its concentration reporting. As of September 30, 2007 real estate loans comprise 72.2% of the total loan portfolio, which is in line with the previous periods of June 30,
2007 at 73.4%, March 31, 2007 at 72.6%, December 31, 2006 at 71.1%, and September 30, 2006 at 67.5%. Although significant, a high percentage of these loans are for commercial purposes with real
estate taken as collateral and owner occupied. In addition, all the SBA loans, which are secured by real estate, are to owner-users. Although classified as commercial real estate for reporting
purposes, the intended source of the cash flow to repay the obligations is from the commercial enterprise of the borrower and not directly from the sale or lease of the




property. The assessment of
the borrower's repayment ability is therefore based on the financial strength of the business and not the real estate held as collateral.

There are no concentrations in our portfolio which are advanced to major companies within an industry, credits which are advanced to borrowers who handle the same manufacturer's
product, credits to different individuals where the repayment source is from the same employer, credits secured by real estate within the confines of a small geographic area, i.e. four block area,
etc., or credits which are advanced to the farming, dairy, or livestock industries. 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 as of September 30, 2007:


|                            | **As of September 30, 2007**
|--------------------------- | ----------------------------
|                            | **(Dollars in thousands)**  
|                            | **One Year**                
|                            | **or Less**                 
|                            |                             
|Real estate -- construction | $ 18,753                    
|Real estate -- secured      | 7,524                       
|Commercial                  | 13,257                      
|Consumer                    | 11                          
|Total                       | $ 39,545                    

***Nonperforming Loans, Leases and Assets***

Nonperforming assets consist of loans and leases on nonaccrual status, loans 90 days or more past due and still accruing interest, loans that have been restructured resulting in a reduction or
deferral of interest or principal, OREO, and other repossessed assets. As of September 30, 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. The Bank had no loans classified in these categories at September
30, 2007.


***Allowance for Loan Losses***

Implicit in the Bank's lending activities is the fact that loan losses will be experienced and that the risk of loss will vary with the type of loan being made and the creditworthiness of the
borrower over the term of the loan. To reflect the currently perceived risk of loss associated with the loan portfolio, additions are made to the allowance for loan losses in the form of direct
charges against income to ensure that the allowance is available to absorb possible loan losses. The factors that influence the amount include, among others, the remaining collateral and/or




financial
condition of the borrowers, historical loan loss, changes in the size and composition of the loan portfolio, and general economic conditions. Management believes that our allowance for loan losses as
of September 30, 2007 was adequate to absorb the known and inherent risks of loss in the loan portfolio at that date. While management believes the estimates and assumptions used in its determination
of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future
provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not adversely impact our financial condition and results of operations. In
addition, the determination of the amount of the Bank's allowance for loan losses is subject to review by bank regulators, as part of the routine examination process, which may result in the
establishment of additional reserves based upon their judgment of information available to them at the time of their examination.

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. Beginning
with the second quarter of 2006, the adequacy of the Bank's allowance for loan losses has been determined through a comparison to the Bank's peer group as defined by the OCC. The Bank will continue
to maintain an equivalent allowance until management has adequate historical data upon which to base a different level. The peer group currently maintains an average allowance for loan losses of
approximately 1.25% of the outstanding principal. The Bank's allowance was $1.0 million, or 1.30% of outstanding principal as of September 30, 2007. Management increased the overall allowance from
1.25% to 1.30% as a result of the weakening in the real estate market in Southern California. The Bank has not incurred any loan losses during 2007. In addition, a separate allowance for credit losses on off-balance sheet credit exposures is maintained for the undisbursed portion of approved loans. Although the loss exposure to the Bank is
reduced because the funds have not been released to the borrower, under certain circumstances the Bank may be required to continue to disburse funds on a troubled credit. As of September 30, 2007,
this allowance was $62 thousand. Credit and loan decisions are made by management and the Board of Directors in conformity with loan policies established by the Board of Directors. The Bank's practice is to charge-off any loan or
portion of a loan when the loan is determined by management to be uncollectible due to the borrower's failure to meet repayment terms, the borrower's deteriorating or deteriorated financial
condition, the depreciation of the underlying collateral, the loan's classification as a loss by regulatory examiners, or other reasons. During the nine months ended September 30, 2007, there were no
charge-offs.


***Nonearning Assets***

Premises, leasehold improvements and equipment totaled $923 thousand at September 30, 2007, net of accumulated depreciation of $822 thousand compared to $1.1 million at December 31, 2006, net of
accumulated depreciation of $500 thousand. This decrease occurred due to the ongoing depreciation of fixed assets net of new purchases of $145 thousand.


***Deposits***

Deposits are the Bank's primary source of funds. Demand, or non-interest bearing checking, accounts as a percentage of total deposits were 22.3% at September 30, 2007, compared to 30.3% at
December 31, 2006. The following table sets forth the amount and maturities of the time deposits as of September 30, 2007:




|                                     | **At Sepetember 30, 2007**          
|------------------------------------ | ------------------------------------
|                                     | **Time Deposits of$100,000 or more**
|                                     | **(Dollars in thousands)**          
|Three months or less                 | $ 881                               
|Over three months through six months | 506                                 
|Over six months through 12 months    | 636                                 
|Over 12 months                       | 1,216                               
|Total                                | $ 3,239                             

We had $11.2 million of brokered certificates of deposit with the individual balances of under $100,000 at September 30, 2007. Of this total, $579 thousand consisted of public funds, none
of which required collateralization. In the table above the brokered funds are shown as part of Other Time Deposits with maturities of $7,013 in Three months or less, $4,002 in Over six months
through twelve months, and $229 thousand in Over 12 months. At December 31, 2006, we had no brokered deposits. We intend to limit non-local and brokered deposits to 35% or less of total
deposits.


*****Return on Equity and Assets*****

The following table sets forth certain information regarding the Company's return on equity and assets for the nine months ended September 30, 2007:


|**At September 30, 2007**
|-------------------------
|Return on assets         
|Return on equity         
|Dividend payout ratio    
|Equity to assets ratio   

***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 September 30, 2007, commitments to extend credit
included approximately $264 thousand for letters of credit, $13.0 million for revolving lines of credit arrangements including $3.0 million in real-estate secured lines, and $8.8 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 Bank has access to a variety of borrowing sources including $8 million in federal funds lines through two correspondent banks. The Bank also has the option of
applying for a line of credit from the Federal Home Loan Bank of San Francisco. As of September 30, 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 business, financial condition and results of operations.

As of September 30, 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. The following table sets forth the Bank's capital ratios as of the dates specified:


|                                         |  |             |  |                   |  |                   |  |                   |  | To Be Well       
|---------------------------------------- |  | ----------- |  | ----------------- |  | ----------------- |  | ----------------- |  | -----------------
|                                         |  |             |  |                   |  |                   |  |                   |  | Capitalized Under
|                                         |  |             |  |                   |  | For Capital       |  | Prompt Corrective
|                                         |  | Actual      |  | Adequacy Purposes |  | Action Provisions
|                                         |  | Amount      |  |                   |  | Amount            |  |                   |  | Amount           
|                                         |  | (Thousands) |  | Ratio             |  | (Thousands)       |  | Ratio             |  | (Thousands)      
|**As of September 30, 2007:**            |  |             |  |                   |  |                   |  |                   |  |                  
|Total Capital (to Risk-Weighted Assets)  |  | $ 14,525    |  | 16.8%             |  | $ 6,903           |  | 8.0%              |  | $ 8,628          
|Tier 1 Capital (to Risk-Weighted Assets) |  | $ 13,504    |  | 15.7%             |  | $ 3,451           |  | 4.0%              |  | $ 5,177          
|Tier 1 Capital (to Average Assets)       |  | $ 13,504    |  | 16.9%             |  | $ 3,198           |  | 4.0%              |  | $ 3,997          
|                                         |  |             |  |                   |  |                   |  |                   |  |                  
|**As of December 31, 2006:**             |  |             |  |                   |  |                   |  |                   |  |                  
|Total Capital (to Risk-Weighted Assets)  |  | $ 15,529    |  | 50.2%             |  | $ 2,470           |  | 8.0%              |  | $ 3,088          
|Tier 1 Capital (to Risk-Weighted Assets) |  | $ 15,133    |  | 49.0%             |  | $ 1,235           |  | 4.0%              |  | $ 1,853          
|Tier 1 Capital (to Average Assets)       |  | $ 15,133    |  | 27.5%             |  | $ 2,204           |  | 4.0%              |  | $ 2,755          

*****Liquidity Management*****

At September 30, 2007, the Company (excluding the Bank) had approximately $654 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 that will not be granted until the accumulated deficit has been eliminated. Existing restrictions also require the Bank to maintain its "well-capitalized" status under regulatory
capital guidelines in order to pay dividends to the Company. 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 currently retail and commercial deposits, loan 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. The Bank also has access to borrowing lines from correspondent banks. These are usually restricted to short time periods (30 days or
less). The Bank also has the option of applying for a line of credit with the Federal Home Loan Bank (FHLB). As loan demand increases, greater pressure is being exerted on the Bank's liquidity. However, it is management's
intention to maintain a loan to deposit ratio in the range of 90% - 105%. Given this goal, the Bank will not aggressively pursue lending opportunities if sufficient funding sources (*i.e.*,
deposits, Fed Funds, other borrowing lines) are not available. We intend to limit non-local and brokered deposits to 35% or less of total deposits. As of September 30, 2007, the loan to deposit ratio
was 103% and brokered deposits represented 15% of total deposits.




The Bank had cash and cash equivalents of $11.7 million, or 13% of total Bank assets, at September
30, 2007. Management feels that the Bank has adequate liquidity and/or funding sources to meet anticipated future funding needs.


***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. 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 June 30, 2007, an analysis was performed using the Risk Monitor model provided by Fidelity Regulatory Solutions
and utilizing the Bank's June 30, 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".


|                           | Interest Rate Shock
|-------------------------- | -------------------
|Shock                      | -2%                
|Fed Funds Rate             | 2.75%              
|                           |                    
|                           |                    
|Net Interest Income Change | (368)              
|% Change                   | -8.9%              
|                           |                    
|Equity Capital Change %    | -4.7%              
|                           |                    
|Net Interest Margin        | 4.37%              

The interest rate risk inherent in a bank's assets and liabilities may also be determined by analyzing the extent to which such assets and
liabilities are "interest rate sensitive" and by measuring the bank's interest rate sensitivity "gap." An asset or liability is said to be interest rate sensitive within a defined time period if it
matures or reprices within that period. The difference or mismatch between the amount of interest-earning assets maturing or repricing within a defined period and the amount of interest-bearing
liabilities maturing or repricing within the same period is defined as the interest rate sensitivity gap. A bank is considered to have a positive gap if the amount of interest-earning assets maturing
or repricing within a specified time period exceeds the amount of interest-bearing liabilities maturing or repricing within the same period. If more interest-bearing liabilities than interest-earning
assets mature or reprice within a specified period, then the bank is considered to have a negative gap. Accordingly, in a rising interest rate environment, in an institution with a positive gap, the
yield on its rate sensitive assets would theoretically rise at a faster pace than the cost of its rate sensitive liabilities, thereby increasing future net interest income. In a falling interest rate
environment, a positive gap would indicate that the yield on rate sensitive assets would decline at a faster pace than the cost of rate sensitive liabilities, thereby decreasing net interest income.
For a bank with a negative gap, the reverse would be expected. The following table sets forth, on a stand-alone basis, the Bank's amounts of interest-earning assets and interest-bearing liabilities outstanding at September 30, 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.




|                                          |                                                                               | **As of September 30, 2007
Volumes Subject to Repricing Within**
|----------------------------------------- | ----------------------------------------------------------------------------- | ----------------------------------------------------------------
|****                                      |                                                                               | **0-1 Days**                                                    
|                                          |                                                                               |                                                                 
|**Assets:**                               | **(Dollars in thousands)**                                                    | ****                                                            
|                                          | Cash, fed funds and other                                                     | $  9,000                                                        
|                                          | Investments and FRB Stock                                                     | -                                                               
|                                          | Loans  (1)                                                                    | -                                                               
|                                          | Fixed and other
assets                                                        | -                                                               
|                                          | Total Assets                                                                  | $  9,000                                                        
|                                          |                                                                               |                                                                 
|**Liabilities and Stockholders' Equity:**
|                                          | Checking,
savings and
money market
accounts                                   | $40,041                                                         
|                                          | Certificates of
deposit                                                       | -                                                               
|                                          | Other liabilities                                                             | -                                                               
|                                          | Stockholders'
equity                                                          | -                                                               
|                                          | Total
liabilities and
stockholders'      equity                               | $
40,041                                                        
|                                          |                                                                               |                                                                 
|                                          | Interest rate
sensitivity gap                                                 | $(31,041)                                                       
|                                          | Cumulative
interest rate
sensitivity gap                                      | $(31,041)                                                       
|                                          | Cumulative gap
to total assets                                                | -34.6%                                                          
|                                          | Cumulative
interest-earning
assets to
cumulative
interest-bearing
liabilities | 22.5%                                                           
|                                          |                                                                               |                                                                 
|                                          | (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**

As of September 30, 2007, the Company's management, 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 Rules 13a-15(r) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the Company's chief executive officer
and chief financial officer concluded that as of September 30, 2007, the Company's disclosure controls and procedures were effective to ensure that the information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management (including the chief executive officer and chief financial officer) to
allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and
forms. During the quarter ended September 30, 2007, no change occurred in the Company's internal control over financial reporting that has materially affected, or is 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.

**Item 2.** **Unregistered Sales of Equity
Securities and Use of Proceeds**

None.

**Item 3.** **Defaults
Upon Senior Securities**

None.

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

None.

**Item 5.** **Other Information**

Not
applicable.

**Item
6.** **Exhibits and Reports on Form 8-K**

(a) Exhibits

(b)

|Exhibit Number | Description of Exhibit                                                                                                                                                                                  
|-------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            | Articles of Incorporation of the Company (filed as Exhibit 3.1 to the Company's Registration Statement on Form SB-2 filed on September 8, 2004 (File No. 333-11859) and
incorporated herein by reference
|3.2            | Bylaws of the Company (filed as Exhibit 3.2 to the Company's Registration Statement on Form SB-2 filed on September 8, 2004 (File No. 333-118859) and incorporated herein by
reference                  
|31.1           | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                      
|31.2           | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                      
|32.1           | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                 
|               |                                                                                                                                                                                                         





SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                        | PACIFIC COAST NATIONAL BANCORP
|----------------------- | ------------------------------
|                        |                               
|Date: November 14, 2007 | By:                           
|Date: November 14, 2007 | By: