Pacific State Bancorp - Quarterly Report (10-Q)

UNITED STATES

SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________

FORM 10-Q

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

For Quarter Ended June 30, 2008

0	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: 0-49892

PACIFIC STATE BANCORP

(Exact Name of Registrant as Specified in its Charter)

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

1899 W. March Lane, Stockton, CA 95207

(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, including Area Code (209) 870-3200

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 ý No 0

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. (Check one):

Large accelerated filer 0 Accelerated filer 0 Non –accelerated filer 0 Smaller reporting company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes 0 No ý

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

Title of Class	Shares outstanding as of May 14, 2008
Common Stock No Par Value	3,703,207

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PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

PACIFIC STATE BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited	June 30,			December 31,
(Dollars in thousands)	2008			2007
ASSETS
Cash and due from banks	$	16,079		$	13,794
Federal funds sold		35,091			31,880
Total cash and cash equivalents		51,170			45,674
Interest bearing deposits at other banks		-			3,000
Investment securities		47,441			41,352
Loans, less allowance for loan losses of $3,427 in 2008 and $3,948 in 2007		321,502			308,458
Premises and equipment, net		15,234			14,269
Company owned life insurance		8,160			8,025
Accrued interest receivable and other assets		10,407			10,296
Total assets	$	453,914		$	431,074
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing	$	67,123		$	67,071
Interest bearing		304,281			274,750
Total deposits		371,404			341,821
Other borrowings		35,000			40,000
Subordinated debentures		8,764			8,764
Accrued interest payable and other liabilities		3,791			6,453
Total liabilities		418,959			397,038
Commitments and contingencies
Shareholders' equity:
Preferred stock - 2,000,000 shares authorized; none issued or outstanding		-			-
Common stock - no par value; 24,000,000 shares authorized; issued and outstanding –3,715,598 shares in 2008 and 3,707,698 shares in 2007		10,645			10,418
Retained earnings		25,678			24,004
Accumulated other comprehensive loss, net of taxes		(1,368	)		(386	)
Total shareholders' equity		34,955			34,036
Total liabilities and shareholders' equity	$	453,914		$	431,074

See notes to unaudited condensed consolidated financial statements

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PACIFIC STATE BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands, except per share data)	2008		2007		2008		2007
Interest income:
Interest and fees on loans	$	6,201	$	7,300	$	12,677	$	14,142
Interest on Federal funds sold		141		348		256		669
Interest on investment securities		892		484		1,602		827
Total interest income		7,234		8,132		14,535		15,638

Interest expense:
Interest on deposits		2,860		3,239		5,658		6,156
Interest on other borrowings		418		55		848		121
Interest on subordinated debentures		108		185		262		377
Total interest expense		3,386		3,479		6,768		6,654

Net interest income before provision for loan losses		3,848		4,653		7,767		8,984
Provision for loan losses		600		55		810		220
Net interest income after provision for loan losses		3,248		4,598		6,957		8,764

Non-interest income:
Service charges		223		217		460		438
Gain on sale of loans		132		19		151		28
Other income		242		470		458		926
Total non-interest income		597		706		1,069		1,392

Non-interest expenses:
Salaries and employee benefits		1,282		1,506		2,550		2,988
Occupancy		302		277		565		563
Furniture and equipment		195		200		374		367
Other expenses		1,046		1,019		1,831		1,783
Total non-interest expenses		2,825		3,002		5,320		5,701

Income before provision for income taxes		1,020		2,302		2,706		4,455
Provision for income taxes		441		904		1,033		1,720
Net income	$	579	$	1,398	$	1,673	$	2,735

Basic earnings per share	$	0.16	$	0.38	$	0.45	$	0.75

Diluted earnings per share	$	0.15	$	0.35	$	0.43	$	0.68

See notes to unaudited condensed consolidated financial statements

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PACIFIC STATE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Month Periods Ended June 30, 2008 and 2007

Unaudited (Dollars in thousands)	2008			2007
Cash flows from operating activities:
Net income	$	1,673		$	2,735
Provision for loan losses		810			220
Net increase in deferred loan origination costs		(1	)		(20	)
Depreciation, amortization and accretion		80			(3	)
Gain on sale of loans, net		(151	)		(28	)
Stock-based compensation expense		171			127
Increase in Company owned life insurance, net		(135	)		(119	)
Decrease (increase) in accrued interest receivable and other assets		557			(637	)
(Decrease) increase in accrued interest
payable and other liabilities		(2,661	)		1,113
Net cash provided by operating activities		343			3,388
Cash flows from investing activities:
Decrease in interest bearing deposits at other banks		3,000			-
Purchases of available-for-sale investment securities		(21,102	)		(24,477	)
Proceeds from matured and called available-for-sale investment securities		12,735			9,070
Proceeds from principal repayments from available-for-sale government-guaranteed mortgage-backed securities		730			1,558
Proceeds from principal repayments from held-to-maturity government-guarantee mortgage-backed securities		20			1
Purchase of FRB and FHLB stock		(14	)		-
Net increase in loans		(13,641	)		(8,992	)
Purchases of premises and equipment		(1,214	)		(1,384	)
Net cash used in investing activities		(19,486	)		(24,224	)
Cash flows from financing activities:
Net decrease in demand, interest-bearing and savings deposits		(3,170	)		(23,253	)
Net increase in time deposits		32,753			35,114
Proceeds from exercise of stock options		56			181
Net (decrease) increase in other borrowings		(5,000	)		3,600
Net cash provided by financing Activities		24,639			15,642
Increase (decrease) in cash and cash equivalents		5,496			(5,194	)
Cash and cash equivalents at beginning of period		45,674			50,615
Cash and cash equivalents at end of period	$	51,170		$	45,421

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Pacific State Bancorp and Subsidiary

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. GENERAL

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

The Bank conducts a general commercial banking business, primarily in the five county region that comprises Alameda, Calaveras, San Joaquin, Stanislaus and Tuolumne counties, and offers commercial banking services to residents and employers of businesses in the Bank’s service area, including professional firms and small to medium sized retail and wholesale businesses and manufacturers. The Company as of June 30, 2008 had 83 employees, including 20 officers. The Bank does not engage in any non-bank lines of business. The business of the Bank is not to any significant degree seasonal in nature. The Bank has no operations outside California and has no material amount of loans or deposits concentrated among any one or few persons, groups or industries. The Bank operates nine branches with its Administrative Office located at 1899 W. March Lane, in Stockton, California; additional branches are located in downtown Stockton and in the communities of Angels Camp, Arnold, Groveland, Lodi, Modesto, Tracy and Hayward, California. Pacific State Bancorp common stock trades on the NASDAQ Global Market under the symbol of “PSBC”.

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2. BASIS OF PRESENTATION AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position of Pacific State Bancorp (the "Company") at June 30, 2008 and December 31, 2007, and the results of its operations for the three and six month periods ended June 30, 2008 and 2007, and its cash flows for the six month periods ended June 30, 2008 and 2007 in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”).

Certain disclosures normally presented in the notes to the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America for annual financial statements have been omitted. The Company believes that the disclosures in the interim condensed consolidated financial statements are adequate to make the information not misleading. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2007 Annual Report to Shareholders. The results of operations for the three month and six month periods ended June 30, 2008 may not necessarily be indicative of the operating results for the full year.

In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan losses, the provision for income taxes and the estimated fair value of investment securities.

Management has determined that all of the commercial banking products and services offered by the Company are available in each branch of the Bank, that all branches are located within the same economic environment and that management does not allocate resources based on the performance of different lending or transaction activities. Accordingly, the Company and its subsidiary operate as one business segment. No customer accounts for more than 10% of the revenue for the Bank or the Company.

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3. LOANS

Outstanding loans are summarized below:

	June 30,			December 31,
	2008			2007
	(In thousands)
Commercial	$	85,979		$	83,012
Agricultural		15,326			12,646
Real estate - commercial mortgage		134,929			121,157
Real estate - construction		74,298			80,168
Installment		14,188			15,215
Gross loans		324,720			312,198

Deferred loan origination (fees) costs, net		209			208
Allowance for loan losses		(3,427	)		(3,948	)
Net loans	$	321,502		$	308,458

4. COMMITMENTS AND CONTINGENCIES

The Company is party to claims and legal proceedings arising in the ordinary course of business. In the opinion of the Company’s management, the ultimate liability with respect to such proceedings will not have a materially adverse effect on the financial condition or results of operations of the Company as a whole.

In the normal course of business there are outstanding various commitments to extend credit which are not reflected in the financial statements, including loan commitments of approximately $69,037,000 and $121,255,000 and stand-by letters of credit of $2,863,000 and $3,491,000 at June 30, 2008 and December 31, 2007, respectively. However, all such commitments will not necessarily culminate in actual extensions of credit by the Company.

Approximately $14,491,000 of the loan commitments outstanding at June 30, 2008 are for real estate loans and are expected to fund within the next twelve months. The remaining commitments primarily relate to revolving lines of credit or other commercial loans, and many of these 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 a third 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. The deferred liability related to the Company’s stand-by letters of credit was not significant at June 30, 2008 and December 31, 2007.

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5. EARNINGS PER SHARE COMPUTATION

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 outstanding stock options were exercised. Diluted earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period plus the dilutive effect of outstanding options.

6. COMPREHENSIVE INCOME

Comprehensive income is reported in addition to net income for all periods presented. Comprehensive income is made up of net income plus other comprehensive income or loss. Other comprehensive income or loss, net of taxes, is comprised of the unrealized gains or losses on available-for-sale investment securities. The following table shows comprehensive income and its components for the periods indicated:

	Three Months Ended						Six Months Ended
(in thousands)	June 30, 2008			June 30, 2007			June 30, 2008			June 30, 2007
Net Income	$	579		$	1,389		$	1,673		$	2,735
Other Comprehensive Loss:
Change in unrealized loss on
available for sale securities		(895	)		(9	)		(982	)		(30	)
Reclassification adjustment		11			-			11			-
Total Other Comprehensive Loss		(884	)		(9	)		(971	)		(30	)
Total Comprehensive (Loss) Income	$	(305	)	$	1,380		$	702		$	2,705

7. STOCK –BASED COMPENSATION

Stock Option Plan

The Company’s only stock-based compensation plan, the Pacific State Bancorp 1997 Stock Option Plan (the “Plan”), terminated in 2007. The Plan requires that the option price may not be less than the fair market value of the stock at the date the option is granted, and that the stock must be paid in full at the time the option is exercised. The options expire on a date determined by the Board of Directors, but not later than ten years from the date of grant. The vesting period is determined by the Board of Directors and is generally over five years. New shares are issued upon the exercise of options

Stock Option Compensation

There were no stock options granted in the three and six month periods ended June 30, 2008 and June 30, 2007. Stock option compensation expense is recognized on a straight-line basis over the vesting period of the option. For the three month periods ended June 30, 2008 and 2007, the compensation cost recognized for stock option compensation was $86,000 and $77,000, respectively. For the six month periods ended June 30, 2008 and 2007, the compensation cost recognized for stock option compensation was $171,000 and $127,000, respectively. The excess tax benefits were not significant for the Company.

At June 30, 2008, the total compensation cost related to nonvested stock option awards granted to employees under the Company’s stock option plans but not yet recognized was $299,000. . This cost is expected to be recognized over a weighted average remaining period of 1.7 years and will be adjusted for subsequent changes in estimated forfeitures.

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Stock Option Activity

A summary of option activity under the stock option plans as of June 30, 2008 and changes during the period then ended is presented below:

Options	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Outstanding at January 1, 2008		656,769		$	7.69	5.5 years		$	3,836
Granted		-			-		-		-
Exercised		7,900	)	$	4.02	2.4 Years		$	52
Cancelled		-			-		-		-
Outstanding at June 30, 2008		648,869		$	7.73	5.3 years		$	260
Options vested or expected to vest at June 30, 2008		505,012		$	7.08	4.3 Years		$	543
Exercisable at June 30, 2008		505,012		$	7.08	4.3 Years		$	543

The intrinsic value was derived from the closing market price of the Company’s common stock of $8.13 as of June 30, 2008 and $12.57 of December 31, 2007.

8. INCOME TAXES

In July 2006, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes—an Interpretation of FASB statement No. 109 . FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes . FIN 48 also prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. The Company has adopted FIN 48 as of January 1, 2007.

The Company previously recognized income tax positions based on management’s estimate of whether it is reasonably possible that a liability has been incurred for unrecognized income tax benefits by applying FASB Statement No. 5, Accounting for Contingencies .

The provisions of FIN 48 have been applied to all tax positions of the Company as of January 1, 2007. There was no cumulative effect of applying the provisions of FIN 48 and there was no material effect on the Company’s provision for income taxes for the three months or six months ended June 30, 2008.

The Company applies the asset and liability method to account for income taxes. Deferred tax assets are calculated by applying applicable tax laws to the differences between the financial statement basis and the tax basis of assets and liabilities. The effect on deferred taxes of changes in tax laws and rates is recognized in income in the period that includes the enactment date. On the consolidated balance sheet, net deferred tax assets are included in other assets.

Accounting for uncertainty in income taxes – The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation process, if any. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along wih any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if applicable, as a component of interest expense in the consolidated statements of income. There have been no significant change to unrecognized tax benefits or accrued interest and penalties for the six months ended June 30, 2008.

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9. NEW ACCOUNTING PRONOUNCEMENTS

Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurement. SFAS No. 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under SFAS No. 157, fair value measurements are disclosed by level within that hierarchy. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, except for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis for which delayed application is permitted until fiscal years beginning after November 15, 2008. The Company adopted SFAS No. 157 on January 1, 2008 and, in management’s opinion, the adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.

Fair Value Accounting

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS No. 159"). SFAS No. 159 permits companies to elect to follow fair value accounting for certain financial assets and liabilities in an effort to mitigate volatility in earnings without having to apply complex hedge accounting provisions. The standard also establishes presentation and disclosure requirements designed to facilitate comparison between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS No. 159 on January 1, 2008 and, in management’s opinion, the adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.

Business Combinations

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

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Noncontrolling Interests in Consolidated Financial Statements

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

Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements

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

Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements

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

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

Certain matters discussed in this Quarterly Report are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks and uncertainties include, among others (1) significant increases in competitive pressures in the financial services industry; (2) changes in the interest rate environment resulting in reduced margins; (3) general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in among other things, a deterioration in credit quality; (4) changes in the regulatory environment; (5) loss of key personnel; (6) fluctuations in the real estate market; (7) changes in business conditions and inflation; (8) operational risks including data processing systems failures and fraud; and (9) changes in the securities market. Therefore the information set forth herein should be carefully considered when evaluating the business prospects of the Company.

When the Company uses in this Quarterly Report the words “anticipate”, “estimate”, “expect”, “project”, “intend, “commit”, “believe” and similar expressions, the Company intends to identify forward-looking statements. Such statements are not guarantees of performance and are subject to certain risks, uncertainties and assumptions, including those described in this Quarterly Report. Should one or more of the uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. The future results and stockholder values of the Company may differ materially from those expressed in these forward-looking statements. Many factors that will determine these results and values are beyond the Company’s ability to control or predict. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

INTRODUCTION

The following discussion and analysis sets forth certain statistical information relating to the Company as of June 30, 2008 and December 31, 2007 and for the three and six month periods ended June 30, 2008 and 2007. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this report and the consolidated financial statements and notes thereto included in Pacific State Bancorp’s Annual Report filed on Form 10-K for the year ended December 31, 2007.

CRITICAL ACCOUNTING POLICIES

There have been no changes to the Company’s critical accounting policies from those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2007 Annual Report on Form 10-K.

OVERVIEW

For the three months ended June 30, 2008:

The Company’s net income decreased $819 thousand or 58.6% to $579 thousand for the second quarter of 2008 from $1,398 thousand for the same period in 2007. The primary contributors to the decrease in net income for the second quarter of 2008 were the (1) $805 thousand decrease in net interest income, a (2) $545 thousand increase in provision for loan losses, and a (3) $109 thousand decrease in non-interest income, primarily other income, compared to the same period in 2007. The changes above were partially offset by decreases in non-interest expenses of $177 thousand. The decrease in non-interest expenses consisted primarily of decreases in salaries and benefits of $224 thousand, which was offset by an increase in occupancy, furniture and equipment expenses of $20 thousand as well as an increase of $27 thousand in other expenses. The provision for income taxes decreased $463 thousand.

Basic earnings per share decreased to $0.16 for the second quarter of 2008 down 57.9% from $0.38 for the same period in 2007. Diluted earnings per share decreased to $0.15 for the second quarter of 2008 down 57.1% from the $0.35 for the same period in 2007.

The annualized return on average assets (“ROA”) was 0.52% for the three month period ended June 30, 2008 compared to 1.41% for the same period in 2007. The annualized return on average equity (“ROE”) was 6.64% for the three month period ended June 30, 2008 compared to 18.18% for the same period in 2007. The decrease in ROA and ROE is primarily attributable to a decrease in net income as compared to the same period in 2007.

For the six months ended June 30, 2008:

The Company’s net income decreased $1,062 thousand or 38.8% to $1,673 thousand for the six months ended June 30, 2008 from $2,735 thousand for the same period in 2007. The primary contributors to the decrease in net income for the six months ended June 30, 2008 were the (1) $1,217 thousand decrease in net interest income, (2) increase in provision for loan losses of $590 thousand and (3) $323 thousand decrease in non-interest income. These changes were partially offset by decreases in non-interest expenses of $381 thousand. The decrease in non-interest expenses consisted primarily of decreases in salaries and benefits of $438 thousand, occupancy, furniture and equipment expenses of $9 thousand as well as an increase of $48 thousand in other expenses. The decrease in salaries is the result of a lower level of bonus accrual and increased recognition of deferred loan costs. The provision for income taxes decreased $687 thousand.

Basic earnings per share decreased to $0.45 for the six months ended June 30, 2008 down 40% from $0.75 for the same period in 2007. Diluted earnings per share decreased to $0.43 for the six months ended June 30, 2008 down 36.8% from the $0.68 for the same period in 2007.

Total assets at June 30, 2008 were $454 million, an increase of $23 million or 10.7% annualized, from the $431 million at December 31, 2007. The growth in assets was primarily in the Company’s loan portfolio and investments. Loans grew $13,044 thousand or 8.5% annualized to $321,502 thousand at June 30, 2008 from $308,458 thousand at December 31, 2007. Investments grew $6,089 thousand or 29.6% annualized to $47,441 thousand at June 30, 2008 from $41,352 thousand at December 31, 2007. The growth in loans and investments was funded by the net income of $1.67 million and growth in deposits of $29.6 million. Interest rate changes in the market and deposit growth have allowed the Bank to prepay certain borrowings and have allowed the bank to reduce wholesale borrowings to $35 million at June 30, 2008 from $40 million at December 31, 2007. During July 2008, the borrowings were further reduced to $20 million.

The annualized return on average assets (“ROA”) was 0.77% for the six month period ended June 30, 2008 compared to 1.42% for the same period in 2007. The annualized return on average equity (“ROE”) was 9.60% for the six month period ended June 30, 2008 compared to 18.29% for the same period in 2007. The decrease in ROA and ROE is primarily attributable to a decrease in net income as compared to the same period in 2007.

-12-

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2008

Net interest income before provision for loan losses

	Three Months Ended June 30,
(Dollars in thousands, except per share data)	2008		2007		Dollar Change			Percentage Change
Interest income:
Interest and fees on loans	$	6,201	$	7,300	$	(1,099	)		(15.1	)%
Interest on Federal funds sold		141		348		(207	)		(59.5	)
Interest on investment securities		892		484		408			84.3
Total interest income		7,234		8,132		(898	)		(11.0	)

Interest expense:
Interest on deposits		2,860		3,239		(379	)		(11.7	)
Interest on other borrowings		418		55		363			660
Interest on subordinated debentures		108		185		(77	)		(41.6	)
Total interest expense		3,386		3,479		(93	)		(2.7	)
Net interest income before provision for loan losses	$	3,848	$	4,653	$	(805	)		(17.3	)%

Net interest income is the interest earned on debt securities, loans (including yield-related loan fees) and other interest-earning assets minus the interest paid for deposits and long-term and short-term debt. The net interest margin is the average yield on earning assets minus the average interest rate paid for deposits and our other sources of funding.

The decreased net interest income performance is primarily the result of the Bank experiencing a contraction in its net interest margin. The contraction of the net interest margin is the result of the more rapid downward repricing of the Bank’s interest earning assets, after the Federal Reserve rate cuts, than the Bank’s repricing of interest bearing liabilities. The Bank has begun to experience a repricing of liabilities in the second quarter of 2008 which is expected to accelerate in the second half of the year, leading to an improved net interest income result in the second half of the year. Repricing of time deposits led to a decrease in deposit interest expense during May and June while average balances increased over the same time period.

In addition to the repricing of the interest bearing deposits, interest rate changes in the market and deposit growth have allowed the Bank to prepay certain borrowings and allowed the Bank to reduce wholesale borrowings to $20 million in early July from $35 million at June 30, 2008 and $40 million at December 31, 2007. Management believes a decreased level of borrowing and repricing of interest bearing deposits will have its greatest impact in the third quarter and early fourth quarter of 2008.

The decrease in interest income was primarily attributed to decreases in the yields on the levels of average loans. Average loan volume for the three months ended June 30, 2008 compared to the same time period in 2007 increased $34 million, which was offset by a decrease of 234 basis points in the average rate the Bank was able to charge. Loan volume increased due to the growth of new branches and increased penetration into existing markets.

The Company’s average loan balances were $329 million for the three months ended June 30, 2008 up 11.5% from $295 million for the same period in 2007. The Company’s average loan yield was 7.58% for the three months ended June 30, 2008, down from the 9.92% yield experienced for the same period in 2007. As a result of the decrease in yields offset by the increase in average balances interest income decreased $1.1 million. The Company’s average balances of investment securities increased $14 million to $51 million for the three months ended June 30, 2008 from the $37 million for the same period in 2007. The Company’s average yield on investments increased 180 basis points to 7.00% from 5.20% for the same period in 2007. As a result of the increase in volume and yield, interest income from investment securities increased $408 thousand.

The Company’s average balances of Federal funds sold increased $1.5 million to $28.9 million for the three months ended June 30, 2008 from the $27.4 million for the same period in 2007. The Company’s average yield on Federal funds sold decreased 330 basis points to 1.79% from 5.09% for the same period in 2007 and interest income decreased by $219 thousand. As a result, the overall yield on average earning assets decreased 198 basis points to 7.09% for the three months ended June 30, 2008, from 9.07% for the same period in 2007.

The decrease in interest expense is primarily attributed to the change in the volume and mix of interest bearing deposit liabilities, (the level of average time deposits increased significantly while the levels of other interest bearing deposits declined or remaining relatively level). Time deposits increased as the Company experienced disintermediation from lower yielding transaction accounts into higher yielding time deposits. Rates paid on deposits were decreased during the period as market rates for deposits decreased.

The Company’s average balances of time deposits were $228 million for the three months ended June 30, 2008, up $32 million, or 16.1% from $196 million for the same period in 2007. The average rate paid on time deposits decreased 99 basis points to 4.33% for the three months ended June 30, 2008 from 5.32% for the same period in 2007. As a result, interest expense on time deposits decreased $150 thousand. The Company’s average balances of interest bearing demand deposits decreased $16 million to $69 million for the three months ended June 30, 2008 from $85 million for the same period in 2007. The average rate paid decreased 62 basis points to 2.33% from 2.95% for the same period in 2007. As a result, interest expense on interest bearing demand deposits decreased $223 thousand.

The Company’s average balances of other borrowings increased $34 million to $48 million for the three months ended June 30, 2008 from $14 million for the same period in 2007 and the rates paid decreased 268 basis points to 4.42% for the three months ended June 30, 2008 from 7.10% for the same period in 2007. As a result of the increased volume offset by the decreased rates paid, interest expense on other borrowings increased $286 thousand. The overall rates paid on average interest-bearing liabilities decreased 77 basis points to 3.89% for the three months ended June 30, 2008, from 4.66% for the same period in 2007.

As a result of the changes noted above, the net interest margin for the three months ended June 30, 2008 decreased 142 basis points to 3.77%, from 5.19% for the same period in 2007.

The following table presents for the three month periods indicated the distribution of consolidated average assets, liabilities and shareholders’ equity. It also presents the amounts of interest income from the interest earning assets and the resultant yields expressed in both dollars and rate percentages. Average balances are based on daily averages. Nonaccrual loans are included in the calculation of average loans while nonaccrued interest thereon is excluded from the computation of yields earned:

-13-

PACIFIC STATE BANCORP
Yield Analysis
	For Three Months Ended June 30,
(Dollars in thousands)	2008										2007
					Interest			Average						Interest		Average
	Average				Income or			Yield or			Average			Income or		Yield or
Assets:	Balance				Expense			Cost			Balance			Expense		Cost
Interest-earning assets:
Loans(1)(2)		$	329,055			$	6,201		7.58	%	$	295,030		$	7,300		9.92	%
Investment securities(2)			51,341				892		7.00	%		37,310			484		5.20	%
Federal funds sold			28,908				129		1.79	%		27,424			348		5.09	%
Interest Bearing Deposits in Banks			1,187				12		4.07	%		-			-		-	%
Total average earning assets		$	410,491			$	7,234		7.09	%	$	359,764		$	8,132		9.07	%

Non-earning assets:
Cash and due from banks			13,669									16,644
Bank premises and equipment			14,953									12,365
Other assets			15,619									10,480
Allowance for loan loss			(3,036	)								(2,702	)
Total average assets		$	451,696								$	396,551


Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits

Interest-bearing Demand		$	68,752			$	399		2.33	%	$	84,522		$	622		2.95	%
Savings			5,394				7		0.52	%		5,343			13		0.98	%
Time Deposits			227,825				2,454		4.33	%		196,233			2,604		5.32	%
Other borrowing(3)			47,857				526		4.42	%		13,564			240		7.10	%

Total average interest-bearing liabilities		$	349,828			$	3,386		3.89	%	$	299,662		$	3,479		4.66	%

Noninterest-bearing liabilities:
Demand deposits			62,853									63,893
Other liabilities			3,923									2,157
Total average liabilities			416,604									365,712
Shareholders' equity:			35,092									30,839
Total average liabilities and shareholders' equity		$	451,696								$	396,551

Net interest income						$	3,848							$	4,653

Net interest margin(4)									3.77	%							5.19	%

(1)	Loan fees included in loan interest income for the three month periods ended June 30, 2008 and 2007 amounted to $216 thousand and $809 thousand, respectively.

(2)	Not computed on a tax-equivalent basis.

(3)	For the purpose of this table the interest expense related to the Company’s junior subordinated debentures is included in other borrowings.

(4)	Net interest income divided by the average balance of total earning assets.

-14-

The following table sets forth changes in interest income and interest expense, for the three month periods indicated and the change attributable to variance in volume and rates:

	Three Months ended June 30,
	2008 over 2007
	Net
(In thousands)	Change			Rate			Volume
Interest Income:
Loans and leases	$	(1,099	)	$	(1,941	)	$	842
Investment securities		408			226			182
Federal funds sold		(219	)		(238	)		19
Interest Bearing Deposits in Banks		12			-			12
Total interest income	$	(898	)	$	(1,953	)	$	1,055


Interest Expense:
Interest-bearing Demand	$	(223	)	$	(107	)	$	(116	)
Savings		(6	)		(6	)		-
Time Deposits		(150	)		(569	)		419
Other borrowing		286			(321	)		607
Total interest expense		(93	)	$	(1,003	)	$	910
Net interest income	$	(805	)	$	(950	)	$	145

(1)	The volume change in net interest income represents the change in average balance multiplied

by the current year’s rate.

(2)	The rate change in net interest income represents the change in rate multiplied by the current year’s average balance.

Provision for loan losses

The Company recorded $600 thousand in provision for loan losses for the three month period ended June 30, 2008, an increase of $545 thousand or 991% from $55 thousand for the same period in 2007. The increase in the provision is based on management’s assessment of the required level of reserves. Management assesses loan quality monthly to maintain an adequate allowance for loan losses. Based on the information currently available, management believes that the allowance for loan losses is adequate to absorb probable losses in the portfolio. However, no assurance can be given that the Company may not sustain charge-offs which are in excess of the allowance in any given period. The Company’s loan portfolio composition and non-performing assets are further discussed under the “Financial Condition” section below.

Non-Interest Income

During the three months ended June 30, 2008, total non-interest income decreased $109 thousand or 15.4% to $597 thousand, from $706 thousand for the comparable period in 2007. The decrease in non-interest income was primarily the result of decreases in fee income derived from the referral of commercial mortgage loans to third parties. The decrease was offset by an increase in the gain on the sale of loans of $113 thousand or 594.7% to $132 thousand for the quarter ended June 30, 2008 up from $19 thousand for the comparable period in 2007.

-15-

Non-Interest Expenses

Non-interest expenses consist of salaries and related employee benefits, occupancy, furniture and equipment expenses, professional fees, appraisal fees, directors’ fees, postage, stationary and supplies expenses, telephone expenses, data processing expenses, advertising and promotion expense and other operating expenses. Non-interest expense for the three months ended June 30, 2008 was $2.8 million compared to $3.0 million for the same period in 2007, representing a decrease of $177 thousand or 5.9%. This decrease reflects decreases in salaries and benefits of $224 thousand or 14.9% which is the result of a bonus accrual in 2007 that was not recorded in 2008 and increased deferred loan costs. The increase in occupancy, furniture and equipment expense of $25 thousand is attributable to increased costs of maintaining facilities. The increase in other expense of $27 thousand is the result of increased legal fees associated with loan collection.

The following table sets forth a summary of non-interest expense for the three month periods ended June 30, 2008 and 2007:

	Three Months Ended
(In thousands)	June 30, 2008		June 30, 2007
Non-interest Expense:
Salaries & Benefits	$	1,282	$	1,506
Occupancy		302		277
Furniture and Equipment		195		200
Other Expense		1,046		1,019

Total Non-Interest Expenses	$	2,825	$	3,002

Income Taxes

The Company’s provision for income taxes includes both federal income and state franchise taxes and reflects the application of federal and state statutory rates to the Company’s net income before taxes. The principal difference between statutory tax rates and the Company’s effective tax rate is the benefit derived from investing in tax-exempt securities and Company owned life insurance. Increases and decreases in the provision for taxes reflect changes in the Company’s net income before tax. The Company’s effective tax rate for the three month period ended June 30, 2008 increased to 43.2% from 39.3% for the same period in 2007. The increase was due primarily to adjustments made in the second quarter to the income tax calculation.

The following table reflects the Company’s tax provision and the related effective tax rate for the three months periods ended June 30, 2008 and 2007:

	Three Months Ended
(In thousands)	June 30, 2008			June 30, 2007

Tax Provision	$	441		$	904
Effective Tax Rate		43.2	%		39.3	%

-16-

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2008

Net interest income before provision for loan losses

	Six Months Ended June 30,
(Dollars in thousands, except per share data)	2008		2007		Dollar Change			Percentage Change
Interest income:
Interest and fees on loans	$	12,677	$	14,142	$	(1,465	)		(10.4	)%
Interest on Federal funds sold		256		669		(413	)		(61.7	)
Interest on investment securities		1,602		827		775			93.7
Total interest income		14,535		15,638		(1,103	)		(7.1	)

Interest expense:
Interest on deposits		5,658		6,156		(498	)		(8.1	)
Interest on other borrowings		848		121		727			600.8
Interest on subordinated debentures		262		377		(115	)		(30.5	)
Total interest expense		6,768		6,654		114			(1.7	)
Net interest income before provision for loan losses	$	7,767	$	8,984	$	(1,217	)		(13.6	)%

The decrease in interest income was primarily attributed to decreases in the rate charged on the levels of average loans offset by the increase in average loan balances. Average loan volume for the six months ended June 30, 2008 compared to the same time period in 2007 increased $32 million, which was offset by a decrease of 187 basis points in the average rate the Bank was able to charge. Loan volume increased due to the growth of new branches and increased penetration into existing markets.

The Company’s average loan balances were $325 million for the six months ended June 30, 2008 up 10.7% from $294 million for the same period in 2007. The Company’s average loan yield was 7.84% for the six months ended June 30, 2008, down from the 9.71% yield experienced for the same period in 2007. The Company’s average balances of investment securities increased $18 million to $50 million for the six months ended June 30, 2008 from the $32 million for the same period in 2007. The Company’s average yield on investments increased 115 basis points to 6.33% from 5.18% for the same period in 2007. As a result of the increase in volume and yield, interest income increased $775 thousand.

The Company’s average balances of Federal funds sold decreased $5 million to $21 million for the six months ended June 30, 2008 from the $26 million for the same period in 2007. The Company’s average yield on Federal funds sold decreased 266 basis points to 2.45% from 5.11% for the same period in 2007 and interest income decreased $413 thousand. As a result, the overall yield on average earning assets decreased 160 basis points to 7.35% for the six months ended June 30, 2008, from 8.95% for the same period in 2007.

The increase in interest expense is primarily attributed to the change in the volume and mix of interest bearing liabilities, (the level of average time deposits increased significantly while the levels of other interest bearing deposits declined or remaining relatively level). Time deposits increased as the Company experienced disintermediation from lower yielding transaction accounts into higher yielding time deposits. Rates paid on deposits were decreased during the period as market rates for deposits decreased.

The Company’s average balances of time deposits were $214 million for the six months ended June 30, 2008, up $27 million, or 14.1% from $188 million for the same period in 2007. The average rate paid on time deposits decreased 70 basis points to 4.56% for the six months ended June 30, 2008 from 5.26% for the same period in 2007. As a result, interest expense on time deposits decreased $43 thousand. The Company’s average balances of interest bearing demand deposits decreased $17 million to $69 million for the six months ended June 30, 2008 from $86 million for the same period in 2007. The average rate paid decreased 58 basis points to 2.30% from 2.88% for the same period in 2007. As a result, interest expense on interest bearing demand deposits decreased $442 thousand.

The Company’s average balances of other borrowings increased $34 million to $48 million for the six months ended June 30, 2008 from $14 million for the same period in 2007 and the rates paid decreased 274 basis points to 4.60% for the six months ended June 30, 2008 from 7.34% for the same period in 2007. As a result of the increased volume offset by the decreased rates paid, interest expense on other borrowings increased $612 thousand. The overall rates paid on average interest-bearing liabilities decreased 54 basis points to 4.04% for the six months ended June 30, 2008, from 4.58% for the same period in 2007.

As a result of the changes noted above, the net interest margin for the six months ended June 30, 2008 decreased 121 basis points to 3.93%, from 5.14% for the same period in 2007.

-17-

PACIFIC STATE BANCORP
Yield Analysis
	For Six Months Ended June 30,
(Dollars in thousands)	2008										2007
					Interest			Average						Interest		Average
	Average				Income or			Yield or			Average			Income or		Yield or
Assets:	Balance				Expense			Cost			Balance			Expense		Cost
Interest-earning assets:
Loans(1)(2)		$	325,236			$	12,677		7.84	%	$	293,728		$	14,142		9.71	%
Investment securities(2)			49,561				1,559		6.33	%		31,945			821		5.18	%
Federal funds sold			21,037				256		2.45	%		26,393			669		5.11	%
Interest Bearing Deposits in Banks			2,093				43		4.13	%		215			6		5.63	%
Total average earning assets		$	397,927			$	14,535		7.35	%	$	352,281		$	15,638		8.95	%

Non-earning assets:
Cash and due from banks			13,482									16,316
Bank premises and equipment			14,705									12,176
Other assets			15,980									11,454
Allowance for loan loss			(3,520	)								(2,623	)
Total average assets		$	438,574								$	389,604


Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits

Interest-bearing Demand		$	68,917			$	788		2.30	%	$	86,181		$	1,230		2.88	%
Savings			5,376				14		0.52	%		5,468			27		1.00	%
Time Deposits			214,217				4,856		4.56	%		187,687			4,899		5.26	%
Other borrowing(3)			48,487				1,110		4.60	%		13,677			498		7.34	%

Total average interest-bearing liabilities		$	336,997			$	6,768		4.04	%	$	293,013		$	6,654		4.58	%

Noninterest-bearing liabilities:
Demand deposits			62,229									64,609
Other liabilities			4,309									1,826
Total average liabilities			403,535									359,448
Shareholders' equity:			35,039									30,156
Total average liabilities and shareholders' equity		$	438,574								$	389,604

Net interest income						$	7,767							$	8,984

Net interest margin(4)									3.93	%							5.14	%

(1)	Loan fees included in loan interest income for the six month periods ended June 30, 2008 and 2007 amounted to $370 thousand and $1,196 thousand, respectively.

(2)	Not computed on a tax-equivalent basis.

(3)	For the purpose of this table the interest expense related to the Company’s junior subordinated debentures is included in other borrowings.

(4)	Net interest income divided by the average balance of total earning assets.

-18-

The following table sets forth changes in interest income and interest expense, for the six month periods indicated and the change attributable to variance in volume, rates and the combination of volume and rates on the relative changes of volume and rates:

	Six Months ended June 30,
	2008 over 2007
	Net
(In thousands)	Change			Rate			Volume
Interest Income:
Loans and leases	$	(1,465	)	$	(2,982	)	$	1,517
Investment securities		738			285			453
Federal funds sold		(413	)		(277	)		(136	)
Interest Bearing Deposits in Banks		37			(15	)		52
Total interest income	$	(1,103	)	$	(2,989	)	$	1,886


Interest Expense:
Interest-bearing Demand	$	(442	)	$	(196	)	$	(246	)
Savings		(13	)		(13	)		(0	)
Time Deposits		(43	)		(735	)		692
Other borrowing		612			(655	)		1,267
Total interest expense	$	114		$	(1,599	)	$	1,713
Net interest income	$	(1,217	)	$	(1,390	)	$	173

(1)	The volume change in net interest income represents the change in average balance multiplied

by the current year’s rate.

(2)	The rate change in net interest income represents the change in rate multiplied by the current year’s average balance.

Provision for loan losses

The Company recorded $810 thousand in provision for loan losses for the six month period ended June 30, 2008, an increase of $590 thousand or 268% from $220 thousand for the same period in 2007. The increase in the provision is based on management’s assessment of the required level of reserves. Management assesses loan quality monthly to maintain an adequate allowance for loan losses. Based on the information currently available, management believes that the allowance for loan losses is adequate to absorb probable losses in the portfolio. However, no assurance can be given that the Company may not sustain charge-offs which are in excess of the allowance in any given period. The Company’s loan portfolio composition and non-performing assets are further discussed under the “Financial Condition” section below.

Non-Interest Income

During the six months ended June 30, 2008, total non-interest income decreased $323 thousand or 23.2% to $1,069 thousand, from $1,392 thousand for the comparable period in 2007. The decrease in non-interest income was primarily the result of decreases in fee income derived from the referral of commercial mortgage loans to third parties and prepayment penalties received in 2007 that were not received in 2008. The decrease was offset by an increase in the gain on the sale of loans of $123 thousand or 439.3% to $151 thousand for the six months ended June 30, 2008 up from $28 thousand for the comparable period in 2007.

-19-

Non-Interest Expenses

Non-interest expenses consist of salaries and related employee benefits, occupancy, furniture and equipment expenses, professional fees, appraisal fees, directors’ fees, postage, stationary and supplies expenses, telephone expenses, data processing expenses, advertising and promotion expense and other operating expenses. Non-interest expense for the six months ended June 30, 2008 was $5.3 million compared to $5.7 million for the same period in 2007, representing a decrease of $381 thousand or 6.7%. This decrease reflects decreases in salaries and benefits of $438 thousand or 14.7% which is the result of a bonus accrual in 2007 that was not recorded in 2008 and increased deferred loan costs. The increase in occupancy, furniture and equipment expense of $7 thousand is attributable to increased costs of maintaining facilities. The increase in other expense of $48 thousand is the result of increased legal fees associated with loan collection.

The following table sets forth a summary of non-interest expense for the six months periods ended June 30, 2007 and 2006:

	Six Months Ended
	June 30, 2008		June 30, 2007
(In thousands)
Non-interest Expense:
Salaries & Benefits	$	2,550	$	2,988
Occupancy		565		563
Furniture and Equipment		374		367
Other Expense		1,831		1,783

Total Non-Interest Expenses	$	5,320	$	5,701

Income Taxes

The Company’s provision for income taxes includes both federal income and state franchise taxes and reflects the application of federal and state statutory rates to the Company’s net income before taxes. The principal difference between statutory tax rates and the Company’s effective tax rate is the benefit derived from investing in tax-exempt securities and Company owned life insurance. Increases and decreases in the provision for taxes reflect changes in the Company’s net income before tax. The Company’s effective tax rate for the six month period ended June 30, 2008 remained relatively consistent at 38.2% compared to 38.6% for the same period in 2007. The slight decrease was primarily due to the increased level of income derived from Enterprise Zone loans and additional tax advantaged securities.

The following table reflects the Company’s tax provision and the related effective tax rate for the six months periods ended June 30, 2008 and 2007:

	Six Months Ended
(In thousands)	June 30, 2008			June 30, 2007
Tax Provision		1,033		$	1,720
Effective Tax Rate		38.2	%		38.6	%

-20-

FINANCIAL CONDITION

Total assets at June 30, 2008 were $453,915,000, an increase of $22,841,000 or 5.3% (10.7% annualized), from the $431,074,000 at December 31, 2007. The growth in assets was primarily in the Company’s level of loans and investments. Investments grew $6,089,000 or 14.7% (29.6% annualized) to $47,441,000 at June 30 31, 2008 from $41,352,000 at December 31, 2007. Loans grew by $13,044,000 or 4.2% (8.5% annualized) to $321,502,000 at June 30, 2008 from $308,458,000 at December 31, 2007. The growth in loans and investments was funded by an increase in deposits of $29,583,000.

The increase in deposits was comprised of an increase in non-interest bearing deposits of $52 thousand or 0.1% (0.1% annualized) to $67.123 million at June 30, 2008 from $67.071 million at December 31, 2007. In addition to the non-interest bearing deposit increase, interest bearing deposits increased $29.5 million or 10.8% (21.6% annualized) to $304.3 million at June 30, 2008 from $274.8 million at December 31, 2007. The increase in interest bearing deposits is the result of several successful certificate of deposit promotions.

Loan portfolio composition

The Company concentrates its lending activities primarily within Calaveras, San Joaquin, Stanislaus, Tuolumne and Alameda Counties.

The Company manages its credit risk through diversification of its loan portfolio and the application of underwriting policies and procedures and credit monitoring practices. Although the Company has a diversified loan portfolio, a significant portion of its borrowers' ability to repay the loans is dependent upon the professional services and residential real estate development industry sectors. Generally, the loans are secured by real estate or other assets and are expected to be repaid from cash flows of the borrower or proceeds from the sale of collateral.

The following table illustrates loan balance (in thousands) and percentage change from December 31, 2007 to June 30, 2008 by loan category:

	June 30, 2008		December 31, 2007		Dollar Change			Percentage Change			Annualized Percentage Change
Commercial	$	85,979	$	83,012	$	2,967			3.6	%		7.2	%
Agricultural		15,326		12,646		2,680			21.2			42.9
Real estate - commercial mortgage		134,929		121,157		13,772			11.4			23.0
Real estate - construction		74,298		80,168		(5,870	)		(7.3	)		(14.8	)
Installment		14,188		15,215		(1,027	)		(6.8	)		(13.7	)
Gross loans	$	324,720	$	312,198	$	12,522			4.0	%		8.1	%

The Company continues to manage the mix in its loan portfolio consistently with its identity as a community bank serving Northern California and the Central Valley. The Bank has experienced strong growth in its agricultural and commercial real estate segments of the loan portfolio. The strong growth in these segments is consistent with the growth in the region where the Bank operates. The Bank has experienced a decline in its real estate construction and installment segments of the loan portfolio. These segments have been negatively affected by the residential real estate market decline.

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Nonperforming loans

The Bank has experienced an increase in nonperforming loans from $432 thousand at December 31, 2007 to $3.7 million or 1.14% of gross loans at June 30, 2008. The increase in nonperforming loans is the result of a decline in real estate values in the region where the Bank operates, forcing the Bank to place certain loans into foreclosure. Bank’s management has immediately placed on non-accrual status any loan secured by real estate, for which a notice of default has been delivered. The increase in nonperforming loans has resulted in Management increasing the provision for loan losses over 2007 levels by $545 thousand for the quarter ended June 30, 2008 and $590 thousand for the six months ended June 30, 2008. At present, management believes that the level of allowance for loan losses currently recorded is sufficient to provide for both specifically identified and inherent probable losses. The Bank did not have any other real estate owned at June 30, 2008 or December 31, 2007.

Management has been proactive in working with problem customers to repay loans that have become delinquent or have the potential to become delinquent. In most cases, personal guarantees and collateral value are considered sufficient to repay outstanding principal and interest. In the cases where collateral value and personal guarantees have fallen short of the principal and interest owed on the loans, management has reserved for the estimated potential loss. Management has ordered real estate appraisals on all new or renewed loans and on loans which are in foreclosure that are secured by real estate. Management has also been proactive in ordering real estate appraisals on loans with potential problems. Appraisals received thus far indicate generally that overall collateral levels remain sufficient to repay the loans secured by the real estate in case of default. Management has also reviewed all home equity lines of credit for current loan to values, credit quality and or performance issues. If issues are identified, the debt availability is frozen and reductions or new terms are obtained. Management believes that overall real estate values remain sufficient in a declining market due to the conservative lending policies of the Bank.

Analysis of allowance for loan losses

In determining the amount of the Company’s Allowance for Loan Losses (“ALL”), management assesses the diversification of the portfolio. Each credit is assigned a credit risk rating factor, and this factor, multiplied by the dollars associated with the credit risk rating, is used to calculate one component of the ALL. In addition, management estimates the probable loss on individual credits that are receiving increased management attention due to actual or perceived increases in credit risk.

The Company makes provisions to the ALL on a regular basis through charges to operations that are reflected in the Company’s statements of operations as a provision for loan losses. When a loan is deemed uncollectible, it is charged against the allowance. Any recoveries of previously charged-off loans are credited back to the allowance. There is no precise method of predicting specific losses or amounts that ultimately may be charged-off on particular categories of the loan portfolio. Similarly, the adequacy of the ALL and the level of the related provision for possible loan losses is determined on a judgment basis by management based on consideration of a number of factors including (i) economic conditions, (ii) borrowers' financial condition, (iii) loan impairment, (iv) evaluation of industry trends, (v) industry and other concentrations, (vi) loans which are contractually current as to payment terms but demonstrate a higher degree of risk as identified by management, (vii) continuing evaluation of the performing loan portfolio, (viii) monthly review and evaluation of problem loans identified as having a loss potential, (ix) monthly review by the Board of Directors, (x) off balance sheet risks and (xi) assessments by regulators and other third parties. Management and the Board of Directors evaluate the allowance and determine its desired level considering objective and subjective measures, such as knowledge of the borrowers' businesses, valuation of collateral, the determination of impaired loans and exposure to potential losses.

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While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions and other qualitative factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ALL. Such agencies may require the Company to provide additions to the allowance based on their judgment of information available to them at the time of their examination. There is uncertainty concerning future economic trends. Accordingly it is not possible to predict the effect future economic trends may have on the level of the provision for loan losses in future periods.

The adequacy of the ALL is calculated upon three components. First is the credit risk rating of the loan portfolio, including all outstanding loans and leases. Every extension of credit has been assigned a risk rating based upon a comprehensive definition intended to measure the inherent risk of lending money. Each rating has an assigned risk factor expressed as a reserve percentage. Central to this assigned risk factor is the historical loss record of the Company. Secondly, established specific reserves are available for individual loans currently on management's watch and high-grade loan lists. These are the estimated potential losses associated with specific borrowers based upon the collateral and event(s) causing the risk ratings. The third component is unallocated. This reserve is for qualitative factors that may effect the portfolio as a whole, such as those factors described above.

Management believes the assigned risk grades and our methods for managing risk are satisfactory. Management does not believe that there were any adverse trends indicated by the detail of the aggregate charge-offs for any of the periods discussed.

The following table summarizes the activity in the ALL for the periods indicated:

	Three Months Ended						Six Months Ended
(In thousands)	June 30,						June 30,
	2008			2007			2008			2007
Beginning Balance:	$	3,629		$	2,646		$	3,948		$	2,478
Provision for loan losses		600			55			810			220
Charge-offs:
Commercial		757			2			1,290			2
Real Estate		-			-			-			-
Other		55			-			55			-
Total Charge-offs		812			2			1,345			2
Recoveries:
Commercial		9			-			13			0
Other		1			-			1			3
Total Recoveries		10			-			14			3
Ending Balance	$	3,427		$	2,699		$	3,427		$	2,699
ALL to total loans		1.06	%		0.91	%		1.06	%		0.91	%
Net Charge-offs to average loans-annualized
Net Charge-offs to average loans-annualized		0.98	%		0.00	%		0.82	%		0.00	%

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Investment securities

SFAS No. 157 defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurement. Upon adoption of SFAS No. 157, there was no cumulative effect adjustment to beginning retained earnings and no impact on the financial statements, other than in conjunction with the adoption of SFAS No. 159, in the three or six months ended June 30, 2008.

In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Currently the Company records only available for sale securities at fair value.

Fair values for investment securities are based on quoted market prices when available or through the use of alternative approaches, such as matrix or model pricing, when market quotes are not readily accessible or available. The company uses level 1 inputs, or quoted market prices, to value approximately $8,722,000 of the available for sale securities. The remaining $38,719,000 uses level 2 inputs or matrix pricing and model pricing.

Investment securities increased $6.0 million to $47.4 million at June 30, 2008, from $41.4 million at December 31, 2007. Federal funds sold increased $3.2 million to $35.1 million at June 30, 2008, from $31.9 million at December 31, 2007.

The Company’s investment in U.S. Treasury securities decreased to 21.1% of the investment portfolio at June 30, 2008 compared to 42.3% at December 31, 2007. Obligations of U.S. Agencies increased to 31.9% of the investment portfolio at June 30, 2008 compared to 7.2% at December 31, 2007. The Company’s investment in corporate bonds decreased to 40.8% of the investment portfolio at June 30, 2008 compared to 42.8% at December 31, 2007. Tax-exempt municipal obligation bonds decreased to 6.2% of the investment portfolio at June 30, 2008 compared to 7.7% at December 31, 2007.

Deposits

Total deposits were $371.4 million as of June 30, 2008 an increase of $29.6 million or 8.7% from the December 31, 2007 balance of $341.8 million. The Company continues to manage the mix of its deposits consistent with its identity as a community bank serving the financial needs of its customers. Non-interest bearing demand deposits and interest bearing checking deposits decreased to 22.9% of total deposits down from 24.9% at December 31, 2007. Money market and savings accounts decreased to 15.2% of total deposits from 17.4% at December 31, 2007. Time deposits increased to 61.9% of total deposits from 57.7% at December 31, 2007

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CAPITAL RESOURCES

Capital adequacy is a measure of the amount of capital needed to sustain asset growth and act as a cushion for losses. Capital protects depositors and the deposit insurance fund from potential losses and is a source of funds for the investments the Company needs to remain competitive. Historically, capital has been generated principally from the retention of earnings.

Overall capital adequacy is monitored on a day-to-day basis by the Company’s management and reported to the Company’s Board of Directors on a quarterly basis. The Bank’s regulators measure capital adequacy by using a risk-based capital framework and by monitoring compliance with minimum leverage ratio guidelines. Under the risk-based capital standard, assets reported on the Company’s balance sheet and certain off-balance sheet items are assigned to risk categories, each of which is assigned a risk weight.

This standard characterizes an institution's capital as being "Tier 1" capital (defined as principally comprising shareholders' equity and the qualifying portion of subordinated debentures) and "Tier 2" capital (defined as principally comprising Tier 1 capital and the remaining qualifying portion of subordinated debentures and the qualifying portion of the ALL).

The minimum ratio of total risk-based capital to risk-adjusted assets, including certain off-balance sheet items, is 8%. At least one-half (4%) of the total risk-based capital is to be comprised of Tier 1 capital; the balance may consist of debt securities and a limited portion of the ALL.

As of June 30, 2008 the most recent notification by the Federal Deposit Insurance Corporation (“FDIC”) categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must meet the minimum ratios as set forth below. There are no conditions or events since that notification that management believes have changed the Bank’s category. Management believes that the Company met all of its capital adequacy requirements.

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The leverage ratio consists of Tier I capital divided by quarterly average assets. The minimum leverage ratio is 3 percent for banking organizations that do not anticipate significant growth and that have well-diversified risk, excellent asset quality and in general, are considered top-rated banks. For all other institutions the minimum rate is 4%.

The Company’s and the Bank’s risk-based capital ratios are presented below.

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
June 30, 2008	Amount		Ratio			Minimum Amount		Minimum Ratio			Minimum Amount		Minimum Ratio
Company:
Total capital (to risk-weighted assets)	$	47,621		12.2	%	$	32,014		8.0	%		N/A		N/A
Tier 1 capital (to risk weighted assets)	$	43,972		11.3	%	$	16,007		4.0	%		N/A		N/A
Tier 1 capital (to average assets)	$	43,972		10.0	%	$	17,512		4.0	%		N/A		N/A
Bank:
Total capital (to risk-weighted assets)	$	44,467		11.5	%	$	31,846		8.0	%	$	39,807		10.0	%
Tier 1 capital (to risk-weighted assets)	$	40,818		10.6	%	$	15,923		4.0	%	$	23,884		6.0	%
Tier 1 capital (to average assets)	$	40,818		9.1	%	$	17,956		4.0	%	$	22,445		5.0	%

December 31, 2007:
Company:
Total capital (to risk-weighted assets)	$	46,285		12.6	%	$	29,433		8.0	%		N/A		N/A
Tier 1 capital (to risk weighted assets)	$	42,018		11.4	%	$	14,717		4.0	%		N/A		N/A
Tier 1 capital (to average assets)	$	42,018		10.2	%	$	16,524		4.0	%		N/A		N/A
Bank:
Total capital (to risk-weighted assets)	$	44,368		12.1	%	$	29,256		8.0	%	$	36,570		10.0	%
Tier 1 capital (to risk-weighted assets)	$	40,198		11.0	%	$	14,628		4.0	%	$	21,942		6.0	%
Tier 1 capital (to average assets)	$	40,198		9.8	%	$	16,428		4.0	%	$	20,535		5.0	%

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LIQUIDITY

The purpose of liquidity management is to ensure efficient and economical funding of the Company’s assets consistent with the needs of the Company’s depositors, borrowers and, to a lesser extent, shareholders. This process is managed not by formally monitoring the cash flows from operations, investing and financing activities as described in the Company’s statement of cash flows, but through an understanding principally of depositor and borrower needs. As loan demand increases, the Company can use asset liquidity from maturing investments along with deposit growth to fund the new loans.

With respect to assets, liquidity is provided by cash and money market investments such as interest-bearing time deposits, federal-funds sold, available-for-sale investment securities, and principal and interest payments on loans. With respect to liabilities, liquidity is provided by core deposits, shareholders' equity and the ability of the Company to borrow funds and to generate deposits.

Because estimates of the liquidity needs of the Company may vary from actual needs, the Company maintains a substantial amount of liquid assets to absorb short-term increases in loans or reductions in deposits. As loan demand decreases or loans are paid off, investment assets can absorb these excess funds or deposit rates can be decreased to run off excess liquidity. Therefore, there is some correlation between financing activities associated with deposits and investing activities associated with lending. The Company’s liquid assets (cash and due from banks, federal funds sold and available-for-sale investment securities) totaled $98.6 million or 21.7% of total assets at June 30, 2008 compared to $87.0 million or 20.2% of total assets at December 31, 2007. The Company expects that its primary source of liquidity will be earnings of the Company, acquisition of core deposits, and wholesale borrowing arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

MARKET RISK

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates such as interest rates, commodity prices and equity prices. The Company’s market risk s a financial institution arises primarily from interest rate risk exposure. Fluctuation in interest rates will ultimately impact both the level of income and expense recorded on a large portion of the Company’s assets and liabilities, and the market value of all interest earning assets and interest bearing liabilities, other than those that possess a short term to maturity. Based upon the nature of its operations, the Company is not subject to fluctuations in foreign currency exchange or commodity pricing. However, the Company’s commercial real estate loan portfolio, concentrated primarily in Northern California, is subject to risks associated with the local economies.

The fundamental objective of the Company’s management of its assets and liabilities is to maximize the economic value of the Company while maintaining adequate liquidity and managing exposure to interest rate risk deemed by management to be acceptable. Management believes an acceptable degree of exposure to interest rate risk results from management of assets and liabilities through using floating rate loans and deposits, maturities, pricing and mix to attempt to neutralize the potential impact of changes in market interest rates. The Company’s profitability is dependent to a large extent upon its net interest income which is the difference between its interest income on interest earning assets, such as loans and securities, and interest expense on interest bearing liabilities, such as deposits, trust preferred securities and other borrowings. The Company, like other financial institutions, is subject to interest rate risk to the degree that its interest earning assets reprice differently from its interest bearing liabilities. The Company manages its mix of assets and liabilities with the goal of limiting exposure to interest rate risk, ensuring adequate liquidity, and coordinating its sources and uses of funds.

The Company seeks to control its interest rate risk exposure in a manner that will allow for adequate levels of earnings and capital over a range of possible interest rate environments. The Company has adopted formal policies and practices to monitor and manage interest rate risk exposure. As part of this effort, the Company measures interest rate risk utilizing both an internal asset liability measurement system as well as independent third party reviews to confirm the reasonableness of the assumptions used to measure and report the Company’s interest rate risk, enabling management to make any adjustments necessary.

Interest rate risk is managed by the Company’s Asset Liability Committee (“ALCO”), which includes members of senior management and several members of the Board of Directors. The ALCO monitors interest rate risk by analyzing the potential impact on interest income from potential changes in interest rates and considers the impact of alternative strategies or changes in balance sheet structure. The ALCO manages the Company’s balance sheet in part to maintain the potential impact on net interest income within acceptable ranges despite changes in interest rates. The Company’s exposure to interest rate risk is reviewed on at least a quarterly basis by the ALCO.

In management’s opinion there has not been a material change in the Company’s market risk or interest rate risk profile for the three or six months ended June 30, 2008 compared to December 31, 2007 as discussed under the caption "Liquidity and Market Risk" and "Net Interest Income Simulation" in the Company's 2007 Annual Report to Shareholders filed as an exhibit with the Company’s 2007 Annual Report on Form 10-K, which is incorporated here by reference.

The following table reflects the company’s projected net interest income sensitivity analysis based on period-end data:

	June 30, 2008
Change in Rates	Adjusted Net Interest Income		Percent change from
	(in thousands)		Base
Up 200 basis points	$	16,033		3.86	%
Up 150 basis points		15,888		2.92	%
Up 100 basis points		15,742		1.98	%
Base Scenario		15,437		0.00	%
Down 100 basis points		15,051		-2.50	%
Down 150 basis points		14,846		-3.83	%
Down 200 basis points	$	14,629		-5.23	%

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ITEM 4. CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer, based on their evaluation as of the end of the period covered by this report of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a—15(e)), have concluded that the Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in its periodic SEC filings is recorded, processed and reported within the time periods specified in the SEC's rules and forms. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated and unconsolidated subsidiaries) required to be included in the Company's periodic SEC filings. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including cost limitations, judgments used in decision making, assumptions regarding the likelihood of future events, soundness of internal controls, fraud, the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable, and not absolute, assurance of achieving their control objectives.

There were no significant changes in the Company's internal controls or in other factors during the period covered by this report that have materially affected or could significantly affect internal control over financial reporting.

ITEM 4T. CONTROLS AND PROCEDURES

Not applicable.

Part II – Other Information

ITEM 1A RISK FACTORS

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 Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our business, financial condition or future results. The Company is not aware of any material changes to the risks described in our Annual Report.

ITEM 6. EXHIBITS

31.1	Certification of Chief Executive Officer (section 302 of the Sarbanes Oxley Act)
31.2	Certification of Chief Financial Officer (section 302 of the Sarbanes-Oxley Act)
32.1	Certification of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act
32.2	Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act

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.

	Pacific State Bancorp
Date: August 14 , 2008	By: /s/ Steven A. Rosso
	Steven A. Rosso
	President and Chief Executive Officer

	Pacific State Bancorp
Date: August 14 , 2008	By: /s/ JoAnne Roberts
	JoAnne Roberts
	Senior Vice President and Chief Financial Officer

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