UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________

FORM 10-Q

__________________

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

For the quarterly period ended June 30, 2008

Commission file number: 000-52098

__________________

CHINO COMMERCIAL BANCORP

(Exact name of registrant as specified in its charter)

__________________

California
     
     20-4797048State of incorporation
     
     I.R.S. EmployerIdentification Number14345 Pipeline AvenueChino, California
     
     91710Address of Principal Executive Offices
     
     Zip Code


(909) 393-8880

Registrants telephone number, including area code

__________________

Check whether the issuer (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. þYes  ̈No

Indicate by check mark whether the registrant is a large accelerated files, an accelerated filer, or non-accelerated filer, or a smaller reporting company.

Large accelerated filer  ̈Accelerated filer  ̈Non-accelerated filer  ̈Smaller Reporting Company þ

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

On August 4, 2008, there were 699,798 shares of Chino Commercial Bancorp Common Stock outstanding.

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|TABLE OF CONTENTS                                                                         |  |       
|----------------------------------------------------------------------------------------- |  | ------
|                                                                                         
|                                                                                         
|Page                                                                                     
|Part I  Financial Information                                                            |  | 3     
|Item 1. Financial Statements                                                              |  | 3     
|Consolidated Balance Sheets                                                               |  | 3     
|Consolidated Statements of Income                                                         |  | 4     
|Consolidated Statements of Cash Flows                                                     |  | 5     
|Notes to the Financial Statements                                                         |  | 6     
|                                                                                         
|Item 2. Managements Discussion & Analysis of Financial Condition & Results of Operations |  | 9     
|Item 3. Qualitative & Quantitative Disclosures about Market Risk                          |  | 27    
|Item 4. Controls and Procedures                                                           |  | 27    
|                                                                                         
|Part II  Other Information                                                               |  | 28    
|Item 1  Legal Proceedings                                                                |  | 28    
|Item 1A.  Risk Factors                                                                   |  | 28    
|Item 2  Unregistered Sale of Equity Securities and Use of Proceeds                       |  | 28    
|Item 3  Defaults upon Senior Securities                                                  |  | 28    
|Item 4  Submission of Matters to Vote of Security Holders                                |  | 28    
|Item 5  Other Information                                                                |  | 28    
|Item 6  Exhibits                                                                         |  | 29    
|                                                                                         
|                                                                                         
|Signatures                                                                                |  | **30**

2

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|PART 1  FINANCIAL INFORMATION                                                        
|--------------------------------------------------------------------------------------
|Item 1                                                                                
|                                                                                      
|CHINO COMMERCIAL BANCORP                                                              
|CONSOLIDATED BALANCE SHEETS                                                           
|                                                                                      
|                                                                                      
|                                                                                      
|ASSETS:                                                                               
|Cash and due from banks                                                               
|Federal funds sold                                                                    
|Cash and cash equivalents                                                             
|                                                                                      
|Interest-bearing deposits in other banks                                              
|                                                                                      
|Investment securities available for sale                                              
|Investment securities held to maturity (fair value approximates                       
|$3,488,000 at June 30, 2008 and $3,880,000 at December 31, 2007)                      
|Total investments                                                                     
|Loans                                                                                 
|Construction                                                                          
|Real estate                                                                           
|Commercial                                                                            
|Installment                                                                           
|Gross loans                                                                           
|Unearned fees and discounts                                                           
|Loans net of unearned fees and discount                                               
|Allowance for loan losses                                                             
|Net loans                                                                             
|                                                                                      
|Accrued interest receivable                                                           
|Restricted stock                                                                      
|Fixed assets, net                                                                     
|Prepaid & other assets                                                                
|Total assets                                                                          
|                                                                                      
|LIABILITIES:                                                                          
|Deposits                                                                              
|Non-interest bearing                                                                  
|Interest Bearing                                                                      
|NOW and money market                                                                  
|Savings                                                                               
|Time deposits less than $100,000                                                      
|Time deposits of $100,000 or greater                                                  
|Total deposits                                                                        
|                                                                                      
|Accrued interest payable                                                              
|Accrued expenses & other payables                                                     
|Subordinated debentures                                                               
|Total liabilities                                                                     
|STOCKHOLDERS' EQUITY                                                                  
|Common stock, authorized 10,000,000 shares with no par value, issued                  
|and outstanding 699,798 shares and 704,278 shares at June 30, 2008                    
|and December 31, 2007, respectively.                                                  
|Retained earnings                                                                     
|Accumulated other comprehensive loss                                                  
|Total equity                                                                          
|Total liabilities & stockholders' equity                                              
|                                                                                      
|The accompanying notes are an integral part of these consolidated financial statements

3

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|CHINO COMMERCIAL BANCORP                                                              
|--------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF INCOME                                                     
|(unaudited)                                                                           
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Interest income                                                                       
|Investment securities and due from banks                                              
|Interest on Federal funds sold                                                        
|Interest and fee income on loans                                                      
|Total interest income                                                                 
|Interest expense                                                                      
|Deposits                                                                              
|Interest on Federal funds purchased                                                   
|Other borrowings                                                                      
|Total interest expense                                                                
|Net interest income                                                                   
|Provision for loan losses                                                             
|Net interest income after                                                             
|provision for loan losses                                                             
|Non-interest income                                                                   
|Service charges on deposit accounts                                                   
|Other miscellaneous fee income                                                        
|Dividend income from restricted stock                                                 
|Income from bank owned life insurance                                                 
|Total non-interest income                                                             
|General and administrative expenses                                                   
|Salaries and employee benefits                                                        
|Occupancy and equipment                                                               
|Data and item processing                                                              
|Advertising and marketing                                                             
|Legal and professional fees                                                           
|Regulatory Assessments                                                                
|Insurance                                                                             
|Directors' fees and expenses                                                          
|Other expenses                                                                        
|Total general & administrative expenses                                               
|Income before income tax expense                                                      
|Income tax expense                                                                    
|Total income                                                                          
|Basic earnings per share                                                              
|Diluted earnings per share                                                            
|                                                                                      
|The accompanying notes are an integral part of these consolidated financial statements

4

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|CHINO COMMERCIAL BANCORP                                                              
|--------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                 
|(unaudited)                                                                           
|                                                                                      
|                                                                                      
|Cash Flows from Operating Activities                                                  
|Net income                                                                            
|Adjustments to reconcile net income to net cash provided                              
|by operating activities:                                                              
|Provision for loan losses                                                             
|Depreciation and amortization                                                         
|Amortization on investment securities (net)                                           
|Amortization of deferred loan costs, net                                              
|Stock-based compensation expense                                                      
|Loss on disposition of equipment                                                      
|Net changes in:                                                                       
|Accrued interest receivable                                                           
|Other assets                                                                          
|Accrued interest payable                                                              
|Other liabilities                                                                     
|Net cash provided by operating activities                                             
|                                                                                      
|Cash Flows from Investing Activities                                                  
|Activity in available for sale investment securities:                                 
|Purchases                                                                             
|Repayments and calls                                                                  
|Activity in held to maturity investment securities:                                   
|Repayments and calls                                                                  
|Net change in interest-bearing deposits in other banks                                
|Purchase of stock investments, restricted                                             
|Loan originations and principal collections, net                                      
|Purchase of premises and equipment                                                    
|Net cash provided by investing activities                                             
|                                                                                      
|Cash Flows from Financing Activities                                                  
|Net increase (decrease) in deposits                                                   
|Proceeds from the exercise of stock options                                           
|Payments for stock repurchases                                                        
|Net cash used in financing activities                                                 
|Net increase in cash and cash equivalents                                             
|                                                                                      
|Cash andCash Equivalents at Beginning of Period                                       
|Cash andCash Equivalents at End of Period                                             
|                                                                                      
|Supplemental Information                                                              
|Interest paid                                                                         
|Income taxes paid                                                                     
|                                                                                      
|The accompanying notes are an integral part of these consolidated financial statements

5

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|CHINO COMMERCIAL BANCORPNOTES TO CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2008
|-------------------------------------------------------------------------------

Note 1  The Business of Chino Commercial Bancorp

Chino Commercial Bancorp (the Company) is a California corporation registered as a bank holding company under the Bank Holding Company Act of 1956, as amended, and is headquartered in Chino, California. The Company was incorporated in March 2006 and acquired all of the outstanding shares of Chino Commercial Bank, N.A. (the Bank) effective July 1, 2006. The Companys principal subsidiary is the Bank, and the Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish. The Companys principal source of income is dividends from the Bank, although supplemental sources of income may be explored in the future. The expenditures of the Company, including (but not limited to) the payment of dividends to shareholders, if and when declared by the Board of Directors, the cost of servicing debt, legal fees, audit fees, and shareholder costs will generally be paid from dividends paid to the Company by the Bank.

The Companys only other direct subsidiary is Chino Statutory Trust I, which was formed on October 25, 2006 solely to facilitate the issuance of capital trust pass-through securities. This additional regulatory capital enhances the Companys ability to maintain favorable risk-based capital ratios. Pursuant to FASB Interpretation No. 46,Consolidation of Variable Interest Entities(FIN 46), Chino Statutory Trust I is not reflected on a consolidated basis in the financial statements of the Company.

The Companys Administrative Offices are located at 14345 Pipeline Avenue, Chino, California and the telephone number is (909) 393-8880. References herein to the Company include the Company and its consolidated subsidiary, unless the context indicates otherwise.

The Bank is a national bank which was organized under the laws of the United States in December 1999 and commenced operations on September 1, 2000. The Bank operates two full-service banking offices. The Banks main branch office and administrative offices are located at 14345 Pipeline Avenue, Chino, California. On January 5, 2006 the Bank opened its Ontario branch located at 1551 South Grove Avenue, Ontario, California. As a community-oriented bank, the Bank offers a wide array of commercial and consumer services which would generally be offered by a locally-managed, independently-operated bank.

Note 2  Basis of Presentation

The accompanying unaudited consolidated financial statements for the three and six months ended June 30, 2008 and 2007 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements. They do not, however, include all of the information and footnotes required by such accounting principles for complete financial statements. In the opinion of management, all adjustments including normal recurring accruals considered necessary for a fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for any other interim period or for the year as a whole. Certain prior period amounts have been reclassified to conform to current period classification. The interim financial information should be read in conjunction with the Companys Annual Report on Form 10-KSB, as amended, for the year ended December 31, 2007 as filed with the Securities and Exchange Commission (SEC).

Note 3  Recent Accounting Pronouncements:

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157,Fair Value Measurements,which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but applies under other existing accounting pronouncements that require or permit fair value measurements. SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement and, therefore, should be determined based on the assumptions that market participants would use in pricing that asset or liability. SFAS No. 157 also establishes a fair value hierarchy that distinguishes between

6

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market participant assumptions developed based on market data obtained from independent sources and the Companys own assumptions about market participant assumptions based on the best information available. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years with earlier adoption permitted. The adoption of SFAS No. 157 did not have an impact on the Companys consolidated financial statements and results of operations.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities  including an amendment of FASB Statement No. 115which is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has decided not to adopt SFAS No. 159.

In September 2006, the Emerging Issues Task Force (EITF) reached a final consensus on Issue No. 06-4 (EITF 06-4), Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. EITF 06-4 requires employers to recognize a liability for future benefits provided through endorsement split-dollar life insurance arrangements that extend into postretirement periods in accordance with SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions or APB Opinion No. 12, Omnibus Opinion  1967. The provisions of EITF 06-4 became effective for the Company on January 1, 2008 and were to be applied as a change in accounting principle either through a cumulative-effect adjustment to retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the year of adoption; or through retrospective application to all prior periods. The Company adopted EITF 06-4 and recorded a cumulative-effect adjustment of $24,693 to retained earnings in the first quarter of 2008. Beginning January 1, 2008, a monthly charge to expense of approximately $765 is made to recognize the liability for future benefits.

Note 4  Stock Based Compensation

Under the Companys stock option plan, the Company may grant incentive stock options to officers and employees, and non-qualified stock options to its directors, officers and employees. At June 30, 2008 and 2007, there were 108,405 options available for granting. At June 30, 2008 and 2007, there were 113,433 options outstanding. The Plan provides that the exercise price of these options shall not be less than the market price of the common stock on the date granted. Incentive options begin vesting after one year from date of grant at a rate of 33% per year. Non-qualified options vest as follows: 25% on the date of the grant, and 25% per year thereafter. All options expire 10 years after the date of grant. Effective January 1, 2006, the Company adopted SFAS No. 123(R),Share-Based Payment,which requires that compensation cost relating to share-based payment transactions be recognized in the financial statements with measurement based upon the fair value of the equity or liability instruments issued.

The most recent grant of options occurred in 2003. All compensation expense associated with those grants were fully expensed as of December 31, 2006.

Note 5 - Earnings per share (EPS)

Basic EPS excludes dilution and is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in earnings.

The basic and diluted earnings per share are as follows:

7

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|                           |  | Earnings per share Calculation     
|-------------------------- |  | -----------------------------------
|                           |  | For the three months ended June 30,
|                           |  | 2008                               
|                           |  | Weighted                           
|                           |  | Net                                
|                           |  | Income                             
|                          
|Basic earnings             |  | $ 146,405                          
|                          
|Effect of dilutive shares: |  |                                    
|assumed exercise of        |  |                                    
|outstanding options        |  |                                    
|                          
|Diluted earnings per share |  | $ 146,405                          
|                          
|                           |  | Earnings per share Calculation     
|                           |  | For the six months ended June 30,  
|                           |  | 2008                               
|                           |  |                                    
|                           |  | Net                                
|                           |  | Income                             
|                          
|Basic earnings             |  | $ 187,876                          
|                          
|Effect of dilutive shares: |  |                                    
|assumed exercise of        |  |                                    
|outstanding options        |  |                                    
|                          
|Diluted earnings per share |  | $ 187,876                          

Note 6 - Off-Balance-Sheet Commitments

The Company is a party to credit-related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to grant loans, unadvanced lines of credit, standby letters of credit and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.

The Companys exposure to credit loss is represented by the contractual amount of these commitments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments. At June 30, 2008 and December 31, 2007, the Company had $6.2 million and $7.6 million, respectively, of off-balance sheet commitments to extend credit. These commitments represent a credit risk to the Company. All of the Companys outstanding loan commitments are supported by notes payable upon demand by the Company. Included in the total off-balance sheet commitments are unadvanced standby letters of credit. At June 30, 2008 and December 31, 2007, the Company had $128,000 and $140,000, respectively, in unadvanced standby letters of credit.

Commitments to grant loans are agreements to lend to customers as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on managements credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, equipment, income-producing commercial properties, residential properties, and properties under construction.

8

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|Item 2MANAGEMENTS DISCUSSION ANDANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
|-----------------------------------------------------------------------------------------

This discussion focuses primarily on the results of operations of the Company and its consolidated subsidiary on a consolidated basis for the three months and six months ended June 30, 2008 and 2007, and the financial condition of the Company as of June 30, 2008 and December 31, 2007.

Managements discussion and analysis is written to provide greater insight into the results of operations and the financial condition of the Company and its subsidiary. For a more complete understanding of the Company and its operations, reference should be made to the consolidated financial statements included in this report and in the Company's 2007 Annual Report on Form 10-KSB, as amended.



|Forward Looking Information
|---------------------------

Certain matters discussed in this report contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the Exchange Act), that involve substantial risks and uncertainties. When used in this report, or in the documents incorporated by reference herein, the words anticipate, believe, estimate, may, intend, expect, and similar expressions identify certain of such forward-looking statements. Actual results could differ materially from such forward-looking statements contained herein. Factors that could cause future results to vary from current expectations include, but are not limited to, the following: changes in economic conditions (both generally and more specifically in the markets in which the Company operates); changes in interest rates, deposit flows, loan demand, real estate values and competition; changes in accounting principles, policies or guidelines and in government legislation and regulation (which change from time to time and over which the Company has no control); other factors affecting the Companys operations, markets, products and services; and other risks detailed in this Form 10-Q and in the Companys other reports filed with the SEC pursuant to the SECs rules and regulations. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect managements analysis only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date thereof.



|Critical Accounting Policies
|----------------------------

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in the Companys financial statements and accompanying notes. Management believes that the judgments, estimates and assumptions used in preparation of the Companys financial statements are appropriate given the factual circumstances as of June 30, 2008.

Various elements of the Companys accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Critical accounting policies are those that involve the most complex and subjective decisions and assessments and have the greatest potential impact on the Companys results of operation. In particular, management has identified one accounting policy that, due to judgments, estimates and assumptions inherent in this policy, and the sensitivity of the Companys financial statements to those judgments, estimates and assumptions, is critical to an understanding of the Companys financial statements. This policy relates to the methodology that determines the Companys allowance for loan losses. Management has discussed the development and selection of this critical accounting policy with the Companys Audit Committee of the Board of Directors. Although Management believes the level of the allowance at June 30, 2008 is adequate to absorb losses inherent in the loan portfolio, a further decline in the regional economy may result in increasing losses that cannot reasonably be predicted at this time. For further information regarding the allowance for loan losses and related methodology see Comparison of Financial Condition at June 30, 2008 and December 31, 2007  Allowance for Loan Losses included elsewhere herein.

9

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Overview of the Results of Operations and Financial Condition

Results of Operations Summary

Second quarter 2008 compared to second quarter 2007

Net income for the quarter ended June 30, 2008 was $146,405 compared with $225,207 for the quarter ended June 30, 2007, a decline of 35.0% . Basic and diluted earnings per share for the second quarter of 2008 were $0.21 and $0.19, respectively, compared to $0.31 and $0.29, respectively, for the second quarter of 2007. The Companys annualized return on average equity was 10.03% and annualized return on average assets was 0.80% for the quarter ended June 30, 2008, compared to a return on average equity of 16.45% and a return on assets of 1.06% for same quarter in 2007. The primary reasons for the change in net income during the second quarter of 2008 are as follows:

| |  | The net interest margin declined from 5.86% to 5.54%, due principally to a drop in the interest rates on      
|- |  | --------------------------------------------------------------------------------------------------------------
|  |  | interest earning assets, an increase in interest bearing deposits to total deposits, and competitive pressures
|  |  | on deposit interest rates. As a result, net interest income decreased $212,144 or 19.1% during the three      
|  |  | months ended June 30, 2008.                                                                                   
| |  | The provision for loan losses increased to $43,773 during the second quarter of 2008, an increase of          
|  |  | $49,022, as compared to a credit of $5,249 for the three months ended June 30, 2007, in part due to the       
|  |  | increase in nonperforming loans (see below), and also looking at a number of economic events occurring in     
|  |  | and around the real estate industries.                                                                        
| |  | Service charge income increased by $57,526 or 29.5% for the second quarter due to increased analysis          
|  |  | charges and returned item charges.                                                                            
| |  | Advertising and marketing expenses decreased $23,059 to $12,786 for the three months ended June 30,           
|  |  | 2008 due to a reduction of marketing campaigns performed during the second quarter of 2008.                   
| |  | Other expenses decreased $18,736, to $147,277 for the second quarter in 2008 compared to the same             
|  |  | quarter in 2007. A major contributor to this decline was the reduction of approximately $11,000 in deposit    
|  |  | products and services expense.                                                                                

First half of 2008 compared to the first half of 2007

Net income for the six months ended June 30, 2008 was $187,876 compared with $402,990 for the first six months of 2007, a decline of 53.4% . Basic and diluted earnings per share for the six months ended June 30, 2008 were $0.27 and $0.25, respectively, compared to $0.54 and $0.50, respectively, for the same period in 2007. Annualized return on average equity was 6.42% and a return on assets of 0.50%, compared to a return on equity of 13.24% and a return on assets of 0.94% for the same period in 2007. The primary reasons for the change in net income during the first half of 2008 are as follows:

| |  | The net interest margin declined from 5.74% to 5.41%, due principally to a drop in the interest rates on      
|- |  | --------------------------------------------------------------------------------------------------------------
|  |  | interest earning assets, an increase in interest bearing deposits to total deposits, and competitive pressures
|  |  | on deposit interest rates. As a result, net interest income decreased $401,835 or 18.4% during the first half 
|  |  | of 2008.                                                                                                      
| |  | The Provisions for Loan Losses increased $217,760 or 359.1% for the six months ended June 30, 2008. The       
|  |  | Company increased its loan loss provision for the first half of 2008 due to credit quality concerns stemming  
|  |  | from deteriorating economic conditions, increased weakness in the real estate sector, and the increase in     
|  |  | nonperforming loans (see below).                                                                              
| |  | Service charge income increased by $112,402 or 30.2% for the first half of 2008, due to an increase volume    
|  |  | subject to analysis charges and returned item charges.                                                        
| |  | For the six months ended June 30, 2008 salaries and benefits decreased $865 or 0.1% as compared with the      
|  |  | first half of 2007. This was due to a decrease in staff from 28 to 26 full-time equivalent employees which    
|  |  | was accomplished through attrition.                                                                           
| |  | Advertising and Marketing expenses decreased $34,756 to $40,615 for the six months ended June 30, 2008        
|  |  | due to decreased marketing campaigns performed during the first half of 2008.                                 
| |  | Legal and professional fees decreased $12,538 to $95,621 for the first half of 2008 due to additional costs   
|  |  | incurred in 2007 for the share repurchase plan that were not repeated in 2008.                                
| |  | Other expenses decreased from $318,948 in the first half of 2007 to $244,751 for the first half of 2008. The  
|  |  | major portion of the decrease is attributed to the reserve for off balance sheet items, which was reduced     
|  |  | approximately $45,000 for the six months ended June 30, 2008.                                                 



|.
|-

10

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Financial Condition Summary

The Companys total assets were $76.0 million at June 30, 2008, a decline of $3.9 million, or 5.0% as compared to total assets of $79.9 million at December 31, 2007. The most significant changes in the Companys balance sheet during the six months ended June 30, 2008 are outlined below:

| |  | Total assets declined from $79.9 million to $76.0 million or 5.0% between December 31, 2007 and June         
|- |  | -------------------------------------------------------------------------------------------------------------
|  |  | 30, 2008, resulting from decreased investment securities and Federal funds sold. Increased funding for       
|  |  | investment securities and Federal funds sold were not available due to reduced deposit balances of a         
|  |  | number of the Companys customers who are engaged in real estate related industries.                         
| |  | Total non-interest bearing deposits decreased from $42.3 million at December 31, 2007 to $37.7 million for   
|  |  | reporting period ended June 30, 2008, a 10.8% decrease. Total deposits decreased from $70.4 million at       
|  |  | December 31, 2007 to $66.4 million at June 30, 2008, or a 5.7% reduction. Deposit balances declined          
|  |  | primarily in the real estate industry related accounts.                                                      
| |  | The Company experienced a decrease in interest-earning assets of $5.7 million or 8.0% to $66.2 million in    
|  |  | the first half of 2008. Federal funds sold and Investment securities decreased $3.1 million and $2.1 million,
|  |  | respectively, in the first half of 2008. No new investment securities have been added in 2008, and the       
|  |  | decreases were caused by maturities and principal payments from investments in Agency Mortgage-backed        
|  |  | securities.                                                                                                  
| |  | Interest-bearing liabilities increased $0.5 million or 1.8% to $28.6 in the six months ended June 30, 2008 as
|  |  | compared to December 31, 2007. The stability in interest-bearing deposits is the result of the Companys     
|  |  | emphasis to attract new customers.                                                                           
| |  | Loan demand has remained relatively stable; however, gross loans decreased $0.5 million, or 1.0% to $52.6    
|  |  | million at June 30, 2008, while undisbursed commitments decreased $1.4 million to $6.2 million at June       
|  |  | 30, 2008.                                                                                                    
| |  | Nonperforming loans were $1.2 million or 2.35% of total loans at June 30, 2008 compared to zero at           
|  |  | December 31, 2007. Non performing loans consist of one construction loan and one commercial loan             
|  |  | secured by real estate with collateral values expected to be sufficient to cover the debts. These            
|  |  | nonperforming loans coupled with the recent down-grade of certain performing loans led Management to         
|  |  | increase its allocation for loan losses during the first half of 2008.                                       



|Earnings Performance
|--------------------

The Company earns income from two primary sources: The first is net interest income, which is interest income generated by earning assets less interest expense on interest-bearing liabilities; the second is non-interest income, which primarily consists of customer service charges and fees but also comes from non-customer sources such as bank-owned life insurance. The majority of the Companys non-interest expenses are operating costs that relate to providing a full range of banking services to the Banks customers.



|Net Interest Income and Net Interest Margin
|-------------------------------------------

The following tables set forth certain information relating to the Company for the three and six months ended June 30, 2008 and 2007. The yields and costs are derived by dividing income or expense by the corresponding average balances of assets or liabilities for the periods shown below. Average balances are derived from average daily balances. Yields include fees that are considered adjustments to yields. The Companys net interest income, net interest margin and interest spread are sensitive to general business and economic conditions, including short-term and long-term interest rates, inflation, monetary supply, and the strength of the economy, and the local economics in which the Company conducts business. When net interest income is expressed as a percentage of average earning assets, the results is the net interest margin.

The tables reflect the Companys average balances of assets, liabilities and shareholders equity; the amount of interest income or interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated:

11

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|Distribution, Yield and Rate Analysis of Net Interest Income
|------------------------------------------------------------
|(dollars in thousands)                                      
|(unaudited)                                                 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|Assets                                                      
|Interest-earnings assets                                    
|Loans1                                                      
|U.S. government agencies securities                         
|Mortgage-backed securities                                  
|Other securities & Due from banks time                      
|Federal funds sold                                          
|Total interest-earning assets                               
|Non-interest earning assets                                 
|Total assets                                                
|                                                            
|Liabilities and Stockholders' Equity                        
|Interest-bearing liabilities                                
|Money market and NOW deposits                               
|Savings                                                     
|Time deposits < $100,000                                    
|Time deposits equal to or > $100,000                        
|Federal funds purchased                                     
|Subordinated debenture                                      
|Total interest-bearing liabilities                          
|Non-interest bearing deposits                               
|Non-interest bearing liabilities                            
|Stockholders' equity                                        
|Total liabilities & stockholders' equity                    
|                                                            
|Net interest income                                         
|                                                            
|Net interest spread2                                        
|Net interest margin3                                        

1Amortization of loan fees has been included in the calculation of interest income. Loan fees were approximately $14,000 for the three months ended June 30, 2008 as compared to $67,000 for the three months ended June 30, 2007.

2Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.

3Represents net interest income as a percentage of average interest-earning assets.

4Average Yield/Rate is based upon actual days based on 365- and 366-day years.

The Companys net interest income for the second quarter of 2008 was $900,476 compared to $1,112,620 in the second quarter of 2007, a decrease of $212,144, or 19.1% . The net interest margin was 5.54% for the three months ended June 30, 2008 as compared to 5.86% for the same period in 2007. Average loans increased $3.8 million or 7.5% for the second quarter of 2008 compared with the same period of 2007. Loan income decreased approximately $26,000. The increase in average loans resulted in approximately $75,000 increase in interest income from loans, while the decrease in interest rate resulted in approximately $101,000 decrease in income. Income from investment securities and due from banks for the quarter ended June 30, 2008 decreased by approximately $50,000 in comparison to the quarter ended June 30, 2007. The primary impact for the decline was due to the decrease in the average balance of investment securities and due from banks of approximately $4.8 million or 34.1% . Average Federal funds sold decreased $9.8 million or 88.9% in the three month period ended June 30, 2008 compared to the three month period ended June 30, 2007. This caused a reduction of interest income from Federal funds sold for the second quarter of 2008 of $137,067, or 95.8% from $142,054 earned in the quarter ended June 30, 2007. This is a direct result of the reduction in deposit account balances compounded by the lowering of Fed fund rates by the

12

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Federal Reserve Board. The average yield for Federal Funds Sold went from 5.22% for the 3 months ended June 30, 2007 to 1.97% for the same period in 2008.

Average interest bearing liabilities decreased approximately $78,000 in the second quarter of 2008 as compared to the second quarter of 2007. The Company also experienced continued migration of deposits to higher yielding accounts resulting in increases in Money market and Time account balances. The decrease in average interest bearing deposits resulted in approximately a $3,000 decrease in interest expense while the increase in interest rates on deposits increased interest expense by approximately $3,000 for second quarter of 2008 as compared to the second quarter of 2007. While loan rates decreased, deposit rates remained relatively unchanged as a result of competitive pressures on deposit interest rates

Distribution, Yield and Rate Analysis of Net Interest Income(dollars in thousands)(unaudited)For the six months ended
     
     For the six months endedJune 30, 2008
     
     June 30, 2007Average
     
     Income/
     
     Average
     
     Average
     
     Income/
     
     AverageBalance
     
     Expense
     
     Yield/Rate4
     
     Balance
     
     Expense
     
     Yield/Rate4AssetsInterest-earnings assetsLoans1
     
     $ 53,775
     
     $ 1,984
     
     7.42%
     
     $ 50,835
     
     $ 2,003
     
     7.94%U.S. government agencies securities
     
     678
     
     15
     
     4.42%
     
     3,609
     
     73
     
     4.07%Mortgage-backed securities
     
     8,352
     
     190
     
     4.56%
     
     9,615
     
     209
     
     4.38%Other securities & Due from banks time
     
     1,486
     
     34
     
     4.55%
     
     2,814
     
     71
     
     5.11%Federal funds sold
     
     2,056
     
     31
     
     3.03%
     
     10,000
     
     260
     
     5.24%Total interest-earning assets
     
     66,347
     
     $ 2,254
     
     6.83%
     
     76,873
     
     $ 2,616
     
     6.86%Non-interest earning assets
     
     8,169
     
     
     
     
     
     9,207Total assets
     
     $ 74,516
     
     
     
     
     
     $ 86,080Liabilities and Stockholders' EquityInterest-bearing liabilitiesMoney market and NOW deposits
     
     $ 23,055
     
     $ 294
     
     2.56%
     
     $ 21,052
     
     $ 245
     
     2.34%Savings
     
     1,225
     
     2
     
     0.25%
     
     1,069
     
     2
     
     0.31%Time deposits < $100,000
     
     2,223
     
     35
     
     3.17%
     
     1,875
     
     29
     
     3.17%Time deposits equal to or > $100,000
     
     2,036
     
     35
     
     3.48%
     
     2,769
     
     50
     
     3.68%Federal funds purchased
     
     61
     
     1
     
     3.23%
     
     0
     
     0
     
     0.00%Subordinated debenture
     
     3,093
     
     102
     
     6.63%
     
     3,093
     
     103
     
     6.68%Total interest-bearing liabilities
     
     31,693
     
     $ 469
     
     2.97%
     
     29,858
     
     $ 429
     
     2.90%Non-interest bearing deposits
     
     36,298
     
     
     
     
     
     49,621Non-interest bearing liabilities
     
     674
     
     
     
     
     
     515Stockholders' equity
     
     5,851
     
     
     
     
     
     6,086Total liabilities & stockholders' equity
     
     $ 74,516
     
     
     
     
     
     $ 86,080Net interest income
     
     
     
     $ 1,785
     
     
     
     
     
     $ 2,187Net interest spread2
     
     
     
     
     
     3.86%
     
     
     
     
     
     3.97%Net interest margin3
     
     
     
     
     
     5.41%
     
     
     
     
     
     5.74%


1Amortization of loan fees has been included in the calculation of interest income. Loan fees were approximately $23,000 for the six months ended June 30, 2008 as compared to $87,000 for the six months ended June 30, 2007. Loans are net of deferred fees and related direct costs.

2Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.

3Represents net interest income as a percentage of average interest-earning assets.

4Average Yield/Rate is based upon actual days based on 365- and 366-day years.

13

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Net interest income for the first half of 2008 was $1,785,061 compared to $2,186,896 in the first half of 2007, a decrease of $401,835, or 18.4% . Interest income decreased $362,261 or 13.8% in the first half of 2008 compared to the same period of 2007, while interest expense increased $39,574 or 9.2% . Interest and fee income from loans decreased during the first half of 2008 to $1,984,365, or 0.9% from $2,002,785 for the same period in 2007 primarily due to rate decreases. Due to the reduction of average deposits and the drop in interest rates, Federal funds sold, Due from banks time, and Investment securities average balances declined as did income from those balances. Interest income from Investment securities and Due from banks time decreased $114,935 or 32.6% to $238,098 for the first half of 2008 compared to the first half of 2007. Interest income from Federal funds sold decreased to $30,978 for the six months ended June 30, 2008 from $259,884 for the same period in 2007.

Interest expense on deposits increased $39,201, or 12.0% to $365,482 for the first half of 2008 compared to the first half of 2007. Average interest bearing deposits to average total deposits increased from 35.0% for the first half of 2007 to 43.8% for the same period in 2008 as deposits continue to migrate to higher yielding accounts. The Companys net interest margin was 5.42% for the six ended June 30, 2008 as compared to 5.75% for the six months ended June 30, 2007.

Rate/Volume Analysis

The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Companys interest income and expense during the periods indicated. The variances attributable to both the volume and rate changes have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amount of the changes in each:

|                                       |  | For the quarter ended      |  | For the six months ended  
|-------------------------------------- |  | -------------------------- |  | --------------------------
|                                       |  | June 30,                   |  | June 30,                  
|                                       |  | 2008 vs. 2007              |  | 2008 vs. 2007             
|                                       |  | Increase (Decrease) Due to |  | Increase (Decrease) Due to
|                                       |  | ($ in thosands)            |  | ($ in thosands)           
|                                       |  | Volume                     |  | Rate                      
|Interest-earnings assets               |  |                            |  |                           
|Loans                                  |  | $75                        |  | ($101)                    
|Securities of U.S. government agencies |  | (30)                       |  | 2                         
|Mortgage-backed securities             |  | (13)                       |  | 3                         
|Other securities & Due from banks time |  | (9)                        |  | (3)                       
|Federal funds sold                     |  | (81)                       |  | (56)                      
|Total interest-earning assets          |  | (59)                       |  | (154)                     
|                                      
|Interest-bearing liabilities           |  |                            |  |                           
|Money market & NOW                     |  | 1                          |  | 4                         
|Savings                                |  | 0                          |  | (0)                       
|Time deposits < $100,000               |  | 3                          |  | (0)                       
|Time deposits equal to or > $100,000   |  | (5)                        |  | (4)                       
|Federal funds purchased                |  | 0                          |  | 1                         
|Subordinated debenture                 |  | 0                          |  | 0                         
|Total interest-bearing liabilities     |  | (1)                        |  | 1                         
|Change in net interest income          |  | ($58)                      |  | ($155)                    

As shown above, the interest income was negatively impacted by the reduction in average interest earning assets which reduced interest income by approximately $59,000 in the second quarter of 2008 relative to the second quarter of 2007. Although the Company experienced $3.7 million, or 7.4% growth in average loans, investment securities and federal funds sold declined $14.5 million, or 56.5%, in the second quarter of 2008 compared to the second quarter of 2007. Interest bearing liabilities remained relatively unchanged; however, non-interest bearing deposits declined $12.6 million, or 25.8% directly affecting funds available for investment.

14

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Interest rate decreases negatively impacted income from average earning assets by approximately $154,000 in the quarter ended June 30, 2008 compared to the same quarter in 2007. The average yield on loans declined from 8.14% for the quarter ended June 30, 2007 to 7.42% for the quarter ended June 30, 2008. Overnight Federal funds sold decreased from an average yield of 5.22% to 1.97% for the same periods. The net interest margin declined from 5.86% to 5.54%, due principally to a drop in the average balance of non-interest bearing demand deposits and competitive pressures on deposit interest rates. As a result, net interest income decreased $401,835 or 18.4% during the first half of 2008, compared to the same period in 2007.

In the first half of 2008, pure volume variances contributed approximately $45,000 to net interest income in the first half of 2008 relative to the first half of 2007. The positive volume variance is the result of growth in the average loan portfolio, as evidenced in the average balances and income reported above. Loan volume contributed approximately $59,000 to net interest income, while declining average balances in investment securities and federal funds sold negatively impacted income approximately $16,000 comparing the first half of 2008 to the same period in 2007.

Interest rate decreases negatively impacted all interest earning assets, resulting in a decrease of approximately $406,000 comparing the six months ended June 30, 2008 to the same period in 2007. The most significant decrease was in Federal funds sold, which negatively affected net interest income by approximately $228,000. The average yield on Federal funds sold was 5.24% for the first half of 2007 compared to 3.03% for the same period in 2008. The overall rate increase for interest bearing liabilities negatively impacted the interest expense by approximately $41,000 for the half of 2008 relative to the first half of 2007. While average interest earning assets experienced a reduction in yield, average interest bearing liabilities experienced an increase in the yield from 2.90% for the period ended June 30, 2007, compared to 2.97% average yield for the same period in 2008. The net interest margin declined from 5.74% to 5.41%, for the first half of 2008 versus 2007 due principally to a drop in the average balance of non-interest bearing demand deposits and competitive pressures on deposit interest rates. As a result, net interest income decreased $401,835 or 18.4% during the first half of 2008.

Provision for Loan Losses

Provisions to the allowance for loan losses are made monthly if needed, in anticipation of future potential loan losses. The monthly provision is calculated on a predetermined formula to ensure adequacy as the portfolio grows. The formula is composed of various components. Allowance factors are utilized in estimating the adequacy of the allowance for loan losses. The allowance is determined by assigning general reserves on a non-classified loans, and specific allowances for individual classified loans. As higher allowance levels become necessary as a result of this analysis, the allowance for loan losses will be increased through the provision for loan losses. The procedures for monitoring the adequacy of the allowance, and detailed information on the allowance, are included below under Allowance for Loan Losses.

The Company provided $278,404 to the reserve for loan losses during the first half of 2008, a 359.1% increase over the same period during 2007. The Company made this significant provision to the Loan Loss Reserve during the first half of 2008, due to increased nonperforming loans, net charge-offs of $332,000, a recent downgrade of performing loans, and a number of economic events occurring in and around the real estate industry. Nonperforming loans were $1.2 million or 2.19% of total loans at June 30, 2008 compared to zero at December 31, 2007. Non performing loans consist of one construction loan and one commercial loan secured by real estate with collateral values sufficient to cover the debts. Though the provision resulted in lower earnings during the first half, in the long run management believes that these conservative credit practices will benefit the Company on an ongoing basis.

The Company has collected all charged-off credits recognized over the past seven years, and continues to pursue recovery of the loans charged off during the second quarter of this year. The Company has not originated and does not hold sub-prime mortgage loans, or option ARM mortgages.

Non-Interest Income

Non-interest income was $295,356 for the three months ended June 30, 2008 as compared to $229,289 for the three months ended June 30, 2007, a 28.8% increase. For the first half of 2008, non-interest income increased 26.9% to

15

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$559,744 compared to $441,159 for the same period in 2007. Total annualized non-interest income as a percentage of average earning assets increased to 1.8% and 1.7% for the three and six months ended June 30, 2008, respectively, compared to 1.2% and 1.1% for the three and six months ended June 30, 2007. The increases were due primarily to the additional fee income from service charges on deposit accounts.

Non-Interest Income for the three months
     
     Non-Interest Income for the six monthsended June 30,
     
     ended June 30,2008
     
     2007
     
     2008
     
     2007Amount
     
     % of Total
     
     Amount
     
     % of Total
     
     Amount
     
     % of Total
     
     Amount
     
     % of Total(Dollars in thousands)
     
     (Dollars in thousands)Service charges ondeposit accounts
     
     $ 252
     
     85.4%
     
     $ 195
     
     84.9%
     
     $ 485
     
     86.6%
     
     $ 372
     
     84.5%Other miscellaneousfee income
     
     9
     
     3.1%
     
     8
     
     3.4%
     
     18
     
     3.2%
     
     17
     
     3.8%Dividend incomefrom restricted stock
     
     18
     
     6.2%
     
     11
     
     5.1%
     
     26
     
     4.7%
     
     21
     
     4.6%Income from bankowned life insurance
     
     16
     
     5.3%
     
     15
     
     6.6%
     
     31
     
     5.5%
     
     31
     
     7.1%Total non-interestincome
     
     $ 295
     
     100.0%
     
     $ 229
     
     100.0%
     
     $ 560
     
     100.0%
     
     $ 441
     
     100.0%As a percentage ofaverage earning assets
     
     
     
     1.8%
     
     
     
     1.2%
     
     
     
     1.7%
     
     
     
     1.1%


The service charges on deposit accounts, customer fees and miscellaneous income are comprised primarily of fees charged to deposit accounts and depository related services. Fees on deposit accounts consist of periodic service charges and fees that relate to specific actions, such as the return or payment of checks presented against accounts with insufficient funds. Depository related services include fees for money orders and cashiers checks, placing stop payments on checks, check-printing fees, wire transfer fees, fees for safe deposit boxes and fees for returned items or checks that were previously deposited. Service charges increased $57,526 or 29.5% to $252,265 for the three months ended June 30, 2008 and increased $112,402 or 30.2% to $484,823 for the six months period ended June 30, 2008. The increase was primarily attributable to increased analysis charges and returned item charges. The Company periodically reviews service charges to maximize service charge income while still maintaining competitive pricing. Service charge income on deposit accounts increases with the increased number of accounts and to the extent fees are not waived. Therefore, as the number of accounts increases, the nominal service charge income is expected to increase.

Non-Interest Expense

The following table sets forth the non-interest expense for the three and six months ended June 30, 2008 as compared to the three and six months ended June 30, 2007:

16

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Non-Interest Expense for the three months
     
     Non-Interest Expense for the six monthsended June 30,
     
     ended June 30,2008
     
     2007
     
     2008
     
     2007Amount
     
     % of Total
     
     Amount
     
     % of Total
     
     Amount
     
     % of Total
     
     Amount
     
     % of Total(Dollars in thousands)
     
     (Dollars in thousands)Salaries and employee benefits
     
     $ 499
     
     53.9%
     
     $ 496
     
     50.5%
     
     $ 977
     
     54.7%
     
     $ 978
     
     50.9%Occupancy and equipment
     
     83
     
     9.0%
     
     87
     
     8.9%
     
     166
     
     9.3%
     
     180
     
     9.4%Data and item processing
     
     82
     
     8.9%
     
     85
     
     8.6%
     
     165
     
     9.2%
     
     158
     
     8.2%Deposit products and services
     
     57
     
     6.2%
     
     68
     
     6.9%
     
     112
     
     6.3%
     
     121
     
     6.3%Legal and other professional fees
     
     50
     
     5.4%
     
     51
     
     5.2%
     
     96
     
     5.4%
     
     108
     
     5.6%Regulatory assessments
     
     21
     
     2.3%
     
     34
     
     3.5%
     
     41
     
     2.3%
     
     47
     
     2.4%Advertising and marketing
     
     13
     
     1.4%
     
     36
     
     3.7%
     
     41
     
     2.3%
     
     75
     
     3.9%Directors fees and expenses
     
     19
     
     2.1%
     
     20
     
     2.0%
     
     38
     
     2.1%
     
     40
     
     2.1%Printing and supplies
     
     14
     
     1.5%
     
     16
     
     1.6%
     
     28
     
     1.6%
     
     32
     
     1.7%Telephone
     
     7
     
     0.8%
     
     8
     
     0.8%
     
     14
     
     0.8%
     
     15
     
     0.8%Insurance
     
     8
     
     0.9%
     
     8
     
     0.8%
     
     16
     
     0.9%
     
     15
     
     0.8%Reserve for undisbursed lines ofcredit
     
     (4)
     
     -0.4%
     
     0
     
     0.0%
     
     (28)
     
     -1.6%
     
     17
     
     0.9%Other expenses
     
     74
     
     8.0%
     
     74
     
     7.5%
     
     119
     
     6.7%
     
     135
     
     7.0%Total non-interest expenses
     
     $ 923
     
     100.0%
     
     $ 983
     
     100.0%
     
     $ 1,785
     
     100.0%
     
     $ 1,921
     
     100.0%Non-interest expense as apercentage of average earningassets
     
     
     
     5.6%
     
     
     
     5.2%
     
     
     
     5.4%
     
     
     
     5.0%Efficiency ratio
     
     
     
     80.1%
     
     
     
     73.0%
     
     
     
     86.4%
     
     
     
     74.8%


Although non-interest expenses decreased, total annualized non-interest expenses as a percentage of average assets increased due to the decline in average earning assets. Total annualized non-interest expenses as a percentage of average earning assets increased to 5.6% from 5.2% for the three months ended June 30, 2008 as compared to three months ended June 30, 2007. For the six months ended June 30, 2008 and 2007, these percentages were 5.4% and 5.0%, respectively. The efficiency ratio increased from 73.0% and 74.8%, respectively, for the three and six months ended June 30, 2007 to 80.1% and 86.4%, respectively, for the same periods in 2008 due mainly to the reduction of net interest income.

Non-interest expenses were $922,549 for the three months ended June 30, 2008 as compared to $983,390 for the three months ended June 30, 2007, a 6.2% decrease. Non-interest expenses decreased $135,770 or 7.1% to $1,785,298 for the first half of 2008 compared to the same period in 2007. The largest component of general and administrative expenses was salary and benefits expense of $499,499 for the second quarter and $977,291 for the first half of 2008 compared to $496,303 and $978,156 for the same periods in 2007, representing 0.6% increase and 0.1% decrease, respectively.

Other components of general and administrative expenses that affected the decrease were Advertising and Marketing expenses which decreased by $23,059, a 64.3% for the comparable three month and $34,756, or 46.1% for the comparable six month periods due to a reduction in marketing campaigns performed during the first half of 2008 as compared to the same period of 2007. Occupancy and equipment expenses decreased $4,505 and $13,964, respectively for the three and six-month periods ended June 30, 2008 due to reductions in depreciation expense and property taxes. Legal and other professional fees decreased 1.6% and 11.6% or $794 and $12,538, respectively, during the three and six months ended June 30, 2008 compared to the same periods in 2007, due to additional costs incurred in 2007 in the purchase of shares from stockholders that did not repeat in 2008.

Provision for Income Taxes

The tax provision was $83,105 and $93,227 for the second quarter and the six months ended June 30, 2008, respectively, representing approximately 36.2% and 33.17% of pre-tax income for the second quarter and six months ended June 30, 2008, respectively. In comparison, the tax provision was $138,561 and $243,352 for the second quarter and the six months ended June 30, 2007, respectively, representing approximately 38% of pre-tax

17

---

income for both periods. Of the $281,103 in pre-tax income for the six months ended June 30, 2008, approximately $55,000 was tax-exempt income. The amount of the tax provision is determined by applying the Companys statutory income tax rates to pre-tax book income, adjusted for permanent differences between pre-tax book income and actual taxable income. Such permanent differences include but are not limited to tax-exempt interest income; increases in the cash surrender value of bank-owned life insurance, compensation expense associated with stock options and certain other expenses that are not allowed as tax deductions, and tax credits.

18

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|Financial Condition
|-------------------

Comparison of Financial Condition at June 30, 2008 and December 31, 2007

General

Total assets declined from $79.9 million to $76.0 million or 5.0% between December 31, 2007 and June 30, 2008, resulting from a contraction in deposit balances related to a number of the Companys customers that are engaged in real estate related activities. The Company has experienced deposit contraction as the economic activity of the real estate industry continues to slow, however, the Company is actively seeking to develop alternative and supplemental business relationships with other companies and individuals in an effort to offset the potential reductions and more fully leverage the Companys capital.

Loan Portfolio

During the six months ended June 30, 2008, the Companys loan portfolio, net of unearned loan fees, decreased by $533,038 to $52.6 million at June 30, 2008 as compared to $53.1 million at December 31, 2007. The Company experienced declines in construction and installment loans, while experiencing increases in real estate secured and commercial loans. The largest loan category at June 30, 2008 was real estate loans, which consist of commercial, agriculture, and consumer real estate loans excluding construction loans. This constitutes 78.0% of the loan portfolio. In anticipation of further deterioration in economic conditions, though Management believes these credits to be properly underwritten, the Company has elected to take real estate collateral in an abundance of caution on a number of commercial loans. Though the result of this strategy may be to reflect a concentration of assets into real estate secured credits, Management believes the underlying collateral will support overall credit quality and minimize principal risk of the portfolio. The next largest loan concentration at June 30, 2008 was commercial loans constituting 20.3% of the loan portfolio. The composition of the Companys loan portfolio at June 30, 2008 and December 31, 2007 is set forth below:

June 30, 2008
     
     December 31, 2007Amount
     
     Percentage
     
     Amount
     
     PercentageConstruction
     
     $ 316
     
     0.6%
     
     $ 2,607
     
     4.9%Real estate
     
     41,058
     
     78.0%
     
     39,726
     
     74.7%Commercial
     
     10,678
     
     20.3%
     
     10,063
     
     18.9%Installment
     
     597
     
     1.1%
     
     791
     
     1.5%Gross loans
     
     $ 52,649
     
     100.0%
     
     $ 53,187
     
     100.0%


The weighted average yield on the loan portfolio for the six months and quarter ended June 30, 2008 was 7.43% and the weighted average contractual term of the loan portfolio is approximately six years. Individual loan interest rates may require interest rate changes more frequently than at maturity due to adjustable interest rate terms incorporated into certain loans. At June 30, 2008 approximately 60.3% of loans were variable rate loans tied to adjustable rate indices such as Prime Rate.

Off-Balance Sheet Arrangements

During the ordinary course of business, the Company will provide various forms of credit lines to meet the financing needs of its customers. These commitments to provide credit represent an obligation of the Company to its customers, which is not represented in any form within the balance sheets of the Company. At June 30, 2008 and December 31, 2007, the Company had $6.2 million and $7.6 million, respectively, of off-balance sheet commitments to extend credit, which includes unadvanced letters of credit. These commitments are the result of existing unused lines of credit and unfunded loan commitments. These commitments are supported by promissory notes payable upon demand of the Company. These commitments represent a credit risk to the Company. At June 30, 2008 and at

19

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December 31, 2007, the Company had $128,000 and $140,000, respectively, in unadvanced letters of credit. These letters of credit are sometimes unsecured and may not necessarily be drawn upon to the total extent to which the Company is committed.

The effect on the Companys revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used.

Non-performing Assets

Non-performing assets are comprised of loans on non-accrual status, loans 90 days or more past due and still accruing interest, loans restructured where the terms of repayment have been renegotiated resulting in a reduction or deferral of interest or principal, and other real estate owned (OREO). Loans are generally placed on non-accrual status when they become 90 days past due unless Management believes the loan is adequately collateralized and in the process of collection. Loans may be restructured by Management when a borrower has experienced some change in financial status, causing an inability to meet the original repayment terms, and where the Company believes the borrower will eventually overcome those circumstances and repay the loan in full. OREO consists of properties acquired by foreclosure or similar means that Management intends to offer for sale.

Managements classification of a loan as non-accrual is an indication that there is a reasonable doubt as to the full collectibility of principal and/or interest on the loan; at this point, the Company stops recognizing income from the interest on the loan and may reverse any uncollected interest that had been accrued but unpaid if it is determined uncollectible or the collateral is inadequate to support such accrued interest amount. These loans may or may not be collateralized, but collection efforts are continuously pursued.

The following table presents comparative data for the Companys nonperforming assets:

June 30,
     
     December 31,
     June 30,2008
     
     2007
     
     2007(Dollars in Thousands)NON-ACCRUAL LOANS:1Construction
     
     $ 726
     
     $    -
     
     $    -Real estate
     
     0
     
     0
     
     0Commercial
     
     511
     
     0
     
     0Installment
     
     0
     
     0
     
     0TOTAL NON-ACCRUAL LOANS
     
     1,237
     
     0
     
     0LOANS 90 DAYS OR MOREPAST DUE& STILL ACCRUING:Construction
     
     0
     
     0
     
     0Real estate
     
     0
     
     0
     
     0Commercial
     
     0
     
     0
     
     0Installment
     
     0
     
     0
     
     0TOTAL LOANS 90 DAYS OR MORE PAST DUE & STILL ACCRUING
     
     0
     
     0
     
     0Restructured loans2
     
     0
     
     0
     
     0TOTAL NONPERFORMING LOANS
     
     1,237
     
     0
     
     0Other real estate owned
     
     0
     
     0
     
     0TOTAL NONPERFORMING ASSETS
     
     $ 1,237
     
     $    -
     
     $    -Nonperforming loans as a percentage of total loans3
     
     2.35%
     
     n/a
     
     n/aNonperforming assets as a percentage of total loans and other real estate owned
     
     2.35%
     
     n/a
     
     n/aAllowance for loan losses to nonperforming loans
     
     54.23%
     
     n/a
     
     n/aAllowance for loan losses
     
     $ 671
     
     $ 725
     
     $ 676


1Additional interest income of approximately $32,900 would have been recorded for the sixmonths ended Juner 30, 2008 if these loans had been paid or accrued in accordance with their original terms and had been outstanding throughout the applicable period

2Restructured loans are loans where the terms are renegotiated to provide a reduction or deferral of interest or principal due to deterioration in the financial position of the borrower.

3Total loans are gross loans, which excludes the allowance for loan losses, and net of deferred fees.

20

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At June 30, 2008 and December 31, 2007, the Company had no loans 90 days or more past due and still accruing, no restructured loans or OREO. The Companys nonperforming assets at June 30, 2008 consisted entirely of two loans on non-accrual status. Nonperforming assets at June 30, 2008 totaled $1.2 million, or 2.35% of the total loans compared to zero at December 31, 2007. The allowance for loan losses to nonperforming loans was 54.23% . Non performing loans at June 30, 2008 consisted of one construction loan and one commercial loan, both of which were secured by real estate with collateral values expected to be sufficient to cover the debts.

Allowance for Loan Losses

The Company maintains an allowance for loan losses at a level Management considers adequate to cover the inherent risk of loss associated with its loan portfolio under prevailing and anticipated economic conditions. In determining the adequacy of the allowance for loan losses, Management takes into consideration growth trends in the portfolio, examination by financial institution supervisory authorities, prior loan loss experience of the Banks Management, concentrations of credit risk, delinquency trends, general economic conditions, the interest rate environment, and internal and external credit reviews.

The Company formally assesses the adequacy of the allowance on a quarterly basis. This assessment is comprised of: (i) reviewing the adversely classified, delinquent or otherwise problematic loans; (ii) generating an estimate of the loss potential in each loan; (iii) adding a risk factor for industry, economic or other external factors; and (iv) evaluating the present status of each loan and the impact of potential future events.

Because the Company has not experienced significant credit losses, a historical migration analysis of the non-performing assets is not practical. Allowance factors are utilized in the analysis of the allowance for loan losses. Allowance factors ranging from 0.35% to 2.00% are applied to disbursed loans that are unclassified and uncriticized. Allowance factors averaging approximately 0.67% are applied to undisbursed loans. Allowance factors are not applied to loans secured by bank deposits or to loans held for sale, which are recorded at the lower of cost or market.

The process of providing for loan losses involves judgmental discretion, and eventually losses may therefore differ from even the most recent estimates. Due to these limitations, the Company assumes that there are losses inherent in the current loan portfolio but which have not yet been identified. The Bank therefore attempts to maintain the allowance at an amount sufficient to cover such unknown but inherent losses.

The table below summarizes, as of and for the three and six months ended June 30, 2008 and 2007 and the year ended December 31, 2007, the loan balances at the end of the period and the daily average loan balances during the period; changes in the allowance for loan losses arising from loan charge-offs, recoveries on loans previously charged-off, and additions to the allowance which have been charged against earnings, and certain ratios related to the allowance for loan losses.

21

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Allowance for Loan LossesFor the Quarter Ended
     
     For the Six-Month Period Ended
     
     For the Year EndedJune 30,
     
     June 30,
     
     December 31,2008
     
     2007
     
     2008
     
     2007
     
     2007($ in thousands)Balances:Average total loansoutstanding during period
     
     $ 54,224
     
     $ 50,506
     
     $ 53,775
     
     $ 50,835
     
     $ 51,798Total loans outstandingat end of the period
     
     $ 52,649
     
     $ 49,590
     
     $ 52,649
     
     $ 49,590
     
     $ 53,187Allowance for loan losses:Balance at the beginning of period
     
     $ 1,030
     
     $ 682
     
     $ 725
     
     $ 616
     
     $ 616Provision charged to expense
     
     43
     
     (6)
     
     278
     
     60
     
     179Charge-offsConstruction loans
     
     206
     
     0
     
     206
     
     0
     
     0Commercial loans
     
     196
     
     0
     
     196
     
     0
     
     61Commercial real estate loans
     
     0
     
     0
     
     0
     
     0
     
     9Installment loans
     
     0
     
     0
     
     0
     
     0
     
     0Total
     
     402
     
     0
     
     402
     
     0
     
     70RecovrriesConstruction loans
     
     0
     
     0
     
     0
     
     0
     
     0Commercial loans
     
     0
     
     0
     
     61
     
     0
     
     0Commercial real estate loans
     
     0
     
     0
     
     9
     
     0
     
     0Installment loans
     
     0
     
     0
     
     0
     
     0
     
     0Total
     
     0
     
     0
     
     70
     
     0
     
     0Net loan chage-offs(recoveries)
     
     402
     
     0
     
     332
     
     0
     
     70Balance
     
     $ 671
     
     $ 676
     
     $ 671
     
     $ 676
     
     $ 725Ratios:Net loan charge-offs to average total loans
     
     0.74%
     
     0.00%
     
     0.62%
     
     0.00%
     
     0.14%Provision for loan losses to average totalloans
     
     0.08%
     
     -0.01%
     
     0.52%
     
     0.12%
     
     0.35%Allowance for loan losses to total loans atthe end of the period
     
     1.27%
     
     1.36%
     
     1.27%
     
     1.36%
     
     1.36%Net loan charge-offs (recoveries) toallowance for loan losses at the end of theperiod
     
     60.06%
     
     0.00%
     
     49.62%
     
     0.00%
     
     9.66%Net loan charge-offs (recoveries) toProvision for loan losses
     
     920.31%
     
     0.00%
     
     119.55%
     
     0.00%
     
     39.11%


At June 30, 2008 and December 31, 2007, the allowance for loan losses was $670,786 and $725,211 respectively. The ratios of the allowance for loan losses to total loans at June 30, 2008 and December 31, 2007 were 1.27% and 1.36%, respectively. During the first quarter of 2008, the Company recovered $70,018 from loans charged off in 2007. During the second quarter, one unsecured commercial loan was fully charged off and a construction loan was partially charged off for a total of $402,847. These nonperforming loans, coupled with the recent down-grade of certain performing loans, and looking at a number of economic events occurring in and around the real estate industry, led Management to increase its provision for loan losses.

While Management believes that the amount of the allowance at June 30, 2008 was adequate, there can be no assurances that future economic or other factors will not adversely affect the Companys borrowers, or that the Companys asset quality may not deteriorate through rapid growth, failure to identify and monitor potential problem loans or for other reasons, thereby causing loan losses to exceed the current allowance.

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Investment Portfolio

The Company has not purchased securities during 2008, using funds from maturities and principal payments for securities for investment in the overnight market and higher-yielding loans to its customers. The market value of the Companys investment portfolio at June 30, 2008 was $9.1 million, having a yield of 4.81% . This compares to an investment portfolio of $11.2 million at December 31, 2007, having a 4.75% tax equivalent yield. The primary category of investments in the portfolio at June 30, 2008 was mortgage-backed securities. At June 30, 2008, 47.5% of the mortgage-backed securities were tied to adjustable rate indices such as LIBOR or CMT. Management does not anticipate purchasing additional investment securities until loan demand declines.

The table below summarizes the carrying value and market value and distribution of the Companys investment securities at June 30, 2008 and December 31, 2007:

June 30, 2008
     
     December 31, 2007Carrying
     
     Fair
     
     Carrying
     
     FairValue
     
     Value
     
     Value
     
     Value($ in thousands)Held to maturity:Mortgage-backed securities
     
     $ 2,847
     
     $ 2,844
     
     $ 3,224
     
     $ 3,212Corporate bonds
     
     198
     
     205
     
     208
     
     218Municipal
     
     440
     
     439
     
     441
     
     450Total held to maturity
     
     3,485
     
     3,488
     
     3,873
     
     3,880Available for sale:Municipal
     
     733
     
     733
     
     997
     
     997Federal agency
     
     0
     
     0
     
     5,605
     
     5,605Mortgage-backed
     
     4,862
     
     4,861
     
     737
     
     737Total available for sale
     
     5,595
     
     5,594
     
     7,339
     
     7,339Total
     
     $ 9,080
     
     $ 9,082
     
     $ 11,212
     
     $11,219


There were no material changes since December 31, 2007 in the maturities or repricing of the investment securities.

Deposits

The Company has experienced a reduction in deposit balances, mainly from its customers in the real estate and related industries. Total deposits decreased $4.0 million or 5.7% to $66.4 million at June 30, 2008 from $70.4 million at December 31, 2007 primarily due to the decrease in demand deposit balances, which decreased $4.5 million or 10.8% to $37.7 million at June 30, 2008 from $42.3 million at December 31, 2007. Money market demand and NOW deposits declined slightly by $0.7 million to $22.0 million at June 30, 2008 from $22.7 million at December 31, 2007. The ratio of non-interest bearing funds to total deposits was 56.8% at June 30, 2008 and 60.1% at December 31, 2007.

Deposits are the Companys primary source of funds. As the Companys need for lendable funds grows, dependence on deposits increases. The Company is soliciting other industries in its geographical areas to replace the runoff from customers in the real estate industry. Information concerning the average balance and average rates paid on deposits by deposit type for the three months ended June 30, 2008 and 2007 is contained in the Distribution, Yield and Rate Analysis of Net Interest Income tables appearing in a previous section entitled Net Interest Income and Net Interest Margin. At June 30, 2008 and December 31, 2007, the Company had deposits from related parties representing $5.1 million, or 7.6% of total deposits and $9.9 million, or 14.0% of total deposits of the Company, respectively. Further, at June 30, 2008 and December 31, 2007, deposits from escrow companies represented 14.8% and 20.7% of the Companys total deposits, respectively. There are some escrow company deposits which are also classified as deposits from related parties.

23

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Borrowings

At June 30, 2008 and December 31, 2007, the Company had no Federal Home Loan Bank (FHLB) advances or overnight borrowings outstanding. On December 21, 2005, the Company entered into a stand by letter of credit with the FHLB for $800,000, which matures and renews annually, as needed. This stand-by letter of credit was issued as collateral for local agency deposits that the Company is maintaining.

Liquidity

Maintenance of adequate liquidity requires that sufficient resources be available at all times to meet the Companys cash flow requirements. Liquidity in a banking institution is required primarily to provide for deposit withdrawals and the credit needs of its customers and to take advantage of investment opportunities as they arise. Liquidity management involves the Companys ability to convert assets into cash or cash equivalents without significant loss, and to raise cash or maintain funds without incurring excessive additional cost. The Company maintains a portion of its funds in cash, deposits in other banks, overnight investments, and securities held for sale. Liquid assets include cash and due from banks, less the federal reserve requirement; Federal funds sold; interest-bearing deposits in financial institutions, and unpledged investment securities available for sale. At June 30, 2008, the Companys liquid assets totaled approximately $15.2 million and its liquidity level, measured as the percentage of liquid assets to total assets, was 20.0% . At December 31, 2007, the Companys liquid assets totaled approximately $18.4 million and its liquidity level, measured as the percentage of liquid assets to total assets, was 23.0% . Management anticipates that liquid assets and the liquidity level will continue to decline as the Company becomes more leveraged in the future.

Although the Companys primary sources of liquidity include liquid assets and a stable deposit base, the Company has Fed funds lines of credit of $4 million each with both Union Bank of California and Pacific Coast Bankers Bank. The Bank is a member of the FHLB. In addition, as a member of the FHLB, the Bank may borrow funds collateralized by the Banks securities or qualified loans up to 25% of its total asset base, or $17.2 million at June 30, 2008.

Capital Resources

Total shareholders equity was $5.95 million at June 30, 2008 and $5.89 million at December 31, 2007. There was an overall increase of $63,509. Stock repurchases under the Companys stock repurchase program during the first half of 2008 (all of which occurred during the first quarter) totaled $99,748, or 4,480 shares. Net income increased retained earnings by $187,876. A cumulative-effect adjustment to retained earnings for prior period postretirement benefits reduced equity by $24,693. The change in the unrealized loss on securities available for sale increased equity by $74 during the first half of 2008.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can trigger mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a material effect on the Banks financial statements and operations. Under capital adequacy guidelines and regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities, and certain off-balance sheet items as calculated under regulatory accepted accounting practices. The Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain the following minimum ratios: Total risk-based capital ratio of at least 8%, Tier 1 Risk-based capital ratio of at least 4%, and a leverage ratio of at least 4%. Total capital is classified into two components: Tier 1 (common shareholders equity, qualifying perpetual preferred stock to certain limits, minority interests in equity accounts of consolidated subsidiary and trust preferred securities to certain limits, less goodwill and other intangibles) and Tier 2 (supplementary capital including allowance for possible credit losses to certain limits, certain preferred stock, eligible subordinated debt, and other qualifying instruments).

As noted previously, the Companys subordinated note represents $3.1 million borrowings from its unconsolidated trust subsidiary. This subordinated note currently qualifies for inclusion as Tier 1 capital for regulatory purposes to the extent that they do not exceed 25% of total Tier 1 capital, but are classified as long-term debt in accordance with generally accepted accounting principles. On March 1, 2005, the Federal Reserve

24

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Board adopted a final rule that allows the continued inclusion of trust-preferred securities (and/or related subordinated debentures) in the Tier 1 capital of bank holding companies. Generally, the amount of junior subordinated debentures in excess of the 25% Tier 1 limitation is included in Tier 2 capital. Of the Companys $7.9 million of Tier 1 capital at June 30, 2008, $2.0 million consisted of Trust Preferred Securities. The remaining $1.1 million of Trust Preferred Securities is included in Tier 2 capital.

The Bank had Total Risk-Based and Tier 1 Risk-Based capital ratios of 15.95% and 14.81%, respectively at June 30, 2008, as compared to 15.24% and 14.01%, respectively at December 31, 2007. At June 30, 2008 and December 31, 2007, the Banks Leverage Capital Ratios were 12.06% and 10.82%, respectively. As of June 30, 2008 and December 31, 2007, the Bank was well-capitalized. To be categorized as well-capitalized the Bank must maintain Total Risk-Based, Tier 1 Risk-Based, and Tier 1 Leverage Ratios of at least 10%, 6% and 5%, respectively.

Under the Federal Reserve Boards guidelines, Chino Commercial Bancorp is a small bank holding company, and thus qualifies for an exemption from the consolidated risk-based and leverage capital adequacy guidelines applicable to bank holding companies with assets of $500 million or more. However, while not required to do so under the Federal Reserve Boards capital adequacy guidelines, the Company still maintains levels of capital on a consolidated basis which qualify it as well capitalized. As of June 30, 2008, the Companys Total Risk-Based and Tier 1 Risk-Based Capital ratios were 16.22% and 13.25%, respectively, and its Leverage Capital ratio was 10.79% .

The following table sets forth the Companys and the Banks regulatory capital ratios as of the dates indicated:

Risk Based Ratios(unaudited)June 30,
     
     December 31,
     
     Minimum Requirement2008
     
     2007
     
     to be Well CapitalizedChino Commercial BancorpTotal capital to total risk-weighted assets
     
     16.22%
     
     15.72%
     
     10.00%Tier 1 capital to total risk-weighted assets
     
     13.25%
     
     12.67%
     
     6.00%Tier 1 leverage ratio
     
     10.79%
     
     9.78%
     
     5.00%Chino Commercial BankTotal capital to total risk-weighted assets
     
     15.95%
     
     15.24%
     
     10.00%Tier 1 capital to total risk-weighted assets
     
     14.81%
     
     14.01%
     
     6.00%Tier 1 leverage ratio
     
     12.06%
     
     10.82%
     
     5.00%


Presently, there are no outstanding commitments that would necessitate the use of material amounts of the Companys capital.

Interest Rate Risk Management

The principal objective of interest rate risk management (often referred to as asset/liability management) is to manage the financial components of the Companys balance sheet so as to optimize the risk/reward equation for earnings and capital in relation to changing interest rates. In order to identify areas of potential exposure to rate changes, the Company calculates its repricing gap on a quarterly basis. It also performs an earnings simulation analysis and market value of portfolio equity calculation on a quarterly basis to identify more dynamic interest rate exposures than those apparent in standard repricing gap analysis.

The Company manages the balance between rate-sensitive assets and rate-sensitive liabilities being repriced in any given period with the objective of stabilizing net interest income during periods of fluctuating interest rates. Rate-sensitive assets either contain a provision to adjust the interest rate periodically or mature within one year. Those assets include certain loans, certain investment securities and federal funds sold. Rate-sensitive liabilities allow for periodic interest rate changes and include time certificates, certain savings and interest-bearing demand deposits. The difference between the aggregate amount of assets and liabilities that are repricing at various time frames is called the interest rate sensitivity gap. Generally, if repricing assets exceed repricing liabilities in any given time period the Company would be deemed to be asset-sensitive for that period, and if repricing liabilities exceed repricing assets in any given period the Company would be deemed to be liability-sensitive for that period. The Company seeks to maintain a balanced position over the period of one year in which it has no significant asset or

25

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liability sensitivity, to ensure net interest margin stability in times of volatile interest rates. This is accomplished by maintaining a significant level of loans and deposits available for repricing within one year.

The Company is generally asset sensitive, meaning that net interest income tends to rise as interest rates rise and decline as interest rates fall. At June 30, 2008, approximately 60.3% of loans have terms that incorporate variable interest rates. Most variable rate loans are indexed to the Banks prime rate and changes occur as the prime rate changes. Approximately 18.8% of all fixed rate loans at June 30, 2008 mature within twelve months.

Regarding the investment portfolio, a preponderance of the portfolio consists of fixed rate products with typical average lives of between three and five years. The mortgage-backed security portfolio receives monthly principal repayments which has the effect of reducing the securities average lives as principal repayments levels may exceed expected levels. Additionally, agency securities contain options by the agency to call the security, which would cause repayment prior to scheduled maturity.

Liability costs are generally based upon, but not limited to, U.S. Treasury interest rates and movements and rates paid by local competitors for similar products.

The change in net interest income may not always follow the general expectations of an asset-sensitive or liability-sensitive balance sheet during periods of changing interest rates. This possibility results from interest rates earned or paid changing by differing increments and at different time intervals for each type of interest-sensitive asset and liability. The interest rate gaps reported arise when assets are funded with liabilities having different repricing intervals. Since these gaps are actively managed and change daily as adjustments are made in interest rate views and market outlook, positions at the end of any period may not reflect the Banks interest rate sensitivity in subsequent periods. The Company attempts to balance longer-term economic views against prospects for short-term interest rate changes in all repricing intervals.

The Company uses Risk Monitor software for asset/liability management in order to simulate the effects of potential interest rate changes on the Companys net interest margin. These simulations provide static information on the projected fair market value of the Companys financial instruments under differing interest rate assumptions. The simulation program utilizes specific loan and deposit maturities, embedded options, rates and re-pricing characteristics to determine the effects of a given interest rate change on the Companys interest income and interest expense. Rate scenarios consisting of key rate and yield curve projections are run against the Companys investment, loan, deposit and borrowed funds portfolios. The rate projections can be shocked (an immediate and sustained change in rates, up or down). The Company typically uses standard interest rate scenarios in conducting the simulation of upward and downward shocks of 100 and 200 basis points (bp). As of June 30, 2008, the Company had the following estimated net interest income sensitivity profile:

Immediate Change in Rate-200 bp
     
     -100 bp
     
     +100 bp
     
     +200 bpChange in Net Int. Inc. (in $000s)
     
     $ (158)
     
     $ (72)
     
     $ 46
     
     $ 88% Change
     
     -4.38%
     
     -2.00%
     
     1.27%
     
     2.44%


Risk Management

Various types of risk are inherent in the business of banking. Federal regulators have adopted examination guidelines that scrutinize not only the Companys level of risk, but also its ability to manage and control that risk. Regulators evaluate risks that affect capital, liquidity, and compliance to determine their potential effect on the safety and soundness of the Company. Certain risks may be covered by insurance coverage, but management must establish a risk management approach that addresses all areas of risk.

The Company has in place acceptable limits for each of the risks identified by the regulatory environment. The Company has defined the types of risk, and has mechanisms in place to manage, monitor and report these risks. Specifically, the Company focuses on various risk categories within each area of the Company. Those categories include: credit risk, interest rate risk, liquidity risk, market/strategic risk, transaction risk, and compliance risk.

26

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Item 3.QUALITATIVE & QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.



|Item 4: CONTROLS AND PROCEDURES
|-------------------------------

Evaluation of Disclosure Controls and Procedures

The Companys Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) promulgated under the Exchange Act as of the end of the period covered by this report (the "Evaluation Date") have concluded that as of the Evaluation Date, the Companys disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company, particularly during the period in which this report was being prepared. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no significant changes in the Company's internal controls over financial reporting or in other factors in the current reporting period of 2008 that have materially affected, or are reasonably likely to materially affect, the Companys internal controls over financial reporting.

27

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|PART II
|-------

Item1: Legal ProceedingsNone

Item 1A: Risk FactorsNot applicable

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Stock Repurchases

On October 19, 2006, the Board of Directors approved a stock repurchase program pursuant to which the Company may purchase up to $3.0 million in its common stock in open market transactions or in privately negotiated transactions. The repurchase program was initially approved for a period of up to 12 months and has been extended to October 31, 2008. As anticipated and announced at the inception of the plan, certain non-employee directors have sold a significant amount of the Companys stock in the repurchase program. The Board of Directors has also authorized an additional $100,000 for stock repurchase under the Companys stock repurchase plan since it was originally approved.

Since the commencement of the Stock Repurchase Program and through June 30, 2008 the Company has acquired and retired 141,601 of its shares at a weighted average price of $21.90 per share. The Repurchase Program is designed to improve the Company's return on equity and earnings per share, and to provide an additional outlet for shareholders interested in selling their shares. Repurchases pursuant to the program are made at the prevailing market prices from time to time in open market transactions or in privately negotiated transactions. The timing of the purchases and the number of shares to be repurchased at any given time will depend on market conditions and SEC regulations.

There was no common stock repurchased under the Plan during the second quarter of 2008.

Item 3: Default of Senior Securities- None

Item 4: Submission of Matters to Vote of Security Holders

The Companys annual meeting of shareholders was held on May 22, 2008. A total of 476,069 shares were represented and voting at the meeting, constituting 68.0% of the 700,701 issued and outstanding shares entitled to vote at the meeting. Proxies were solicited by the Companys management pursuant to Regulation 14 under the Securities Exchange Act of 1934. There was no solicitation in opposition to Managements nominees for directorship as listed in the proxy statement, and all of such nominees were elected pursuant to the vote of shareholders. The directors noted below were elected to one-year terms. The votes tabulated were:

Authority
     
     AuthorityName:
     
     Given:
     
     Withheld:
     
     Total:Dann H. Bowman
     
     472,735
     
     3,334
     
     476,069Linda M. Cooper
     
     474,335
     
     1,734
     
     476,069Pollyanna Franks
     
     474,335
     
     1,734
     
     476,069H.H. Kindsvater
     
     474,335
     
     1,734
     
     476,069Richard G. Malooly
     
     474,335
     
     1,734
     
     476,069Richard J. Vanderpool
     
     472,735
     
     3,334
     
     476,069Bernard J. Wolfswinkel
     
     474,335
     
     1,734
     
     476,069Thomas A. Woodbury, D.O.
     
     474,335
     
     1,734
     
     476,069Jeanette L. Young
     
     472,735
     
     3,334
     
     476,069


There were no broker non-votes received with respect to this item.

Item 5: Other Information- None

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|Item 6: Exhibits |  |       |  |                                                                                  
|---------------- |  | ----- |  | ---------------------------------------------------------------------------------
|                
|                 |  | 3.1   |  | Articles of Incorporation of Chino Commercial Bancorp (1)                        
|                 |  | 3.2   |  | Bylaws of Chino Commercial Bancorp (1)                                           
|                 |  | 10.1  |  | 2000 Stock Option Plan (1)                                                       
|                 |  | 10.2  |  | Chino Commercial Bank, N.A. Salary Continuation Plan (1)                         
|                 |  | 10.3  |  | Salary Continuation and Split Dollar Agreements for Dann H. Bowman (1)           
|                 |  | 10.4  |  | Employment Agreement for Dann H. Bowman (2)                                      
|                 |  | 10.5  |  | Salary Continuation and Split Dollar Agreements for Roger Caberto (1)            
|                 |  | 10.6  |  | Item Processing Agreement between the Bank and InterCept Group (1)               
|                 |  | 10.7  |  | Data Processing Agreement between the Bank and InterCept Group (1)               
|                 |  | 10.8  |  | Lease between Chino Commercial Bank, N.A. and Majestic Realty Co., as amended (3)
|                 |  | 10.9  |  | Indenture dated as of October 27, 2006 between U.S. Bank National Association, as
|                 |  |       |  | Trustee, and Chino Commercial Bancorp, as Issuer (3)                             
|                 |  | 10.10 |  | Amended and Restated Declaration of Trust of Chino Statutory Trust I, dated as of
|                 |  |       |  | October 27, 2006 (3)                                                             
|                 |  | 10.11 |  | Guarantee Agreement between Chino Commercial Bancorp and U.S. Bank National      
|                 |  |       |  | Association dated as of October 27, 2006 (3)                                     
|                 |  | 11    |  | Statement Regarding Computation of Net Income Per Share (4)                      
|                 |  | 31.1  |  | Certification of Chief Executive Officer (Section 302 Certification)             
|                 |  | 31.2  |  | Certification of Chief Financial Officer (Section 302 Certification)             
|                 |  | 32    |  | Certification of Periodic Financial Report (Section 906 Certification)           

(1) Incorporated by reference to the exhibit of the same number to the Companys Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on July 5, 2006.

(2) Incorporated by reference to exhibit 10.1 to the Companys Form 8-K Current Report filed with the Securities and Exchange Commission on November 13, 2006.

(3) Incorporated by reference to the exhibit of the same number to the Companys Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 2006.

(4) The information required by this exhibit is incorporated from Note 3 of the Companys Financial Statements included herein.

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|SIGNATURES
|----------

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: August 11, 2008



|CHINO COMMERCIAL BACORPBy:/s/ Dann H. BowmanDann H. BowmanPresident and Chief Executive OfficerBy:/s/ Sandra F. PenderSandra F. PenderSenior Vice President and Chief Financial Officer
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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