UNITED
STATESSECURITIES
AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

|           |                                                                                                                                                    
|---------- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|(Mark One)
|x          | ANNUAL
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
 1934. For the fiscal year ended December 31, 2007                
|           |                                                                                                                                                    
|o          | TRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the transition period from __________ to __________

|                                                       
|-------------------------------------------------------
|Commission file number: 000-49892                      
|                                                       
|PACIFIC STATE BANCORP                                  
|(Exact name of Registrant as specified in
 its charter)

| |                                                                                      |  |                                       | 
| | ------------------------------------------------------------------------------------ |  | ------------------------------------- | 
| | California                                                                           |  | 61-1407606                            | 
| | (State or other jurisdiction of incorporation
                      or organization) |  | (I.R.S.
 Employer Identification No.) | 

| |                                          |  |            | 
| | ---------------------------------------- |  | ---------- | 
| | 1899 W. March Lane                       |  |            | 
| | Stockton, CA                             |  | 95207     
| | (Address of principal executive offices) |  | (Zip Code) | 

Registrants
telephone number, including area code: (209) 870-3213

Securities registered
pursuant to Section 12(b) of the Act:

|                           |                                            
|-------------------------- | -------------------------------------------
|Title of each class:       | Name of each exchange on
 which registered:
|                           |                                            
|Common Stock, no par value | The NASDAQ Stock Market,
 LLC              

|                                                            
|------------------------------------------------------------
|Securities
 registered pursuant to Section 12(g) of the Act:
|Common
 Stock, no par value                                 

|                                                                                                                         |       |     
|------------------------------------------------------------------------------------------------------------------------ | ----- | ----
|Indicate by check mark if the Registrant is a well-known seasoned
 issuer, as defined in Rule 405 of the Securities Act.
|                                                                                                                         | Yes o | No x

|                                                                                                                            |       |     
|--------------------------------------------------------------------------------------------------------------------------- | ----- | ----
|Indicate by check mark if the Registrant is not required to file
 reports pursuant to Section 13 or 15(d) of the Securities
|Exchange Act of 1934.                                                                                                       | Yes o | No x

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.


Yes x      No o


Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrants knowledge, in definitive proxy or information
statements incorporated by reference to Part III of this Form 10-K or any
amendment to this Form 10-K. x

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of large
accelerated filer, accelerated filer, non-accelerated filer and smaller
reporting company in rule 12b-2 of the Exchange Ac). (Check one.)


Large accelerated filer o   Accelerated filer o     Non-accelerated
filer o   Smaller reporting company x


|                                                                                                                 |       |     
|---------------------------------------------------------------------------------------------------------------- | ----- | ----
|Indicate by check mark
whether the registrant is a shell company (as defined in rule 12b-2 of the
Exchange Act).
|                                                                                                                 | Yes o | No x

The aggregate market value of voting and non-voting stock held by
non-affiliates of the Registrant was approximately $66,457,000 as of June 30,
2007 which was calculated based on the last reported sale of the Companys
Common Stock prior to June 30, 2007. This calculation does not reflect a
determination that certain persons are affiliates of the Registrant for any
other purpose.

Common stock, no par value 3,703,207 shares outstanding as of March 15,
2008.

DOCUMENTS INCORPORATED BY REFERENCE

Annual Report to Shareholders for Fiscal Year Ended
December 31, 2007 (Part II)

Proxy Statement for 2008 Annual Meeting of Shareholders (Part III)

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TABLE OF CONTENTS

|          |                                                                                                               |  |      
|--------- | ------------------------------------------------------------------------------------------------------------- |  | -----
|          |                                                                                                               |  | Page 
|PART 1.   |                                                                                                               |  |      
|          |                                                                                                               |  |      
|Item 1.   | Business                                                                                                      |  | 2    
|Item 1A.  | Risk Factors                                                                                                  |  | 9    
|Item 1B.  | Unresolved Staff Comments                                                                                     |  | 10   
|Item 2.   | Properties                                                                                                    |  | 10   
|Item 3.   | Legal Proceedings                                                                                             |  | 11   
|Item 4.   | Submission of Matters to a Vote of Security
 Holders                                                          |  | 11   
|          |                                                                                                               |  |      
|PART II.  |                                                                                                               |  |      
|          |                                                                                                               |  |      
|Item 5.   | Market for Registrants Common Equity,
 Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 12   
|Item 6.   | Selected Financial Data                                                                                       |  | 12   
|Item 7.   | Managements Discussion and Analysis of
 Financial Condition and Results of Operation                         |  | 12   
|Item 7A.  | Quantitative and Qualitative Disclosures
 about Market Risk                                                   |  | 12   
|Item 8.   | Financial Statements and Supplementary Data                                                                   |  | 12   
|Item 9.   | Changes In and Disagreements with
 Accountants on Accounting and Financial Disclosure                         |  | 12   
|Item 9A   | Controls and Procedures                                                                                       |  | 12   
|Item 9B   | Other Information                                                                                             |  | 13   
|          |                                                                                                               |  |      
|PART III. |                                                                                                               |  |      
|          |                                                                                                               |  |      
|Item 10.  | Directors, Executive Officers and Corporate
 Governance                                                       |  | 14   
|Item 11.  | Executive Compensation                                                                                        |  | 14   
|Item 12.  | Security Ownership of Certain Beneficial
 Owners and Management and Related Stockholder Matters               |  | 14   
|Item 13.  | Certain Relationships and Related
 Transactions and Director Independence                                     |  | 14   
|Item 14.  | Principal Accounting Fees and Services                                                                        |  | 14   
|          |                                                                                                               |  |      
|PART IV.  |                                                                                                               |  |      
|          |                                                                                                               |  |      
|Item 15.  | Exhibits, Financial Statement Schedules                                                                       |  | 15   
|          | Signatures                                                                                                    |  | 16-17
|          | Index of Exhibits                                                                                             |  | 18   

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PACIFIC STATE BANCORP
STOCKTON, CALIFORNIA
FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 2007

PART I

ITEM 1. BUSINESS

FORWARD LOOKING STATEMENTS

Certain
statements discussed or incorporated by reference in this Annual Report
including, but not limited to, information concerning possible or assumed
future results of operations of the Company set forth in the Managements
Discussion and Analysis of Financial Condition and Results of Operation, are
forward-looking statements within the meaning of the Securities Exchange Act of
1934 (the Exchange Act). Forward-looking statements include statements in
which words such as expect, anticipate, intend, plan, believe,
estimate, consider or similar expressions are used. The Companys actual
future results and shareholder values may differ materially from those
anticipated and expressed in these forward-looking statements, which are based
on managements beliefs and assumptions and on information currently available
to management, and are subject to risks and uncertainties that could cause
actual results to differ materially from those projected. Such risks and
uncertainties include, among others, (1) competitive pressures in the banking
industry; (2) changes in the interest rate environment; (3) general economic
conditions, either nationally or regionally; (4) changes in the regulatory
environment; (5) changes in business conditions and inflation; and (6) changes
in securities markets. Many of these factors are beyond the Companys ability
to control or predict. Investors are cautioned not to put undue reliance on any
forward-looking statements. In addition, the Company does not have any
intention or obligation to update forward-looking statements contained in this
Annual Report, even if new information, future events or other circumstances
have made them incorrect or misleading. Except as specifically noted herein all
references to the Company refer to Pacific State Bancorp, a California
corporation

GENERAL DESCRIPTION OF BUSINESS

Pacific State
Bancorp (the Company) is a holding company with one bank subsidiary, Pacific
State Bank, (the Bank), and three unconsolidated subsidiary grantor trusts,
Pacific State Statutory Trusts I, II and III. Pacific State Bancorp commenced
operations on June 24, 2002 after acquiring all of the outstanding shares of
Pacific State Bank. The Bank is a California state chartered bank formed
November 2, 1987. The Bank is a member of the Federal Reserve System. The
Banks primary source of revenue is interest on loans to customers who are
predominantly small to middle-market businesses and middle-income individuals.
Pacific State Statutory Trusts I, II and III are unconsolidated, wholly owned
statutory business trusts formed in June 2002, March 2004 and June 2007,
respectively for the exclusive purpose of issuing and selling trust preferred
securities. Pacific State Statutory Trust I is currently inactive.

The
Bank conducts a general commercial banking business, primarily in the five
county region that comprises Alameda, Calaveras, San Joaquin, Stanislaus and
Tuolumne counties. The Bank offers commercial banking services to residents and
employers of businesses in the Banks service area, including professional
firms and small to medium sized retail and wholesale businesses and
manufacturers. The Company as of March 15, 2007 had 84 employees, including 26
officers. The Bank does not engage in any non-bank lines of business. The
business of the Bank is not to any significant degree seasonal in nature. The
Bank has no operations outside California and has no material amount of loans
or deposits concentrated among any one or few persons, groups or industries.
The Bank operates nine branches with its Administrative Office and one branch
located at 1899 W. March Lane, in Stockton, California; additional branches are
located in downtown Stockton and in the communities of Angels Camp, Arnold,
Groveland, Lodi, Modesto, Tracy and Hayward, California.

Pacific
State Bancorp common stock trades on the NASDAQ Global Market under the symbol
of PSBC.

BUSINESS PLAN

The focus of the Companys
business plan is to attract Business Relationship small, medium and large
accounts, but not to the exclusion of any other business which the Company can
reasonably and profitably attract. In order to provide a level of service to
attract such customers, the Company has structured its specific services and
charges on a basis which management believes to be profitable, taking into
consideration other aspects of the account relationship. The Company offers a
full range of banking services to its customers intended to attract the
following specific types of accounts: relatively large consumer accounts;
professional group and association accounts, including the accounts of groups
or firms of physicians, dentists, attorneys and accountants; and accounts of
small to medium-sized businesses engaged in retail, wholesale, light
industrial, manufacturing, agricultural and service activities.

2

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TRUST SUBSIDIARIES

The Company
during 2002, 2004, and 2007 established three subsidiary grantor trusts.
Pacific State Statutory Trusts I, II and III (the Trusts). The Trusts were
established for the sole purpose of issuing capital securities (Capital
Securities) pursuant to declarations of trust (the Declarations). The
proceeds from the sale of the Capital Securities were loaned to the Company as
subordinated debentures (the Debentures) issued to the Trusts pursuant to
indentures (the Indentures). Interest payments on the Debentures will flow
through the Trusts to the Pooling Vehicles, which are the holders of the
Capital Securities and similar securities issued by other financial
institutions. Payments of distributions by the Trusts to the Pooling Vehicle
are guaranteed by the Company. See Note 8 to the Companys consolidated
financial statements included with this report.

Proceeds
from the issuance of the 2002 subordinated debentures were used to provide the
Bank with an additional $4.5 million in capital in order to support the
continued growth of the Bank. The remaining $500,000 was placed in the Company
for general corporate purposes. Proceeds from the issuance of the 2004
subordinated debentures were used to provide the Bank with an additional $3.5
million in capital in order to support the continued growth of the Bank.
Proceeds from the issuance of the 2007 subordinated debentures were used to
retire the 2002 subordinated debenture issuance. By refinancing the 2002
subordinated debenture issuance with the 2007 issuance, the Company was able to
reduce interest expense related to the trusts.

PRODUCT LINES AND SERVICES

The Bank currently offers
the following general banking services at all of its branches: commercial,
construction, agricultural and real estate loans and personal credit lines,
interest on checking, U.S. Savings bond services, domestic and foreign drafts,
banking by appointment, automatic transfer of funds between savings and
checking accounts, business courier services, checking and savings accounts for
personal and business purposes, domestic letters of credit, a depository for
MasterCard and Visa drafts, federal depository services, cash management
assistance, wire and telephone transfers, Individual Retirement Accounts, time
certificates of deposit, courier service for non-cash deposits, Visa and
MasterCard, revolving lines of credit to consumers secured by deeds of trust on
private residences, unsecured overdraft protection credit lines attached to
checking accounts, ATM cards and MasterMoney debit cards via the Star, Cirrus,
Plus, MasterCard and Visa networks.

The
Bank is not authorized to offer trust services. The Federal Reserve Bank of San
Francisco is the Companys primary correspondent relationship. The Bank
currently also has correspondent relationships with City National Bank in
Beverly Hills, California, First Tennessee Bank in Memphis, Tennessee, U. S.
Bank, Minneapolis, Minnesota, Wells Fargo Bank, San Francisco, California and
Pacific Coast Bankers Bank, San Francisco, California.

The
Bank recognizes that, in order to be competitive, it must attract a certain
number of consumer accounts. Individual Retirement Accounts, Visa and
MasterCard, revolving lines of credit to consumers secured by deeds of trust on
private residences, and unsecured overdraft protection credit lines attached to
checking accounts currently offered by the Bank are designed to appeal
particularly to consumers. Moreover, participation in large-scale ATM networks
assists the Company in competing for consumer accounts.

The
Bank is an approved Small Business Administration and 504 lender, FSA, USDA
Business and Industry, USDA Part-time Farmer Program and FHA and VA lender. The
Bank is a national leader in the underwriting of U.S. Department of Agriculture
business and industry loans, as well as a Preferred Lender for this program.

MARKETING

The basic marketing strategy
of the Bank is to retain the Banks initial market share and to increase the
Banks penetration of the market over the long term via expansion east and west
of Stockton, California in small to medium sized communities. The Bank attempts
to accomplish this by providing a full range of personalized banking services
to small and medium size businesses, professionals and individuals within
Alameda, Calaveras, San Joaquin, Stanislaus and Tuolumne Counties.

The
Banks marketing plan aims to provide for strong continuity in banker-customer
relationships, a high degree of convenience for customers, prompt response in
the handling of loan requests, and personal attention to needs of individual
customers. The marketing plan also includes a commitment to lend the Banks
deposits back into the areas from which they are derived, thereby assisting in
the building activity, population growth and other changes, which are occurring
in the market area. By focusing the Banks relationship toward its community
the Bank attempts to establish strong continuity with its customers.

The
Directors of the Company are active in business development through personal
contacts and personal participation in local activities. The Directors of the
Company have a strong commitment to community banking. They believe in business
development by actively participating in community events.

Local
advertising and publicity in local papers also are used to attract business and
to acquaint potential customers with the Banks services.

3

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COMPETITION

The Banks service area
consists of Alameda, Calaveras, San Joaquin, Stanislaus and Tuolumne Counties.
The banking business in California generally, and specifically in the Banks
primary market area, is highly competitive with respect to both loans and
deposits. The banking business is dominated by a relatively small number of
major banks, which have many offices operating over wide geographic areas. Many
of the major commercial banks offer certain services (such as international,
trust and securities brokerage services), which are not offered directly by the
Bank. By virtue of their greater total capitalization, such banks have
substantially higher lending limits than the bank and substantial advertising
and promotional budgets.

In
the past, an independent banks principal competitors for deposits and loans
have been other banks (particularly major banks), savings and loan associations
and credit unions. To a lesser extent, competition was also provided by thrift
and loans, mortgage brokerage companies and insurance companies. Other
institutions, such as brokerage houses, credit card companies, and even retail
establishments have offered new investment vehicles, such as money-market
funds, which also compete with banks. The direction of federal legislation in
recent years seems to favor competition between different types of financial
institutions and to foster new entrants into the financial services market, and
it is anticipated that this trend will continue.

To
compete with major financial institutions in its service area, the Bank relies
upon specialized services, responsive handling of customer needs, local
promotional activity, and personal contacts by its officers, directors and
staff, as opposed to large multi-branch banks, which compete primarily by
interest rates and multiple branch locations. For customers whose loan demands
exceed the Banks lending limits, the Bank seeks to arrange funding for such
loans on a participation basis with its correspondent banks or other
independent commercial banks.

SUPERVISION AND REGULATION

The Company is principally
regulated by the Federal Reserve Board (FRB). The Bank is principally
regulated by the California Commissioner of Financial Institutions
(Commissioner), but is also subject to regulation by the Federal Deposit
Insurance Corporation (FDIC) and by its primary federal regulator, the FRB.
These agencies govern most of the Companys and the Banks business, including
capital requirements, loans, investments, mergers and acquisitions, borrowings,
dividends, branch locations and other similar matters. In addition, the Banks
business is affected by general economic conditions and by the monetary and
fiscal policies of the United States government. These policies influence, for
example, the Federal Reserves open market operations in U.S. Government
securities, the reserve requirements imposed upon commercial banks, the discount
rates applicable to borrowings from the Federal Reserve by banks, and other
similar matters which impact the growth of the Banks loans, investments and
deposits and the interest rates which the Bank charges and pays.

Proposals
to change the laws and regulations governing the operations and taxation of
financial institutions are frequently made in Congress, in the California
legislature and before various regulatory and professional agencies. Major
changes and the impact such changes might have are difficult to predict with
accuracy. Certain significant recently proposed or enacted laws and regulations
are discussed below.

INTERSTATE BANKING

Since 1995, initial entry
into California by merger or acquisition involving an out-of state institution
must be accomplished by acquisition of or merger with an existing whole bank
which has been in existence for at least five years.

CAPITAL REQUIREMENTS

The Company and the Bank are
subject to certain regulatory capital requirements administered by the FRB and
the FDIC. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Companys and the Banks capital amounts and classifications are
also subject to qualitative judgments by the regulators about the components,
risk weightings and other factors.

The
Uniform Financial Institutions Rating System classifies and evaluates the
soundness of financial institutions according to the so-called CAMELS
criteria, an acronym for capital adequacy, asset quality, management, earnings,
liquidity and sensitivity to market risk, (including changes in interest rates,
foreign exchange rates, commodity prices or equity prices which may adversely
affect an institutions earnings and capital).

Prompt
Corrective Action regulations (the PCA Regulations) of the federal bank
regulatory agencies establish five capital categories in descending order (well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized), assignment to which depends
upon the institutions total risk-based capital ratio, Tier 1 risk-based
capital ratio, and leverage ratio. Institutions classified in one of the three
undercapitalized categories are subject to certain mandatory and discretionary
supervisory actions, which include increased monitoring and review,
implementation of capital restoration plans, asset growth restrictions,
limitations upon expansion and new business activities, requirements to augment
capital, restrictions upon deposit gathering and interest rates, replacement of
senior executive officers and directors, and requiring divestiture or sale of
the institution. The Bank is currently classified as a well capitalized bank
pursuant to the PCA regulations.

4

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As
of December 31, 2007, the Banks total risk-based capital ratio (approximately
12.1%) and its leverage ratio (approximately 9.8%) exceeded minimum levels. It
is not expected that compliance with the risk-based capital guidelines or
minimum leverage requirements will have a materially adverse effect on the
business of the Bank in the reasonably foreseeable future.

PREMIUMS FOR DEPOSIT INSURANCE

The Banks
deposits are currently insured to a maximum of $100,000 per depositor ($250,000
for certain retirement accounts) through the Deposit Insurance Fund (DIF)
administered by the FDIC. The Bank is required to pay deposit insurance
premiums, which are assessed semiannually and paid quarterly. In November 2006
the FDIC adopted a new risk-based insurance assessment system effective January
1, 2007 designed to tie what banks pay for deposit insurance more closely to
the risks they pose. The FDIC also adopted a new base schedule of rates that
the FDIC can adjust up or down, depending on the needs of the DIF, and set
initial premiums for 2007 that range from 5 cents per $100 of domestic deposits
for banks in the lowest risk category to 43 cents per $100 of domestic deposits
for banks in the highest risk category. The new assessment system is not
expected to result in a material impact on the Bank.

The
FDIC is also empowered to make special assessments on insured depository
institutions in amounts determined by the FDIC to be necessary to give it
adequate assessment income to repay amounts borrowed from the U.S. Treasury and
other sources or for any other purpose the FDIC deems necessary.

The
FDIC is authorized to terminate a depository institutions deposit insurance
upon a finding by the FDIC that the institutions financial condition is unsafe
or unsound or that the institution has engaged in unsafe or unsound practices
or has violated any applicable rule, regulation, order or condition enacted or
imposed by the institutions regulatory agency.

COMMUNITY REINVESTMENT ACT

Community Reinvestment Act
(CRA) regulations evaluate the Banks lending to low and moderate income
individuals and businesses across a four-point scale from outstanding to
substantial noncompliance, and are a factor in regulatory review of
applications to merge, or establish new branches. In addition, any Bank rated
in substantial noncompliance with the CRA regulations may be subject to
enforcement proceedings. The Bank has a current rating of satisfactory CRA
compliance.

SAFETY AND SOUNDNESS STANDARDS

Federal bank regulations for
insured financial institutions establish safety and soundness standards for (1)
internal controls, information systems and internal audit systems; (2) loan
documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset
growth; (6) compensation, fees and benefits; and (7) excessive compensation. If
an agency determines that an institution fails to meet any standard established
by the guidelines, the agency may require the financial institution to submit
to the agency an acceptable plan to achieve compliance with the standard.
Agencies may elect to initiate enforcement action in certain cases where
failure to meet one or more of the standards could threaten the safe and sound
operation of the institution. The Company has not been and does not expect to
be required to submit a safety and soundness compliance plan because of a
failure to meet any of the safety and soundness standards.

SARBANES-OXLEY ACT OF 2002

The
Sarbanes-Oxley Act of 2002 (the SOA) was enacted to increase corporate
responsibility, to provide for enhanced penalties for accounting and auditing
improprieties at publicly traded companies and to protect investors by
improving the accuracy and reliability of corporate disclosures pursuant to the
securities laws.

The
SOA is the most far-reaching U.S. securities legislation enacted in many years.
The SOA generally applies to all companies, both U.S. and non-U.S., that file
or are required to file periodic reports with the Securities and Exchange
Commission, (the SEC), under the Securities Exchange Act of 1934. Since the
enactment of the SOA, the SEC has issued numerous new and proposed regulations
to implement SOA requirements.

The
SOA represents significant federal involvement in matters traditionally left to
state regulatory systems, such as the regulation of the accounting profession,
and to state corporate law, such as the relationship between a board of
directors and management and between a board of directors and its committees.

The
SOA addresses the following, among other matters:

| |   |                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Duties,
  responsibilities and qualifications of the audit committee;                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                  
| |  | certification
  of financial statements by the chief executive officer and the chief
  financial officer;                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                  
| |  | the
  forfeiture of bonuses or other incentive-based compensation and profits from
  the sale of an issuers securities by directors and senior officers in the
  twelve month period following initial publication of any financial statements
  that later require restatement;

5

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| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a
  prohibition on insider trading during pension plan black out periods;                                                                                                                                          
| |   |                                                                                                                                                                                                                    
| |  | disclosure
  of off-balance sheet transactions;                                                                                                                                                                    
| |   |                                                                                                                                                                                                                    
| |  | a
  prohibition on certain personal loans to directors and officers;                                                                                                                                               
| |   |                                                                                                                                                                                                                    
| |  | expedited
  filing requirements for forms which disclose transactions by officers and directors
  in Company stock;                                                                                                
| |   |                                                                                                                                                                                                                    
| |  | disclosure
  of a code of ethics and of any change or waiver of such code;                                                                                                                                         
| |   |                                                                                                                                                                                                                    
| |  | new
  requirements for auditing and reporting on Company internal controls;                                                                                                                                        
| |   |                                                                                                                                                                                                                    
| |  | real time
  filing of periodic reports;                                                                                                                                                                          
| |   |                                                                                                                                                                                                                    
| |  | the formation
  of a public company accounting oversight board (the PCAOB) with authority
  to set auditing, quality control and independence standards and investigate
  and discipline public accounting firms;
| |   |                                                                                                                                                                                                                    
| |  | auditor
  independence; and                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                    
| |  | various
  increased criminal penalties for violations of securities laws.                                                                                                                                          

The
SEC has and PCAOB have issued final rules covering most of these topics, but it
is to be expected that these rules may be altered as future experience
requires.

Although
we anticipate that we will incur additional expense in complying with the
provisions of the SOA, management does not expect that such compliance will
have a material impact on our results of operation or financial condition.

FINANCIAL SERVICES MODERNIZATION LEGISLATION

On November
12, 1999, the Gramm- Leach-Bliley Act of 1999 (the Financial Services
Modernization Act) was signed into law. The Financial Services Modernization
Act is intended to modernize the banking industry by removing barriers to
affiliation among banks, insurance companies, the securities industry and other
financial service providers. It provides financial organizations with the
flexibility of structuring such affiliations through a holding company
structure or through a financial subsidiary of a bank, subject to certain
limitations. The Financial Services Modernization Act establishes a new type of
bank holding company, known as a financial holding company, which may engage in
an expanded list of activities that are financial in nature, which include
securities and insurance brokerage, securities underwriting, insurance
underwriting and merchant banking. The Company has not sought financial
holding company status and has no present plans to do so.

The
Financial Services Modernization Act also sets forth a system of functional
regulation that makes the Federal Reserve Board the umbrella supervisor for
holding companies, while providing for the supervision of the holding companys
subsidiaries by other federal and state agencies.

In
addition, the Bank is subject to other provisions of the Financial Services
Modernization Act, including those relating to CRA, privacy and safe-guarding
confidential customer information, regardless of whether the Company elects to
become a financial holding company or to conduct activities through a financial
subsidiary of the Bank. The Company does not, however, currently intend to file
notice with the Federal Reserve Board to become a financial holding company or
to engage in expanded financial activities through a financial subsidiary of
the Bank.

The
Company and the Bank do not believe that the Financial Services Modernization
Act will have a material adverse effect on their operations in the near-term.
However, to the extent that it permits banks, securities firms, and insurance
companies to affiliate, the financial services industry may experience further
consolidation. The Financial Services Modernization Act is intended to grant to
community banks certain powers as a matter of right that larger institutions
have accumulated on an ad hoc basis. Nevertheless, this act may have the result
of increasing the amount of competition that the Company faces from larger
institutions and other types of companies offering financial products, many of
which may have substantially more financial resources than the Company.

USA PATRIOT ACT OF 2001

On October 26,
2001, President Bush signed the USA Patriot Act (the Patriot Act), which
includes provisions pertaining to domestic security, surveillance procedures,
border protection, and terrorism laws to be administered by the Secretary
of the Treasury. Title III of the Patriot Act entitled,
International Money Laundering Abatement and Anti-Terrorist Financing Act
of 2001 includes amendments to the Bank Secrecy Act which expand the
responsibilities of financial institutions in regard to anti-money
laundering activities with particular emphasis upon international money
laundering and terrorism financing activities through designated
correspondent and private banking accounts. Certain surveillance
provisions of the Patriot Act were scheduled to expire on December 31,
2005, but the deadline was postponed to allow time for evaluation of such
provisions, and on March 9, 2006, President Bush signed legislation
to reauthorize the Patriot Act, incorporating certain civil liberty
protections approved by Congress.

Section
313(a) of the Patriot Act prohibits any insured financial institution such
as Pacific State Bancorp from providing correspondent accounts to foreign
banks which do not have a physical presence in any country (designated as
shell banks), subject to certain exceptions for regulated affiliates of
foreign banks. Section 313(a) also requires financial institutions to take
reasonable steps to ensure that foreign bank correspondent accounts are
not being used to indirectly provide banking services to foreign shell
banks, and Section 319(b) requires financial institutions to maintain
records of the owners and agent for service of process of any such foreign
banks with whom correspondent accounts have been established.

6

---



Section
312 of the Patriot Act creates a requirement for special due diligence for
correspondent accounts and private banking accounts. Under Section 312, each financial
institution that establishes, maintains, administers, or manages a private
banking account or a correspondent account in the United States for
a non-United States person, including a foreign individual visiting the
United States, or a representative of a non-United States person, shall
establish appropriate, specific, and, where necessary, enhanced, due
diligence policies, procedures, and controls that are reasonably designed
to detect and record instances of money laundering through those accounts.

The
Company and its subsidiaries are not currently aware of any
account relationships between the Company and its banking subsidiaries and
any foreign bank or other person or entity as described above under
Sections 313(a) or 312 of the Patriot Act. The terrorist attacks on
September 11, 2001 have realigned national security priorities of the
United States and it is reasonable to anticipate that the United States
Congress may enact additional legislation in the future to combat
terrorism including modifications to existing laws such as the Patriot Act
to expand powers as deemed necessary. The effects which the Patriot Act
and any additional legislation enacted by Congress may have upon financial
institutions is uncertain; however, such legislation would likely increase
compliance costs and thereby potentially have an adverse effect upon the
Companys results of operations.

TRANSACTIONS BETWEEN AFFILIATES

Transactions
between a bank and its affiliates are quantitatively and qualitatively restricted
under the Federal Reserve Act. The Federal Reserve Board issued Regulation W on
October 31, 2002, which comprehensively implements Sections 23A and 23B of
the Federal Reserve Act. Sections 23A and 23B and Regulation W restrict loans
by a depository institution to its affiliates, asset purchases by a depository
institution from its affiliates, and other transactions between a depository
institution and its affiliates. Regulation W unifies in one public document the
Federal Reserve Boards interpretations of Section 23A and 23B. Regulation W
had an effective date of April 1, 2003.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FAIR VALUE MEASUREMENTS

In September
2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157
defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurement. SFAS No. 157 also
emphasizes that fair value is a market-based measurement, not an
entity-specific measurement, and sets out a fair value hierarchy with the
highest priority being quoted prices in active markets. Under SFAS
No. 157, fair value measurements are disclosed by level within that
hierarchy. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007, except for nonfinancial assets and nonfinancial liabilities
that are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis for which delayed application is permitted until fiscal
years beginning after November 15, 2008. The adoption of SFAS No. 157 is
not expected to have a material impact on the Companys financial position,
results of operations or cash flows.

FAIR VALUE ACCOUNTING

In February
2007, the FASB issued Statement of Financial Accounting Standards No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS No. 159). SFAS
No. 159 permits companies to elect to follow fair value accounting for
certain financial assets and liabilities in an effort to mitigate volatility in
earnings without having to apply complex hedge accounting provisions. The
standard also establishes presentation and disclosure requirements designed to
facilitate comparison between entities that choose different measurement
attributes for similar types of assets and liabilities. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. SFAS No. 159
is not expected to have a material impact on the Companys financial position,
results of operations or cash flows.

BUSINESS COMBINATIONS

In December
2007, the FASB issued Statement of Financial Accounting Standards No. 141
(revised 2007), Business Combinations (SFAS
No. 141(R)). SFAS No. 141(R), among other things, establishes
principles and requirements for how the acquirer in a business combination
(i) recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquired business, (ii) recognizes and measures the goodwill acquired
in the business combination or a gain from a bargain purchase, and
(iii) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. The Company is required to adopt SFAS No. 141(R) for
all business combinations for which the acquisition date is on or after
January 1, 2009. Earlier adoption is prohibited. This standard will change
the Companys accounting treatment for business combinations on a prospective
basis.

7

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NONCONTROLLING INTERESTS IN CONSOLIDATED
FINANCIAL STATEMENTS

In December
2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160 establishes accounting and reporting
standards for noncontrolling interests in a subsidiary and for the
deconsolidation of a subsidiary. Minority interests will be recharacterized as
noncontrolling interests and classified as a component of equity. It also
establishes a single method of accounting for changes in a parents ownership
interest in a subsidiary and requires expanded disclosures. This statement is
effective for fiscal years beginning on or after December 15, 2008, with
early adoption prohibited. The Company does not expect the adoption of this
Statement will have a material impact on its financial position, results of
operations or cash flows.

ACCOUNTING FOR DEFERRED COMPENSATION AND
POSTRETIREMENT BENEFIT ASPECTS OF ENDORSEMENT SPLIT-DOLLAR LIFE INSURANCE
ARRANGEMENTS

In September
2006, the FASB ratified the Emerging Issues Task Force (EITF) conclusion
under EITF Issue No. 06-4, Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements (EITF 06-4). EITF 06-4 requires that endorsement
split-dollar life insurance arrangements which provide a postretirement benefit
to an employee be recorded in accordance with FASB Statement No. 106, Employers Accounting for Postretirement
Benefits Other Than Pensions or APB Opinion No. 12, Omnibus Opinion1967, based on the
substance of the agreement with the employee. Under the provisions of these
Statements, if the employer has effectively agreed to maintain a life insurance
policy during the employees retirement, the cost of the insurance policy
during postretirement periods should be accrued in accordance with either
Statement 106 or Opinion 12. Similarly, if the employer has
effectively agreed to provide the employee with a death benefit, the employer
should accrue, over the service period, a liability for the actuarial present
value of the future death benefit as of the employees expected retirement
date, in accordance with either Statement 106 or Opinion 12.
EITF 06-4 is effective for fiscal years beginning after December 15, 2007.
The effects of adopting EITF 06-4 can be recorded either as (i) a change
in accounting principle through a cumulative-effect adjustment to retained
earnings or to other components of equity as of the beginning of the year of
adoption, or (ii) a change in accounting principle through retrospective
application to all prior periods. The Company adopted the provisions of
EITF 06-4 as of January 1, 2008 and management determined that
adoption will not have a material impact on the financial position, results of
operations or cash flows of the Company.

ACCOUNTING FOR COLLATERAL ASSIGNMENT
SPLIT-DOLLAR LIFE INSURANCE ARRANGEMENTS

In March 2007,
the FASB ratified the consensus the EITF reached regarding EITF Issue
No. 06-10, Accounting for Collateral Assignment Split-Dollar Life
Insurance Arrangements (EITF 06-10), which provides accounting guidance
for postretirement benefits related to collateral assignment split-dollar life
insurance arrangements, whereby the employee owns and controls the insurance
policies. The consensus concludes that an employer should recognize a liability
for the postretirement benefit in accordance with FASB Statement No. 106, Employers Accounting for Postretirement
Benefits Other Than Pensions, or APB Opinion No. 12, Omnibus Opinion  1967, as well as
recognize an asset based on the substance of the arrangement with the employee.
EITF 06-10 is effective for fiscal years beginning after December 15,
2007, with early application permitted. The Company adopted the provisions of
EITF 06-10 on January 1, 2008 and management determined that adoption will not
have a material impact on the financial position, results of operations or cash
flows of the Company.

WHERE YOU CAN FIND
MORE INFORMATION

Under the
Securities Exchange Act of 1934 Sections 13 and 15(d), periodic and current
reports must be filed with the SEC. The Company electronically files the
following reports with the SEC: Form 10-K (Annual Report), Form 10-Q (Quarterly
Report), Form 8-K (Current Report), insider ownership reports and Form DEF 14A
(Proxy Statement). The Company may file additional forms. The SEC maintains an
Internet site, www.sec.gov, in which all forms filed electronically may be
accessed free of charge.

The
Company links these reports to its website (www.pacificstatebank.com) as soon
as reasonably practicable after filing them with the SEC. None of the
information on or hyperlinked from the Companys website is incorporated into
this Annual Report on Form 10-K.

8

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ITEM 1A. RISK FACTORS

The Company and its
subsidiary, Pacific State Bank, conduct business in an environment that
includes certain risks described below which could have a material adverse
effect on the Companys business, results of operations, financial
condition, future prospects and stock price. You are also referred to the
matters described under the heading Cautionary Statements
Regarding Forward-Looking Statements, for additional information
regarding factors that may affect the Companys business.

| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Companys business is
  subject to interest rate risk, and variations in interest rates may
  negatively affect its financial performance.

Changes
in the interest rate environment may reduce the Companys net interest
income. It is expected that the Company will continue to realize
income from the differential or spread between the interest earned on
loans, securities and other interest-earning assets, and interest paid on
deposits, borrowings and other interest-bearing liabilities. Net interest
spreads are affected by the difference between the maturities and
repricing characteristics of interest-earning assets and interest-bearing
liabilities. In addition, loan volume and yields are affected by market
interest rates on loans, and rising interest rates generally are
associated with a lower volume of loan originations. We cannot assure you
that we can minimize the Companys interest rate risk. In addition, an
increase in the general level of interest rates may adversely affect the
ability of certain borrowers to pay the interest on and principal of their
obligations. Accordingly, changes in levels of market interest rates could
materially and adversely affect the Companys net interest spread, asset
quality, loan origination volume and overall profitability.

| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company
  faces strong competition from financial service companies and other
  companies that offer banking services, which can hurt Pacific State
  Bancorp business.

The
Companys subsidiary, Pacific State Bank, conducts banking operations
principally in Stockton California and San Joaquin County. Increased
competition in the Banks market may result in reduced loans and deposits.
Ultimately, it may not be able to compete successfully against current and
future competitors. Many competitors offer the banking services that are
offered by the Bank in its service area. These competitors include
national and super-regional banks, finance companies, investment banking
and brokerage firms, credit unions, government-assisted farm credit
programs, other community banks and technology-oriented financial
institutions offering online services. In particular, the Banks
competitors include several major financial companies whose greater
resources may afford them a marketplace advantage by enabling them to
maintain numerous banking locations and mount extensive promotional and
advertising campaigns. Additionally, banks and other
financial institutions with larger capitalization and financial
intermediaries not subject to bank regulatory restrictions have larger
lending limits and are thereby able to serve the credit needs of larger
customers. Areas of competition include interest rates for loans and
deposits, efforts to obtain deposits, and range and quality of products
and services provided, including new technology-driven products and
services. Technological innovation continues to contribute to greater
competition in domestic and international financial services markets as technological
advances, such as Internet-based banking services that cross traditional
geographic bounds, enable more companies to provide financial services. If
the Bank is unable to attract and retain banking customers, it may be
unable to continue its loan growth and level of deposits, which may
adversely affect its and the Companys results of operations, financial
condition and future prospects.

| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Changes in economic
  conditions could result in an economic downturn in Northern California
  which could adversely affect the Companys business.

The
Companys business is directly affected by factors such as economic, political
and market conditions, broad trends in industry and finance, legislative
and regulatory changes, changes in government monetary and fiscal policies
and inflation, all of which are beyond the Companys control.
A deterioration in economic conditions locally, regionally or nationally
including as the result of terrorist activities within and outside
California could result in an economic downturn in Northern California and
trigger the following consequences, any of which could adversely affect
the Companys business:

| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | loan delinquencies and
  defaults may increase;                                                                                                                                       
| |   |                                                                                                                                                                                       
| |  | problem assets and
  foreclosures may increase;                                                                                                                                       
| |   |                                                                                                                                                                                       
| |  | demand for the Companys
  products and services may decline;                                                                                                                         
| |   |                                                                                                                                                                                       
| |  | low cost or non-interest
  bearing deposits may decrease; and                                                                                                                         
| |   |                                                                                                                                                                                       
| |  | collateral for loans may
  decline in value, in turn reducing customers borrowing power, and reducing
  the value of assets and collateral as sources of repayment of existing loans.

The Company has a
  concentration risk in real estate related loans. For more information on the
  Companys real estate concentration risk, see Note 4 of the Companys annual
  report filed as exhibit 13 herein.

9

---



At
December 31, 2007, approximately 64% of the Companys loan portfolio consisted
of real estate related loans. Substantially all of the Companys real
property collateral is located in its operating markets in Stockton,
California and San Joaquin County. A substantial decline in real estate values
in the Companys primary market areas could occur as a result of an
economic downturn, or other events including natural disasters such as
earthquakes, fires, and floods. Such a decline in values could have an
adverse impact on the Company by limiting repayment of defaulted loans
through sale of the real estate collateral and by likely increasing the
number of defaulted loans to the extent that the financial condition of
its borrowers is adversely affected by such a decline in values. Those
events could necessitate a significant increase in the provision for loan
and lease losses which could adversely affect the Companys results
of operations, financial condition, and future prospects.

| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | The Company and its
  subsidiary Bank are subject to extensive regulation, which could adversely
  affect its business.

The
Companys and the Banks operations are subject to extensive regulation by
state and local governmental authorities and are subject to various laws
and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. The Company believes that
it and its subsidiary Bank are in substantial compliance in all material
respects with laws, rules and regulations applicable to the conduct of its
business. Because the Companys business is highly regulated, the laws,
rules and regulations applicable to it are subject to regular
modification and change. There can be no assurance that these laws, rules
and regulations, or any other laws, rules or regulations, will not be
adopted in the future, which could make compliance much more difficult or
expensive, restrict the Companys ability to originate, broker or sell loans,
further limit or restrict the amount of commissions, interest or other
charges earned on loans originated or sold by the Company, or otherwise
adversely affect the Companys results of operations, financial condition,
or future prospects.

| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | The Companys allowance
  for loan losses may not be adequate to cover actual losses.

Like
all financial institutions, the Company maintains an allowance for loan
losses to provide for loan defaults and non-performance, but its allowance
for loan losses may not be adequate to cover actual loan losses. In
addition, future provisions for loan losses could materially and adversely
affect the Companys operating results. The Companys allowance for loan
losses is based on prior experience, as well as an evaluation of the risks
in the current portfolio. The amount of future losses is susceptible to
changes in economic, operating and other conditions, including changes
in interest rates that may be beyond the Companys control, and
these losses may exceed current estimates. Federal regulatory agencies, as
an integral part of their examination process, review the Companys loans
and allowance for loan losses. Although we believe that the Companys allowance
for loan losses is adequate to cover current losses, we cannot assure you
that it will not further increase the allowance for loan losses or that
regulators will not require it to increase this allowance. Either of these
occurrences could materially and adversely affect the Companys earnings.
For more information on the Companys allowance for loan losses, see Note 4 of
the Companys annual report filed as exhibit 13 herein.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not
applicable

ITEM
2. PROPERTIES

The Company owns its March
Lane (Stockton), Modesto, Groveland, Angels Camp, Arnold and Hayward branch
facilities. The Company purchased the March Lane office for $866,700 in 1992.
The Companys executive officers and support staff were located in the March
Lane building from 1997 to 2004. During 2001 the Company purchased an adjacent building
to the March Lane office, for $747,000, in order to expand its administrative
functions. The executive offices, finance department, central operations and
data processing were moved into these offices in 2004. The Company repossessed
the Modesto building and converted it to a banking branch in 1996. The Modesto
land was purchased in 1999 for $524,000. The Company purchased the Arnold
Branch for $600,000 as part of its 1997 expansion into branches acquired from
Valliwide Bank. A portion of the building, located at 1013 Blagen Road, is
leased to First American Title. The lease is expected to generate $10,000 in
2008. During 2000 the Company purchased a lot in Groveland and purchased a lot
in Angels Camp in order to build and relocate the current Branch offices. These
sites offer the Company better visibility and demonstrate commitment to the
communities we serve. The Groveland property was purchased for $148,000 and
construction was completed in January 2003. The Angels Camp property was
purchased for $200,000 and was completed in the third quarter of 2003. The
Company purchased the building in Hayward for $1,800,000 in July 2006 and
purchased land on East March Lane in Stockton for $728,000 in June of 2007 to
construct a new branch building intended for use when the downtown Stockton
office lease expires in September 2008.

10

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The
Company holds additional premises under lease which are presented below:

| |  |   |                                                                                                                                                                                                                                                     
| |  | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | The Company is currently
  in the last year of a sixteen-year gross level lease for its main office
  located in downtown Stockton. At the end of the lease, the branch will be
  relocated to a location on East March Lane in Stockton.           
| |  |   |                                                                                                                                                                                                                                                     
| |  |  | In 1999, the Company
  entered into a 10-year lease with two options to extend for an additional 5
  years each for the building in Tracy.                                                                                                          
| |  |   |                                                                                                                                                                                                                                                     
| |  |  | In 2005, the Company
  entered into a 10-year lease with four options to extend for an additional 5
  years each for the building in Lodi. The annual rent commenced in 2006 upon
  completion of the building and occupation by Pacific State Bank.

ITEM
3. LEGAL PROCEEDINGS.

There are no material
pending legal proceedings, other than ordinary routine litigation incidental to
its business, to which the Company is a party or of which any of its property
is the subject.

ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to
vote of the security holders during the fourth quarter of the period covered by
this report.

Item (*) Executive Officers of
the Registrant.

The following table presents certain information regarding the
executive officers of the Company:

|                |     |  |                            |      
|--------------- | --- |  | -------------------------- | -----
|NAME            | AGE |  | POSITION(S)                | SINCE
|Steven A. Rosso | 53  |  | President and CEO/Director | 1992 
|Gary A. Stewart | 58  |  | Executive VP/CCO/Director  | 1996 
|JoAnne Roberts  | 51  |  | Vice
  President/CFO       | 2004 

(*) Included pursuant to
General Instruction (G)(3).

11

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PART II

|        |                                                                                                             
|------- | ------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

See
information under the caption Market Price for Registrants Common Equity,
Dividends and Related Stockholder Matters in the Companys 2007 Annual Report
to Shareholders, which information is incorporated here by reference.

|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA

See
information under the caption Selected Financial Data in the Companys 2007
Annual Report to Shareholders, which information is incorporated here by
reference.

|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.

See
information under the caption Managements Discussion and Analysis of
Financial Condition and Results of Operation in the Companys 2007 Annual
Report to Shareholders which information is incorporated here by reference.

|         |                                                           
|-------- | ----------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISLOSURES ABOUT MARKET RISK.

See
information under the caption Liquidity and Market Risk and Net Interest
Income Simulation in the Companys 2007 Annual Report to Shareholders which
information is incorporated here by reference.

|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Report of
Independent Registered Public Accounting Firm, Consolidated Balance Sheet,
Consolidated Statement of Income, Consolidated Statement of Changes in
Shareholders Equity, Statement of Cash Flows and Notes to Consolidated
Financial Statements, all contained in the Companys 2007 Annual Report to
Shareholders, which information is incorporated here by reference.

|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None

|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

The management of Pacific
State Bancorp, Inc. (the Company) is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rule 13a-15(f). The Companys internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the
financial statements for external purposes in accordance with generally
accepted accounting principles. The Companys internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, and that
receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Companys assets that could have a
material effect on the financial statements.

The
Chief Executive Officer and Chief Financial Officer of the Company have concluded, based
on their evaluation as of the end of the period covered by this Annual Report on Form
10-K, that the Companys disclosure controls and procedures are effective to ensure
that information required to be disclosed by the Company in the reports filed or submitted
by it under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and include controls and procedures designed to ensure
that information required to be disclosed by the Company in such reports is accumulated
and communicated to the Companys management, including the Companys Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. The design of any system of controls is based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.

There
were no significant changes in the Companys internal controls or in other factors
during the last quarter of 2007 that have materially affected, or are reasonably likely to
materially affect, the Companys internal controls over financial reporting.

12

---



Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. All internal
control systems, no matter how well designed, have inherent limitations,
including the possibility of human error and the circumvention of overriding
controls. Accordingly, even an effective system of internal control over
financial reporting can provide only reasonable assurance with respect to
financial statement preparation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that degree of
compliance with the policies or procedures may deteriorate.

Management
has assessed the effectiveness of the Companys internal control over financial
reporting as of December 31, 2007, based on the framework set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal ControlIntegrated Framework. Based on that assessment, management
concludes that, as of December 31, 2007, the Companys internal control over
financial reporting is effective.

|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION

None

13

---



PART III

Certain
information required by Part III is incorporated by reference from the
Companys definitive Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the solicitation of proxies for the
Companys 2008 Annual Meeting of Shareholders (the Proxy Statement).

|         |                                                        
|-------- | -------------------------------------------------------
|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE.

The
information required by this item is incorporated by reference from (i) the
table of directors and information under the heading Corporate Governance. in
the Proxy Statement and (ii) information under the heading Shareholder
Relations in the Companys 2007 Annual Report to Shareholders as set forth in
Exhibit 13 filed herewith.

|         |                        
|-------- | -----------------------
|ITEM 11. | EXECUTIVE COMPENSATION.

The
information required by this item is incorporated by reference from the Proxy
Statement, including all information under the caption Executive Compensation
..

|         |                                                                                                  
|-------- | -------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
  RELATED STOCKHOLDER MATTERS.

The
information required by this item is incorporated by reference from the Proxy
Statement, including information under the captions Principal Shareholders
and Stock Ownership of Management.

|         |                                                                           
|-------- | --------------------------------------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The
information required by this item is incorporated by reference from the Proxy
Statement, including all information under the subheadings Director
Independence and Transactions with Management.

|         |                                        
|-------- | ---------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTING FEES
AND SERVICES.

The information
required by this item is incorporated by reference from the Proxy Statement,
including all information under the subheading Principal Accounting
Fees and Services.

14

---



PART IV

|        |                                         
|------- | ----------------------------------------
|ITEM 15 | EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a)(1)

The
following financial statements of the Company included in the Annual Report to
Shareholders for the year ended December 31, 2007, are filed and incorporated
by reference in Item 8 of this report.

| |     |                                                                                                                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | (i) Report of
  Independent Registered Public Accounting Firm, dated March 28, 2008.                                                                                                              
| |     |                                                                                                                                                                                                   
| |     | (ii) Consolidated
  Balance Sheet, December 31, 2007 and 2006.                                                                                                                                    
| |     |                                                                                                                                                                                                   
| |     | (iii) Consolidated
  Statement of Income: Years ended December 31, 2007, 2006 and 2005.                                                                                                           
| |     |                                                                                                                                                                                                   
| |     | (iv) Consolidated
  Statement of Changes in Shareholders Equity: Years ended December 31, 2007,
  2006 and  2005.                                                                                
| |     |                                                                                                                                                                                                   
| |     | (v) Consolidated
  Statement of Cash Flows: Years ended December 31, 2007, 2006 and 2005.                                                                                                         
| |     |                                                                                                                                                                                                   
| |     | (vi) Notes to
  Consolidated Financial Statements.                                                                                                                                                
| |     |                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                   
| | (2) | All Schedules
  have been omitted because they are not applicable or not required or because
  the information is included in the financial statements or the notes thereto
  or is not material. 
| |     |                                                                                                                                                                                                   
| | (3) | Exhibits
  filed with this report are listed in the Index to Exhibits below, which is
  incorporated herein by reference.                                                                         
| |     |                                                                                                                                                                                                   
| | (b) | The Exhibits
  listed on the Index of Exhibits are filed and incorporated here by reference.                                                                                                      
| |     |                                                                                                                                                                                                   
| | (c) | All
  Schedules have been omitted because they are not applicable or not required,
  or because the information is included in the financial statements or the
  notes thereto or is not material.

15

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SIGNATURES

Pursuant
to the requirements of Section 13 of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                      |                        |                                    | 
|--------------------- | ---------------------- | ---------------------------------- | 
|                      |                       
|Date: March
 28, 2008 | PACIFIC STATE
 BANCORP
|                      |                       
|                      |                        | By: /s/
 Steven A. Rosso          
|                      |                        |                                    | 
|                      |                        | Steven A.
 Rosso                  
|                      |                        | President/Chief
 Executive Officer

Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|      |                 |         |                                                | 
|----- | --------------- | ------- | ---------------------------------------------- | 
|Date: | March 28,
 2008 | By: /s/ | Steven A.
 Rosso                              
|      |                 |         |                                               
|      |                 |         | Steven A.
 Rosso                              
|      |                 |         | President
 and Chief Executive Officer        
|      |                 |         | Director                                      
|      |                 |         |                                               
|Date: | March 28,
 2008 | By: /s/ | JoAnne
 Roberts                               
|      |                 |         |                                               
|      |                 |         | JoAnne Roberts                                
|      |                 |         | Vice
 President/CFO                           
|      |                 |         | (Principal
 Financial Officer)                
|      |                 |         | (Principal
 Accounting Officer)               
|      |                 |         |                                               
|Date: | March 28,
 2008 | By: /s/ | Michael L.
 Dalton                            
|      |                 |         |                                               
|      |                 |         | Michael L.
 Dalton                            
|      |                 |         | Director and
 Vice Chairman                   
|      |                 |         | Chairman of
 the Audit Committee              
|      |                 |         |                                               
|Date: | March 28,
 2008 | By: /s/ | Harold Hand                                   
|      |                 |         |                                               
|      |                 |         | Harold Hand                                   
|      |                 |         | Director and
 Chairman of the Board           
|      |                 |         |                                               
|Date: | March 28,
 2008 | By: /s/ | Patricia A.
 Hatton                           
|      |                 |         |                                               
|      |                 |         | Patricia A.
 Hatton                           
|      |                 |         | Director and
 Chairperson of the Director Loan
|      |                 |         | Committee                                     
|      |                 |         |                                               
|Date: | March 28,
 2008 | By: /s/ | Steven J.
 Kikuchi                            
|      |                 |         |                                               
|      |                 |         | Steven J.
 Kikuchi                            
|      |                 |         | Director and
 Secretary of the Board          
|      |                 |         |                                               
|Date: | March 28,
 2008 | By: /s/ | Maxwell
 Freeman                              
|      |                 |         |                                               
|      |                 |         | Maxwell
 Freeman                              
|      |                 |         | Director                                      
|      |                 |         |                                               
|Date: | March 28,
 2008 | By: /s/ | Yoshikazu
 Mataga                             
|      |                 |         |                                               
|      |                 |         | Yoshikazu
 Mataga                             
|      |                 |         | Director                                      

16

---



|      |                 |         |                               | 
|----- | --------------- | ------- | ----------------------------- | 
|Date: | March 28,
 2008 | By: /s/ | Gary A.
 Stewart             
|      |                 |         |                              
|      |                 |         | Gary A.
 Stewart             
|      |                 |         | Executive
 Vice President/CLO
|      |                 |         | Director                     
|      |                 |        
|Date: | March 28,
 2008 | By: /s/ | Kathleen
 Verner             
|      |                 |         |                              
|      |                 |         | Kathleen
 Verner             
|      |                 |         | Director                     
|      |                 |        
|Date: | March 28,
 2008 | By: /s/ | Russell G.
 Munson           
|      |                 |         |                              
|      |                 |         | Russell G.
 Munson           
|      |                 |         | Director                     

17

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LIST OF EXHIBITS

|        |  |                                                                                                                                                                                                                                                                                             
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1     |  | Articles of
 Incorporation, as amended. Incorporated by reference from Exhibit 3.1 filed
 with the Companys Form 10-K for the year ended December 31, 2004.                                                                                                                                
|       
|3.2     |  | Bylaws.
 Incorporated by reference from Exhibit 3.2 filed with the Companys
 Registration Statement No. 333-84908 on Form S-4EF (the S-4).                                                                                                                                               
|       
|4       |  | Agreement to
 file copy of Indenture for the Companys $3.5 Million of Floating Rate Junior
 Subordinated Deferrable Interest Debentures due 2034 issued to Pacific State
 Statutory Trust II. Incorporated by reference from the Companys Form 10-K
 for the year ended December 31, 2003.
|       
|4.1     |  | Agreement to
 file copy of Indenture for the Companys $5 Million of Floating Rate Junior
 Subordinated Deferrable Interest Debentures due 2037 issued to Pacific State
 Statutory Trust III.                                                                                               
|       
|10.1    |  | Lease
 Agreement for Main Office. Incorporated by reference from Exhibit 10.1 filed
 with the S-4.                                                                                                                                                                                          
|       
|10.2    |  | Lease
 Agreement for Lodi Office. Incorporated by reference from Exhibit 10.2 to the
 Companys Form 10-K for the year ended December 31, 2005 (the 2005 10-K).                                                                                                                           
|       
|10.3    |  | Lease
 Agreement, Tracy Branch Office. Incorporated by reference from Exhibit 10.3
 filed with the S-4.                                                                                                                                                                                     
|       
|       
|10.4*   |  | Employment
 Agreement (Steven A. Rosso) dated October 20, 2005. Incorporated by reference
 from Exhibit 10.4 to the 2005 10-K.                                                                                                                                                              
|       
|10.5.1* |  | Form of
 Salary Continuation Agreement. Incorporated by reference from Exhibit 10.5.1
 to the 2005 10-K .                                                                                                                                                                                   
|       
|10.5.2* |  | Form of Split
 Dollar Agreement. Incorporated by reference from Exhibit 10.5.2 to the 2005
 10-K.                                                                                                                                                                                           
|       
|10.5.3  |  | Form of
 Salary Continuation Agreement.                                                                                                                                                                                                                                                     
|       
|10.5.4  |  | Form of
 Split Dollar Agreement.                                                                                                                                                                                                                                                            
|       
|10.6*   |  | 1997 Stock
 Option Plan. Incorporated by reference from Exhibit 10.6 filed with the
 Companys Quarterly Report on Form 10-Q for the quarterly period ending
 September 30, 2003.                                                                                                           
|       
|13      |  | The portions
 of the Pacific State Bancorp 2007 Annual Report to Shareholders which have
 been incorporated by reference in Items 5-8 herein are filed with the
 Commission.                                                                                                                
|       
|21      |  | List of
 Subsidiaries                                                                                                                                                                                                                                                                       
|       
|23      |  | Consent of
 Independent Registered Public Accounting Firm                                                                                                                                                                                                                                   
|       
|31.1    |  | Certification
 of the Chief Executive Officer (section 302 of Sarbanes-Oxley Act).                                                                                                                                                                                                          
|       
|31.2    |  | Certification
 of the Chief Financial Officer (section 302 of Sarbanes-Oxley Act).                                                                                                                                                                                                          
|       
|32.1    |  | Certification
 of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act.                                                                                                                                                                                                
|       
|32.2    |  | Certification
 of Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act                                                                                                                                                                                                 
|       
|*       |  | Denotes
 management contract or compensatory arrangement                                                                                                                                                                                                                                    

18

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