10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2007
	or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934
	For the transition period from __________ to __________

Commission File Number: 000-52165
SAN JOAQUIN BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA		20-5002515
(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification No.)
organization)
1000 Truxtun Avenue, Bakersfield, California		93301
(Address of principal executive offices)		(Zip Code)
	(661) 281-0360
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o  Accelerated filer þ  Non-accelerated filer o 

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

No par value Common Stock: 3,534,022 shares outstanding at October 30, 2007

TABLE OF CONTENTS

		PAGE
	Forward-Looking Statements	2
PART I. FINANCIAL INFORMATION
ITEM 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Cash Flows	5
	Notes to Unaudited Consolidated Financial Statements	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of  Operations	10
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	30
ITEM 4.	Controls and Procedures	31
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	33
ITEM 1A.	Risk Factors	33
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
ITEM 3.	Defaults Upon Senior Securities	33
ITEM4.	Submission of Matters to a Vote of Security Holders	33
ITEM 5.	Other Information	33
ITEM 6.	Exhibits	33
SIGNATURES		34

Forward-Looking Statements

This report contains forward-looking statements about the Company for which it claims the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995, including statements with regard to descriptions of our plans or objectives for future operations, products or services, and forecasts of our financial condition, results of operation, or other measures of economic performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words "believe," "expect," "anticipate," "intend," "plan," "estimate," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," or "may."

Forward-looking statements, by their nature, are subject to risks and uncertainties. A number of factors -- many of which are beyond our control or ability to predict-- could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements and past results should not be considered an indication of our future performance. Some of these risk factors include, but are not limited to: certain credit, market, operational and liquidity risks associated with our business and operations; changes in business or economic conditions internationally, nationally or in California; changes in the interest rate environment; potential acts of terrorism and actions taken in response; fluctuations in asset prices including, but not limited to, stocks, bonds, commodities or other securities, and real estate; volatility of rate sensitive deposits and investments; concentrations of real estate co llateral securing many of our loans; operational risks including data processing system failures and fraud; accounting estimates and judgments; compliance costs associated with the Company’s internal control structure and procedures for financial reporting; changes in the securities markets; and, inflationary factors. Further discussion of factors that could have an adverse effect on our business and financial performance are set forth under “Risk Factors” and elsewhere in this quarterly report and in our most recent Annual Report on Form 10-K.

Forward-looking statements speak only as of the date they are made. We do not undertake to update forward-looking statements to reflect circumstances or events that occur after the date forward-looking statements are made.

2

PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SAN JOAQUIN BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
	September 30, 2007	December 31, 2006
	(Unaudited)
ASSETS
Cash and due from banks	$ 24,431,000	$ 31,869,000
Interest-bearing deposits in banks	634,000	1,660,000
Federal funds sold	2,800,000	4,250,000
Total cash and cash equivalents	27,865,000	37,779,000
Investment securities:
Held-to-maturity (market value of $109,476,000 and
$138,315,000 at September 30, 2007 and December 31, 2006, respectively)	111,038,000	140,822,000
Available-for-sale	7,032,000	7,072,000
Total Investment Securities	118,070,000	147,894,000
Loans, net of unearned income	621,579,000	536,408,000
Allowance for loan losses	(9,063,000)	(8,409,000)
Net Loans	612,516,000	527,999,000
Premises and equipment	9,129,000	7,622,000
Investment in real estate	973,000	643,000
Interest receivable and other assets	28,478,000	26,993,000
TOTAL ASSETS	$ 797,031,000	$ 748,930,000
LIABILITIES
Deposits:
Noninterest-bearing	$ 158,226,000	$ 189,792,000
Interest-bearing	539,045,000	452,862,000
Total Deposits	697,271,000	642,654,000
Short-term borrowings	16,600,000	32,200,000
Long-term debt and other borrowings	17,090,000	17,098,000
Accrued interest payable and other liabilities	13,345,000	11,112,000
Total Liabilities	744,306,000	703,064,000
SHAREHOLDERS' EQUITY
Common stock, no par value - 20,000,000 shares authorized;
3,534,022 and 3,486,222 issued and outstanding
at September 30, 2007 and December 31, 2006, respectively	10,871,000	10,368,000
Additional paid-in capital	359,000	145,000
Retained earnings	42,958,000	36,986,000
Accumulated other comprehensive income (loss)	(1,463,000)	(1,633,000)
Total Shareholders' Equity	52,725,000	45,866,000
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 797,031,000	$ 748,930,000
See Notes to Unaudited Consolidated Financial Statements

3

SAN JOAQUIN BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
	Quarter Ended Sept 30		Year to date Sept 30
	2007	2006	2007	2006
INTEREST INCOME
Loans (including fees)	$ 13,037,000	$ 10,558,000	$ 36,682,000	$ 28,742,000
Investment securities	1,363,000	1,610,000	4,307,000	4,859,000
Fed funds & other interest-bearing balances	22,000	22,000	149,000	365,000
Total Interest Income	14,422,000	12,190,000	41,138,000	33,966,000
INTEREST EXPENSE
Deposits	6,125,000	4,212,000	17,133,000	11,165,000
Short-term borrowings	106,000	526,000	506,000	805,000
Long-term borrowings	311,000	189,000	922,000	421,000
Total Interest Expense	6,542,000	4,927,000	18,561,000	12,391,000
Net Interest Income	7,880,000	7,263,000	22,577,000	21,575,000
Provision for loan losses	225,000	600,000	675,000	1,130,000
Net Interest Income After Loan Loss Provision	7,655,000	6,663,000	21,902,000	20,445,000
NONINTEREST INCOME
Service charges & fees on deposits	228,000	200,000	660,000	591,000
Other customer service fees	281,000	317,000	899,000	949,000
Other	230,000	208,000	785,000	694,000
Total Noninterest Income	739,000	725,000	2,344,000	2,234,000
NONINTEREST EXPENSE
Salaries and employee benefits	2,543,000	2,427,000	7,457,000	6,964,000
Occupancy	269,000	245,000	738,000	681,000
Furniture & equipment	298,000	257,000	799,000	780,000
Promotional	158,000	131,000	495,000	433,000
Professional	343,000	305,000	1,060,000	885,000
Other	580,000	476,000	1,569,000	1,449,000
Total Noninterest Expense	4,191,000	3,841,000	12,118,000	11,192,000
Income Before Taxes	4,203,000	3,547,000	12,128,000	11,487,000
Income Taxes	1,851,000	1,625,000	5,204,000	4,777,000
NET INCOME	$ 2,352,000	$ 1,922,000	$ 6,924,000	$ 6,710,000
Basic Earnings per Share	$ 0.67	$ 0.55	$ 1.96	$ 1.93
Diluted Earnings per Share	$ 0.64	$ 0.52	$ 1.87	$ 1.81
See Notes to Unaudited Consolidated Financial Statements

4

SAN JOAQUIN BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Year to Date September 30
	2007	2006
Cash Flows From Operating Activities:
Net Income	$ 6,924,000	$ 6,710,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for possible loan losses	675,000	1,130,000
Depreciation and amortization	686,000	674,000
Stock-based compensation expense	225,000	104,000
Tax benefit from stock-based compensation	(31,000)
Net gain on sale of assets	(12,000)	(5,000)
Deferred income taxes	(647,000)	511,000
Amortization of investment securities' premiums
and discounts	15,000	7,000
Increase in interest receivable and other assets	(830,000)	(3,251,000)
Increase in accrued interest payable and other liabilities	2,393,000	1,714,000
Total adjustments	2,474,000	884,000
Net Cash Provided by Operating Activities	9,398,000	7,594,000
Cash Flows From Investing Activities:
Proceeds from maturing and called investment securities	29,809,000	36,087,000
Purchases of investment securities	-	(14,977,000)
Net increase in loans made to customers	(85,192,000)	(97,364,000)
Net additions to premises and equipment	(2,511,000)	(648,000)
Net Cash Applied to Investing Activities	(57,894,000)	(76,902,000)
Cash Flows From Financing Activities:
Net increase in demand deposits and savings accounts	36,519,000	(6,047,000)
Net increase (decrease) in certificates of deposit	18,098,000	5,956,000
Net increase (decrease) in short-term borrowings	(15,600,000)	65,600,000
Payments on long-term debt and other borrowings	(8,000)	10,303,000
Proceeds from long term debt and other borrowings	-
Cash dividends paid	(951,000)	(834,000)
Tax benefit from stock-based compensation	21,000	-
Proceeds from issuance of common stock	503,000	338,000
Net Cash Provided by Financing Activities	38,582,000	75,316,000
Net Increase (Decrease) in Cash and Cash Equivalents	(9,914,000)	6,008,000
Cash and Cash Equivalents, at Beginning of Period	37,779,000	26,445,000
Cash and Cash Equivalents, at End of Period	$ 27,865,000	$ 32,453,000
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest on deposits	$ 17,075,000	$ 11,071,000
Income taxes	$ 5,846,000	$ 5,402,000
See Notes to Unaudited Consolidated Financial Statements

5

SAN JOAQUIN BANCORP AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

Nature of Operations

San Joaquin Bancorp (the “Company) is a California corporation registered as a bank holding company subject to the regulatory oversight of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended. The Company is headquartered in Bakersfield, California. In July 2006, the Company acquired all of the outstanding shares of San Joaquin Bank (the “Bank”). The Bank is an FDIC insured, California state-chartered bank, and a member of the Federal Reserve System that commenced operations in December 1980. The Bank has four operating locations. Three branches are in Bakersfield and one is in Delano, California. The Company's primary market area is Kern County, California.

In 1987, the Bank formed a subsidiary, Kern Island Company, to acquire, develop, sell or operate commercial or residential real property located in the Company's market area. In 1993, the Bank formed a limited partnership, Farmersville Village Grove Associates (a California limited partnership), to acquire and operate low-income housing projects under the auspices of the Rural Economic and Community Development Department (formerly Farmers Home Administration), United States Department of Agriculture. Kern Island Company is the 5% general partner and the Bank is the 95% limited partner. The company’s investment in Kern Island Company and Farmersville Village Grove Associates is included in “Investment in real estate” on the balance sheet.

In August 2006, San Joaquin Bancorp formed San Joaquin Bancorp Trust #1, a Delaware statutory business trust, for the purpose of completing a private placement of $10 million in floating rate trust preferred securities.

Basis of Consolidation

The consolidated financial statements include San Joaquin Bancorp and its wholly-owned subsidiaries with the exception of San Joaquin Bancorp Trust #1 (the “Trust”.) All financial information presented in these financial statements includes the operations of the Bank and its subsidiaries for the current quarter and year-to-date on a comparative basis with prior years. All material intercompany accounts and transactions have been eliminated in consolidation. The Trust was established for the purpose of issuing trust preferred securities. Based on the requirements of the Financial Accounting Standards Board Interpretation (FIN) 46R and accepted industry interpretation and presentation, the Trust has not been consolidated. Instead, the Company’s investment in the Trust is included in “Other Assets” on the balance sheet and junior subordinated debentures are presented in long-term debt.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required for audited financial statements. In the opinion of Management, the unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company’s consolidated financial position at September 30, 2007 and December 31, 2006, the results of operations for the quarterly and year-to-date periods ended September 30, 2007 and 2006, and cash flows for the year-to-date periods ended September 30, 2007 and 2006.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for losses on loans and foreclosed real estate, management obtains independent appraisals for significant properties

6

While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's allowances for losses on loans and foreclosed real estate. Such agencies may require the Company to recognize additions to the allowances based on their judgments about information available to them at the time of their examination.

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as well as other information included in the Company’s most recent Annual Report on Form 10-K. The results of operations for the quarterly and year-to-date periods ended September 30, 2007 and 2006 may not necessarily be indicative of the operating results for the full year.

Certain prior period amounts have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 155, Accounting for Certain Hybrid Financial Instruments, which amends SFAS No. 133, Accounting for Derivatives and Hedging Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Hybrid financial instruments are single financial instruments that contain an embedded derivative. Under SFAS No. 155, entities can elect to record certain hybrid financial instruments at fair value as individual financial instruments. Prior to this amendment, certain hybrid financial instruments were required to be separated into two instruments — a derivative and host — and generally only the derivative was recorded at fair value. SFAS No. 155 also requires that beneficial interests in securitized assets be evaluated for either freestanding or embedded derivatives. SFAS No. 155 is effective for all financial instruments acquired or issued after January 1, 2007. Currently, the Company does not have any hybrid financial instruments.

In March 2006, FASB SFAS No. 156, Accounting for Servicing of Financial Assets—An Amendment of SFAS No. 140, was issued. SFAS No. 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. Under SFAS No. 156, an entity can elect subsequent fair value measurement of its servicing assets and servicing liabilities by class. An entity should apply the requirements for recognition and initial measurement of servicing assets and servicing liabilities prospectively to all transactions after the effective date. SFAS No. 156 permits an entity to reclassify certain available-for-sale securities to trading securities provided that they are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities subsequently measured at fair value. The provisions of SFAS No. 156 are effective for an entity as of the beginning of its first fiscal year that begins after September 15, 2006. Currently, the Company does not have any servicing assets or liabilities recorded on its books.

On July 13, 2006, FASB issued FASB Interpretation 48 (FIN 48), Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109 (the "Interpretation"). FIN 48 clarifies SFAS No. 109, Accounting for Income Taxes, to indicate a criterion that an individual tax position would have to meet for some or all of the income tax benefit to be recognized in a taxable entity’s financial statements. Under the guidelines of the Interpretation, an entity should recognize the financial statement benefit of a tax position if it determines that it is more likely than not that the position will be sustained on examination by taxing authorities. The term “more likely than not” means a likelihood of more than 50 percent. The more-likely-than-not evaluation must consider the facts, circumstances, and information available at the report date.

FIN 48 is effective for fiscal years beginning after December 15, 2006. The cumulative effect of applying FIN 48 should be reported as an adjustment to retained earnings at the beginning of the period in which the Interpretation is adopted. The Company has reviewed all of its tax positions based on previously filed tax returns and expectations in future tax returns and has concluded that, based on technical merits, it is more likely than not that all positions will be sustained upon examination by applicable taxing authorities. Therefore, no adjustments to the tax positions recorded in the financial statements are necessary with the implementation of FIN 48.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures

7

about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. SFAS No. 157 is effective for the year beginning January 1, 2008, with early adoption permitted on January 1, 2007. The Company does not expect the adoption of this new standard in 2008 to have a material impact on its financial position or results of operations.

In September 2006, FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 123(R)". SFAS No. 158 requires the recognition of the funded status of the Company's benefit plans as a net liability or asset, which requires an offsetting adjustment to accumulated other comprehensive income in shareholders' equity. SFAS No. 158 further requires the Company to measure its benefit obligations as of the balance sheet date. The Company adopted these recognition and disclosure provisions of SFAS No. 158 effective December 31, 2006, which required recognition of the previously unrecognized transition obligation for the Company’s pension benefits and postretirement medical benefit program. SFAS No. 158 requires the Company to measure its benefit obligations as of the balance sheet date effective December 31, 2008. The Company currently uses a December 31 measurement date.

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. The Company has historically focused on the impact of misstatements on the income statement, including the reversing effect of prior year misstatements. With a focus on the income statement, the Company’s analysis can lead to the accumulation of misstatements in the balance sheet. In applying SAB 108, the Company must also consider accumulated misstatements in the balance sheet. SAB 108 permits companies to initially apply its provisions by recording the cumulative effect of misstatements as adjustments to the balance sheet as of the first day of the fiscal year, with an offsetting adjustment recorded to retained earnings, net of tax. As a result of the implementation, the Company corrected certain misstatements in prior year financial statements. These misstatements were not material for each of the years in which they were made, nor were they material on a cumulative basis.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of SFAS No. 115. This standard permits entities to choose to measure many financial assets and liabilities and certain other items at fair value. An enterprise will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option may be applied on an instrument-by-instrument basis, with several exceptions, such as those investments accounted for by the equity method, and once elected, the option is irrevocable unless a new election date occurs. The fair value option can be applied only to entire instruments and not to portions thereof. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS No. 157, Fair Value Measurements. The Company will not elect early adoption of SFAS No. 159 and has no current plans for application after its effective date.

Cash Dividend

The Board of Directors of the Bank declared a cash dividend of $0.27 per share, which was payable on March 15, 2007 to shareholders of record as of February 28, 2007.

There are 20,000,000 shares of common stock, no par value, authorized. There were 3,534,022 and 3,486,222 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively. The Company also has 5,000,000 authorized shares of preferred stock, with 0 shares outstanding.

NOTE 2. STOCK COMPENSATION

Effective January 1, 2006, the Company adopted the new requirements of SFAS 123R on a prospective basis. Compensation expense was $58,000 and $41,000 for the respective quarters ended and $225,000 and $104,000 for the year-to-date periods ended September 30, 2007 and 2006, respectively.

8

NOTE 3. COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company has outstanding various commitments to extend credit which are not reflected in the financial statements, including loan commitments of approximately $232,160,000 and standby letters of credit of approximately $10,651,000, at September 30, 2007. However, all such commitments will not necessarily culminate in actual extensions of credit by the Company.

Approximately $105,118,000 of loan commitments outstanding at September 30, 2007 related to real estate loans. The remaining commitments primarily relate to revolving lines of credit or commercial loans or other unused commitments, and many of these commitments are expected to expire without being drawn upon. Therefore, the total commitments do not necessarily represent future cash requirements. Each potential borrower and the necessary collateral are evaluated on an individual basis. Collateral varies, but may include real property, bank deposits, debt or equity securities or business assets.

Stand-by letters of credit are commitments written to guarantee the performance of a customer to another party. These guarantees are issued primarily relating to purchases of inventory by commercial customers and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to customers and accordingly, evaluation and collateral requirements similar to those for loan commitments are used. Virtually all such commitments are collateralized.

NOTE 4. EARNINGS PER SHARE

Basic earnings per share are computed by dividing net income by the weighted-average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if options or other contracts to issue common stock were exercised and converted into common stock.

There was no difference in the numerator used in the calculation of basic earnings per share and diluted earnings per share. The denominator used in the calculation of basic earnings per share and diluted earnings per share for each of the quarterly and year-to-date periods ended September 30 is reconciled as follows:

	Quarter Ended Sept 30		Year to Date Sept 30
	2007	2006	2007	2006
Basic Earnings per Share:
Net income	$ 2,352,000	$ 1,922,000	$ 6,924,000	$ 6,710,000
Weighted average common shares outstanding	3,534,000	3,478,000	3,525,000	3,473,000
Basic Earnings per Share	$ 0.67	$ 0.55	$ 1.96	$ 1.93
Diluted Earnings per Share:
Net income	$ 2,352,000	$ 1,922,000	$ 6,924,000	$ 6,710,000
Weighted average common shares outstanding	3,534,000	3,478,000	3,525,000	3,473,000
Dilutive effect of outstanding options	168,000	238,000	185,000	236,000
Weighted average common shares outstanding - diluted	3,702,000	3,716,000	3,710,000	3,709,000
Diluted Earnings per Share	$ 0.64	$ 0.52	$ 1.87	$ 1.81

NOTE 5. COMPREHENSIVE INCOME

The Company has adopted SFAS No. 130, “Reporting Comprehensive Income.” Comprehensive income is equal to net income plus the change in “other comprehensive income,” (“OCI”) as defined by SFAS No. 130. This statement requires the Company to report income and (loss) from non-owner sources. The components of OCI include net unrealized gain or loss on interest-rate cap contracts (cash flow hedges) and available-for-sale investment securities and net gains or losses and prior service costs applicable to defined benefit post-retirement plans and other post-retirement benefits. All components of OCI are net of applicable taxes. FASB Statement No. 130 requires that an

9

entity: (a) classify items of other comprehensive income by their nature in a financial statement, and (b) report the accumulated balance of other comprehensive income separately from common stock and retained earnings in the equity section of the balance sheet.

	Quarter Ended September 30		Year to Date September 30
	2007	2006	2007	2006
Net Income	$2,352,000	$1,922,000	$6,924,000	$6,710,000
Other Comprehensive Income, Net of Tax:
Unrealized gains (losses) arising during the period on cash flow hedges	9,000	2,000	24,000	28,000
Unrealized holding gains (losses) arising during the period on securities	54,000	60,000	(15,000)	(20,000)
Unamortized post-retirement benefit obligation	53,000	-	161,000	-
Other Comprehensive Income (loss)	116,000	62,000	170,000	8,000
Total Comprehensive Income	$2,468,000	$1,984,000	$7,094,000	$6,718,000

NOTE 6. POST RETIREMENT BENEFITS

In accordance with SFAS No.132 "Employers' Disclosures about Pensions and Other Post-Retirement Benefits", the Company provides the following interim disclosure related to its post-retirement benefit plan. The following table sets forth the effects of net periodic benefit cost for the quarterly and year-to-date periods ended September 30:

	Quarter Ended September 30		Year to Date September 30
	2007	2006	2007	2006
Service Cost	$ 96,000	$ 117,000	$ 288,000	207,000
Interest Cost	120,000	75,000	359,000	133,000
Amortization of Unrecognized Prior Service Costs	78,000	61,000	233,000	108,000
Amortization of Net Obligation at Transition	-	-	-	-
Amortization of Unrecognized (Gains) and Losses	21,000	-	64,000	-
Net Periodic Pension and Post-Employment Benefits Cost	$ 315,000	$ 253,000	$ 944,000	$ 448,000

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our Consolidated Financial Statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q. The results of operations for the quarterly and year-to-date periods ended September 30, 2007 and 2006 may not necessarily be indicative of the operating results for the full year.

Overview

At September 30, 2007, we had total consolidated assets of $797,031,000, an increase of 6.4% compared to $748,930,000 at year-end 2006, total consolidated net loans of $612,516,000, an increase of 16.0% compared to $527,999,000 at year-end 2006, total consolidated deposits of $697,271,000, an increase of 8.5% over $642,654,000 at year-end 2006, and consolidated shareholders’ equity of $52,725,000, an increase of 15.0% compared to $45,866,000 at year-end 2006.

We reported quarterly net income of $2,352,000 for the third quarter of 2007. Net income increased $430,000, or 22.4%, from the $1,922,000 reported in the third quarter of 2006. The increase was primarily due to a reduction in the provision for loan loss expense of $375,000 for the 3^rd quarter of 2007 compared to the 3^rd quarter of 2006. Diluted earnings per share were $0.64 for the third quarter of 2007 and $0.52 for the third quarter of 2006.

10

For the quarter ended September 30, 2007, the annualized return on average assets (ROAA) and return on average equity (ROAE) were 1.20% and 18.42%, respectively, compared to 1.11% and 17.01%, respectively, for the same period in 2006.

For the year-to-date period ended September 30, 2007, net income was $6,924,000. Net income increased $214,000, or 3.2% compared to $6,710,000 reported in the same period of 2006. Diluted earnings per share were $1.87 and $1.81 for the year-to-date period ended September 30, 2007 and 2006, respectively.

For the year-to-date period ended September 30, 2007, ROAA and ROAE were 1.22% and 18.91%, respectively, compared to 1.35% and 21.11% for the year-to-date period ended September 30, 2006.

11

The following table provides a summary of the major elements of income and expense for the periods indicated:

Condensed Comparative Income Statement (unaudited)
	Quarter Ended Sept 30			Year to date Sept 30
	2007	2006	% Change	2007	2006	% Change
Interest Income	$14,422,000	$12,190,000	18.31%	$41,138,000	$33,966,000	21.12%
Interest Expense	6,542,000	4,927,000	32.78%	18,561,000	12,391,000	49.79%
Net Interest Income	7,880,000	7,263,000	8.50%	22,577,000	21,575,000	4.64%
Provision for Loan Losses	225,000	600,000	-62.50%	675,000	1,130,000	-40.27%
Net interest income after
provision for loan losses	7,655,000	6,663,000	14.89%	21,902,000	20,445,000	7.13%
Noninterest Income	739,000	725,000	1.93%	2,344,000	2,234,000	4.92%
Noninterest Expense	4,191,000	3,841,000	9.11%	12,118,000	11,192,000	8.27%
Income Before Taxes	4,203,000	3,547,000	18.49%	12,128,000	11,487,000	5.58%
Provision For Income Taxes	1,851,000	1,625,000	13.91%	5,204,000	4,777,000	8.94%
Net Income	$ 2,352,000	$ 1,922,000	22.37%	$ 6,924,000	$ 6,710,000	3.19%

Net Interest Income

Net interest income, the difference between interest earned on loans and investments and interest paid on deposits and other borrowings, is the principal component of our earnings. The following tables provide a summary of average earning assets and interest-bearing liabilities as well as the income or expense attributable to each item for the periods indicated.

12

Distribution of Assets, Liabilities & Shareholders' Equity, Rates & Interest Margin

		Quarter Ended Sept 30
(unaudited)(dollars in thousands)	2007			2006
			Avg			Avg
	Avg Balance	Interest	Yield	Avg Balance	Interest	Yield
ASSETS
Earning assets:
Loans (1)	$ 603,679	$ 13,037	8.57%	$ 483,374	$ 10,558	8.67%
Taxable investments	119,646	1,319	4.37%	146,015	1,566	4.25%
Tax-exempt investments(2)	4,558	44	3.83%	4,568	44	3.82%
Fed funds sold and other
interest-bearing balances	1,898	22	4.60%	1,850	22	4.72%
Total earning assets	729,781	14,422	7.84%	635,807	12,190	7.61%
Cash & due from banks	24,838			27,655
Other assets	31,405			24,081
Total Assets	$ 786,024			$ 687,543
LIABILITIES
Interest-bearing liabilities:
NOW & money market	$ 294,953	$ 3,209	4.32%	$ 295,151	3,109	4.18%
Savings	182,315	2,175	4.73%	89,969	838	3.70%
Time deposits	61,282	741	4.80%	27,238	265	3.86%
Other borrowings	25,045	417	6.61%	52,557	715	5.40%
Total interest-bearing liabilities	563,595	6,542	4.61%	464,915	4,927	4.20%
Noninterest-bearing deposits	159,261			171,190
Other liabilities	11,661			6,608
Total Liabilities	734,517			642,713
SHAREHOLDERS' EQUITY
Shareholders' equity	51,507			44,830
Total Liabilities and
Shareholders' Equity	$ 786,024			$ 687,543
Net Interest Income and
Net Interest Margin (3)		$ 7,880	4.28%		$ 7,263	4.53%

1)	Loan interest income includes fee income of $541,000 and $479,000 for the quarters ended September 30, 2007 and 2006, respectively. Average balance of loans includes average deferred loan fees of $1,523,000 and $1,410,000 for the quarters ended September 30, 2007 and 2006, respectively. The average balance of nonaccrual loans is not significant as a percentage of total loans and, as such, has been included in net loans. Certain loans in both periods reported were partially exempt from federal and/or state taxes, however, the income derived from these loans was not significant, therefore there have been no adjustments made to reflect interest earned on these loans on a tax-equivalent basis.
2)	Applicable nontaxable securities yields are not material to the Company’s results of operations, therefore there have been no adjustments made to reflect interest earned on these securities on a tax- equivalent basis.
3)	Net interest margin is computed by dividing net interest income by the total average earning assets.

13

	Year to date Sept 30
(unaudited)(dollars in thousands)	2007			2006
			Avg			Avg
	Avg Balance	Interest	Yield	Avg Balance	Interest	Yield
ASSETS
Earning assets:
Loans, net of unearned (1)	$ 571,291	$ 36,682	8.58%	$ 451,085	$ 28,742	8.52%
Taxable investments	126,849	4,173	4.40%	150,356	4,748	4.22%
Tax-exempt investments(2)	4,603	134	3.89%	3,909	111	3.80%
Fed funds sold and other
interest-bearing balances	3,921	149	5.08%	10,843	365	4.50%
Total Earning Assets	706,664	41,138	7.78%	616,193	33,966	7.37%
Cash & due from Banks	25,659			26,995
Other assets	29,074			23,511
Total Assets	$ 761,397			$ 666,699
LIABILITIES
Interest-bearing liabilities:
NOW & money market	$ 294,848	$ 9,672	4.39%	$ 288,191	$ 8,130	3.77%
Savings	156,012	5,478	4.69%	96,172	2,337	3.25%
Time deposits	54,975	1,983	4.82%	27,340	698	3.41%
Other borrowings	29,416	1,428	6.49%	29,739	1,226	5.51%
Total interest-bearing liabilities	535,251	18,561	4.64%	441,442	12,391	3.75%
Noninterest-Bearing Deposits	165,691			177,022
Other Liabilities	11,502			5,732
Total Liabilities	712,444			$ 624,196
SHAREHOLDERS' EQUITY
Shareholders' Equity	48,953			42,503
Total Liabilities and
Shareholders' Equity	$ 761,397			$ 666,699
Net Interest Income and
Net Interest Margin (3)		$ 22,577	4.27%		$ 21,575	4.68%

1)	Loan interest income includes fee income of $1,402,000 and $1,503,000 for the year-to-date periods ended September 30, 2007 and 2006, respectively. Average balance of loans includes average deferred loan fees of $1,402,000 and $1,432,000 for the year-to-date periods ended September 30, 2007 and 2006, respectively. The average balance of nonaccrual loans is not significant as a percentage of total loans and, as such, has been included in net loans. Certain loans in both periods reported were partially exempt from federal and/or state taxes, however, the income derived from these loans was not significant, therefore there have been no adjustments made to reflect interest earned on these loans on a tax-equivalent basis.
2)	Applicable nontaxable securities yields are not material to the Company’s results of operations, therefore there have been no adjustments made to reflect interest earned on these securities on a tax- equivalent basis.
3)	Net interest margin is computed by dividing net interest income by the total average earning assets.

14

The following tables set forth changes in interest income and interest expense segregated for major categories of interest-earning assets and interest-bearing liabilities into amounts attributable to changes in volume, and changes in rates. Changes not solely attributable to volume or rates have been allocated in proportion to the respective volume and rate components.

Summary of Changes in Interest Income and Expense
	Quarter Ended September 30
	2007 over 2006
(unaudited)(dollars in thousands)	Volume	Rate	Net Change
Interest-Earning Assets:
Loans, net of unearned income (1)	2,599	(120)	2,479
Taxable investment securities	(290)	43	(247)
Tax-exempt investment securities (2)	0	0	0
Fed funds sold and other interest-bearing balances	1	(1)	0
Total	2,310	(78)	2,232
Interest-Bearing Liabilities:
NOW and money market accounts	(2)	102	100
Savings deposits	1,050	287	1,337
Time deposits	399	77	476
Other borrowings	(433)	135	(298)
Total	1,014	601	1,615
Interest Differential	1,296	(679)	617

1)

Loan interest income includes fee income of $541,000 and $479,000 for the quarters ended September 30, 2007 and 2006, respectively. Certain loans in both periods reported were partially exempt from federal and/or state taxes, however, the income derived from these loans was not significant, therefore there have been no adjustments made to reflect interest earned on these loans on a tax-equivalent basis.

2)

Applicable nontaxable securities yields are not material to the Company’s results of operations, therefore there have been no adjustments made to reflect interest earned on these securities on a tax- equivalent basis.

15

	Year to Date September 30
	2007 over 2006
(unaudited)(dollars in thousands)	Volume	Rate	Net Change
Interest-Earning Assets:
Loans, net of unearned income (1)	7,717	223	7,940
Taxable investment securities	(767)	192	(575)
Tax-exempt investment securities (2)	20	3	23
Fed funds sold and other interest-bearing balances	(258)	42	(216)
Total	6,712	460	7,172
Interest-Bearing Liabilities:
NOW and money market accounts	192	1,350	1,542
Savings deposits	1,831	1,310	3,141
Time deposits	912	373	1,285
Other borrowings	(13)	215	202
Total	2,922	3,248	6,170
Interest Differential	3,790	(2,788)	1,002

1)

Loan interest income includes fee income of $1,402,000 and $1,503,000 for the year-to-date periods ended September 30, 2007 and 2006, respectively. Certain loans in both periods reported were partially exempt from federal and/or state taxes, however, the income derived from these loans was not significant, therefore there have been no adjustments made to reflect interest earned on these loans on a tax-equivalent basis.

2)

Applicable nontaxable securities yields are not material to the Company’s results of operations, therefore there have been no adjustments made to reflect interest earned on these securities on a tax-equivalent basis.

Net interest income, before provision for loan loss, was $7,880,000 for the quarter ended September 30, 2007 compared to $7,263,000 for the quarter ended September 30, 2006, an increase of $617,000, or 8.5% . For the year-to-date period ended September 30, 2007, net interest income, before provision for loan loss, was $22,577,000 compared to $21,575,000 for the same period ended September 30, 2006, an increase of $1,002,000, or 4.6% . During the periods presented, loan growth outpaced deposit growth; therefore, alternate sources of funding such as FHLB advances and State of California deposits were utilized. Rates on the alternate sources of funding tend to slightly exceed rates paid on core deposits such as money market and time deposits. However, some alternate source funding costs, such as State of California time deposits are competitive and may sometimes be slightly less than core money market and time deposit rates. Deposit growth came primarily from savings deposits and other time deposits including brokered and State of California deposits. Competition for loans and deposits remained high due to interest rate pressures. Deposit competition within the banking industry caused deposit costs to remain higher, while competitive rates on loans did not allow loan rates to rise as quickly. Although average yields on earning assets increased less than the average interest rate paid on deposits and other borrowings during the periods presented, increases in the volume of earning assets, particularly loans, resulted in increases in net interest income.

Interest Income - Third quarter 2007 Compared to 2006

Total interest income for the quarter ended September 30, 2007 was $14,422,000 compared to $12,190,000 for the quarter ended September 30, 2006, an increase of $2,379,000 or 18.3% . Changes in interest income are the result of changes in the average balances and changes in average yields on earning assets. During the third quarter of 2007, total average earning assets were $729,781,000 compared to $635,807,000 during the third quarter of 2006, an increase of $93,975,000, or 14.8% . During the same period, the average yield on earning assets increased from 7.61% to 7.84%, or 23 basis points. Of the increase in interest income, $2,310,000 was due to variances in the volume of earning assets which was partially offset by a decrease of $78,000 due to variances in the average rate earned on earning assets. Loans were the component of earning assets that contributed the majority of the increase in interest income, which were partially offset by declines in taxable investment securities and Federal Funds sold and other interest-bearing balances. Year-over-year, we experienced changes in average balances and average yields on these balances as follows:

16

During the third quarter of 2007, average loans, net of deferred fees and costs, were $603,679,000 compared to $483,374,000 during the third quarter of 2006, an increase of $120,305,000, or 24.9% . This increased volume of loans resulted in an increase in interest earned on average loans of $2,599,000 during the quarterly period ended September 30, 2007, compared to the quarterly period ended September 30, 2006. During this same time period, the average yield earned on average loans decreased from 8.67% to 8.57% . This 10 basis point decrease in average yield resulted in a decrease of $120,000 in interest earned on average net loans during the third quarter of 2007 compared to the third quarter of 2006. The net result was an increase of $2,479,000 in interest earned on average net loans during the third quarter of 2007 compared with the same period of 2006.

Average taxable investment securities during the third quarter of 2007 were $119,646,000 compared to $146,015,000 during the same period of 2006, a decrease of $26,369,000, or 18.1% . This decrease in volume resulted in a decrease in interest earned on average taxable securities of $290,000 during the third quarter of 2007 compared to the third quarter of 2006. During the same period, average yield earned on average taxable securities increased by 12 basis points, resulting in an increase of $43,000 in interest earned on average taxable securities during the third quarter of 2007, compared to the same period of 2006. The net result was a decrease of $247,000 in interest earned on average taxable securities during the third quarter of 2007, compared to the third quarter of 2006.

Interest earned on tax-exempt securities for September 30, 2007 compared to September 30, 2006 was $44,000 for both quarterly periods. Average tax-exempt securities were $4,558,000 and $4,568,000 for the comparative quarterly periods at September 30, 2007 and 2006, respectively and decrease of $10,000 or 0.2% . During the same period, the average yield on tax-exempt securities increased from 3.82% to 3.83% .

During the third quarter of 2007, average Federal Funds sold and other interest-bearing balances were $1,898,000 compared to $1,850,000 during the same period of 2006, an increase of $48,000, or 2.6% . This increase in volume resulted in an increase in interest earned of $1,000 during the third quarter of 2007 compared to the third quarter of 2006. During the same period, average yield earned on these balances decreased by 12 basis points, resulting in a decrease of $1,000 in interest income during the third quarter of 2007, compared to the same period of 2006.

Interest Expense - Third quarter 2007 Compared to 2006

Total interest expense for the third quarter of 2007 was $6,542,000 compared to $4,927,000 for the third quarter of 2006, an increase of $1,615,000, or 32.8% . Changes in interest expense are the result of changes in the average balances and changes in average rates paid on interest-bearing liabilities. During the third quarter of 2007, total average interest-bearing liabilities were $563,595,000 compared to $464,915,000 during the third quarter of 2006, an increase of $98,680,000, or 21.2% . During the same period, the average rate paid on interest-bearing liabilities increased from 4.20% to 4.61%, or 41 basis points. Of the increase in interest expense, $1,014,000 was due to variances in the volume of interest-bearing liabilities and $601,000 was due to variances in the average rate paid on interest-bearing liabilities. Major components of interest-bearing liabilities include NOW and money market accounts, savings deposits, time deposits, and other borrowings. Year-over-year, we experienced changes in average balances and average yields on these balances as follows:

The average balance of NOW and money market accounts decreased from $295,151,000 during the third quarter of 2006 to $294,953,000 during the third quarter of 2007, a decrease of $198,000, or 0.07% . This decreased volume of deposits resulted in a decrease in interest expense of $2,000 during the third quarter of 2007 compared to the third quarter of 2006, while a 14 basis point increase in interest rates paid during the same period caused interest expense to increase by $102,000. The net result was an increase in interest expense on average NOW and money market accounts of $100,000 during the third quarter of 2007, compared to the third quarter of 2006.

Average savings deposits increased during the third quarter of 2007 to $182,315,000, compared to $89,969,000 during the third quarter of 2006, an increase of $92,346,000, or 102.6% . The increase was primarily the result of efforts to raise business savings through a special promotional rate. Because of the increase in average savings deposits, interest expense increased $1,050,000 during the third quarter of 2007, compared to the third quarter of 2006. Interest rates during this same period increased by 103 basis points, resulting in an increase in interest expense of $287,000 in the third quarter of 2007, compared to the third quarter of 2006. The net result was an increase of $1,337,000 in interest expense on average savings deposits during the third quarter of 2007 versus the third quarter of 2006.

17

Average time deposits during the third quarter of 2007 increased to $61,282,000, compared to $27,238,000 during the third quarter of 2006, an increase of $34,044,000, or 125.0% . The increase consisted primarily of $21,837,000 in public fund deposits, $6,388,000 in Certificate of Deposit Account Registry Service (CDARS) balances, and $4,898,000 in brokered deposits. This increase in average time deposits caused interest expense to increase by $399,000 in the third quarter of 2007 compared to the third quarter of 2006, and the 94 basis point increase in interest rates on average time deposits caused interest expense to increase by $77,000 during this same time period. These two factors resulted in the net increase in interest expense on average time deposits of $476,000 in the third quarter of 2007 compared to the third quarter of 2006.

Average other borrowings decreased during the third quarter of 2007 to $25,045,000 compared to $52,557,000 during the third quarter of 2006, a decrease of $27,512,000, or 52.3% . The decrease in average other borrowings was primarily the result of increased use of time deposit products from other sources as explained in the previous section. The decrease in average other borrowings resulted in a decrease in interest expense of $433,000 during the third quarter of 2007, compared to the third quarter of 2006, while a 121 basis point increase in interest rates paid on average other borrowings caused interest expense to increase by $135,000 during this same year-over-year time period. The net result was a decrease of $298,000 in interest expense on other borrowings during the third quarter of 2007 compared to the third quarter of 2006.

Interest Income - Year to Date for 2007 Compared to 2006

Total interest income year to date through September 30, 2007 was $41,138,000 compared to $33,966,000 for the same period ended September 30, 2006, an increase of $7,172,000 or 21.1% . Changes in interest income are the result of changes in the average balances and changes in average yields on earning assets. During the year-to-date period in 2007, total average earning assets were $706,664,000 compared to $616,193,000 during the same period in 2006, an increase of $90,471,000, or 14.7% . During the same period, the average rate paid on earning assets increased from 7.37% to 7.78%, or 41 basis points. Of the increase in interest income, $6,712,000 was due to variances in the volume of earning assets and $460,000 was due to variances in the average rate earned on earning assets. Loans were the component of earning assets that contributed the majority of the increase in interest income, which were partially offset by declines in taxable investment securities and Federal Funds sold and other interest-bearing balances. Year-over-year, we experienced changes in average balances and average yields on these balances as follows:

During the year-to-date period through 2007, average loans, net of deferred fees and costs, were $571,291,000 compared to $451,085,000 during the same period in 2006, an increase of $120,206,000, or 26.6% . This increased volume of loans resulted in an increase in interest earned on average loans of $7,717,000 during the year-to-date period ended September 30, 2007, compared to the same period ended September 30, 2006. During this same time period, the average yield earned on average loans increased from 8.52% to 8.58% . This 6 basis point increase in average yield resulted in an increase of $223,000 in interest earned on average net loans during the year to date period in 2007 compared to the same period in 2006. The net result was an increase of $7,940,000 in interest earned on average net loans for the year-to-date period in 2007 compared with the same period of 2006.

Average taxable investment securities year to date in 2007 were $126,849,000 compared to $150,356,000 during the same period of 2006, a decrease of $23,507,000, or 15.6% . This decrease in volume resulted in a decrease in interest earned on average taxable securities of $767,000 year to date in 2007 compared to the same period in 2006. During the same period, average yield earned on average taxable securities increased by 18 basis points, resulting in an increase of $192,000 in interest earned on average taxable securities during the year-to-date period in 2007, compared to the same period of 2006. The net result was a decrease of $575,000 in interest earned on average taxable securities for the year-to-date period in 2007, compared to the same period in 2006.

Average tax-exempt securities for the year-to-date period 2007 versus 2006 increased to $4,603,000 from $3,909,000 for a change of $694,000 or 17.8% . This volume increase accounted for $20,000 of the change in interest earned year over year. The average yield on tax-exempt securities increased from 3.80% to 3.89% and accounted for the remainder of the increase in interest earned of $3,000 year over year. The net result was an increase of $23,000 in interest earned on average tax-exempt securities for the year-to-date period in 2007, compared to the same period in 2006.

18

Year to date in 2007, average Federal Funds sold and other interest-bearing balances were $3,921,000 compared to $10,843,000 during the same period of 2006, a decrease of $6,922,000, or 63.89% . This decrease in volume resulted in a decrease in interest earned of $258,000 year to date in 2007 compared to the same period in 2006. During the same period, average yield earned on these balances increased by 58 basis points, resulting in an increase of $42,000 in interest income in 2007, compared to the same period of 2006. The net result was a decrease of $216,000 in interest earned on Federal Funds sold and other interest-bearing balances year to date in 2007, compared to year to date 2006.

Interest Expense - Year-to-Date for 2007 Compared to 2006

Total interest expense year to date for 2007 was $18,561,000 compared to $12,391,000 for the same period in 2006, an increase of $6,170,000, or 49.8% . Changes in interest expense are the result of changes in the average balances and changes in average rates paid on interest-bearing liabilities. Total average interest-bearing liabilities year to date were $535,251,000 at September 30, 2007 compared to $441,442,000 average year to date at September 30, 2006, an increase of $93,809,000, or 21.3% . During the same period, the average rate paid on interest-bearing liabilities increased from 3.75% to 4.64%, or 89 basis points. Of the increase in interest expense, $2,922,000 was due to variances in the volume of interest-bearing liabilities and $3,248,000 was due to variances in the average rate paid on interest-bearing liabilities. Major components of interest-bearing liabilities include NOW and money market accounts, savings deposits, time deposits, and other borrowings. Year-over-year, we experienced changes in average balances and average yields on these balances as follows:

The year-to-date average balance of NOW and money market accounts through September 30, 2006 increased from $288,191,000 to $294,848,000 through September 30, 2007, an increase of $6,657,000, or 2.3% . This increased volume of deposits resulted in an increase in year-to-date interest expense of $192,000 in 2007 compared to the same period in 2006, while the 62 basis point increase in interest rates during the same period caused interest expense to increase by $1,350,000. The net result was an increase in interest expense on average NOW and money market accounts of $1,542,000 year to date in 2007, compared to the same period in 2006.

Average savings deposits increased year to date in 2007 to $156,012,000, compared to $96,172,000 year to date in 2006, an increase of $59,840,000, or 62.2% . Because of the increase in average savings deposits, interest expense increased $1,831,000 year to date in 2007, compared to the same period in 2006. Interest rates during this same period increased by 144 basis points, resulting in an increase in interest expense of $1,310,000 year to date in 2007, compared to year to date 2006. The net result was an increase of $3,141,000 in interest expense year to date on average savings deposits in 2007 versus the same period in 2006.

Average time deposits year to date for 2007 increased to $54,975,000, compared to $27,340,000 in 2006 for the same period, an increase of $27,635,000, or 101.1% . This increase in average time deposits caused interest expense to increase by $912,000 in 2007 compared to 2006 on a year-to-date comparative basis, and the 141 basis point increase in interest rates on average time deposits caused interest expense to increase by $373,000 during this same time period. These two factors resulted in the net increase in year-to-date interest expense on average time deposits of $1,285,000 for the comparative periods in 2007 and 2006.

Average other borrowings decreased year to date for 2007 to $29,416,000 compared to $29,739,000 year to date in 2006, a decrease of $323,000, or 1.1% . The decrease in average other borrowings resulted in an decrease in interest expense of $13,000 year to date in 2007, compared to the same period in 2006, while a 98 basis point increase in interest rates paid on average other borrowings caused interest expense to increase by $215,000 during this same year-over-year time period. The net result was an increase of $202,000 in interest expense on other borrowings year to date in 2007 compared to the same period in 2006.

Net Interest Margin

The annualized net interest margin, equal to net interest income divided by average earning assets, for the current quarter of 2007 was 4.28% compared to 4.53% for the same quarter of 2006, a decrease of 25 basis points. Annualized net interest margin year to date for 2007 was 4.27% compared to 4.68% year to date in 2006. Although the yield on average earning assets increased modestly for the quarter and year to date in 2007 compared to 2006, the average cost of funding increased at a greater pace. The increase in average cost of funding was due partly to increased rates and partly to the migration of noninterest-bearing deposits into interest-bearing accounts within the Company. The current

19

competitive rate environment could, in Management’s view, exert continued pressure on net interest margin potentially resulting in a flat to slightly declining margin for the remainder of 2007.

Provision for Loan Losses

We made a $225,000 addition to the allowance for loan losses in the current quarter of 2007 compared to an addition of $600,000 in the same period in 2006. Year to date, the addition amounted to $675,000 in 2007 and $1,130,000 in 2006. The decrease in the addition to the allowance for loan losses in 2007 as compared to 2006 was the result of an analysis of adequacy of the allowance of loan losses. The adequacy of the allowance for loan losses and related current year addition is based upon in-depth analysis, in which Management considers many factors, including the rate of loan growth, changes in the level of past due, nonperforming and classified assets, changing portfolio mix, overall credit loss experience, recommendations of regulatory authorities, and prevailing local and national economic conditions to establish an allowance for loan losses deemed adequate by Management. Based upon information known to Management at the date of this report, Management believes that these additions to the total allowance for loan losses allow the Company to maintain an adequate reserve to absorb losses inherent in the loan portfolio. The total allowance for loan losses was $9,063,000 at September 30, 2007, compared to $8,409,000 at December 31, 2006, an increase of $654,000, or 7.8% . The ratio of the allowance for loan losses to total loans, net of unearned income, was 1.46% at September 30, 2007 and 1.57% at December 31, 2006. For further information regarding our allowance for loan losses, see “Allowance for Loan Losses” discussion later in this item.

Noninterest Income

Noninterest income consists primarily of service charges on deposit accounts, customer service fees, and fees for miscellaneous services. Noninterest income totaled $739,000 in the current quarter of 2007, which was an increase of $14,000, or 1.9%, over $725,000 in the same quarter of 2006. Year to date, noninterest income was $2,344,000 in 2007 compared to $2,234,000 in 2006, an increase of $110,000 or 4.9% . Service charges and fees on deposits and other miscellaneous fees increased modestly while other customer service fees decreased slightly.

Noninterest Expense

Noninterest expense increased $350,000, or 9.1%, to a total of $4,191,000 in the current quarter of 2007 compared to $3,841,000 in the same quarter of 2006. On a year-to-date basis, noninterest expense was $12,118,000 and $11,192,000 for 2007 and 2006, respectively. This was an increase of $926,000 or 8.3% year over year.

Salary and employee benefits increased $116,000, or 4.8%, to $2,543,000 during the current quarter of 2007 as compared to $2,427,000 in the comparative quarter of 2006. Year to date, the expense for salary and employee benefits was $7,457,000 and $6,964,000 for 2007 and 2006, an increase of $493,000 or 7.1% . The increase in salary and employee benefits was due primarily to normal salary increases, and increases in net periodic costs of pensions and other post-employment benefits as compared to the prior year.

Occupancy and furniture and equipment expense increased by $65,000, to $567,000 during the current quarter of 2007 compared to $502,000 in the same quarter of 2006. Year to date expense increased $76,000 to $1,537,000 for 2007 compared to $1,461,000 in 2006. The increase in occupancy and furniture expense was due to moderate increases depreciation, property taxes, and building maintenance expenses.

Promotional expense for the current quarter in 2007 was $158,000, an increase of $27,000 or 20.6%, compared to $131,000 in the same period in 2006. Promotional expense on a year to date basis increased 14.3%, or $62,000, to $495,000 in 2007 compared to $433,000 in 2006. The increased expense for the quarter and year to date consisted primarily of expenses associated with advertising and community promotional activities for the Company.

Professional expense was $343,000 in the current quarter of 2007, an increase of $38,000, or 12.5% as compared to $305,000 in the same quarter of 2006. Professional expense year to date was $1,060,000 in 2007 compared to $885,000 in 2006, an increase of 19.8% or $175,000. The increase in professional expense was primarily the result of increases in data processing expense associated with software maintenance contracts and implementation of new software and increased audit and examination fees.

20

Other expenses for the current quarter of 2007 totaled $580,000, which was an increase of $104,000 or 21.8%, compared to $476,000 in the comparative quarter of 2006. Year to date other expenses were $1,569,000 for 2007 compared to $1,449,000 in 2006, an increase of $120,000, or 8.3% . The increase in other noninterest expense was primarily due to increases in FDIC assessments and stock compensation expense for directors.

Included in noninterest expense is compensation expense from granting of stock options under SFAS 123R of $58,000 for the current quarter and $225,000 year to date through September 30, 2007. In 2006, amounts expensed under SFAS 123R were $41,000 and $102,000 for the comparable periods respectively.

The efficiency ratios for the quarter ended September 30, 2007 and 2006 were 48.63% and 48.08%, respectively. For the year-to-date periods ended September 30, 2007 and 2006 the efficiency ratios were 48.63% and 47.01%, respectively.

Provision for Income Taxes

We recorded income tax expense of $1,851,000 for the current quarter of 2007 compared to $1,625,000 for the same quarter of 2006, an increase of $226,000 or 13.9% . On a year-to-date basis, income tax expense for 2007 was $5,204,000 compared to $4,777,000 in 2006, an increase of $427,000 or 8.9% . Income tax expense for 2006 included a nonrecurring tax refund of $288,000 that reduced income tax expense. Without the nonrecurring tax refund, income tax expense year to date for 2007 would have increased by $139,000 or 2.7% compared to the prior year. The effective tax rates were 42.9% and 41.6% for the year-to-date periods ended September 30, 2007 and 2006, respectively. The 2006 effective tax rate was 44.1% adjusted for the nonrecurring tax refund.

Securities

At September 30, 2007, held-to-maturity securities had a market value of $109,476,000 with an amortized cost basis of $111,038,000. On an amortized cost basis, the held-to-maturity investment portfolio decreased $29,784,000 from the December 31, 2006 balance of $140,822,000, a decrease of 21.2% . The decrease was due to maturities and payments received. Of the decrease, U.S. Treasury securities decreased $10,987,000, Government Agency securities decreased $11,351,000, and mortgage-backed securities decreased $7,446,000. The unrealized pretax loss on held-to-maturity securities at September 30, 2007 was $1,573,000, as compared to a loss of $2,507,000 at December 31, 2006. The unrealized pretax loss was caused by the general increase in interest rates on comparable financial instruments with similar remaining maturities. As a general rule, the market price of fixed rate investment securities will decline as interest rates rise. Inasmuch as these investment securities are classified as held-to-maturity, we expect to hold all such securities until they reach their respective maturity dates and, therefore, we do not anticipate recognizing any losses on these securities. During the second quarter of 2006, the Company reclassified all of its investments in municipal securities from held-to-maturity to available-for-sale. At September 30, 2007, available-for-sale securities had a market value of $7,032,000. The unrealized pretax loss on available-for-sale securities at September 30, 2007 was $101,000. Unrealized gains and losses on available-for-sale securities are included in accumulated other comprehensive income in shareholders’ equity on an after-tax basis. We classify individual investments as available-for-sale or held-to-maturity at the time of purchase based upon liquidity and capital planning.

Loans

The ending balance for loans, net of unearned income at September 30, 2007 was $621,579,000, which was an increase of $85,171,000, or 15.9%, from the yearend 2006 balance of $536,408,000. Since year end 2006, significant changes in our loan portfolio were as follows: real estate loans have increased by $80,771,000 or 17.9% from $451,608,000 at December 31, 2006 to $532,379,000 at September 30, 2007; commercial loans decreased by $5,279,000 or 8.3% from $63,753,000 at December 31, 2006 to $58,474,000 at September 30, 2007; agricultural loans increased by $5,071,000 or 24.3% from $20,864,000 at December 31, 2006 to $25,935,000 at September 30, 2007. Based on currently available economic data and related information, Management believes that loan demand for Kern County and the greater Bakersfield area will remain fairly constant throughout the remainder of the year.

Credit Risk

We assess and manage credit risk on an ongoing basis through a formal credit review program, internal monitoring and formal lending policies. We believe our ability to identify and assess risk and return characteristics of our loan

21

portfolio is critical for profitability and growth. We emphasize credit quality in the loan approval process, active credit administration and regular monitoring. With this in mind, we have designed and implemented a comprehensive loan review and grading system that functions to monitor and assess the credit risk inherent in the loan portfolio.

Ultimately, the credit quality of our loans may be influenced by underlying trends in the national and local economic and business cycles. Our business is mostly concentrated in Kern County, California. Our economy is diversified between agriculture, oil, light industry, and warehousing and distribution. As a result, we lend money to individuals and companies dependent upon these industries.

We have significant extensions of credit and commitments to extend credit which are secured by real estate, totaling approximately $637,497,000 at September 30, 2007. Although we believe this real estate concentration has no more than the normal risk of collectibility, a substantial decline in the economy in general, a decline in real estate values in our primary market area in particular, or a substantial increase in interest rates could have an adverse impact on the collectibility of these loans. The ultimate recovery of these loans is generally dependent upon the successful operation, sale or refinancing of the real estate. We monitor the effects of current and expected market conditions and other factors on the collectibility of real estate loans. When, in our judgment, these loans are impaired, an appropriate provision for losses is recorded. The more significant assumptions we consider involve estimates of the following: le ase, absorption and sale rates; real estate values and rates of return; operating expenses; inflation; and sufficiency of collateral independent of the real estate including, in most instances, personal guarantees. Notwithstanding the foregoing, abnormally high rates of impairment due to general or local economic conditions could adversely affect our future prospects and results of operations.

In extending credit and commitments to borrowers, we generally require collateral and/or guarantees as security. The repayment of such loans is expected to come from cash flow and from proceeds from the sale of selected assets of the borrowers. Our requirement for collateral and/or guarantees is determined on a case-by-case basis in connection with our evaluation of the creditworthiness of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, income-producing properties, residences and other real property. We secure our collateral by perfecting our interest in business assets, obtaining deeds of trust, or outright possession among other means. Loan losses from lending transactions related to real estate and agriculture compare favorably with our loan losses on our loan portfolio as a whole.

We believe that our lending policies and underwriting standards will tend to mitigate losses in an economic downturn; however, there is no assurance that losses will not occur under such circumstances. Our loan policies and underwriting standards include, but are not limited to, the following:

• maintaining a thorough understanding of our service area and limiting investments outside of this area,
• maintaining an understanding of borrowers’ knowledge and capacity in their fields of expertise,
• basing real estate construction loan approval not only on salability of the project, but also on the borrowers’ capacity to support the project financially in the event it does not sell within the originally projected time period, and
• maintaining prudent loan-to-value and loan-to-cost ratios based on independent outside appraisals and ongoing inspection and analysis of our construction lending activities.

In addition, we strive to diversify the risk inherent in the construction portfolio by avoiding concentrations to individual borrowers and on any one project.

Nonaccrual, Past Due, Restructured Loans and Foreclosed Assets

We generally place loans on nonaccrual status when they become 90 days past due as to principal or interest, unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual status, the loan is accounted for on the cash or cost recovery method thereafter, until qualifying for return to accrual status. Generally, a loan may be returned to accrual status when all delinquent interest and principal become current in accordance with the terms of the loan agreement and remaining principal is considered collectible or when the loan is both well secured

22

and in the process of collection. Loans or portions thereof are charged off when, in our opinion, collection appears unlikely. The following table sets forth nonaccrual loans, loans past due 90 days or more and still accruing, restructured loans performing in compliance with modified terms and foreclosed assets or OREO at September 30, 2007 and December 31, 2006:

Nonaccrual, Past Due, Restructured Loans, and Foreclosed Assets
(data in thousands, except percentages)	September 30, 2007	December 31, 2006
	(unaudited)
Past due 90 days or more and still accruing:
Commercial	$ -	$ -
Real estate	53	-
Consumer and other	23	3
Nonaccrual:
Commercial	1,384	-
Real estate	3,401	150
Consumer and other	-	-
Restructured (in compliance with modified
terms)	-	-
Total nonperforming and restructured loans	4,861	153
Foreclosed Assets	-	-
Total nonperforming and restructured assets	$ 4,861	$ 153
Allowance for loan losses as a percentage of
nonperforming and restructured loans	186.44%	5496.08%
Nonperforming and restructured loans to total loans, net of unearned income	0.78%	0.03%
Allowance for loan losses to nonperforming and
restructured assets	186.44%	5496.08%
Nonperforming and restructured assets to total assets	0.61%	0.02%

At September 30, 2007, there were nonperforming and restructured loans which totaled $4,861,000 compared to $153,000 at December 31, 2006, an increase of $4,708,000. This was due to an increase in nonaccrual loans as reflected in the table above. These increases were primarily attributable to potential problem loans from a single borrower. These loans are well secured primarily by receivables and equipment and to a lesser extent by commercial and residential real estate. Based on information available at the date of this report, Management expects to collect all amounts due, including interest accrued at the contractual interest rate, under the terms of the contracts. The majority of the loans were originally placed on nonaccrual in the first quarter of 2007 due to uncertainty regarding the collection of interest in the near term. During the third quarter of 2007, we continued to closely monitor and actively pursue the collection of all loans classified as nonperforming. At September 30, 2007, nonperforming and restructured loans were 0.78% of total loans, compared to 0.03% at December 31, 2006. The ratio of nonperforming and restructured assets to total assets was 0.61% at September 30, 2007 compared to 0.02% at December 31, 2006.

Under generally accepted accounting principles, a loan is considered impaired when, based on current information and events, it is probable that we may be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral-dependent. Under some circumstances, a loan which is deemed impaired may still perform in accordance with its contractual terms. Loans that are considered impaired are generally not placed on nonaccrual status unless the loan becomes 90 days or more past due.

At September 30, 2007 and December 31, 2006, there was no recorded investment in loans that were considered impaired under SFAS No. 114. Other than impaired loans and classified loans (discussed below), we are not aware of

23

any other potential problem loans which were accruing and current at September 30, 2007, where serious doubt exists as to the ability of the borrower to comply with the present repayment terms. In this report, the terms “impaired” and “classified” will not necessarily be used to describe the same loans. “Impaired” loans are those loans that meet the definition outlined in SFAS No. 114. “Classified” loans generally refer to those loans that have a credit risk rating of 6 through 8, as further discussed in the following section.

Generally, when a loan is placed on nonaccrual, it is the Company’s policy to apply payments against the principal balance of the loan until such time as full collection of the principal balance is expected. The amount of gross interest income that would have been recorded for nonaccrual loans for the quarterly and year-to-date periods ended September 30, 2007, if all such loans had been current in accordance with their original terms, was $129,000 and $304,000, respectively. The amount of interest income that was recognized on nonaccrual loans from all cash payments, including those related to interest owed from prior years, made during the quarterly and year-to-date periods ended September 30, 2007, totaled $11,000 and $14,000, respectively.

Classified Loans

We have established a system of evaluation of all loans in our loan portfolio. Based upon the evaluation performed, each loan is assigned a risk rating. This risk rating system quantifies the risk we believe we have assumed when entering into a credit transaction. The system rates the strength of the borrower and the facility or transaction, which provides a tool for risk management and early problem loan recognition.

For each new credit approval, credit review, credit extension or renewal or modification of existing facilities, the approving officers assign risk ratings utilizing an eight point rating scale. The risk ratings are a measure of credit risk based on the historical, current and anticipated financial characteristics of the borrower in the current risk environment. We assign risk ratings on a scale of 1 to 8, with 1 being the highest quality rating and 8 being the lowest quality rating. Loans rated an 8 are charged off.

The primary accountability for risk rating management resides with the account officer. The Credit Review Department is responsible for confirming the risk rating after reviewing all the credit factors independently of the account officer. The rating assigned to a credit is the one determined to be appropriate by the Credit Review Department.

The loans we consider “classified” are those that have a credit risk rating of 6 through 8. These are the loans and other credit facilities that we consider to be of the greatest risk to us and, therefore, they receive the highest level of attention by our account officers and senior credit management officers.

A loan that is classified may be either a “performing” or “nonperforming” loan. A performing loan is one wherein the borrower is making all payments as required by the loan agreements. A nonperforming loan is one wherein the borrower is not paying as agreed and/or is not meeting specific other performance requirements that were agreed to in the loan documentation.

At September 30, 2007, there was $9,175,000 in classified loans compared to $3,045,000 in classified loans at December 31, 2006, an increase of $6,130,000, or 201.3% . The change was primarily due to potential problems loans involving delayed receipt of payments. Classified Loans at September 30, 2007 included $4,846,000 of performing loans and $4,367,000 in nonperforming loans.

The loans and other credit facilities considered classified are also allocated a specific amount in the allowance for loan losses, as further explained in the “Allowance for Loan Losses” section herein.

Allowance for Loan Losses

We maintain an allowance for loan losses to absorb losses inherent in the loan portfolio. The allowance is based on our regular assessments of the probable losses inherent in the loan portfolio and to a lesser extent, unused commitments to provide financing. Determining the adequacy of the allowance is a matter of judgment, which reflects consideration of all significant factors that affect the collectibility of the portfolio as of the evaluation date. Our methodology for measuring the appropriate level of the allowance relies on several key elements, which include the formula allowance,

24

specific allowances for identified problem loans and the unallocated reserve. The unallocated allowance contains amounts that are based on our evaluation of existing conditions that are not directly measured in the determination of the formula and specific allowances.

The formula allowance is calculated by applying loss factors to outstanding loans, in each case based on the internal risk grade of such loans and commitments. Changes in risk grades of performing and certain nonperforming loans other than classified loans affect the amount of the formula allowance. Loss factors are based on our historical loss experience and may be adjusted for other factors that, in our judgment, affect the collectibility of the portfolio as of the evaluation date. At September 30, 2007, the formula allowance was $5,798,000 compared to $6,013,000 at December 31, 2006.

In addition to the formula allowance calculated by the application of the loss factors to the standard loan categories, specific allowances may also be calculated. Quarterly, all significant classified loans are analyzed individually based on the source and adequacy of repayment and specific type of collateral, and an assessment is made of the adequacy of the formula reserve relative to the individual loan. A specific allocation either higher or lower than the formula reserve will be calculated based on the higher/lower-than-normal probability of loss and the adequacy of the collateral. At September 30, 2007, the specific allowance was $2,056,000 on a classified loan base of $9,175,000 compared to a specific allowance of $1,059,000 on a classified loan base of $3,045,000 at December 31, 2006.

At September 30, 2007 and December 31, 2006 there was $1,209,000 and $1,337,000, respectively, in the allowance for loan losses that was unallocated. In the opinion of Management, and based upon an evaluation of potential losses inherent in the loan portfolio, it is necessary to establish unallocated allowance amounts above the amounts allocated using the formula and specific allowance methods, based upon our evaluation of the following factors:

• The current national and local economic and business conditions, trends and developments, including the condition of various market segments within our lending area;
• Changes in lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices;
• Changes in the nature, mix, concentrations and volume of the loan portfolio;
• The effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in our current portfolio.

There can be no assurance that the adverse impact of any of these conditions on us will not be in excess of the combined allowance for loan losses as determined by us at September 30, 2007 and set forth in the preceding paragraph.

The allowance for loan losses totaled $9,063,000 or 1.46% of total loans at September 30, 2007, compared to $8,409,000 or 1.57% of total loans at December 31, 2006. At these dates, the allowance represented 186.4% and 5,496.1% of nonperforming and restructured loans, respectively.

It is our policy to maintain the allowance for loan losses at a level considered adequate for risks inherent in the loan portfolio. Based on information currently available to Management, including economic factors, overall credit quality, historical delinquency and history of actual charge-offs, as of September 30, 2007, we believe that the allowance for loan losses is adequate. However, no prediction of the ultimate level of additional provisions to our allowance or loans charged off in future years can be made with any certainty.

The following table summarizes activity in the allowance for loan losses for the periods indicated:

25

	Quarter Ended September 30		Year to Date September 30
	2007	2006	2007	2006
Beginning Balance	$ 8,831,000	$ 7,546,000	$ 8,409,000	$ 7,003,000
Provision charged to expense	225,000	600,000	675,000	1,130,000
Loans charged off	(2,000)	-	(40,000)	(81,000)
Recoveries	9,000	53,000	19,000	147,000
Ending Balance	$ 9,063,000	$ 8,199,000	$ 9,063,000	$ 8,199,000
Ending Loan Portfolio, net of unearned income			621,579,000	505,546,000
Allowance for loss as a percentage of ending loan portfolio			1.46%	1.62%

Liquidity

Liquidity management refers to our ability to maintain cash flows that are adequate to fund our operations on an ongoing basis and to meet our debt obligations and other commitments on a timely and cost effective basis. Both assets and liabilities contribute to our liquidity position. Federal funds lines, short-term investments and securities, and loan repayments contribute to liquidity, along with deposit increases, while loan funding and deposit withdrawals decrease liquidity. We assess the likelihood of projected funding requirements by reviewing historical funding patterns, current and forecasted economic conditions and individual customer funding needs.

Our sources of liquidity consist primarily of cash and balances due from bank, federal funds sold, unpledged marketable investment securities, overnight federal fund credit lines with correspondent banks, and Federal Home Loan Bank (FHLB) advances. At September 30, 2007, consolidated liquid assets totaled $35,867,000 or 4.5% of total assets as compared to $63,510,000, or 8.5% of total consolidated assets at December 31, 2006. The decrease of $27,643,000 or 43.5% was due to a decrease in unpledged marketable investment securities and a decrease in cash and cash equivalents. At September 30, 2007, liquid assets consisted of cash and balances due from banks and unpledged investment securities. In addition to liquid assets, we maintain short-term overnight federal fund credit lines with correspondent banks and FHLB advance credit lines. At September 30, 2007 and December 31, 2006, we had $40,000,000 available under these federal fund credit lines. At September 30, 2007, $0 was outstanding under these credit lines. Federal fund daily rates are based on market rates for short-term overnight funds and are due on demand. These are uncommitted lines under which availability is subject to funding needs of the issuing banks. At September 30, 2007 and December 31, 2006, the Company had borrowing availability from FHLB advances of $21,659,000 and $39,131,000, respectively. The Company had $16,600,000 in FHLB advances outstanding at September 30, 2007. This was a decrease of $15,600,000 from $32,200,000 outstanding at December 31, 2006. The decrease in advances outstanding was due to additional funding from deposit growth and maturities of investment securities. FHLB advances are available in both overnight and term. Rates are fixed under both advance types and are determined by market rates of comparable instruments. In 2007, the Company began utilizing the State of California Time Deposit Program as an additional source of funds. At September 3 0, 2007, there was $1,619,000 in remaining borrowing capacity through this program.

The Company also has other options available should its funding needs increase beyond the maximum availability under current credit lines or in lieu of these lines. These include, but are not limited to, brokered deposits, other deposit programs, and public funds as other sources of liquidity. However, some of these options could increase the Company average cost of funds and impact the net interest margin.

We serve primarily a business and professional customer base and, as such, our deposit base is susceptible to economic fluctuations. Accordingly, we strive to maintain a balanced position of liquid assets to volatile and cyclical deposits.

San Joaquin Bancorp ("the Parent Company") is a separate entity from San Joaquin Bank ("the Bank") and must provide for its own liquidity. In addition to its operating expenses, the Parent Company is responsible for interest and principal on outstanding debt including its trust preferred securities and the payment of dividends declared for shareholders. Substantially all of the Parent Company's liquidity is obtained from the exercise of stock options and dividends received from the Bank. Payment of such dividends to the Parent Company by the Bank is limited under

26

regulations for Federal Reserve member banks and California law. The amount that can be paid in any calendar year, without prior approval from federal and state regulatory agencies, cannot exceed the net profits (as defined) for that year plus the net profits of the preceding two calendar years less dividends paid. The Company believes that such restrictions will not have an impact on the Parent Company's ability to meet its ongoing cash obligations.

Premises and Equipment

Total premises and equipment increased $1,507,000, or 19.8%, to $9,129,000 at September 31, 2007 compared to 7,622,000 at December 31, 2006. The increase was due to the purchase of land to build and open a branch. Completion of the project is expected in 2008. The Company is also in the process of purchasing two additional pieces of real estate to be used for the construction and relocation of the Delano branch office and the relocation of the Company’s Administration and Operations office.

Investment in Real Estate

The Company’s investment in real estate totaled $973,000 at September 30, 2007 compare to $643,000 at December 31, 2006, an increase of $330,000, or 51.3% . The increase was due to the purchase of the personal residence of an executive officer of the company. The purchase of the property was a one-time transaction undertaken to assist in a family relocation matter and for internal operations purposes. On October 12, 2007, the residence was sold to an unrelated third party. The Company had no loss on the sale.

Capital Resources

Our total shareholders’ equity was $52,725,000 at September 30, 2007, compared to $45,866,000 at December 31, 2006, an increase of $6,859,000, or 14.6% . The change is the result of the year-to-date earnings, issuance of capital stock due to the exercise of stock options, the change in other comprehensive income or loss, and the cash dividend to shareholders in the first quarter of 2007.

The Board of Governors of the Federal Reserve System (“Board of Governors”) has adopted regulations requiring insured institutions to maintain a minimum leverage ratio of Tier 1 capital (the sum of common stockholders’ equity, non-cumulative perpetual preferred stock and minority interests in consolidated subsidiaries, minus intangible assets, identified losses and investments in certain subsidiaries, plus unrealized losses or minus unrealized gains on available for sale securities) to total assets. Institutions which have received the highest composite regulatory rating and which are not experiencing or anticipating significant growth are required to maintain a minimum leverage capital ratio of 3% Tier 1 capital to total assets. All other institutions are required to maintain a minimum leverage capital ratio of at least 100 to 200 basis points above the 3% minimum requirement.

The Board of Governors has also adopted a statement of policy, supplementing its leverage capital ratio requirements, which provides definitions of qualifying total capital (consisting of Tier 1 capital and Tier 2 supplementary capital, including the allowance for loan losses up to a maximum of 1.25% of risk-weighted assets) and sets forth minimum risk-based capital ratios of capital to risk-weighted assets. Insured institutions are required to maintain a ratio of qualifying total capital to risk weighted assets of 8%, at least one-half (4%) of which must be in the form of Tier 1 capital.

The following table sets forth the Company’s and the Bank’s actual capital positions at September 30, 2007 and the minimum capital requirements for both under the regulatory guidelines discussed above:

			For Capital	To Be Categorized
	September 30, 2007	December 31, 2006	Adequacy Purposes	"Well Capitalized"
Tier 1 leverage ratio	8.17%	8.24%	4%	5%
Tier 1 capital to risk-weighted assets	9.03%	9.16%	4%	6%
Total risk-based capital ratio	11.12%	11.37%	8%	10%
We met the “well capitalized” ratio measures at September 30, 2007.

27

Subordinated Note

On April 5, 2004, the Bank issued a Six Million Dollar ($6,000,000) Floating Rate Subordinated Note (the “Subordinated Note”) in a private placement. The Subordinated Note, which was issued pursuant to a Purchase Agreement dated April 5, 2004 by and between the Bank and NBC Capital Markets Group, Inc., matures in 2019. The Bank may redeem the Subordinated Note, at par, on or after April 23, 2009, subject to compliance with California and federal banking regulations. The Subordinated Note resets quarterly and bears interest at a rate equal to the three-month London Interbank Offered Rate (“LIBOR”) index plus a margin of 2.70% . The Subordinated Note is a capital security that qualifies as Tier 2 capital pursuant to capital adequacy guidelines.

Trust Preferred Securities

On September 1, 2006, San Joaquin Bancorp and San Joaquin Bancorp Trust #1, a Delaware statutory trust, entered into a Purchase Agreement with TWE, Ltd. for the sale of $10 million of floating rate trust preferred securities issued by the Trust and guaranteed by the Company.

On September 1, 2006, the Trust issued $10 million of trust preferred securities to TWE, Ltd. and $310,000 of common securities to the Company under an Amended and Restated Declaration of Trust, dated as of September 1, 2006. The trust preferred securities are guaranteed by the Company on a subordinated basis pursuant to a Guarantee Agreement, dated as of September 1, 2006.

The trust preferred securities have a floating annual rate, reset quarterly, equal to the three-month LIBOR index plus 1.60% . The trust preferred securities are non-redeemable through September 30, 2011. Each of the trust preferred securities represents an undivided interest in the assets of the Trust.

The Company owns all of the Trust's common securities. The Trust's only assets are the junior subordinated notes issued by the Company on substantially the same payment terms as the trust preferred securities. The Company's junior subordinated notes were issued pursuant to an Indenture, dated as of September 1, 2006.

The Federal Reserve Bank of San Francisco has advised the Company that the trust preferred securities are eligible as Tier 1 capital.

Off-Balance Sheet Items

As of September 30, 2007 and December 31, 2006, commitments to extend credit and letters of credit were the only financial instruments with off-balance sheet risk, except for the interest rate cap contracts and interest rate swap agreements described herein.

Derivatives

The use of derivatives allows the Company to meet the needs of its customers while reducing the interest rate risk associated with certain transactions. Currently, the Company uses interest rate cap contracts, which are cash flow hedges, and interest rate swap agreements, which are fair value hedges, to limit exposure to changes in interest rates. The Board has approved a hedging policy, and the Asset Liability Committee is responsible for ensuring that the Board is knowledgeable about general hedging theory, usage and accounting; and that based upon this understanding, approves all hedging transactions. The derivatives are carried at fair value and are included in other assets or other liabilities in the consolidated balance sheet if they have a positive or negative fair value, respectively.

Cash Flow Hedges

We entered into two interest rate cap contracts with a third party to manage the interest rate change risk that may affect the amount of interest expense of our deposits. The interest rate cap contracts qualify as derivative financial instruments. Under an interest rate cap contract, we agree to pay an initial fixed amount at the beginning of the

28

contract in exchange for quarterly payments from the third party when the three-month LIBOR rate exceeds a certain fixed level.

The interest rate cap contracts are considered to be a hedge against changes in the amount of future cash flows associated with our interest expense for our deposits. Accordingly, the interest rate cap contracts are recorded at fair value in our consolidated balance sheet and the related unrealized gains or losses on these contracts are recorded in shareholders’ equity as a component of accumulated other comprehensive income. These deferred gains and losses are amortized as an adjustment to interest expense over the same period in which the related interest payments being hedged are recognized in income. Over the twelve months ending December 31, 2007, the Company expects to amortize $61,000 of the unrealized loss as an adjustment to interest expense. However, to the extent that any of these contracts are not considered to be perfectly effective in offsetting the change in the value of the interest payments being hedged, any changes in fair value relating to the ineffective portion of these contracts are immediately recognized in income.

At September 30, 2007, we had interest rate cap contracts on $14,000,000 notional amount of indebtedness. Interest rate cap contracts with notional amounts of $7,000,000 and $7,000,000 have cap rates of 6.50%, and 6.00%, respectively. Notional amount of $14,000,000 outstanding contracts will mature on June 2, 2008. The net gain or loss on the ineffective portion of these interest rate cap contracts was not material for the quarter ended September 30, 2007, or for the year ended December 31, 2006.

Fair Value Hedges

The Company entered into interest rate swap agreements with a third party, to hedge against changes in fair value of certain fixed rate loans. The Company uses this as a means to offer fixed rate loans to customers, while maintaining a variable rate income that better suits the Company's needs. Under an interest rate swap agreement, the Company agrees to pay a fixed rate to the counter party while receiving a floating rate based on the 1-month LIBOR.

The interest rate swap agreements are considered to be a hedge against changes in the fair value of certain fixed rate loans. The interest rate swap agreements are fair value hedges that qualify as derivative financial instruments under SFAS No. 133.

Short-Cut Method:
o	The Company uses the “short-cut” method of accounting for approximately 89% of swap agreements. These hedges are considered perfectly effective against changes in the fair value of the loan due to changes in the benchmark interest rate over its term. Accordingly, the hedges are recorded at fair value on the balance sheet and any changes in fair value of the swap are recognized currently in earnings and the offsetting gain or loss on the hedged assets attributable to the hedged risk is recognized currently in earnings.
Long-Haul Method:
o	Approximately 11% of swap agreements are accounted for under the “long-haul” method of accounting. Under this accounting method, the Company cannot assume zero ineffectiveness between the swap and the loan. The Company uses the “long-haul” method where the swap agreements contain provisions that prohibit the use of the “short-cut” method. Under the “long- haul” method, the hedge ineffectiveness of the swap is measured as the difference in the present value of future cash flows of the actual swap from the current period end to maturity of the swap and the present value of the future cash flows of a hypothetical swap from the current period end to maturity of the hypothetical swap instrument. The hypothetical swap instrument perfectly mirrors the underlying hedged loan. The hedging relationship is expected to be highly effective in achieving offsetting changes in fair value attributed to the hedged risk during the period that the hedge is designated. Under this method, an assessment of effectiveness must be performed whenever financial statements or earnings are reported and at least quarterly. Based on the assessment, any ineffectiveness is recognized as income or expense in the current reporting period.

As of September 30, 2007, we had interest rate swap agreements on $93,675,000 notional amount of indebtedness as compared to $29,915,000 at December 31, 2006. The swaps had negative fair values of $2,430,000 and $796,000 as

29

of September 30, 2007 and December 31, 2006, respectively. The fair value amount is included with other liabilities on the balance sheet. A corresponding fair value adjustment is included on the balance sheet with the hedged item. The net gain or loss on the ineffective portion of these interest rate swap agreements was not material for the quarter ended September 30, 2007 nor for the year ended December 31, 2006.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The goal for managing our assets and liabilities is to maximize shareholder value and earnings while maintaining a high quality balance sheet without exposing ourselves to undue interest rate risk. Our Board of Directors has overall responsibility for our interest rate risk management policies. We have an Asset/Liability Management Committee (ALCO), which establishes and monitors guidelines to control the sensitivity of earnings to changes in interest rates. The Company does not engage in trading activities to manage interest rate risk, however, the Board of Directors has approved, and the Company currently uses, derivatives to manage interest rate risk. These derivatives are discussed in Item 2 under the caption "Off-Balance Sheet Items." Interest rate risk is the most significant market risks affecting the Company. Management does not believe the Company faces other significant market risks such as foreign currency exchange ris ks, commodity risks, or equity price risks.

Asset and Liability Management

Asset Liability Management is the process of selecting and pricing assets and liabilities to improve performance and manage risk. Activities involved in asset/liability management include, but are not limited to, lending, accepting and placing deposits, investing in securities and issuing debt. Interest rate risk is the primary market risk associated with asset/liability management. Sensitivity of earnings to interest rate changes arises when yields on assets change in a different time period or in a different amount from that of interest costs on liabilities. To mitigate interest rate risk, the structure of the balance sheet is managed with the goal that movements of interest rates on assets and liabilities are correlated and contribute to earnings even in periods of volatile interest rates. The asset/liability management policy sets limits on the acceptable amount of variance in net income, net interest income and market value of equity.

The market values of assets or liabilities on which the interest rate is fixed will increase or decrease with changes in market interest rates. If the Company invests funds in a fixed rate long-term security and then interest rates rise, the security is worth less than a comparable security just issued because of the lower yield on the original fixed rate security. If the lower yielding security had to be sold, the Company would have to recognize a loss. Correspondingly, if interest rates decline after a fixed rate security is purchased, its value increases. Therefore, while the value of the fixed rate investment changes regardless of which direction interest rates move, the adverse exposure to “market risk” is primarily due to rising interest rates. This exposure is lessened by managing the amount of fixed rate assets and by keeping maturities relatively short. However, this strategy must be balanced against the need f or adequate interest income because variable rate and shorter fixed rate securities generally earn less interest than longer term fixed rate securities.

There is market risk relating to the Company’s fixed rate or term liabilities as well as its assets. For liabilities, the adverse exposure to market risk is to lower rates because The Company must continue to pay the higher rate until the end of the term.

Simulation of earnings is the primary tool used to measure the sensitivity of earnings to interest rate changes. Using computer modeling techniques, we are able to estimate the potential impact of changing interest rates on the Company's earnings. A balance sheet forecast is prepared using inputs of actual loan, securities and interest-bearing liabilities (i.e., deposits and other borrowings) positions as the beginning base. The forecast balance sheet is processed against multiple interest rate scenarios. The scenarios include a 100, 200, and 300 basis point rising rate forecast, a flat rate forecast and a 100, 200, and 300 basis point falling rate forecast which take place within a one year time frame. For example, the latest simulation forecast using September 30, 2007 balances and measuring against a flat rate environment, calculated that in a one-year horizon an increase in interest rates of 100 basis points may result in an increase of approximately $1,038,000 (3.27%) in net interest income. Conversely, a 100 basis point decrease may result in a decrease of approximately $439,000 (1.39%) in net interest income. The basic structure of the balance sheet has not changed significantly from the last simulation run.

30

The simulations of earnings do not incorporate any management actions which might moderate the negative consequences of interest rate deviations. Therefore, in Management’s view, they do not reflect likely actual results, but serve as conservative estimates of interest rate risk. Our risk profile has not changed materially from that at year-end 2006.

The Company has adequate capital to absorb any potential losses as described above as a result of a decrease in interest rates. Periods of more than one year are not estimated because it is believed that steps can be taken to mitigate the adverse effects of such interest rate changes.

Repricing Risk

One component, among others, of interest rate risk arises from the fact that when interest rates change, the changes do not occur equally for the rates of interest earned and paid because of differences in contractual terms of the assets and liabilities held. The Company has a large portion of its loan portfolio tied to the prime interest rate. If the prime rate is lowered because of general market conditions, e.g., other money-center banks are lowering their lending rates, these loans will be repriced. If the Company were at the same time to have a large portion of its deposits in long-term fixed rate certificates, net interest income would decrease immediately. Interest earned on loans would decline while interest expense would remain at higher levels for a period of time because of the higher rate still being paid on deposits.

A decrease in net interest income could also occur with rising interest rates. This exposure to “repricing risk” is managed by matching the maturities and repricing opportunities of assets and liabilities. This is done by varying the terms and conditions of the products that are offered to depositors and borrowers. For example, if many depositors want longer-term certificates while most borrowers are requesting loans with floating interest rates, the Company will adjust the interest rates on the certificates and loans to try to match up demand. The Company can then partially fill in mismatches by purchasing securities with the appropriate maturity or repricing characteristics.

Basis Risk

Another component of interest rate risk arises from the fact that interest rates rarely change in a parallel or equal manner. The interest rates associated with the various assets and liabilities differ in how often they change, the extent to which they change, and whether they change sooner or later than other interest rates. For example, while the repricing of a specific asset and a specific liability may fall in the same period of a gap report, the interest rate on the asset may rise 100 basis points, while market conditions dictate that the liability increases only 50 basis points. While evenly matched in the gap report, the Company would experience an increase in net interest income. This exposure to “basis risk” is the type of interest risk least able to be managed, but is also the least dramatic. Avoiding concentration in only a few types of assets or liabilities is the best insurance that the average interest received and paid will move in tandem, because the wider diversification means that many different rates, each with their own volatility characteristics, will come into play. The Company has made an effort to minimize concentrations in certain types of assets and liabilities.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by SEC rules, the Company’s management has evaluated the effectiveness, as of September 30, 2007, of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13(a)-15(e). The Company’s principal executive officer and principal financial officer participated in the evaluation. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2007.

Internal Control over Financial Reporting

Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for

31

external purposes in accordance with U.S. generally accepted accounting principles (GAAP) and includes those policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Company;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No change occurred during the period that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

32

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Company or any subsidiary is a party or of which any of their property is subject, other than ordinary routine litigation incidental to the business of the Company or any subsidiary. None of the ordinary routine litigation in which the Company or any subsidiary is involved is expected to have a material adverse impact upon the financial position or results of operations of the Company or any subsidiary.

ITEM 1A. RISK FACTORS

The risk factors included in the Company's most recent Annual Report on Form 10-K have not materially changed.

In addition to the other information set forth in this report, you should carefully consider the factors, discussed in “Part I, ITEM 1A. Risk Factors” in our most recent Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may arise or become material in the future and materially adversely affect our business, financial condition and/or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

10.1	Form of purchase agreement between Farmersville Village Grove Associates and Pacific West Communities, Inc. dated August 22, 2007
31.1	Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

33

SIGNATURES

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

November 8, 2007		SAN JOAQUIN BANCORP
		(Registrant)
	By:	/s/ Stephen M. Annis
		Stephen M. Annis
		Executive Vice President &
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

34

EX-10

Exhibit 10.1

LAND PURCHASE AND SALE AGREEMENT AND ESCROW INSTRUCTIONS

This Agreement (“Agreement”) entered into this 4^th day of August, 2007 by and between

Farmersville Village Grove Associates (a Limited Partnership) (“Seller”) and Pacific West Communities, Inc. and/or Assigns (“Buyer”) is meant to serve as the purchase agreement and the escrow instructions for this transaction.

SALE PARCELS: Seller herein agrees to sell a forty-eight (48) unit apartment project known as Village Grove Apartments on property situated at 675 South Farmersville Blvd. in the City of Farmersville, County of Tulare, California, consisting of two separate adjoining parcels: to wit, a 2.65 +/- site, and a 1.49 +/- site: APNS 130-093-007 & 130-102-019 (“Sale Parcels”) and legally described in Exhibit A and visually depicted in Exhibit B both attached hereto and incorporated herein by this reference and includes all rights, privileges and easements appurtenant to the Sale Parcels, whether or not recorded, including without limitation all development rights, air rights, water and water rights , easements, rights of way or appurtenances used in connection with the Sale Parcels, and all oil, gas and other minerals in or under or that may be produced for or by the Sale parcels not otherwise reserved. The Sale Parcel shall also include the cash balances in all bank accounts held for the benefit of Village Grove Apartments, including the Reserve Account in the anticipated approximate balance of $215,000, the General Operating Account, the Real Estate Tax and Insurance Escrow Account and the Tenant Security Deposit Account.

PURCHASE PRICE: The Purchase Price shall be One Million Six Hundred Seventy-Five Thousand Dollars ($1,675,000.00) and shall be paid at the Close of Escrow, subject to the following terms: All cash including deposit, and subject to and contingent upon the assumption of an existing note secured by a first deed of trust in favor of the United States Department of Agriculture (USDA) in the anticipated approximate amount of $775,000, authorization of a tax-exempt bond sale by the California Debt Limit Allocation Committee and receipt of an allocation of federal tax credits by the California Tax Credit Allocation Committee. Under th is structure, it is anticipated that Seller will net approximately $900,000 in cash subject to prorations and adjustments as defined below. This offer is further contingent upon buyer’s inspection of the property and inspection of compliance and property management records and accounting documents.

DEPOSITS: Upon Sellers’ acceptance of this offer, Buyer, within ten (10) days, shall deposit into an escrow account held by Chicago Title Company with an office located at Visalia, CA (“Escrow Holder”) the sum of Ten Thousand Dollars ($10,000.00) (the “Deposit”) as a deposit to be applied toward the Purchase Price.

REVIEW PERIOD: Buyer shall have until January 1, 2008 (the “Review Period”) to examine and investigate all aspects of the subject property, and obtain all of the approvals set forth above. These investigations may include a physical and geological inspection and Buyer shall have the right, at Buyer’s expense, to select an inspector(s) to make “inspections” (including tests, surveys, and other studies) of the Property, including but not limited to soil, foundation, possible environmental hazards (such as asbestos, formaldehyde, radon gas, lead-based paint, fuel or

Buyer Initials ______ Seller Initials ______

1

chemical storage tanks, hazardous waste, and other substances, materials or products), geologic conditions, locations of property lines, size/square footage of the real property and improvements, and water/utility use restrictions. Seller shall make the Property available for all inspections. Buyer shall keep the property free and clear of liens, shall indemnify and hold Seller harmless from all liability, claims and demands, damages, and costs, and shall repair all damages arising from the inspections. Buyer shall provide written notice to Seller of any items disapproved prior to expiration of the Review Period.

At any time prior to the expiration of the Review Period, Buyer shall have the right in its sole discretion to terminate this Agreement for any reason whatsoever by giving written notice to Escrow Holder and Seller. It is further agreed that Seller has 60 days to review and investigate “recapture issues” with respect to this sale. After this 60 days review period, this contingency shall terminate.

BUYER REPRESENTATIONS: Buyer represents that its’ intention is to continue the UDSA low-income housing operation under the existing regulatory restrictions for a new thirty-year period.

SELLER REPRESENTATIONS: Seller represents that Seller has no knowledge of any notice of violations of City, County, State, or Federal building, zoning, fire, or health laws, codes, statutes, ordinances, regulations, or rules filed or issued against the Property. If Seller receives notice of violations prior to close of escrow, Seller shall immediately notify Buyer in writing. Buyer is allowed 60 calendar days after receipt of notice to provide written notice to Seller of any items disapproved.

TITLE: Buyer shall be provided a current preliminary title report at Buyer’s expense. Title shall be free of liens, encumbrances, easements, restrictions, rights, and conditions of record or known to Seller. Buyer shall be allowed 30 calendar days after receipt of the preliminary title report to provide written notice to Seller of any of the preceding items disapproved.

ESCROW: An escrow shall be opened to consummate the sale of the Sale Parcel pursuant to this Agreement through Escrow Holder upon the deposit by Seller and Buyer of an executed copy of this Agreement therein. Seller will hand Escrow Holder a Deed conveying the property described herein to the vestees named below. Buyer, within ten (10) days of acceptance, will deliver to Escrow Holder the sum identified herein as the deposit to be applied toward the Purchase Price. Prior to the Close of Escrow, Buyer will hand to Escrow Holder the additional cash deposits required to complete the total purchase price identified herein which Escrow Holder is instructed to use when Escrow Holder can obtain a CLTA Owners Policy of Title Insurance, and any policy required by Buyer’s lenders which policies of title insurance will contain the insuring clauses, exceptions, exclu sions, provisions and stipulations customarily contained in the printed provisions of such form with liability not less than the Purchase Price describing the Sale Parcel contained herein, and showing the fee title in said Sale Parcel vesting to Seller or such other party Seller may designate, subject to:

Buyer Initials ______ Seller Initials ______

2

1. General and Special Taxes for the applicable fiscal year, a lien not yet due and payable, including levies for any district such as, but not limited thereto, drainage, irrigation, road improvement, acquisition and improvement, fire protection, etc.

2. The lien of supplemental taxes, if any, assessed pursuant to the laws of the State of California.

3. Any additional general and special taxes that may be due based on the possible re-evaluation of the herein described Sale Parcel.

4. Covenants, Conditions, Restrictions, Reservations, Easements and Rights of Way of Record, if any.

5. A First Deed of Trust and any other security instruments to record, executed by the above named vestees, to secure any loans or financing agreements in favor of a lender.

ESCROW CHARGES: Buyer and Seller shall equally share in the cost of the Escrow fee and all of Escrow Holder’s customary charges to Buyers and Seller for document drafting, recording and miscellaneous charges. Seller shall pay for a standard CLTA Policy of Title Insurance. Any additional costs associated with title insurance shall be paid by Buyer.

PRORATIONS:

(a) County consolidated property tax bill charges, interest, rents, Association regular dues/assessments, premiums on insurance acceptable to Buyer, as applicable, shall be paid current by Seller and prorated between Buyer and Seller as of the date of recordation of the deed.

(b) Bonds or assessments of Special Assessment Districts which are now a lien, shall be paid current by Seller as of the date of recordation of the deed; payments that are not yet due shall be assumed by the Buyer.

(c) Association Special Assessments which are now a lien, shall be paid current by the Seller as of the date of recordation of the deed; payments that are not yet due shall be assumed by the Buyer.

(d) County transfer tax and transfer fees shall be paid by the Seller. City transfer tax and transfer fees shall be paid by the Seller.

(e) PROPERTY WILL BE REASSESSED UPON CHANGE OF OWNERSHIP. THIS WILL AFFECT THE TAXES TO BE PAID. A supplemental tax bill will be issued, which shall be paid as follows: (1) for periods after close of escrow, by Buyer (or by final acquiring party if part of an exchange), and (2) for periods prior to close of escrow, by Seller. TAX BILLS ISSUED AFTER CLOSE OF ESCROW SHALL BE HANDLED DIRECTLY BETWEEN BUYER AND SELLER.

Buyer Initials ______ Seller Initials ______

3

CLOSE OF ESCROW: Close of Escrow shall be the date upon which the Grant Deed is recorded and not later than February 1, 2008. If Escrow is not in a condition to close by such date, any party which is not then in default may demand, in writing, the return of its documents; but, if both parties hereto are in default, no demand for return thereof shall be recognized until five (5) days after Escrow Holder shall have mailed copies of such demand to the other party. Notwithstanding the foregoing, Buyer at any time may elect to close on five (5) days prior notice of same to Seller and Escrow Holder.

FAILURE OF CONTINGENCIES AND TERMINATION OF ESCROW: In the event this transaction and Escrow terminate because of the failure of one or more of any contingency herein contained, all Deposits of Buyer not yet released to Seller shall be refunded in full to Buyer and neither party shall have any further obligation to the other. All escrow charges shall be paid by the Buyer and all documents delivered into Escrow shall be returned to the depositing party.

ATTORNEY FEES: In any action, proceeding or arbitration arising out of this Agreement, the prevailing party shall be entitled to reasonable attorney’s fees and costs.

ENTIRE CONTRACT: Time is of the essence. All prior agreements between the parties are incorporated in this Agreement which constitutes the entire contract. Its terms are intended by the parties as a final expression of their agreement with respect to such terms as are included herein and may not be contradicted by evidence of any prior or contemporaneous oral agreement. The parties further intend that this Agreement constitutes the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial or arbitration proceeding, if any, involving this Agreement.

COOPERATION AGREEMENT: Buyer agrees, at no cost to Buyer, to cooperate on Seller’s 1031 Exchange in the event Seller enters into an exchange.

AGENCY CONFIRMATION: The following agency relationship(s) and respective compensation to be paid by Seller are hereby confirmed for this transaction:

Agent Representing Buyer:	None
Commissions:
Agents Representing Seller:	None
Commissions:

DURATION OF OFFER: This Agreement, when signed by Buyer constitutes an offer to purchase the Sale Parcels in accordance with the terms and provisions and on the conditions set forth herein. Such offer will expire at 5:00 p.m. on August 31, 2007 unless by such date and time Seller shall have signed this Agreement and delivered the same to Buyer.

(Remainder of this Page Intentionally Left Blank – Signature Page to Follow)

Buyer Initials ______ Seller Initials ______

4

IN WITNESS HEREOF, the parties hereto have caused this Agreement to be executed on the dates indicated herein.

BUYER: Pacific West Communities, Inc. (and/or Assigns)

By: __________________________________

Date: __________________________________

Caleb Roope, President

SELLER: Farmersville Village Grove Associates (a Limited Partnership)

By: __________________________________

Date: __________________________________

Buyer Initials ______ Seller Initials ______

5

Exhibit A

Legal Description of Sale Parcel

Exact Legal to be Attached upon Receipt of Preliminary Title Report

Buyer Initials ______ Seller Initials ______

6

EX-31

Exhibit 31.1

CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bruce Maclin, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of San Joaquin Bancorp;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2007

/s/ Bruce Maclin
Bruce Maclin
Chief Executive Officer

EX-31

Exhibit 31.2

CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Stephen M. Annis, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of San Joaquin Bancorp;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2007

/s/ Stephen M. Annis
Stephen M. Annis
Chief Financial Officer

EX-32

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of San Joaquin Bancorp (the “Company”) on Form 10-Q for the quarter ended September 30, 2007, as filed with the Securities and Exchange Commission, each of the undersigned, in the capacities and on the date indicated below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Bruce Maclin
Bruce Maclin
Chief Executive Officer
(Principal Executive Officer)
November 8, 2007

/s/ Stephen M. Annis
Stephen M. Annis
Chief Financial Officer
(Principal Financial and Accounting Officer)
November 8, 2007