10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

for the fiscal year ended December 31, 2009.

OR

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

For the transition period from           to

Commission File Number  000-51901

SANTA LUCIA BANCORP

(Name of small business issuer in its charter)

State of California	35-2267934
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7480 El Camino Real, Atascadero,	California 93422
(Address of principal executive offices)	(Zip Code)

Issuer’s telephone number  (805) 466-7087

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

Title of each class	Name of each exchange on which registered
Common Stock (no par value)	None

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o  No  x

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Reg S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  o  yes  o  no

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  o.

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

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2009 (last day of the registrant’s most recently completed second fiscal quarter ) was $13,350,673.

As of March 10, 2010, the Registrant had 1,964,035 shares of Common Stock outstanding.

The information required in Part III, Items 10 through 14 is incorporated herein from the Registrant’s definitive proxy statement for the 2010 annual meeting of shareholders previously filed pursuant to Regulation 14A and Part II, Items 6 -8 of the 2009 Annual Report to Shareholders filed as an exhibit hereto.

TABLE OF CONTENTS

PART I
ITEM 1.	BUSINESS	2
ITEM 1A.	RISK FACTORS
ITEM 1B.	UNRESOLVED STAFF COMMENTS
ITEM 2.	PROPERTIES	20
ITEM 3.	LEGAL PROCEEDINGS	21
ITEM 4.	(REMOVED AND RESERVED)
PART II		21
ITEM 5.	MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	21
ITEM 6.	SELECTED FINANCIAL DATA
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
ITEM 7A.	QUANITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	23
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	23
ITEM 9A	CONTROLS AND PROCEDURES	24
ITEM 9B.	OTHER INFORMATION	24
PART III		25
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE	25
ITEM 11.	EXECUTIVE COMPENSATION	25
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	25
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	25
ITEM 14	PRINCIPAL ACCOUNTING FEES AND SERVICES	25
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	25
SIGNATURES		32
EXHIBIT INDEX		34

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PART I

Certain statements contained in this Annual Report on Form 10-K (“Annual Report”), including, without limitation, statements containing the words “estimate,” “believes,” “anticipates,” “intends,” “may,” “expects,” “could,” and words of similar import, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  These forward-looking statements relate to, among other things, our current expectations regarding future operating results, net interest margin, strength of the local economy, and allowance for credit losses.  Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions in those areas in which the Company operates, the ongoing financial crisis and recession  in the United States, California and foreign financial markets, and bank regulatory and government response thereto, the increase in nonperforming loans and the decrease in real estate values collateralizing many of the Bank’s loans,  demographic changes, competition, fluctuations in interest rates, changes in business strategy or developmental plans, changes in governmental regulations, credit quality, the availability of capital to fund the expansion of the Company’s business, and other factors referenced in the Company’s reports filed pursuant to the Exchange Act. These and other important factors are detailed in this report, including in “Item 1A Risk Factors.” When relying on forward-looking statements to make decisions with respect to our company, investors and others are cautioned to consider these and other risks and uncertainties.  The company disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

ITEM 1.                  BUSINESS

General

Santa Lucia Bancorp (the “Company”) is a California corporation organized April 3, 2006 to act as the holding company for its wholly owned subsidiary Santa Lucia Bank (the “Bank”), collectively referred to herein as the “Company”.  At that time shareholders of the Bank became shareholders of the Company on a “unless otherwise noted, one share for one share” basis.

The Bank is a California banking corporation.  The Bank was organized as a national banking association on December 19, 1984 and commenced operations on August 5, 1985.  On May 30, 1997, the Bank converted from a national bank to a California state chartered bank licensed by the California Department of Financial Institutions (DFI”).  As a California state member bank, the Bank is subject to primary supervision, examination and regulation by the DFI and the Board of Governors of the Federal Reserve System (“FRB”).  The Bank is also subject to certain other federal laws and regulations.  The deposits of the Bank are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to the applicable limits thereof.

At December 31, 2009, the Company had approximately $269.9 million in assets, $198.1 million in net loans, $238.7 million in deposits, and $23.0 million in stockholders’ equity.

On April 26, 2006, the Company formed Santa Lucia Bancorp (CA) Capital Trust (“Trust”).  Trust is a statutory business trust formed under the laws of Delaware used to facilitate the issuance of the trust preferred securities.  The Trust is a wholly owned, non-financial, non-consolidated subsidiary of the Company.

Other than holding the shares of the Bank, the Company conducts no significant activities.

Banking

The Bank is headquartered in Atascadero, with branch offices in Paso Robles, Arroyo Grande and Santa Maria. The Bank conducts a commercial banking business in San Luis Obispo and northern Santa Barbara Counties, including accepting demand, savings and time deposits, and making commercial, real estate, SBA, agricultural, credit card, and consumer loans.  It also offers installment note collection, provides ATM and internet banking access, issues cashiers checks and money orders, sells travelers checks, and provides bank-by-mail, night depository, safe deposit boxes, and other customary banking services. The Bank does not offer trust services or international banking services and does not plan to do so in the near future.

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The Bank’s operating policy since its inception has emphasized small business commercial banking. Most of the Bank’s customers are retail customers, and small to medium-sized businesses. The Bank takes real estate, listed and unlisted securities, savings and time deposits, automobiles, machinery, equipment and accounts receivable as collateral for loans. The areas in which the Bank has directed virtually all of its lending activities are (i) commercial loans, (ii) installment, (iii) construction loans, and (iv) other real estate loans or commercial loans secured by real estate. As of December 31, 2009, these four categories accounted for approximately 20.6%, 0.9%, 23.8% and 54.8%, respectively, of the Bank’s loan portfolio. See “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Most of the Bank’s deposits are attracted by local promotional activities and advertising in the local media. A material portion of the Bank’s deposits have not been obtained from a single person or a few persons, the loss of any one or more of which would have a materially adverse effect on the business of the Bank. As of December 31, 2009, the Bank had approximately 9,714 demand deposit accounts consisting of non-interest bearing (demand), interest-bearing demand and money market accounts with balances totaling $121,461,000, for an average balance per account of approximately $12,504; 4,224 savings accounts with balances totaling $27,478,000, for an average balance per account of approximately $6,505; and 2,378 time certificate of deposit accounts with balances totaling $89,783,000, for an average balance per account of approximately $37,756.

The principal sources of the Bank’s revenues are (i) interest and fees on loans, (ii) interest on investments, (iii) service charges on deposit accounts, fees on mortgage loans and other charges and fees, and (iv) miscellaneous income. For the year ended December 31, 2009, these sources comprised 82%, 10%, 7% and 1%, respectively, of the Bank’s total operating income.

The Bank has not engaged in any material research activities relating to the development of new services or the improvement of existing bank services. There has been no significant change in the types of services offered by the Bank since its inception except as follows: The Bank previously introduced a telephone banking service named “Telebanking” which permits the customer to obtain information and perform other services over the telephone; a internet banking system named “EZLink,” which offers online banking and computer bill payment; home equity lines of credit; business equipment leasing; and home mortgage loans.  In addition, the Bank introduced its new health savings account in 2005. The Bank has no present plans to add any new line of business that will require the investment of a material amount of total assets. Most of the Bank’s business originates from San Luis Obispo and northern Santa Barbara Counties, and there is no emphasis on foreign sources and application of funds. The Bank’s business, based upon performance to date, does not appear to be seasonal.  Management of the Bank is unaware of any material effect upon the Bank’s capital expenditures, earnings or competitive position as a result of federal, state or local environmental regulations.

The Bank holds no patents, licenses (other than licenses obtained from bank regulatory authorities), franchises or concessions.

Employees

As of December 31, 2009, the Bank had a total of 84 full-time equivalent employees. The Bank believes that its employee relations are satisfactory.  The Company has no salaried employees.

Local Economic Climate

The economy in the Company’s service area is based primarily on agriculture, tourism, light industry, oil and retail trade.  Services supporting these industries have also developed in the areas of medical, financial and educational services.  The population of San Luis Obispo County and the City of Santa Maria (in northern Santa Barbara County) totaled approximately 270,000 and 86,000 respectively, according to economic data provided by State of California census.  Access to numerous recreational activities, including lakes, mountains and beaches, provided a relatively stable tourist industry from many areas including the Los Angeles/Orange County basin, the San Francisco Bay area and the San Joaquin Valley.  Principally due to the diversity of the various industries in the Company’s service area, both counties have experienced a decline in tourism as travelers continue to attempt to conserve resources.

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According to the San Luis Obispo County Outlook Economic Forecast, copyrighted and published by The University of California (Santa Barbara), home sales volume during the first two quarters fell 3.3% in 2009, median home prices in San Luis Obispo County decreased 33.0% between the second quarters of 2007 and 2009, median price for existing single-family homes with half of that decline occurring since the second quarter of 2008. Single-family homes sold during the first two quarters of 2009 increased by 1.2%. The declining prices and weak sales continue to slow the pace of new home construction.  Sales of foreclosed real estate have affected and will affect the market values in both counties.

2009 proved to be another challenging year not only on the national level, but within the state of California and more specifically our primary market area.  As the U.S. housing market continued to wane throughout 2009 and economic growth began to significantly slow, the ability of borrowers to satisfy their obligations to the financial sector began to languish.  These among other factors placed severe stress on the U.S. financial system, leading to a crisis of confidence, further downturn in economic growth and unprecedented volatility in the U.S. equity and credit markets.  Our primary market area has historically enjoyed a more stable level of economic activity; however, we believe these more macro level concerns have become more evident within our market area.  Recent indications show the (preliminary data not seasonally adjusted) unemployment rate within California to be approximately 12.1%.  This is up approximately 2.8% from the 9.3% reported at December 2008.  Within our primary market area, recent indications show the unemployment rate within San Luis Obispo and Santa Barbara counties to be approximately 9.4% and 9.3%, respectively.  This represents increases of approximately 2.8% and 3.0% from the 6.6% and 6.3% reported for San Luis Obispo and Santa Barbara counties at December 2008.  During 2009 both Santa Barbara County and San Luis Obispo County continued to experience record foreclosures and delinquencies in both commercial and residential properties. The UCSB Forecast Project reports that for North Santa Barbara County including Santa Maria for 2010 continued job losses, foreclosures, delinquencies and business failures will continue through 2010.

The Company believes that the local economies, in which it operates, Atascadero, Paso Robles, Arroyo Grande, and Santa Maria continue to be negatively affected as the loss of jobs increases and businesses cash flows continue to decline causing the rise of delinquencies and foreclosures in the loan portfolio.

Competition

The banking and financial services business in California generally, and in the Company’s service area specifically, is highly competitive. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial services providers.

The Company’s business is concentrated in its service area, which encompasses primarily San Luis Obispo and northern Santa Barbara Counties. In order to compete with other financial institutions in its service area, the Company relies principally upon local advertising programs; direct personal contact by officers, directors, employees, and shareholders; and specialized services such as courier pick-up and delivery of non-cash banking items. The Company emphasizes to its customers the advantages of dealing with a locally owned and community oriented institution. The Company also seeks to provide special services and programs for individuals in its primary service area who are employed in the agricultural, professional and business fields, such as loans for equipment, furniture, tools of the trade or expansion of practices or businesses. Larger banks may have a competitive advantage because of higher lending limits and major advertising and marketing campaigns. They also perform services, such as trust services, international banking, discount brokerage and insurance services that the Company is not authorized or prepared to offer currently. The Company has made arrangements with its correspondent banks and with others to provide such services for its customers.

Commercial banks compete with savings and loan associations, credit unions, other financial institutions, securities brokerage firms, and other entities for funds. For instance, yields on corporate and government debt securities and other commercial paper affect the ability of commercial banks to attract and hold deposits. Commercial banks also compete for loans with savings and loan associations, credit unions, consumer finance companies, mortgage companies, insurance companies, and other lending institutions.

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Supervision and Regulation

General

The Company and the Bank are extensively regulated under both federal and state law. Set forth below is a summary description of certain laws that relate to the regulation of the Company and the Bank. The description does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.

However Congress and the executive branch are likely to consider significant new regulatory reform initiatives in the near future, which could result in material changes to the current oversight structure.

The Company

The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”), and is registered as such with, and subject to the supervision of, the Federal Reserve Board.  The Company is required to file with the Federal Reserve Board quarterly and annual reports and such additional information as the Federal Reserve Board may require pursuant to the Bank Holding Company Act.  The Federal Reserve Board may conduct examinations of bank holding companies and their subsidiaries.

The Company is required to obtain the approval of the Federal Reserve Board before it may acquire all or substantially all of the assets of any bank, or ownership or control of the voting shares of any bank if, after giving effect to such acquisition of shares, the Company would own or control more than 5% of any class of outstanding voting shares of such bank.  Prior approval of the Federal Reserve Board is also required for the merger of consolidation of the Company and another bank holding company.

The Company is prohibited by the Bank Holding Company Act, except in certain statutorily prescribed instances, from acquiring direct of indirect ownership or control of more than 5% of the outstanding voting shares of any company that is not a bank or bank holding company and from engaging, directly or indirectly, in activities other than those of banking, managing or controlling banks or furnishing services to its subsidiaries.  However, the Company may, subject to the prior approval of the Federal Reserve Board, engage in any, or acquire shares of companies engaged in, activities that are deemed by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.  See discussion under “Financial Modernization Act” below for additional information.

The Federal Reserve Board may require that the Company terminate an activity or terminate control of or liquidate or divest subsidiaries or affiliates when the Federal Reserve Board determines that the activity or the control or the subsidiary or affiliates constitutes a significant risk to the financial safety, soundness or stability of any of its banking subsidiaries.  The Federal Reserve Board also has the authority to regulate provisions of certain bank holding company debt, including authority to impose interest ceilings and reserve requirements on such debt.  Under certain circumstances, the Company must file written notice and obtain approval from the Federal Reserve board prior to purchasing or redeeming its equity securities.

Under the Federal Reserve Board’s regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe and unsound manner.  In addition, it is the Federal Reserve Board’s policy that in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks.  A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve Board to be an unsafe and unsound banking practice or a violation of the Federal Reserve Board’s regulations or both.

The Company and the Bank are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property or furnishing of services.  For example, with certain exceptions, neither the Company nor the Bank may condition an extension of credit to a customer on either (1) a requirement that the customer obtain additional services provided by us or (2) an agreement by the customer to refrain from obtaining other services from a competitor.

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The Company is subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and files reports and proxy statements pursuant to such Act with the Securities and Exchange Commission (the “SEC”).

For a discussion of restrictions on the Company’s ability to pay dividends, see “Item 5 Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” below.

The Bank

The Bank is chartered under the laws of the State of California and its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) to the extent provided by law. The Bank is subject to the supervision of, and is regularly examined by, the DFI and the FRB. Such supervision and regulation include comprehensive reviews of all major aspects of the Bank’s business and condition. Various requirements and restrictions under the laws of the United States and the State of California affect the operations of the Bank. Federal and California statutes relate to many aspects of the Bank’s operations, including reserves against deposits, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends and locations of branch offices. Further, the Bank is required to maintain certain levels of capital.

If, as a result of an examination of a bank, the DFI or FRB should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank’s operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, various remedies are available to these regulatory agencies. Such remedies include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of the Bank, to assess civil monetary penalties, to remove officers and directors, and ultimately to terminate the Bank’s deposit insurance, which for a California chartered bank would result in a revocation of the bank’s charter.

The deposits of the Bank are insured by the FDIC in the manner and to the extent provided by law.  For this protection, the Bank pays a quarterly statutory assessment.  The Bank is also subject to certain regulations of the Federal Reserve Board and applicable provisions of California law, insofar as they do not conflict with or are not preempted by federal banking law.  Various other requirements and restrictions under the laws of the United States and the State of California affect the operations of the Bank.  Federal and California statutes and regulations relate to many aspects of the Bank’s operations, including reserves against deposits, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices, capital requirements and disclosure obligations to depositors and borrowers.  Further, the Bank is required to maintain certain levels of capital.

Capital Standards

The FRB and the FDIC have adopted risk-based minimum capital guidelines intended to provide a measure of capital that reflects the degree of risk associated with a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse arrangements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 100% for assets with relatively high credit risk, such as business loans.

A banking organization’s risk-based capital ratios are obtained by dividing its qualifying capital by its total risk adjusted assets. The regulators measure risk-adjusted assets, which includes off balance sheet items, against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists primarily of common stock, retained earnings, non-cumulative perpetual preferred stock (cumulative perpetual preferred stock for bank holding companies) and minority interests in certain subsidiaries, less most intangible assets. Tier 2 capital may consist of a limited amount of the allowance for possible loan and lease losses, cumulative preferred stock, long term preferred stock, eligible term subordinated debt and certain other instruments with some characteristics of equity.  The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies. The federal banking agencies require a minimum ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%. In addition, the DFI has authority to take possession of the business and properties of a bank in the event that the tangible shareholders’ equity of the bank is less than the greater of (i) 4% of the bank’s total assets or (ii) $1,000,000.

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In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets is 3%. For all banking organizations not rated in the highest category, the minimum leverage ratio must be at least 4%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. Future changes in regulations or practices could further reduce the amount of capital recognized for purposes of capital adequacy. Such a change could affect the ability of the Bank to grow and could restrict the amount of profits, if any, available for the payment of dividends. It is the Bank’s policy to remain “well capitalized” status, and review alternatives for raising capital if necessary to keep such status.

	Minimum		Minimum		December 31, 2009
	Capital		“Well Capitalized”		Bank		Company
	Requirements		Bank		Actual		Actual
LEVERAGE RATIO	4.0	%	5.0	%	9.7	%	10.3	%
TIER 1 RISK-BASED RATIO	4.0	%	6.0	%	11.9	%	12.5	%
TOTAL RISK-BASED RATIO	8.0	%	10.0	%	13.2	%	13.9	%

Under applicable regulatory guidelines, the Bank was considered “Well Capitalized” at December 31, 2009.

Santa Lucia Bancorp issued $5,155,000 in junior subordinated debt securities (the “debt securities”) to the Santa Lucia Bancorp (CA) Capital Trust, a statutory trust created under the laws of the State of Delaware.  These debt securities are subordinated to effectively all borrowings of the Company and are due and payable on July 7, 2036.  These debt securities may be redeemed for 105% of the principal balance through July 7, 2011 and then at par thereafter.  Interest is payable quarterly beginning July 7, 2006 at 1.48% over the quarterly adjustable 3-month LIBOR.  Of this $5.2 million, the Company contributed $3.0 million to the Bank and retained $2.2 million at the Company level.  The securities do not entitle the holders to voting rights in the Company but will contain certain restrictive covenants, including restrictions on the payment of dividends to the holders of the Company’s common stock in the event that interest payments on the trust preferred securities are postponed.  The capital contribution received by the Bank from the trust preferred issuance is designated as Tier 1 capital for regulatory purposes.

Under applicable regulatory guidelines, the Company’s trust preferred securities issued by our subsidiary capital trust qualify as Tier 1 capital up to a maximum limit of 25% of Tier 1 capital.  Any additional portion of the trust preferred securities would qualify as Tier II capital.  As of December 31, 2009 the subsidiary trust had $5.2 million in trust preferred securities outstanding, all of which qualifies as Tier 1 capital.

In addition, the DFI has authority to take possession of the business and properties of a bank in the event that the tangible shareholders’ equity of the bank is less than the greater of (i) 4% of the bank’s total assets or (ii) $1,000,000.

During the third quarter of 2003, the Bank undertook and completed a private placement of subordinated debentures (“notes”) to augment is Tier II capital.  The total principal amount of the notes issued was $2,000,000.  The notes were sold pursuant to an applicable exemption from registration under the Securities Act of 1933 to certain accredited investors, including some of the Company’s directors and executive officers.  The notes include quarterly payment of interest at prime plus 1.5% and quarterly principal installments of approximately $166,666 commencing on September 30, 2008 until paid in full on June 30, 2011. As of December 31, 2009 the outstanding balance was $999,932.

Participation in the Capital Purchase Program of the Troubled Asset Relief Program.

On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (“EESA”) enacted by the U.S. Congress in response to the financial crises affecting the banking system and financial markets and gong concern threats to investment banks and other financial institutions.  On October 14, 2008, the U.S. Department of Treasury (“U.S. Treasury”) announced the Troubled Asset Relief Program Capital Purchase Program (“TARP”).  This program made $250 billion of capital available to U.S. financial institutions from the initial $350 billion authorized by the EESA in the form of preferred stock investments by the U.S. Treasury

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in qualifying U.S. controlled banks, savings associations and certain bank and savings and loan holding companies under the following general terms:

·The preferred stock issued to the U.S. Treasury would pay 5% dividends for the first five years, and then 9% dividends thereafter;

·In connection with the purchase of preferred stock, the U.S. Treasury will receive warrants entitling the U.S. Treasury to buy the participating institution’s common stock equivalent in value to 15% of the preferred stock;

·The preferred stock may not be redeemed for a period of three years, except with proceeds from high-quality private capital;

·The consent of the U.S. Treasury will be required to increase common dividends per share or any share repurchases, with limited exceptions, during the first three years, unless the preferred stock has been redeemed or transferred to third parties; and

·Participating companies must adopt the U.S. Treasury’s standard for executive compensation and corporate governance for the period during which the U.S. Treasury holds the equity issued under the TARP.  At the close of Company’s TARP transaction, these executive compensation restrictions included the that the Company, among other things, must:

·Ensure that the incentive compensation programs for its senior executive officers do not encourage unnecessary and excessive risks that threaten the value of the Company

·Implement a required clawback of any bonus or incentive compensation paid to the Company’s senior executive officers based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate;

·Not make any “golden parachute payment” (as defined in the Internal Revenue Code) to any of The Company’s senior executive officers; and

·Agree not to deduct for tax purposes executive compensation in excess of $500,000 in any one fiscal year for each of the Company’s senior executive officers.

December 19, 2008, the Company entered into a Purchase Agreement with the United States Department of the Treasury (the “Treasury”), pursuant to which the Company agreed to issue and sell 4,000 shares of the Company’s Preferred Stock as Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Preferred Stock) and a Warrant to purchase 38,107 shares of the Company’s Common Stock (adjusted for the 2% stock dividend) for an aggregate purchase price of $4,000,000 in cash. In connection with this transaction the Company incurred $50,000 in costs.

The Preferred Stock will qualify as Tier 1 capital and will pay cumulative dividends quarterly at a rate of 5% per annum for the first five years and 9% per annum thereafter. The Preferred Stock may be redeemed by the Company after three years. Prior to the end of the three years, the Preferred Stock may be redeemed only with proceeds from the sale of qualifying equity securities of the Company.

The Warrant has a 10-year term and is immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution adjustments, equal to $15.745 per share, adjusted for the 2% stock dividend.

The American Recovery and Reinvestment Act of 2009

On February 17, 2009, President Obama signed into law The American Recovery and Reinvestment Act of 2009 (the “Stimulus Bill”), more commonly known as the economic stimulus or economic recovery package.  The Stimulus Bill includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health and education needs.  In addition, the Stimulus Bill imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients, including the Company, that are in addition to those previously announced by the U.S. Treasury, until the institution has repaid the U.S. Treasury, which is now permitted under the Stimulus Bill without penalty and without the need to raise new capital, subject to the U.S. Treasury’s consultation with the recipient’s appropriate regulatory agency.

In addition, ARRA directs the Treasury to review previously-paid bonuses, retention awards and other compensation paid to senior executive officers and certain other highly-compensated employees of each TARP recipient to determine whether any such payments were excessive, inconsistent with the purposes of ARRA or the TARP, or otherwise contrary to the public interest. If the Treasury determines that any such payments have been

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made by a TARP recipient, the Treasury will seek to negotiate with the TARP recipient and the subject employee for appropriate reimbursements to the U. S. Government (not the TARP recipient)  with respect to any such compensation or bonuses. ARRA also permits the Treasury, subject to consultation with he appropriate federal banking agency, to allow a TARP recipient to repay any assistance previously provided to such TARP recipient under the TARP, without regard to whether the TARP recipient has replaced such funds from any source, and without regard to any waiting period. Any TARP recipient that repays its TARP assistance pursuant to this provision would no longer be subject to the executive compensation provision under ARRA.

Homeowner Affordability and Stability Plan

On February 18, 2009, the Treasury announced the Homeowner Affordability and Stability Plan (“HASP”), which proposes to provide refinancing for certain homeowners, to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac, and to establish a Homeowner Stability Initiative to reach at-risk homeowners. Among other things, the Homeowner Stability Initiative would offer monetary incentive to mortgage servicers and mortgage holders for certain modifications of at-risk loans, and would establish an insurance fund designed to reduce foreclosures.

Prompt Corrective Action and Other Enforcement Mechanisms

Federal banking agencies possess broad powers to take corrective and other supervisory action to resolve the problems of insured depository institutions, including but not limited to those institutions that fall below one or more prescribed minimum capital ratios described above. An institution that, based upon its capital levels, is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat a significantly undercapitalized institution as critically undercapitalized unless its capital ratio actually warrants such treatment.

In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation, or any condition imposed in writing by the agency or any written agreement with the agency.  Enforcement actions may include:

·the imposition of a conservator or the issuance of a cease-and-desist order that can be judicially enforced;

·the termination of insurance of deposits (in the case of a depository institution);

·the imposition of civil money penalties;

·the issuance of directives to increase capital;

·the issuance of formal and informal agreements;

·the issuance of removal and prohibition orders against institution-affiliated parties; and

·the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the agency would be harmed if such equitable relief was not granted.

Banks are also subject to certain Federal Reserve Board restrictions on extensions of credit to executive officers, directors, principal shareholders or any related interests of such persons (i.e., insiders). Extensions of credit (1) must be made on substantially the same terms and pursuant to the same credit underwriting procedures as those for comparable transactions with persons who are neither insiders nor employees, and (2) must not involve more than the normal risk of repayment or present other unfavorable features. Banks are also subject to certain lending limits and restrictions on overdrafts to insiders. A violation of these restrictions may result in regulatory sanctions on the bank or its insiders.

Additionally, a holding company’s inability to serve as a source of strength to its subsidiary banking organizations could serve as an additional basis for a regulatory action against the holding company

Safety and Soundness Standards

The Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) imposes certain specific restrictions on transactions and requires federal banking regulators to adopt overall safety and soundness standards for

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depository institutions related to internal control, loan underwriting and documentation and asset growth.  Among other things, FDICIA limits the interest rates paid on deposits by undercapitalized institutions, restricts the use of brokered deposits, limits the aggregate extensions of credit by a depository institution to an executive officer, director, principal shareholder or related interest, and reduces deposit insurance coverage for deposits offered by undercapitalized institutions for deposits by certain employee benefits accounts. The federal banking agencies may require an institution to submit to an acceptable compliance plan as well as have the flexibility to pursue other more appropriate or effective courses of action given the specific circumstances and severity of an institution’s noncompliance with one or more standards.

Premiums for Deposit Insurance

Our deposits are insured by the FDIC to the maximum amount permitted by law which is currently $250,000 per depositor through December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except for IRAs and other certain retirement accounts which will remain at $250,000 per depositor. On October 14, 2008, the FDIC announced the Temporary Transaction Account Guarantee Program to strengthen confidence in the banking system. The rule, as amended, also allows full deposit insurance coverage for non-interest bearing accounts regardless of the dollar amount until June 30, 2010 at the participating FDIC-insured institutions’ option. We have elected to participate in the program by paying a 10 basis point surcharge on our non-interest bearing transaction accounts over $250,000 through December 31, 2009, and a 15 basis point surcharge through June 30, 2010. Effective April 1, 2009, the FDIC adopted a final rule revising its risk-based insurance assessment system and effectively increasing the overall assessment rate. The new base assessment rate for banks in the best risk category range from twelve to sixteen cents annually for every $100 of domestic deposits held. In addition, the FDIC also imposed a special assessment of five basis points on all insured institutions’ total assets minus Tier 1 capital at June 30, 2009 in order to replenish the Deposit Insurance Fund.

On November 12, 2009, the FDIC finalized a Deposit Insurance Fund restoration plan that required banks to prepay, on December 30, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. Under the plan, banks are assessed through 2010 according to the risk-based premium schedule adopted in April 2009 However, beginning January 1, 2011, the based rate increases by three basis points per year.

Sarbanes-Oxley Act of 2002

On July 30, 2002, the Sarbanes-Oxley Act of 2002 (“SOX”), was signed into law to address corporate and accounting fraud. SOX establishes a new accounting oversight board that will enforce auditing standards and restricts the scope of services that accounting firms may provide to their public company audit clients. Among other things, SOX also (i) requires chief executive officers and chief financial officers to certify to the accuracy of periodic reports filed with the SEC; (ii) imposes new disclosure requirements regarding internal controls, off-balance-sheet transactions, and pro forma (non-GAAP) disclosures; (iii) accelerates the time frame for reporting of insider transactions and periodic disclosures by public companies; and (iv) requires companies to disclose whether or not they have adopted a code of ethics for senior financial officers and whether the audit committee includes at least one “audit committee financial expert.”

Under SOX, the SEC is required to regularly and systematically review corporate filings, based on certain enumerated factors. To deter wrongdoing, SOX: (i) subjects bonuses issued to top executives to disgorgement if a restatement of a company’s financial statements was due to corporate misconduct; (ii) prohibits an officer or director from misleading or coercing an auditor; (iii) prohibits insider trades during pension fund “blackout periods”; (iv) imposes new criminal penalties for fraud and other wrongful acts; and (v) extends the period during which certain securities fraud lawsuits can be brought against a company or its officers.

As a public reporting company, the Company is subject to the requirements of SOX and related rules and regulations issued by the SEC and applied to the Company by the FRB.  The Company’s common stock is not listed on any national exchange such as the NYSE or NASDAQ.  As such, the Company is not required to comply with the additional SOX requirements adopted by such exchanges.  The Company anticipated additional expenses to comply with SOX in 2009 however, the requirement for compliance was delayed another year.

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Financial Services Modernization Legislation

On November 12, 1999, the Gramm-Leach-Bliley Act of 1999 (the “Financial Services Modernization Act”) was signed into law. The Financial Services Modernization Act is intended to modernize the banking industry by removing barriers to affiliation among banks, insurance companies, the securities industry and other financial service providers. It provides financial organizations with the flexibility of structuring such affiliations through a holding company structure or through a financial subsidiary of a bank, subject to certain limitations. The Financial Services Modernization Act establishes a new type of bank holding company, known as a financial holding company, which may engage in an expanded list of activities that are “financial in nature,” which include securities and insurance brokerage, securities underwriting, insurance underwriting and merchant banking.

The Financial Services Modernization Act also sets forth a system of functional regulation that makes the Federal Reserve Board the “umbrella supervisor” for holding companies, while providing for the supervision of the holding company’s subsidiaries by other federal and state agencies. In addition, the Company is subject to other provisions of the Financial Services Modernization Act, including those relating to CRA, privacy and safe-guarding confidential customer information, regardless of whether the Company elects to become a financial holding company or to conduct activities through a financial subsidiary of the Company. The Company does not, however, currently intend to file notice with the Federal Reserve Board to become a financial holding company or to engage in expanded financial activities through a financial subsidiary of the Company.

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

Community Reinvestment Act

The Bank is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act (“CRA”) activities.  The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of their local communities, including low and moderate income neighborhoods.  In addition to substantial penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities.  A bank’s compliance with its CRA obligations is based on a performance-based evaluation system which based CRA ratings on an institution’s lending service and investment performance, resulting in a rating by the appropriate bank regulatory agency of “outstanding”, “satisfactory”, “needs to improve” or “substantial noncompliance.”  At its last examination by the FRB, the Bank received a CRA rating of “Satisfactory.”

USA Patriot Act of 2001

On October 26, 2001, President Bush signed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism, or the Patriot Act, of 2001. Among other things, the Patriot Act (i) prohibits banks from providing correspondent accounts directly to foreign shell banks; (ii) imposes due diligence requirements on banks opening or holding accounts for foreign financial institutions or wealthy foreign individuals (iii) requires financial institutions to establish an anti-money-laundering compliance program, and (iv) eliminates civil liability for persons who file suspicious activity reports. The Patriot Act also increases governmental powers to investigate terrorism, including expanded government access to account records and makes rules to implement the Patriot Act.  On March 9, 2006, the President signed the USA Patriot improvement and Reauthorization Act, which extended and modified the original act.  While we believe the Patriot Act may, to some degree, affect our recordkeeping and reporting expenses, we do not believe that it will have a material adverse effect on our business and operations.

Transactions between Affiliates

Transactions between The Company and its “affiliates” are quantitatively and qualitatively restricted under the Federal Reserve Act.  The Federal Deposit Insurance Act applies Sections 23A and 23B to insured nonmember banks in the same manner and to the same extent as if they were members of the Federal Reserve System.  The FRB issued Regulation W on October 31, 2002, which comprehensively implements sections 23A and 23B of the Federal Reserve Act.  Sections 23A and 23B and Regulation W restrict loans by a depository institution to its affiliates, asset

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purchases by a depository institution from its affiliates, and other transactions between a depository institution and its affiliates.  Regulation W unifies in one public document the FRB’s interpretations of sections 23A and 23B.  Regulation W had an effective date of April 1, 2003.

Privacy

Federal banking rules limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.  Pursuant to these rules, financial institutions must provide:

·initial notices to customers about their privacy policies, describing the conditions under which they may disclose non-public information to non-affiliated third parties and affiliates;

·annual notices of their privacy policies to current customers; and

·a reasonable method for customers to “opt out” of disclosures to non-affiliated third parties.

These privacy provisions affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.  We have implemented our privacy policies in accordance with the law.

In recent years, a number of states have implemented their own versions of privacy laws.  For example, in 2003, California adopted standards that are more restrictive than federal law, allowing bank customers the opportunity to bar financial companies from sharing information with their affiliates.

Predatory Lending

The term “predatory lending”, much like the terms “safety and soundness” and “unfair and deceptive practices”, is far-reaching and covers a potentially broad range of behavior.  As such, it does not lend itself to a concise or a comprehensive definition.  But typically predatory lending involves at least one, and perhaps all three, of the following elements:

·making unaffordable loans based on the assets of the borrower rather than on the borrower’s ability to repay an obligation or asset-based lending;

·inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced or loan flipping; and

·engaging in fraud or deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower.

Federal Reserve Board regulations aimed at curbing such lending significantly widened the pool of high-cost home-secured loans covered by the home Ownership and Equity Protection Act of 1994, a federal law that requires extra disclosures and consumer protections to borrowers.  The following triggers coverage under the home ownership and Equity Protection Act of 1994:

·interest rates for first lien mortgage loans in excess of 8 percentage points above comparable Treasury securities,

·subordinate lien loans of 10 percentage points above Treasury securities, and

·fees such as optional insurance and similar debt protection costs paid in connection with the credit transaction when combined with points and fees if deemed excessive.

In addition, the regulation bars loan flipping by the same lender of loan servicer within a year.  Lenders also will be presumed to have violated the law; which says loans shouldn’t be made to people unable to repay them; unless they document that the borrower has the ability to repay.  Lenders that violate the rules face cancellation of loans and penalties equal to the finance charges paid.  The Company does not expect these rules and potential state action in this area to have a material impact on our financial condition or results of operations.

Bank Secrecy Act and Anti Money Laundering Legislation

In 1970, Congress passed the Currency and Foreign Transactions Reporting Act, otherwise known as the Bank Secrecy Act (the “BSA”), which established requirements for recordkeeping and reporting by banks and other financial institutions.  The BSA was designed to help identify the source, volume and movement of currency and other monetary instruments into and out of the United States in order to help detect and prevent money laundering

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connected with drug trafficking, terrorism and other criminal activities.  The primary tool used to implement BSA requirements is the filing of Suspicious Activity Reports.  Today, the BSA requires that all banking institutions develop and provide for the continued administration of a program reasonable designed to assure and monitor compliance with certain recordkeeping and reporting requirements regarding both to domestic and international currency transactions.  These programs must, at a minimum, provide for a system of internal controls to assure ongoing compliance, provide for independent testing of such systems and compliance, designate individuals responsible for such compliance and provide appropriate personnel training.

Commercial Real Estate Lending

Federal banking regulators recently issued final guidance regarding commercial real estate lending to address a concern that rising commercial real estate lending concentrations may expose institutions to unanticipated earnings and capital volatility in the event of adverse changes in the general commercial real estate market.  This guidance suggests that institutions that are potentially exposed to significant commercial real estate concentration risk will be subject to increased regulatory scrutiny.  Institutions that have experienced rapid growth in commercial real estate lending, have notable exposure to specific types of commercial real estate lending, or are approaching or exceed certain supervisory criteria that measure an institution’s commercial real estate portfolio against its capital levels, may be subject to such increased regulatory scrutiny.  Our commercial real estate portfolio may be viewed as falling within one or more of the foregoing categories, and accordingly we may become subject to increased regulatory scrutiny because of our commercial real estate portfolio.  If it is determined by our regulator that we have an undue concentration in commercial real estate lending, we may be required to maintain increased levels of capital and/or be required to reduce our concentration in commercial real estate loans.

Future Legislation and Regulatory Initiatives

Various other legislative and regulatory initiatives, including proposals to overhaul the banking regulatory system are from time to time introduced in Congress and state legislatures, as well as regulatory agencies. Currently, the Congress is actively considering significant changes to the manner of regulating financial institutions including combining one or more of the FRB, FDIC, Comptroller of the Currency and the Office of Thrift Supervision and creating a new consumer protection agency for financial products. The current legislation being considered and other future legislation regarding financial institutions may change banking statutes and the operating environment of Bancorp and the Bank in substantial and unpredictable ways, and could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance depending upon whether any of this potential legislation will be enacted, and if enacted, the effect that it or any implementing regulations, would have on the financial condition or results of operations of the Bancorp or the Bank. The nature and extent of future legislative and regulatory changes affecting financial institutions is unpredictable at this time. We cannot determine the ultimate effect that such potential legislation, if enacted, would have upon our financial condition of operations.

Where You Can Find More Information

Under the Securities Exchange Act of 1934 Sections 13 and 15(d), periodic and current reports must be filed with the SEC.  The Company electronically files the following reports with the SEC:  Form 10-K (Annual Report), Form ARS (Annual Report to Shareholders), Form 10-Q (Quarterly Report), Form 8-K (Current Report), insider ownership reports and Form DEF 14A (Proxy Statement).  The Company may file additional forms.  The SEC maintains an Internet site, www.sec.gov. in which all forms filed electronically may be accessed.  Additionally, all forms filed with the SEC and additional shareholder information is available free of charge using the Link on the Company’s website:  www.santaluciabank.com.  The Company makes these reports available to the website as soon as reasonable practicable after filing them with the SEC.  None of the information on or hyperlinked from the Company’s website is incorporated into this Annual Report on Form 10-K.

ITEM 1A.               RISK FACTORS

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management believes may affect our business are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this Annual Report. The risks and uncertainties described below are not the only ones facing our business. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This Annual

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Report is qualified in its entirety by these factors.

If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected.  If this were to happen, the value of our common stock could decline significantly, and you could lose all or part of your investment.

Risks Associated with our Business.

Recession and changes in domestic and foreign financial markets may have a material negative impact on our results of operations and financial condition.

Economic indices continue to show that since the fourth quarter of 2007, the United States economy has been in a recession. This has been reflected in significant business failures and job losses, including bankruptcies of three U.S. automobile manufacturing companies county and state budget cuts causing furloughing and is expected to continue in 2010.

In addition, in the past year, the domestic and foreign financial markets, securities trading markets and economies generally have experienced significant turmoil including, without limitation, government takeovers of troubled institutions, government brokered mergers of such firms to avoid bankruptcy or failures, bankruptcies of securities trading firms and insurance companies, failures of financial institutions and securities brokerage firms, declines in real property values, and wide fluctuations in energy prices, all of which have contributed to reduced availability of credit for businesses and consumers, elevated foreclosures on residential and commercial properties, falling home prices, reduced liquidity and a lack of stability across the entire financial sector.  These recent events and the corresponding uncertainty and decline in financial markets are likely to continue for the foreseeable future.  The full extent of the repercussions to our nation’s economy in general and our business in particular there from are not fully known at this time.  Such events may have a negative effect on (i) our ability to service our existing customers and attract new customers, (ii) the ability of our borrowers to operate their business as successfully as in the past, (iii) the financial security and net worth of our customers, and (iv) the ability of our customers to repay their loans with us in accordance with the terms thereof.

We do not believe these difficult conditions are likely to improve in the near future.  A worsening of these conditions would likely exacerbate the adverse effects of these difficult market and economic conditions on us, our customers and the other financial institutions in our market.

Current levels of market volatility are unprecedented, which may limit our ability to access capital and negatively affect our results of operations and financial condition.

The capital and credit markets have been experiencing volatility and disruption for more than a year. In recent months, the volatility and disruption has reached unprecedented levels.  In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. If current levels of market disruption and volatility continue or worsen, there can be no assurance that we will not experience an adverse effect, which may be material, on our ability to access capital and on our business, financial condition and results of operations.

The current changing economic environment poses significant challenges for us.

We are operating in a challenging and uncertain economic environment, including generally uncertain national and local conditions.  Financial institutions continue to be affected by the softening of the real estate market and constrained financial markets.  While we have very limited direct exposure to the residential real estate market and while we have no sub-prime residential loans or securities backed by such loans on our books, we are nevertheless affected by these events.  Continued declines in real estate values, home sales volumes and financial stress on borrowers as a result of the uncertain economic environment, including job losses, interest rate resets on adjustable rate mortgage loans and other factors could have adverse effects on our borrowers which would adversely affect our financial condition and results of operations.  This deterioration in economic conditions coupled with a possible national economic recession could drive losses beyond that which is provided for in our allowance for loan losses and result in the following other consequences:

·Loan delinquencies, problem assets and foreclosures may increase;

·Demand for our products and services may decline;

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·Low cost or non-interest bearing deposits may decrease; and

·Collateral for our loans, especially real estate, may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associate with our existing loans.

A significant portion of our loan portfolio is secured by real estate and a further downturn in the local economy and real estate market could affect our business.

At December 31, 2009, real estate served as the principal source of collateral with respect to approximately 79% of our loan portfolio. A decline in current economic conditions could have an adverse effect on the demand for new loans even if rates continue to decline.  It is also understood that the ability of borrowers to repay outstanding loans, the value of real estate and other collateral securing loans and the value of real estate owned by the Company, could affect the Company’s financial condition and results of operations in general and the market value of the Company’s common stock.  Acts of nature, including earthquakes and floods, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively impact the Company’s financial condition.

Acts of nature, including earthquakes, floods and fires, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively impact our financial condition.

We also have a high concentration in commercial real estate or CRE loans, which generally present increased levels of risk to our results of operation and financial condition.

CRE loans generally involve a higher degree of credit risk than residential mortgage lending due, among other things, to the large amounts loaned to individual borrowers.  Losses incurred on loans to a small number of borrowers could have a material adverse impact on our income and financial condition.  Unlike residential mortgage loans, commercial real estate loans generally depend on the cash flow from the property to service the debt.  Cash flow may be significantly affected by general economic conditions.

Within the makeup of our CRE, approximately 30% of our commercial term loans are granted for owner use, which is repaid from the cash flow of the owner’s business.  This coupled with the diversification of business types, location, conservative underwriting and loss history further mitigates the risk in our CRE portfolio.  The Company targets commercial term loans for owners use as it supports the local business economy.  The Company feels that owner occupied properties do not carry the same risk as commercial strip centers and other income properties with higher vacancy factors that rely on third parties for repayment.

In addition, federal banking regulators have issued final guidance regarding commercial real estate lending.  This guidance suggests that institutions that are potentially exposed to significant commercial real estate concentration risk will be subject to increased regulatory scrutiny.  Institutions that have experienced rapid growth in commercial real estate lending, have notable exposure to specific types of commercial real estate lending, or are approaching or exceed certain supervisory criteria that measure an institution’s commercial real estate portfolio against its capital levels, may be subject to such increased regulatory scrutiny.  Our commercial real estate portfolio may be viewed as falling within one or more of the foregoing categories, and accordingly we may become subject to increased regulatory scrutiny because of our commercial real estate portfolio.  If it is determined by our regulator that we have an undue concentration in commercial real estate lending, we may be required to maintain increased levels of capital and/or be required to reduce our concentration in commercial real estate loans.

Recently enacted legislation and other measures undertaken by the Treasury, the FRB and other governmental agencies may not help stabilize the U.S. financial system or improve the housing market, which in turn may have a material negative impact on our results of operations and financial condition..

On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (the “EESA”), which, among other measures, authorized the Treasury Secretary to establish the Troubled Asset Relief Program (“TARP”). EESA gives broad authority to Treasury to purchase, manage, modify, sell and insure the troubled mortgage related assets that triggered the current economic crisis as well as other “troubled assets.” EESA includes additional provisions directed at bolstering the economy, including:

·Authority for the FRB to pay interest on depository institution balances;

·Mortgage loss mitigation and homeowner protection;

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·Temporary increase in FDIC insurance coverage from $100,000 to $250,000 through December 31, 2009; and

·Authority to the SEC to suspend mark-to-market accounting requirements for any issuer or class of category of transactions.

Pursuant to the TARP, the Treasury has the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. Under the TARP, the Treasury has created a capital purchase program, pursuant to which it is providing access to capital to financial institutions through a standardized program to acquire preferred stock (accompanied by warrants) from eligible financial institutions that will serve as Tier 1 capital.

EESA also contains a number of significant employee benefit and executive compensation provisions, some of which apply to employee benefit plans generally, and others which impose on financial institutions that participate in the TARP program restrictions on executive compensation.

EESA followed, and has been followed by, numerous actions by the Federal Reserve, Congress, Treasury, the SEC and others to address the liquidity and credit crisis that has followed the sub-prime meltdown that commenced in 2007. These measures include homeowner relief that encourage loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate; emergency action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; coordinated international efforts to address illiquidity and other weaknesses in the banking sector.

On October 14, 2008, the FDIC announced the establishment of a temporary liquidity guarantee program to provide insurance for all non-interest bearing transaction accounts and guarantees of certain newly issued senior unsecured debt issued by financial institutions (such as the Bank) and bank holding companies (such as the Company). Under the program, newly issued senior unsecured debt issued on or before June 30, 2009 will be insured in the event the issuing institution subsequently fails, or its holding company files for bankruptcy. The debt includes all newly issued unsecured senior debt (e.g., promissory notes, commercial paper and inter-bank funding). The aggregate coverage for an institution may not exceed 125% of its debt outstanding on December 31, 2008 that was scheduled to mature before June 30, 2009. The guarantee will extend to June 30, 2012 even if the maturity of the debt is after that date.

On February 17, 2009, President Obama signed into law The American Recovery and Reinvestment Act of 2009 (the “Stimulus Bill”), more commonly known as the economic stimulus or economic recovery package.  The Stimulus Bill includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health and education needs.  In addition, the Stimulus Bill imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients that are in addition to those previously announced by the Treasury.

The actual impact that EESA, the Stimulus Bill and such related measures undertaken to alleviate the credit crisis will have generally on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced, is unknown. The failure of such measures to help stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our common stock.

Deposit insurance assessments will increase substantially, which will adversely affect profits.

FDIC deposit insurance expense for the year ended December 31, 2009 was $468,830.00. Deposit insurance assessments will increased in 2009 due to the strains on the FDIC deposit insurance fund resulting from the cost of recent bank failures and an increase in the number of banks likely to fail over the next few years.  On December 16, 2008, the FDIC issued a final rule increasing that assessment range for the first quarter of 2009 and levied a special assessment on all Banks during the first six months of 2009. During the last two quarters of 2009 the FDIC further levied a prepayment assessment on banks to be paid in December 2009 for the periods of January 2010 to December of 2012.

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Our real estate lending also exposes us to the risk of environmental liabilities.

In the course of our business, we may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties.  We may be held liable to a governmental entity or to third persons for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property.  The costs associated with investigation or remediation activities could be substantial.  In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property.  If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity and results of operations could be materially and adversely affected.

Our business is subject to interest rate risk and changes in interest rates may adversely affect our performance and financial condition.

Our earnings are impacted by changing interest rates. Changes in interest rates impact the demand for new loans, the credit profile of our borrowers, the rates received on loans and securities and rates paid on deposits and borrowings. The difference between the rates received on loans and securities and the rates paid on deposits and borrowings is known as interest rate spread. Given our current volume and mix of interest-bearing liabilities and interest-earning assets, we would expect our interest rate spread to increase if interest rates rise and, conversely, to decline if interest rates fall. Increasing levels of competition in the banking and financial services business may decrease our net interest margin by forcing us to offer lower lending interest rates and pay higher deposit interest rates. Although we believe our current level of interest rate sensitivity is reasonable, significant fluctuations in interest rates and increasing competition may have an adverse effect on our business, financial condition and results of operations.

A sustained decrease in market interest rates could adversely affect our earnings.  When interest rates decline, borrowers tend to refinance higher-rate, fixed-rate loans at lower rates, prepaying their existing loans.  Under those circumstances, we would not be able to reinvest those prepayments in assets earning interest rates as high as the rates on the prepaid loans.  In addition, our commercial real estate and commercial loans, which carry interest rates that, in general, adjust in accordance with changes in the prime rate, will adjust to lower rates.  We are also significantly affected by the level of loan demand available in our market. The inability to make sufficient loans directly affects the interest income we earn. Lower loan demand will generally result in lower interest income realized as we place funds in lower yielding investments.

Economic conditions in the Central Coast of California area could adversely affect our operations and/or cause us to sustain losses.

Our retail and commercial banking operations are concentrated primarily in San Luis Obispo and northern Santa Barbara Counties.  As a result of this geographic concentration, our results of operations depend largely upon economic conditions in this area.  A significant source of risk arises from the possibility that losses will be sustained if a significant number of our borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans. This risk increases when the economy is weak. We have adopted underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for credit losses, that management believes are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying our credit portfolio. These policies and procedures, however, may not prevent unexpected losses that could adversely affect our results of operations in general and the market value of our stock.

We face strong competition from financial service companies and other companies that offer banking services that could hurt our business.

The financial services business in our market areas is highly competitive. It is becoming increasingly competitive due to changes in regulation, technological advances, and the accelerating pace of consolidation among financial services providers. We face competition both in attracting quality assets and deposits and in making loans. We compete for loans principally through the interest rates and loan fees we charge and the efficiency and quality of services we provide. Increasing levels of competition in the banking and financial services business may reduce our market share, decrease loan demand, cause the prices we charge for our services to fall, or decrease our net interest margin, which is our net interest income divided by our average earning assets, by forcing us to offer lower lending

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interest rates and pay higher deposit interest rates.  Therefore, our results may differ in future periods depending upon the nature or level of competition.

Technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost deposits as a source of funds could have an adverse effect on our financial condition and results of operations.

Failure to successfully execute our strategy could adversely affect our performance.

Our financial performance and profitability depends on our ability to execute our corporate growth strategy.  Continued growth, however, may present operating and other problems that could adversely affect our business, financial condition and results of operations.  Factors that may adversely affect our ability to attain our long-term financial performance goals include those stated elsewhere in this section, as well as:

·inability to control non-interest expense, including, but not limited to, rising employee and healthcare costs;

·inability to increase non-interest income; and

·continuing ability to expand, through de novo branching and/or acquisitions of other banks.

We may not be able to attract and retain skilled people, which could adversely affect our performance and our ability to compete effectively.

Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in most of our activities can be intense and we may not be able to hire people or to retain them. The unexpected loss of services of one or more of our key personnel could have an adverse impact on our business because of their skills, knowledge of our market, years of industry experience and the difficulty of promptly finding qualified replacement personnel.

Our internal operations are subject to a number of risks that could adversely affect our financial condition and results of operations.

We are subject to certain operations risks, including, but not limited to, data processing system failures and errors, customer or employee fraud and catastrophic failures resulting from terrorist acts or natural disasters. We maintain a system of internal controls to mitigate against such occurrences and maintain insurance coverage for such risks that are insurable, but should such an event occur that is not prevented or detected by our internal controls, uninsured or in excess of applicable insurance limits, it could have a significant adverse impact on our business, financial condition or results of operations.

Information Systems.  We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

Technological Advances. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.

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Natural Disasters, Acts Of War Or Terrorism and Other External Events.  Natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause us to incur additional expenses. For example, the Central Coast region of California is subject to earthquakes and fires.  Operations in our market could be disrupted by both the evacuation of large portions of the population as well as damage and or lack of access to our banking and operation facilities. While we have not experienced such an occurrence to date, other severe weather or natural disasters, acts of war or terrorism or other adverse external events may occur in the future. Although management has established disaster recovery policies and procedures, the occurrence of any such event could have an adverse effect on our business, which, in turn, could have an adverse effect on our financial condition and results of operations.

We depend on cash dividends from our subsidiary bank to meet our cash obligations.

As a holding company, dividends from our subsidiary bank provide a substantial portion of our cash flow used to service our obligations, including cash dividends.  See “Item 5 — Market for Common Equity and Related Stockholder Matters.”  Various statutory provisions restrict the amount of dividends our subsidiary bank can pay to us without regulatory approval.

Risks Associated with our Industry.

We are subject to government regulation that could limit or restrict our activities, which in turn could adversely impact our operations.

The financial services industry is regulated extensively. Federal and State regulation is designed primarily to protect the deposit insurance funds and consumers, and not to benefit our shareholders. These regulations can sometimes impose significant limitations on our operations.

Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects economic conditions for us.

New legislative and regulatory proposals may affect our operations and growth.

Proposals to change the laws and regulations governing the operations and taxation of, and federal insurance premiums paid by, banks and other financial institutions and companies that control such institutions are frequently raised in the U.S. Congress, state legislatures and before bank regulatory authorities. The likelihood of any major changes in the future and the impact such changes might have on us or our subsidiaries are impossible to determine. Similarly, proposals to change the accounting treatment applicable to banks and other depository institutions are frequently raised by the SEC, the federal banking agencies, the IRS and other appropriate authorities. The likelihood and impact of any additional future changes in law or regulation and the impact such changes might have on us or our subsidiaries are impossible to determine at this time.

Risks Associated with our Stock.

Our outstanding preferred stock impacts net income available to our common stockholders and earnings per common share and the warrant issued to the U.S. Treasury as well as other potential issuances of equity securities may be dilutive to holders of our common stock.

The dividends declared and the accretion on our outstanding preferred stock will reduce the net income available to common stockholders and our earnings per common share.  Our outstanding preferred stock will also receive preferential treatment in the event of our liquidation, dissolution or winding-up.  Additionally, the ownership interest of the existing holders of our common stock will be diluted to the extent the warrant issued to the U.S. Treasury is exercised.  Although the U.S. Treasury has agreed not to vote any of the shares of common stock it receives upon exercise of the warrant, a transferee of any portion of the warrant or of any shares of common stock acquired upon exercise of the warrant is not bound by this restriction.  In addition, to the extent options to purchase common stock under our employee and director stock option plans are exercised, holders of our common stock will incur additional dilution.  Further, if we sell additional equity or convertible debt securities, such sales could result in increased dilution to our shareholders.

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Our stock trades less frequently than others.

Although our common stock is quoted on the over-the-counter market, the trading volume in our common stock is less than that of other larger financial services companies.  A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time.  This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control.  Given the lower trading volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause out stock price to fall.

Our stock price is affected by a variety of factors.

Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive.  Our stock price can fluctuate significantly in response to a variety of factors discussed in this section, including among other things:

·Actual or anticipated variations in quarterly results of operations

·Shareholders Financial hardships

·Recommendations by securities analysts

·Operating and stock price performance of other companies that investors deem comparable to our company

·News reports relating to trends, concerns and other issues in the financial services industry

·Perceptions in the marketplace regarding our company and/or its competitors

Our common stock is not an insured deposit.

Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you may lose some or all of your investment

Our articles of incorporation and by-laws, as well as certain banking laws, may have an anti-takeover effect.

Provisions of our articles of incorporation, bylaws and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders. The combination of these provisions may hinder a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock.

ITEM 1B. Unresolved Staff Comments

The Company has no unresolved comments received from staff at the SEC.

ITEM 2.PROPERTIES

The Company conducts its banking operations from four offices.  The Company owns the land and building of its office located at 7480 El Camino Real, in Atascadero, California. The building is a two-story building of approximately 16,500 square feet.

The Company owns the land and building of its office located at 1240 Spring Street, Paso Robles, California. The Bank occupies approximately 7,200 square feet on the ground floor of the building and 2,800 square feet in the basement is used for records storage and as a staff room.

The Company owns the land and building of its office located at 1530 East Grand Avenue in Arroyo Grande.  The building is a two-story building of approximately 10,200 square feet.

The Company owns the land and a two-story building of approximately 10,000 square feet which houses its office located at 1825 South Broadway, Santa Maria, California.

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The Company believes that all of its properties are well maintained and are suitable for their respective present needs and operations.

ITEM 3.LEGAL PROCEEDINGS

The Company is, from time to time, subject to various pending and threatened legal actions which arise out of the normal course of its business. The Company is not a party to any pending legal or administrative proceedings (other than ordinary routine litigation incidental to the Company’s business) and no such proceedings are known to be contemplated.

There are no material proceedings adverse to the Company to which any director, officer, affiliate of the Company or 5% shareholder of the Company, or any associate of any such director, officer, affiliate or 5% shareholder of the Company is a party, and none of the above persons has a material interest adverse to the Company.

There are no material proceedings adverse to the Company to which any Director, Officer or affiliate of the Company is a party.

ITEM 4.(REMOVED AND RESERVED)

PART II

ITEM 5.MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company’s Common Stock is not listed on any exchange or market. However, Morgan Stanley, Howe Barnes Hoefer & Arnett, Inc., Edward Jones, Wedbush Morgan Securities, UBS Financial Services, Inc., and McAdams Wright and Ragen each actively make a market in the Company’s Common Stock. Certain information concerning the Common Stock is quoted on the OTC Bulletin Board under the symbol “SLBA.OB”

The information in the following table indicates the high and low bid prices of the Company’s Common Stock for each quarterly period during the last two years based upon information provided by certain of the firms mentioned above who serve as the Company’s market makers. These prices do not include retail mark-ups, mark-downs or commission.

		Bid Prices
Quarter Ended		Low		High
2009
	December 31	$	10.10	$	11.89
	September 30	11.55		15.00
	June 30	10.50		13.00
	March 31	8.20		14.75
2008
	December 31	$	13.50	$	19.00
	September 30	14.25		21.50
	June 30	20.00		24.25
	March 31	23.25		25.00

The foregoing table is based on data reported by the market makers named above. Does not include information on shares traded directly by shareholders or through other dealers.

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Holders

The Company has two classes of stock outstanding — Common and Series A Preferred. As of March 4, 2010 there were approximately 367 record holders of the Company’s Common Stock.

Dividends

The following table sets forth the per share amount and month of payment for all cash dividends paid since January 1, 2008:

Month Paid	Amount Per Share
March 2008	$	0.25
September 2008	$	0.25
March 2009	$	0.25

The Company has paid a cash dividend for the past 20 years and issued a 2% stock dividend in October 2009.

The Company is a legal entity separate and distinct from the Bank.  The Company’s shareholders are entitled to receive dividends when declared by its Board of Directors, out of funds legally available therefore, subject to the restrictions set forth in the California General Corporation Law (the Corporation law).  The Corporation Law provides that a corporation may make a distribution to its shareholders if the corporation’s retained earnings equal at least the amount of the proposed distribution.  The Corporation Law also provides that, in the event that sufficient retained earnings are not available for the proposed distribution, a corporation may, nevertheless, make a distribution to its shareholders if it meets two conditions, which generally states are as follows: (i) the corporation’s assets equal 1-1/4 times its liabilities, and (ii) the corporation’s current assets equal at least its current liabilities or, if the average of the corporation’s earnings before taxes on income and before interest expenses for the two preceding fiscal years was less than the average of the corporation’s interest expenses for such fiscal years, then the corporation’s interest expenses for such fiscal years, then the corporation’s current assets must equal at least 1-1/4 times its current liabilities. As a regulated bank holding company, the Reserve Board’s restrictions may also limit the Company’s ability to pay cash dividends. Generally, a bank holding company must consult with the Reserve Board prior to payment of a proposed cash dividend, if the company did not have sufficient earnings in the prior four quarters at least equal to the proposed dividend and other holding company obligations.

The ability of the Company to pay a cash dividend depends largely on the Bank’s ability to pay a cash dividend to the Company.  The payment of cash dividends by the Bank is subject to restrictions set forth in the California Financial Code (the Financial Code).  The Financial Code provides that a bank may not make a cash distribution to its shareholders in excess of the lesser of (a) the bank’s retained earnings; or (b) the bank’s net income for its last three fiscal years, less the amount of any distributions made by the bank or by an majority-owned subsidiary of the bank to the shareholders of the bank during such period.  However, a bank may, with the approval of the DFI, make a distribution to its shareholders in an amount not exceeding the greater of (x) its retained earnings; (y) its net income for its last fiscal year; or (z) its net income for its current fiscal year.  In the event that the DFI determines that the shareholders’ equity of the bank is inadequate or that the making of a distribution by the bank would be unsafe or unsound, the DFI may order the bank to refrain from making a proposed distribution.  The FDIC may also restrict the payment of dividends if such payment of such dividends, the bank would be included in one of the “undercapitalized” categories for capital adequacy purposes pursuant to federal law (See, “Item 1 — Prompt Corrective Action and Other Enforcement Mechanisms.”) Additionally, while the Federal Reserve Board has no general restriction with respect to the payment of cash dividends by an adequately capitalized bank to its parent holding company, the Federal Reserve Board might, under certain circumstances, place restrictions on the ability of a particular bank to pay dividends based upon peer group averages and the performance and maturity of the particular bank, or object to management fees to be paid by a subsidiary bank to its holding company on the basis that such fees cannot be supported by the value of the services rendered or are not the result of an arm’s length transaction.

The Company’s junior subordinated debt agreements contain provisions which prohibit the paying of dividends if it defers payment of interest on outstanding trust preferred securities (See “Item I. Business — Supervision and Regulation — Capital Standards”)

The Company’s participation in the TARP Capital Purchase Program includes restrictions on the amount of dividends that can be paid to common shareholders. The Company can not pay a dividend greater than the prior

22

dividend declared unless prior approval from the United States Treasury is granted. Additionally, the Company will be prohibited from continuing to pay dividends on its common stock unless the Company has fully paid all required dividends on the preferred stock issued to the Treasury.  The Company fully expects to be able to pay all required dividends on the preferred stock, but if for any reason the Company is unable to do so in the future, then the Company would be precluded from paying dividends on its common stock.  Based on a number of factors, including but not limited to the Company’s recent financial performance, the economic climate, and the restrictions described above, the Company has suspended its practice of paying cash dividends. The Company will periodically review this suspension.

ITEM 6.SELECTED FINANCIAL DATA

The information required by Item 6 of Form 10-K is incorporated by Reference from the section entitled “Management’s Discussion and Analysis and Results of Operations” in the Company’s 2009 Annual Report to Shareholders, included as an exhibit to this Annual Report.

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The information required by Item 7 of Form 10-K is incorporated by reference from the section entitled “Management’s Discussion and Analysis and Results of Operations” in the Company’s 2009 Annual Report to Shareholders, included as an exhibit to this Annual Report.

ITEM 7A. - QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices, interest rates, foreign currency exchange rates, commodity prices and equity prices. The Company’s market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. Management uses various asset/liability strategies to manage the re-pricing characteristics of the Company’s earning assets and funding liabilities to ensure that exposure to interest rate fluctuations is within its guidelines of acceptable risk-taking. Hedging strategies, including the terms and pricing of loans and deposits, and managing the deployment of the Company’s securities are used to reduce mismatches in interest rate re-pricing opportunities of portfolio assets and their funding sources.

Interest rate risk is addressed by our Asset Liability Management Committee (“ALCO”) which is comprised of senior management officers of the bank. The ALCO monitors interest rate risk by analyzing the potential impact on the net equity value and net 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, within acceptable ranges, the potential impact on net equity value and net interest income despite fluctuations in market interest rates.

Exposure to interest rate risk is reviewed on at least a quarterly basis by the ALCO and the Board of Directors. Interest rate risk exposure is measured using interest rate sensitivity analysis to determine the change in net portfolio value in the event of hypothetical changes in interest rates. If potential changes to net equity value and net interest income resulting from hypothetical interest rate changes are not within the limits established by the Board of Directors, management may adjust the asset and liability mix to bring interest rate risk within approved limits.

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The financial statements and the notes thereto required by Item 8 of Form 10-K are incorporated by reference from the Company’s 2009 Annual Report to Shareholders, included as an exhibit to this Annual Report.

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

None

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ITEM 9A .CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s President and Chief Executive Officer and the Company’s Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2009, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s President and Chief Executive Officer along with the Company’s Executive Vice President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of December 31, 2009 are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic filings under the Exchange Act.

Internal Control Over Financial Reporting

(a)Management’s Annual Report on Internal Control Over Financial Reporting.

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

As of December 31, 2009, management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on the assessment, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2009, based on those criteria.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures, or its internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

/s/ John C. Hansen	/s/ James M. Cowan
John C. Hansen	James M. Cowan
Chief Executive Officer	Chief Financial Officer
(Principal Executive Officer)	(Principal Financial Officer)

(b)Changes in Internal Control Over Financial Reporting.

No changes in the Company’s internal control over financial reporting have come to management’s attention that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.OTHER INFORMATION

None.

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PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND COPORATE GOVERNANCE

The Company has adopted a Code of Business Conduct and Ethics that applies to all employees and directors of the Company, and complies with the SEC’s requirements for a code of ethics applicable to senior executive officers.  A copy of the Code of Business Conduct and Ethics was attached to the Form 10-K filed on March 30, 2009, for the year ended December 31, 2008.

During 2007, the Board established a Corporate Governance Committee Charter and Corporate Governance Guidelines. A copy of the Corporate Governance Committee Charter and Guidelines was attached as “Exhibit A” to the Proxy Statement filed with the SEC on February 15, 2008.

The remainder of the information required by Item 10 of Form 10-K is incorporated by reference from the information contained in the Company’s Proxy Statement for the 2010 Annual Meeting of Shareholders which has been filed pursuant to Regulation 14A.

ITEM 11.EXECUTIVE COMPENSATION

The information required by Item 11 of Form 10-K is incorporated by reference from the information contained in the Company’s Proxy Statement for the 2010 Annual Meeting of Shareholders which has been filed pursuant to Regulation 14A.

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

The information required by Item 12 of Form 10-K is incorporated by reference from the information contained in the Company’s Proxy Statement for the 2010 Annual Meeting of Shareholders which has been filed pursuant to Regulation 14A.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by Item 13 of Form 10-K is incorporated by reference from the information contained in the Company’s Proxy Statement for the 2010 Annual Meeting of Shareholders which has been filed pursuant to Regulation 14A.

ITEM 14PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 of Form 10K is incorporated by reference from the information contained in the Company’s Proxy Statement for the 2010 Annual Meeting of Shareholders which has been filed pursuant to Regulation 14A.

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)The following exhibits are filed as part of the Form 10-K, and this list includes the Exhibit Index:

Index to Exhibits

Exhibit Number	Exhibit	Sequentially Numbered Pages
3.1	Articles of Incorporation of the Bancorp, as amended	13/
3.2	Bylaws of the Bancorp, as amended	13/

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3.3	Certificate of Amendment to Bylaws of Santa Lucia Bank, dated January 16, 2002	7/
3.4	Amendment to Bylaws of Santa Lucia Bank, dated January 21, 2009	17/
10.4	Santa Lucia Bank’s Employee Stock Ownership Plan	1/
10.5	Plan Administrator’s Guide for the Bank’s Employee Stock Ownership Plan	1/
10.6	Santa Lucia Bank’s Profit Sharing Plan	1/
10.9	Salary Continuation agreement by and between Santa Lucia Bank and Stanley R. Cherry, dated February 1, 1997	2/
10.10	Salary Continuation agreement by and between Santa Lucia Bank and Larry H. Putnam, dated February 1, 1997	2/
10.11	Deferred Fee Agreement by and Between Santa Lucia Bank and Khatchik Achadjian, dated February 1, 1997	2/
10.12	Deferred Fee Agreement by and Between Santa Lucia Bank and Dino Boneso, dated February 1, 1997	2/
10.13	Deferred Fee Agreement by and Between Santa Lucia Bank and Jerry W. DeCou, III, dated February 1, 1997	2/
10.14	Deferred Fee Agreement by and Between Santa Lucia Bank and Douglas C. Filipponi, dated February 1, 1997	2/
10.15	Deferred Fee Agreement by and Between Santa Lucia Bank and Jean Hawkins, dated February 1, 1997	2/
10.16	Deferred Fee Agreement by and Between Santa Lucia Bank and Paul G. Moerman, dated February 1, 1997	2/
10.17	Deferred Fee Agreement by and Between Santa Lucia Bank and Norman J. Norton, Jr., dated February 1, 1997	2/
10.18	Deferred Fee Agreement by and Between Santa Lucia Bank and William S. Osibin, dated February 1, 1997	2/
10.19	Deferred Fee Agreement by and Between Santa Lucia Bank and D. Jack Stinchfield, dated February 1, 1997	2/
10.20	Director Retirement Agreement by and between Santa Lucia Bank and Khatchik Achadjian, dated February 1, 1997	2/
10.21	Director Retirement Agreement by and between Santa Lucia Bank and Dino A. Boneso, dated February 1, 1997	2/
10.22	Director Retirement Agreement by and between Santa Lucia Bank and Jerry W. DeCou, III, dated February 1, 1997	2/
10.23	Director Retirement Agreement by and between Santa Lucia Bank and Douglas C. Filipponi, dated February 1, 1997	2/
10.24	Director Retirement Agreement by and between Santa Lucia Bank and Jean Hawkins, dated February 1, 1997	2/

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10.25	Director Retirement Agreement by and between Santa Lucia Bank and Paul G. Moerman, dated February 1, 1997	2/
10.26	Director Retirement Agreement by and between Santa Lucia Bank and Willard S. Osibin, dated February 1, 1997	2/
10.27	Director Retirement Agreement by and between Santa Lucia Bank and D. Jack Stinchfield, dated February 1, 1997	2/
10.28	Agreement for Data Processing Services between Santa Lucia Bank and Fiserv Savings and Community Bank Group, dated February 21, 1997	3/
10.29	Equipment Sales Agreement between Santa Lucia Bank and Information Technology, Inc., dated February 14, 1997	3/
10.30	Equipment Sales Agreement between Santa Lucia Bank and Information Technology, Inc., dated February 14, 1997	3/
10.31	Equipment Sales Agreement between Santa Lucia Bank and Information Technology, Inc., dated February 14, 1997	3/
10.32	Software License Agreement between Santa Lucia Bank and Information Technology, Inc., dated February 14, 1997	3/
10.33	Product License Agreement between Santa Lucia Bank and Information Technology, Inc., dated February 14, 1997	3/
10.34	Product License Agreement between Santa Lucia Bank and Information Technology, Inc., dated February 14, 1997	3/
10.35	Product License Agreement between Santa Lucia Bank and Information Technology, Inc., dated February 14, 1997	3/
10.36	Services Agreement between Santa Lucia Bank and Information Technology, Inc., dated February 14, 1997	3/
10.37	Remote Access Support Agreement between Santa Lucia Bank and Information Technology, Inc., dated February 14, 1997	3/
10.38	Salary Continuation Agreement by and between Santa Lucia Bank and John C. Hansen, dated August 1, 1998	4/
10.39	Employment Agreement by and between Santa Lucia Bank and Stanley R. Cherry, dated August 1, 1998	4/
10.40	Employment Agreement by and between Santa Lucia Bank and Larry H. Putnam, dated August 1, 1998	4/
10.41	Employment Agreement by and between Santa Lucia Bank and John C. Hansen dated August 1, 1998	4/
10.42	Santa Lucia Bank 2000 Stock Option Plan and form of stock option agreement	5/
10.44	Amendment to Salary Continuation Agreement of Stanley R. Cherry, Dated April 15, 1998	6/
10.45	Amendment to Salary Continuation Agreement of Larry H. Putnam, dated April 15, 1998	6/
10.46	Amendment to Salary Continuation Agreement of	6/

27

	Stanley R. Cherry, dated May 10, 2000
10.47	Amendment to Santa Lucia Bank Director Retirement Agreement with Khatchik H. Achadjian	6/
10.48	Amendment to Santa Lucia Bank Director Retirement Agreement with Dino Boneso, dated January 10, 2001	6/
10.49	Amendment to Santa Lucia Bank Director Retirement Agreement with Jerry W. DeCou, III, dated January 10, 2001	6/
10.50	Amendment to Santa Lucia Bank Director Retirement Agreement with Douglas C. Filipponi, dated January 10, 2001	6/
10.51	Amendment to Santa Lucia Bank Director Retirement Agreement with Jean Hawkins, dated January 10, 2001	6/
10.52	Amendment to Santa Lucia Bank Director Retirement Agreement with Paul G. Moerman, dated January 10, 2001	6/
10.53	Amendment to Santa Lucia Bank Director Retirement Agreement with D. Jack Stinchfield, dated January 10, 2001	6/
10.54	Amendment to Salary Continuation agreement with Stanley R. Cherry, dated January 10, 2001	6/
10.55	Amendment to Salary Continuation agreement with Larry H. Putnam, dated January 10, 2001	6/
10.56	Amendment to Salary Continuation agreement with John C. Hansen, dated January 10, 2001	6/
10.57	401(K) Profit Sharing Plan adopted effective July 1, 2001	7/
10.59	Form of Note Purchase Agreement	9/
10.60	Subordinated Note	9/
10.62	Amendment to Employment Agreement by and between Santa Lucia Bank and John Hansen dated November 11, 2004	11/
10.63	Employment Agreement by and between Santa Lucia Bank and Jim Cowan dated November 11, 2004	11/
10.65	Santa Lucia Bancorp 2006 Equity Based Compensation Plan	12/
10.66	Amended and Restated Employment Agreement by and between Santa Lucia Bank and Larry H. Putnam dated December 15, 2006	13/
10.67	Amended and Restated Employment Agreement by and between Santa Lucia Bank and John C. Hansen dated December 15, 2006	13/
10.68	Amended and Restated Employment Agreement by and between Santa Lucia Bank and James M. Cowan dated December 15, 2006	13/
10.70	Amendment to the Salary Continuation Agreement by and between Santa Lucia Bank and Larry H. Putnam dated April 12, 2007.	14/
10.71	Amendment to the Salary Continuation Agreement by and between Santa Lucia Bank and John C. Hansen dated April 12, 2007.	14/

28

10.72	Second Amendment to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between Santa Lucia Bank and Larry H. Putnam dated March 19, 2008.	15/
10.73	First Amendment to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between Santa Lucia Bank and John C. Hansen dated March 19, 2008.	15/
10.74	First Amendment to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between Santa Lucia Bank and James Cowan dated March 19, 2008	15/
10.75	Second Amendment to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between Santa Lucia Bank and Jerry W. DeCou dated March 19, 2008.	15/
10.76	Second Amendment to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between Santa Lucia Bank and Douglas C. Filipponi dated March 19, 2008.	15/
10.77	Second Amendment to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between Santa Lucia Bank and Khatchik Achadjian dated March 19, 2008.	15/
10.78	Third Amendment to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between Santa Lucia Bank and Stanley R. Cherry dated March 19, 2008.	15/
10.79	First Amendment to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between Santa Lucia Bank and Jean Hawkins dated March 19, 2008.	15/
10.80	Second Amendment to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between Santa Lucia Bank and Paul G. Moerman datedMarch 19, 2008.	15/
10.81	Second Amendment to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between Santa Lucia Bank and D. Jack Stinchfield dated March 19, 2008.	15/
10.82	Agreement made by and between Santa Lucia Bank and Jerry W. DeCou, III dated October 15, 2008	16/
10.83	Agreement made by and between Santa Lucia Bank and Douglas C. Filipponi dated October 15, 2008	16/
10.84	Agreement made by and between Santa Lucia Bank and Khatchik Achadjian dated October 15, 2008	16/
10.85	Agreement made by and between Santa Lucia Bank and Stanley R. Cherry dated October 15, 2008	16/
10.86	Agreement made by and between Santa Lucia Bank and Jean Hawkins dated October 15, 2008	16/
10.87	Agreement made by and between Santa Lucia Bank and Paul G. Moerman dated October 15, 2008	16/

29

10.88	Agreement made by and between Santa Lucia Bank and D. Jack Stinchfield dated October 15, 2008	16/
10.89	First Amendment to Amend and Restated Employment Agreement made by and between Santa Lucia Bank and Larry H. Putnam dated October 15, 2008	16/
10.90	First Amendment to Amend and Restated Employment Agreement made by and between Santa Lucia Bank and John C. Hansen dated October 15, 2008	16/
10.91	First Amendment to Amend and Restated Employment Agreement made by and between Santa Lucia Bank and James Cowan dated October 15, 2008	16/
10.92	Salary Continuation Agreement by and between Santa Lucia Bank and Larry H. Putnam dated December 17, 2008	17/
10.93	First Amended and Restated Salary Continuation Agreement by and between Santa Lucia Bank and Larry H. Putnam dated December 17, 2008	17/
10.94	Salary Continuation Agreement by and between Santa Lucia Bank and John C. Hansen dated December 17, 2008	17/
10.95	First Amended and Restated Salary Continuation Agreement by and between Santa Lucia Bank and John C. Hansen dated December 17, 2008	17/
10.96	First Amended and Restated Salary Continuation Agreement by and between Santa Lucia Bank and James M. Cowan dated December 17, 2008	17/
10.97	First Amended and Restated Deferred Fee Agreement by and between Santa Lucia Bank and Jerry W. DeCou III dated December 17, 2008	17/
10.98	First Amended and Restated Deferred Fee Agreement by and between Santa Lucia Bank and Douglas C. Filipponi dated December 17, 2008	17/
10.99	First Amended and Restated Deferred Fee Agreement by and between Santa Lucia Bank and Khatchik H. Achadjian dated December 17, 2008	17/
10.100	First Amended and Restated Deferred Fee Agreement by and between Santa Lucia Bank and Jean Hawkins dated December 17, 2008	17/
10.101	First Amended and Restated Deferred Fee Agreement by and between Santa Lucia Bank and Paul G. Moerman dated December 17, 2008	17/
10.102	First Amended and Restated Deferred Fee Agreement by and between Santa Lucia Bank and D. Jack Stinchfield dated December 17, 2008	17/
10.103	First Amended and Restated Santa Lucia Bank Director Retirement Agreement by and between Santa Lucia Bank and Jerry W. DeCou III dated December 17, 2008	17/
10.104	First Amended and Restated Santa Lucia Bank Director Retirement Agreement by and between Santa Lucia Bank and Douglas C. Filipponi dated December 17, 2008	17/
10.105	First Amended and Restated Santa Lucia Bank Director Retirement Agreement by and between Santa Lucia Bank and Khatchik H. Achadjian dated December 17, 2008	17/
10.106	First Amended and Restated Santa Lucia Bank Director Retirement Agreement by and between Santa Lucia Bank and Jean Hawkins dated December 17, 2008	17/
10.107	First Amended and Restated Santa Lucia Bank Director Retirement Agreement	17/

30

	by and between Santa Lucia Bank and Paul G. Moerman dated December 17, 2008
10.108	First Amended and Restated Santa Lucia Bank Director Retirement Agreement by and between Santa Lucia Bank and D. Jack Stinchfield dated December 17, 2008	17/
13.1	Annual Report to Shareholders
14.1	Code of Business Conduct and Ethics	17/
23.1	Consent of independent accountants from Vavrinek, Trine, Day & Co., LLP
31.1	Certification of Chief Executive Officer pursuant to Rule 15d-14
31.2	Certification of Chief Financial Officer pursuant to Rule 15d-14
32.1	Certification pursuant to Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code
99.1	Troubled Asset Relief Program Certification of Chief Executive Officer
99.2	Troubled Asset Relief Program Certification of Chief Financial Office

1/Incorporated by reference from the Bank’s Form 10-K for the year ended December 31, 1995

2/Incorporated by reference from the Bank’s Form 10-K for the year ended December 31, 1996

3/Incorporated by reference from the Bank’s Form 10-K for the year ended December 31, 1997

4/Incorporated by reference from the Bank’s Form 10-K for the year ended December 31, 1998

5/Incorporated by reference from the Bank’s Form 10-K for the year ended December 31, 1999

6/Incorporated by reference from the Bank’s Form 10-K for the year ended December 31, 2000

7/Incorporated by reference from the Bank’s Form 10-K for the year ended December 31, 2001

8/Incorporated by reference from the Bank’s Form 10-K for the year ended December 31, 2002

9/Incorporated by reference from the Bank’s Form 10-Q for the period ended September 30, 2003

10/Incorporated by reference from the Bank’s Form 10-K for the period ended December 31, 2003

11/Incorporated by reference from the Bank’s Form 10-K for the period ended December 31, 2004

12/Filed as part of Registrants Registration Statement on Form S-8 (File #333-137997) (Filed on 10/13/06)

13/Incorporated by reference from the Bank’s Form 10-K for the period ended December 31, 2006

14/Incorporated by reference from the Bank’s Form 10-Q for the period ended March 31, 2007

15/Incorporated by reference from the Bank’s Form 10-Q for the period ended March 31, 2008

16/Incorporated by reference from the Bank’s Form 10-Q for the period ended September 30, 2008

17/Incorporated by reference from the Bank’s Form 10-K for the period ended December 31, 2008

31

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SANTA LUCIA BANCORP
By:	/s/ John C. Hansen
	JOHN C. HANSEN
	President and Chief Executive Officer
	(Principal Executive Officer)
	Dated:   March 26, 2010
By:	/s/ James M. Cowan
	JAMES M. COWAN
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)
	Dated:   March 26, 2010

32

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

		Dated:
/s/ John C. Hansen	President and	March 26, 2010
JOHN C. HANSEN	Chief Executive Officer
/s/ Jerry W. DeCou	Chairman of the	March 26, 2010
JERRY W. DECOU III	Board of Directors
/s/ Douglas C. Filipponi	Vice Chairman	March 26, 2010
DOUGLAS C. FILIPPONI	of the Board of Directors
/s/ Khatchik H. Achadjian	Director	March 26, 2010
KHATCHIK H. ACHADJIAN
/s/ Stanley R. Cherry	Director	March 26, 2010
STANLEY R. CHERRY
/s/ Jean Hawkins	Director	March 26, 2010
JEAN HAWKINS
/s/ Paul G. Moerman	Director	March 26, 2010
PAUL G. MOERMAN
/s/ Larry H. Putnam	Director	March 26, 2010
LARRY H. PUTNAM
/s/ D. Jack Stinchfield	Director	March 26, 2010
D. JACK STINCHFIELD

33

EXHIBIT INDEX

ExhibitSequentialNumber	Description
13.1	Annual Report to Shareholders
23.1	Consent of independent accountants from Vavrinek, Trine, Day & Co., LLP
31.1	Certification of Chief Executive Officer pursuant to Rule 15d-14
31.2	Certification of Chief Financial Officer pursuant to Rule 15d-14
32.1	Certification pursuant to Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code
99.1	Troubled Asset Relief Program Certification of Chief Executive Officer
99.2	Troubled Asset Relief Program Certification of Chief Financial Office

34

EX-13.1

Santa Lucia Bancorp 2009 Annual Report

2009 Santa Lucia Bancorp
7480 El Camino Real
Atascadero, California 93422 Stock Symbol — SLBA.OB Santa Lucia Bank
7480 El Camino Real
Atascadero, California 93422 www.santaluciabank.com

Atascadero	Paso Robles	Arroyo Grande	Santa Maria
7480 El Camino Real	1240 Spring Street	1530 E. Grand Avenue	1825 South Broadway
(805) 466-7087	(805) 239-1140	(805) 473-1988	(805) 614-9100

1

Santa Lucia Bancorp

Message from the President

Dear Shareholders, Customers and Friends,

In my letter to the shareholders last year I stated that we were looking forward to the challenges of 2009. At that time I had no idea how challenging 2009 would actually be. In looking back at one of the most severe economic downturns in my 47 year banking career, the Company found itself in the unfamiliar territory of reporting an annual net loss for the first time in 22 years. The fact that all of the independent banks in our market area likely experienced net losses for the year provides little comfort as this is not the kind of performance a bank with our history, experience and strength finds satisfactory. In this coming year, we are dedicated to increasing the financial strength of our Company while continuing to provide the safest and highest quality products and services to our customers.

The Company’s profitability declined from a net profit of $1,138,904 at December 31, 2008 to a net loss of $1,825,475 for the same period in 2009. Several factors contributed to this decline in profitability including an increase in non-performing loans, net loan losses, and substantially increased allocations to the allowance for loan losses.  In addition, there was a significant increase to the quarterly FDIC assessments, coupled with a large special assessment that was imposed on all financial institutions by the FDIC to increase its reserves. Our problem credits remain centered in our real estate portfolio where we were required to write down the collateral value of several loans due to the decline in the real estate market. Many of these write-downs arose and were addressed in the fourth quarter of 2009.  Further, our loan portfolio continued to grow during 2009 which also contributed to the need to increase the overall level of the allowance for loan losses. The allowance stood at $3.4 million or 1.67% of gross loans at year end 2009 compared to $2.3 million or 1.22% of gross loans at year end 2008.

John C. Hansen, President and Chief Executive Officer

Our history has always been to have conservative banking practices, particularly in our lending, and last year was no exception. However, the severity and depth of the current recessionary climate tested our experience and has required us to redouble our efforts. As we move into the new year, we have made significant progress toward improving our problem loans and strengthening our overall credit administration. To address all of our needs we have reorganized our credit administration, tightened our procedures and strengthened credit administration with the addition of a Senior Vice President with 15 years of credit experience who is familiar with the lending philosophy of Santa Lucia Bank.

2

Santa Lucia Bancorp’s Board of Directors. Standing left to right—John C. Hansen, President and Chief Executive Officer, Jerry W. DeCou III, Chairman of the Board, Larry H. Putnam, Douglas C. Filipponi, Vice Chairman of the Board.

Seated left to right—Paul G. Moerman, D. Jack Stinchfield, Jean Hawkins, Stanley R. Cherry and Khatchik H. Achadjian.

There was some good news in 2009. We are pleased to report that the Company experienced substantial increases in both loans and deposits during the year. Total loans, net of unearned income increased 6.64% during the year to $201,484,990 at year end December 31, 2009 and total deposits increased 12.44% to $238,722,524 at year end December 31, 2009. This coupled with our strong capital position puts us in a good position to move forward in 2010.

While we are not sure that our local economy has completely turned the corner, we are cautiously optimistic as we move into the year. We are committed to continue to pursue our prudent, conservative banking practices upon which this Company was founded and which have held us in good stead over the past 24 years. On behalf of the entire Board of Directors, we extend our thanks to our shareholders for your continued support, to our customers for your business, and to our employees for their continued dedication to providing superior customer service.

John C. Hansen

President and Chief Executive Officer

Executive Management - John McNinch, John C. Hansen, James M. Cowan

3

SANTA LUCIA BANK

(a wholly owned subsidiary of Santa Lucia Bancorp)

Executive Management

James M. Cowan, John C. Hansen, John McNinch

JOHN C. HANSEN

President and Chief

Executive Officer

JAMES M. COWAN

Executive Vice President

Chief Administrative Officer

Chief Credit Officer

JOHN McNINCH

Executive Vice President

Credit Administrator

Eager to service your banking needs

Accounting

Julie A. Joslin, Sharon Satterthwaite

SHARON SATTERTHWAITE

Vice President

Controller

JULIE A. JOSLIN

Vice President

Cashier

4

Credit Administration

Standing left to right - Claudya Oglesby, John McNinch, James M. Cowan

Seated left to right - Larry Womack, Lila Bogardus

JAMES M. COWAN

Executive Vice President

Chief Administrative Officer

Chief Credit Officer

JOHN McNINCH

Executive Vice President

Credit Administrator

CLAUDYA OGLESBY

Senior Vice President

Credit Administration

LARRY WOMACK

Vice President

Assistant Credit Administrator

LILA BOGARDUS

Note Department Manager

Operations

Melodee Fontana, George Garcia, Kristie Keller

MELODEE FONTANA

Senior Vice President

Operations Administrator

KRISTIE KELLER

Vice President

Central Operations

GEORGE GARCIA

IT Manager

5

Atascadero Office

7480 El Camino Real, Atascadero, California

Atascadero Officer Team

Jim Kelley, Karen Sampson, Kim Donaldson, J. Darren Barnes, Teri Davis

TERI DAVIS

Senior Vice President

Manager

KIM DONALDSON

Vice President

Operations Officer

JIM KELLEY

Vice President

Loan Officer

J. DARREN BARNES

Assistant Vice President

Loan Officer

KAREN SAMPSON

Assistant Operations Officer

6

Paso Robles Office

1240 Spring Street, Paso Robles, California

Paso Robles Officer Team

Robert Covarrubias, Cheryl Mumford, Ryun McCrory, Joshua R. Bivin

ROBERT COVARRUBIAS

Senior Vice President

Manager

RYUN McCRORY

Vice President

Loan Officer

JOSHUA R. BIVIN

Vice President

Loan Officer

CHERYL MUMFORD

Assistant Vice President

Operations Officer

7

Arroyo Grande Office

1530 East Grand Avenue, Arroyo Grande, California

Arroyo Grande Officer Team

Richard Allen, Michael W. McKenzie, Regina M. Sheldon, Jennifer Bassi Ginder

MICHAEL W. McKENZIE

Vice President

Manager

RICHARD ALLEN

Vice President

Loan Officer

JENNIFER BASSI GINDER

Vice President

Operations Officer

REGINA M. SHELDON

Assistant Vice President

Loan Officer

8

Santa Maria Office

1825 South Broadway, Santa Maria, California

Santa Maria Officer Team

Leah T. West, James P. Burubeltz, Stella Martinez, Robert J. McConaghy

LEAH T. WEST

Vice President

Manager

JAMES P. BURUBELTZ

Vice President

Loan Officer

STELLA MARTINEZ

Operations Officer

ROBERT J. McCONAGHY

Loan Officer

9

Santa Lucia Bancorp and Subsidiary

Consolidated Selected Financial Information

	Year Ended December 31,
	2009			2008			2007			2006			2005
	(dollars in thousands, except per share data)
Summary of Operations:
Interest Income	$	13,851		$	15,276		$	17,719		$	17,027		$	13,546
Interest Expense	3,021			3,877			4,824			3,577			1,984
Net Interest Income	10,830			11,399			12,895			13,450			11,562
Provision for Loan Losses	5,460			975			—			240			300
Net Interest Income After Provision for Loan Losses	5,370			10,424			12,895			13,210			11,262
Noninterest Income	1,236			1,111			1,071			1,010			1,052
Noninterest Expense	9,865			9,763			9,029			8,590			7,808
Income Before Income Taxes	(3,259		)	1,772			4,937			5,630			4,506
Income Taxes	(1,434		)	633			1,934			2,242			1,759
Net Income (Loss)	$	(1,825	)	$	1,139		$	3,003		$	3,388		$	2,747
Cash Dividends Paid	$	483		$	963		$	871		$	768		$	730
Per Share Data:
Net Income – Basic	$	(1.05	)	$	0.59		$	1.55		$	1.77		$	1.46
Net Income – Diluted	$	(1.05	)	$	0.58		$	1.51		$	1.68		$	1.38
Dividends	$	0.25		$	0.50		$	0.45		$	0.40		$	0.388
Book Value	$	9.58		$	11.21		$	11.01		$	9.93		$	8.35
Common Outstanding Shares:	1,961,334			1,923,053			1,924,873			1,928,097			1,899,543
Statement of Financial Condition Summary:
Total Assets	$	269,923		$	251,880		$	248,640		$	240,738		$	231,532
Total Deposits	238,723			212,317			212,718			212,988			206,879
Total Net Loans	198,099			186,632			166,619			169,680			152,563
Allowance for Loan Losses	3,386			2,310			1,673			1,654			1,470
Total Shareholders’ Equity	23,030			25,551			21,189			19,137			15,866
Selected Ratios:
Return on Average Assets	-0.69		%	0.46		%	1.22		%	1.42		%	1.21		%
Return on Average Equity	-7.18		%	5.19		%	14.87		%	19.45		%	18.67		%
Average Loans as a Percentage of Average Deposits	87.82		%	83.84		%	76.11		%	79.74		%	69.90		%
Allowance for Loan Losses to Total Loans	1.67		%	1.22		%	0.99		%	0.96		%	0.95		%
Company:
Tier I Capital to Average Assets	10.28		%	11.89		%	10.50		%	10.00		%	—
Tier I Capital to Risk-Weighted Assets	12.54		%	14.41		%	13.20		%	12.70		%	—
Total Capital to Risk-Weighted Assets	13.87		%	15.92		%	14.60		%	14.40		%	—
Bank:
Tier I Capital to Average Assets	9.71		%	11.44		%	9.85		%	9.11		%	7.16		%
Tier I Capital to Risk-Weighted Assets	11.85		%	13.65		%	12.33		%	11.43		%	9.33		%
Total Capital to Risk-Weighted Assets	13.18		%	15.17		%	13.80		%	13.13		%	11.34		%

10

Santa Lucia Bancorp and Subsidiary

General

Santa Lucia Bancorp (the “Company”) (OTC Bulletin Board SLBA.OB) is a California corporation organized April 3, 2006 to act as the holding company for its wholly owned subsidiary Santa Lucia Bank (the “Bank”), collectively referred to herein as the “Company.” The Bank was organized as a national banking association on December 19, 1984 and commenced operations on August 5, 1985. The Bank converted from a national to a California state-chartered bank on May 30, 1997.

The Bank is a commercial banking business, operating from offices located at 7480 El Camino Real, Atascadero, California, 1240 Spring Street, Paso Robles, California, 1530 East Grand Avenue, Arroyo Grande, California and 1825 South Broadway, Santa Maria, California.

The Bank’s operating policy since its inception has emphasized general commercial banking. Most of the Bank’s customers are small to mid-sized businesses and individuals. The business of the Bank emphasizes serving the needs of local businesses, professionals, and wage earners. The Bank provides services designed to meet the needs of the various segments of the markets it serves. These services include a full line of business loans, business leases, personal loans and deposit products.

Management’s Discussion and Analysis and Results of Operations

Certain statements contained in this report, including, without limitation, statements containing the words “believes”, “anticipates”, “intends”, “expects”, and words of similar import, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions in those areas in which the Company operates, the ongoing financial crisis and recession in the United States, California and foreign financial markets, and bank regulatory and government response thereto, the increase in nonperforming loans and the decrease in real estate values collateralizing many of the Bank’s loans,  demographic changes, competition, fluctuations in interest rates, changes in business strategy or developmental plans, changes in governmental regulations, credit quality, the availability of capital to fund the expansion of the Company’s business, and other factors referenced in the Company’s reports filed pursuant to the Exchange Act. Given these uncertainties, shareholders are cautioned not to place undue reliance on such forward-looking statements.  The Company disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

This discussion should be read in conjunction with the Company’s audited financial statements and notes thereto which appear elsewhere in this report.

Overview

The following sections set forth an analysis of the significant operating changes, business trends, financial condition, earnings, capital position and liquidity that have occurred in the three-year period ended December 31, 2009.

Consolidated Results of Operations

Highlights for the year ending December 31, 2009 were as follows:

·Net Loss for the twelve month period ending December 31, 2009 was $1,825,000 which reflects a decrease of $2,964,000 or 260.3% in net income when compared to a profit of $1,139,000 for the same period in 2008. The primary reason for this decrease was the addition of $5,460,000 to the allowance for loan losses.

·Earnings (loss) per common share (on a fully diluted basis) equaled ($1.05) for 2009. This compares to $0.58 in 2008 and $1.51 in 2007.

·Total assets, loans and deposits all increased in 2009 over 2008 by 7.2%, 6.1% and 12.4% respectively. Non interest bearing deposits were 29.3% of total deposits compared to 35.4% at year end 2008.

·Return on Average Assets equaled (0.69%) for 2009 compared to 0.46% in 2008 and 1.22% in 2007.

·Return on Average Equity equaled (7.18%) in 2009 compared to 5.19% in 2008 and 14.87% in 2007.

·A cash dividend of $0.25 per share was paid to shareholders in 2009 which represents a decrease of 50.0% compared to total cash dividends of $0.50 per share paid to shareholders in 2008. In 2007, total cash dividends of $0.45   per share were paid to shareholders. In addition, the Company also declared a 2% stock dividend to all shareholders of record as of September 30, 2009 reflecting the Board’s decision to issue stock dividends rather than cash dividends during these difficult economic conditions in order to maintain its high capital levels.

11

·Total shareholders equity decreased to $23,030,000 as of December 31, 2009 compared to $25,551,000 as of December 31, 2008, representing a 9.9% decrease. Total shareholders equity stood at $21,189,000 as of December 31, 2007. The Company’s capital ratios at December 31, 2009 which were all well above regulatory requirements for “well capitalized” institutions were: Tier 1 Capital to Average Assets 10.28%; Tier 1 Capital to Risk-Weighted Assets 12.54%; and Total Capital to Risk-Weighted Assets 13.87%.

·Nonperforming assets increased to $6,835,000 as of December 31, 2009 compared to $1,614,000 for the same period in 2008. Nonperforming loans totaled 3.38% of total gross loans as of December 31, 2009, compared to 0.85% and 1.29% as of the same period in 2008 and 2007. The allowance for loan losses to total loans increased to $3,386,000 or 1.67% as of December 31, 2009 compared to $2,310,000 or 1.22% in 2008 and $1,673,000 or 0.99% in 2007.

In 2009 the Company recorded a net loss of $1,825,000, which reflects a decrease of $2,964,000 or 260.3% in net income over the previous year. In 2008, earnings were $1,139,000, a decrease of 62.1% from 2007’s earnings of $3,003,000. Earnings per common shares are calculated by using the Company’s net earnings (loss) of $1,825,000 less preferred stock dividends of $200,000 less accreted discount on preferred stock of $40,199 for net earning (loss) available to common shareholders of $2,065,674. Basic net earnings (loss) per common share in 2009 were ($1.05) compared with $0.59 and $1.55 for 2008 and 2007, respectively. This reflects a decrease from 2008 to 2009 of 278.0% and 61.9% from 2008 to 2007. Fully diluted earnings (loss) per common share for 2009, 2008, and 2007 were ($1.05), $0.58, and $1.51, respectively, a 281.0% decrease from 2008 to 2009 and 61.6% from 2008 to 2007. This is the first year end net loss that the Company has experienced in the last twenty two years.

Contributing largely to the decline in profitability was the $5,460,000 provision to the allowance for loan losses in 2009. This provision was made to cover net loan losses of $1,567,000, write-downs of the collateral value of several nonperforming loans of $2,817,000 required due to the decline in real estate values in the local market, the increase in nonperforming loans and the increase in new loans. Also contributing to the net loss for the year ended 2009 was the decrease in the net interest margin from 5.05% in December of 2008 to 4.49% for the same period in 2009, as well as a significant increase to the quarterly FDIC assessment coupled with a one time special assessment imposed on all financial institutions by the FDIC to increase reserves.

The Company paid cash dividends on its common shares totaling $0.25 per share and a 2% stock dividend during 2009 compared to $0.50 cash dividend paid in 2008 and $0.45 cash dividend paid in 2007. Return on average shareholder’s equity was (7.2%) in 2009 compared to 5.2% in 2008 and 14.9% in 2007. Return on average assets was (0.69%) in 2009 compared to 0.46% in 2008 and 1.22% in 2007.

The Company believes that the local economies in which it operates, Atascadero, Paso Robles, Arroyo Grande, and Santa Maria continue to decline as the loss of jobs increase, businesses cash flows continue to decline as a result of reduced consumer spending and the real estate market continued to suffer. During 2009 the company saw its first signs of deterioration in the real estate loan portfolio. Management continued to evaluate the loan portfolio as market values continued to decline. Based on managements’ evaluations the Company placed eight loans totaling $6,407,000 on nonaccrual, reversed accrued interest of approximately $179,000 and charged-off $4,384,000. The Company had one “other real estate owned” OREO property at December 31, 2009 of $428,000 and booked a second OREO property of $427,000 in January 2010. Management believes that it identified and wrote down loan balances on all nonperforming loans to reflect current market values on the problem loans in the loan portfolio existing at this time. As of December 31, 2009 managements’ analysis of the allowance for loan losses was considered adequate. However, there is no guarantee that 2010 will not require further adjustments. Management will monitor and reassess the loan portfolio throughout the year.

The University of California Santa Barbara Economic Forecast Project reports that the local real estate markets will continue to decline through the first quarter of 2010 and at best California may show signs of slow growth averaging 1.0% to 2.0% in 2010 and 2011. New construction projects, even retail sites, are being developed in the San Luis Obispo County and expansion plans for the county’s prisons will certainly create jobs, especially in the construction field where they are critically needed. Weakness in the commercial real estate sector is still intensifying. The decline in the labor market has produced a rapid decline in demand for office and industrial space and many retail store closings. However, both San Luis Obispo and Santa Barbara Counties have unemployment rates below the State and National averages.

Net Interest Income

Net interest income for the year ended December 31, 2009 decreased $569,000 or 5.0% to $10,830,000 compared to $11,399,000 and $12,895,000 for the years ended December 31, 2008 and December 31, 2007, respectively. Total interest income decreased $1,425,000 in 2009 while interest expense decreased $856,000 during the same period in 2009. The decrease in interest income was primarily due to a 103 basis point decrease in the yield on average earning assets from 6.77 % in 2008 to 5.74% in 2009, resulting from the increased amount of loans placed on nonaccrual and the lower rates received on the overall portfolio caused by a decline in the prime lending rate during the fourth quarter of 2008 of 1.75%.

12

The net interest margin decreased 56 basis points from 5.05% in 2008 to 4.49% in 2009. The primary reason for this decrease was the decline in the yield on average earning assets coupled with interest reversals of $179,000 for loans that were placed on nonaccrual. Of the loans placed on nonaccrual, 5 loans were written down $2,818,000 due to the deterioration in real estate collateral values, 23 loans totaling $1,567,000 were charged off and one property for $428,000 was transferred to OREO. Further, lower interest rates on new investments that were purchased to replace previous investments that were either sold, matured or called decreased the average investment yield 83 basis points from 4.86% at December 31, 2008 to 4.03% for the same period in 2009.

Net interest income is the Company’s largest source of operating income and is derived from interest and fees received on interest earning assets, less interest expense incurred on interest bearing liabilities. The most significant impact on the Company’s net interest income between periods is derived from the interaction of changes in the volume of and rates earned or paid on interest earning assets and interest bearing liabilities.

Interest income decreased $1,425,000 or 9.3% from $15,276,000 in 2008 to $13,851,000 in 2009. This is compared to a decrease of $2,443,000 or 13.8% from 2007 to 2008 and an increase of $692,000 or 4.1% from 2006 to 2007. The decrease in interest income was primarily due to a 103 basis point decrease in the yield on average earning assets from 6.77% in 2008 to 5.74% in 2009, resulting from the reversal of approximately $181,000 in interest from loans placed on nonaccrual along with lower rates received on the overall portfolio caused by a decline in the prime lending rate during the fourth quarter of 2008 of 1.75%.

Total interest and fees produced a 5.7% yield on average earning assets for 2009, 6.8% for 2008 and 8.1% in 2007. The average loan to deposit ratio for 2009 was 87.8%, which represents an increase of 4.7% over the 83.8% average for 2008 which was an increase of 10.2% over the 76.1% average for 2007.

Total interest expense decreased $856,000 or 22.1% from $3,877,000 in 2008 to $3,021,000 in 2009 compared to a decrease of $947,000 or 19.6% from 2007 to 2008. The decrease in total interest expense in 2009 was due to decreasing interest rates for all deposit categories despite an overall increase in deposits for the year of 12.4%. The rate paid on interest-bearing liabilities decreased 76 basis points from 2.58% in 2008 to 1.82% in 2009.

The following table shows the composition of average earning assets and average interest-bearing liabilities, average yields and rates, and the net interest margin for the years ended December 31, 2009, 2008 and 2007. Nonaccrual loans are included in the calculation of the average balances of loans, and nonaccrued interest is excluded.

	Year Ended December 31
	2009							2008							2007
	AverageBalance			Interest		Yield/Rate		AverageBalance			Interest		Yield/Rate		AverageBalance			Interest		Yield/Rate
	(dollars in thousands)
Assets:
Loans	$	199,228		$	12,355	6.20	%	$	177,988		$	12,994	7.30	%	$	163,741		$	15,031	9.18	%
Investment securities	37,019			1,491		4.03	%	46,440			2,258		4.86	%	49,024			2,438		4,97	%
Federal funds sold	5,082			5		0.10	%	1,309			24		1.83	%	4,954			250		5.05	%
Total average interest-earning assets	241,329			13,851		5.74	%	225,737			15,276		6.77	%	217,719			17,719		8.14	%
Other assets	25,402							26,120							29,278
Less allowance for loan losses	(2,407		)					(1,739		)					(1,707		)
Total average assets	$	264,324						$	250,118						$	245,290
Liabilities and Shareholders’ Equity:
Interest-bearing demand - NOW	$	13,628		$	49	0.36	%	$	12,636		$	41	0.32	%	$	13,391		$	55	0.41	%
Money Market	32,196			589		1.83	%	26,070			541		2.08	%	24,929			722		2.90	%
Savings	27,387			68		0.25	%	26,166			88		0.34	%	27,076			289		1.07	%
Time certificate of deposits	82,723			2,046		2.47	%	71,671			2,605		3.63	%	68,019			3,157		4.64	%
Total average interest-bearing deposits	155,934			2,752		1.76	%	136,543			3,275		2.40	%	133,415			4,223		3.17	%
Short-term borrowings	3,177			79		2.49	%	6,612			191		2.89	%	1,059			51		4.82	%
Long-term borrowings	6,555			190		2.90	%	7,106			411		5.78	%	7,155			550		7.69	%
Total interest-bearing liabilities	165,666			3,021		1.82	%	150,261			3,877		2.58	%	141,629			4,824		3.41	%
Demand deposits	70,935							75,752							81,714
Other liabilities	2,281							2,170							1,749
Sharholder’s equity	25,442							21,935							20,198
Total average liabilities and
shareholders’ equity	$	264,324						$	250,118						$	245,290
Net interest income				$	10,830						$	11,399						$	12,895
Net interest margin						4.49	%						5.05	%						5.92	%

13

The Company’s net yield on interest-earning assets is affected by changes in the rates earned and paid and the volume of interest-earning assets and interest-bearing liabilities. The impact of changes in volume and rate on net interest income are shown in the following table:

	Year Ended December 31, 2009overYear Ended December 31, 2008									Year Ended December 31, 2008overYear Ended December 31, 2007
	Increase (Decrease) Due toChange in (000’s)									Increase (Decrease) Due toChange in (000’s)
	Volume			Rate			Change			Volume			Rate			Change
Interest-bearing Assets:
Net Loans	1,421			(2,060		)	(639		)	1,228			(3,265		)	(2,037		)
Investment Securities	(415		)	(352		)	(767		)	(127		)	(53		)	(180		)
Federal funds sold	20			(39		)	(19		)	(121		)	(105		)	(226		)
Interest-earning deposits	—			—			—			—			—			—
Total interest income	1,026			(2,451		)	(1,425		)	980			(3,423		)	(2,443		)
Interest-bearing Liabilities:
Interest bearing demand - NOW	3			5			8			(3		)	(11		)	(14		)
Money Market	117			(69		)	48			32			(213		)	(181		)
Savings	8			(28		)	(20		)	(1		)	(200		)	(201		)
Time Certificates of deposit	360			(919		)	(559		)	163			(715		)	(552		)
Short-term borrowings	(88		)	(24		)	(112		)	167			(27		)	140
Long-term borrowings	16			(237		)	(221		)	16			(155		)	(139		)
Total interest expense	416			(1,272		)	(856		)	374			(1,321		)	(947		)
Interest differential or net interestincome	$	610		$	(1,179	)	$	(569	)	$	606		$	(2,102	)	$	(1,496	)

Noninterest Income

Noninterest income totaled $1,235,000 compared to $1,111,000 for the same period in 2008. That represents an increase of $124,000 or 11.2%. The increase was primarily due to the sale of $5,176,000 in mortgage backed securities which created a net gain of $225,000 compared to $108,000 for the same period in 2008. In addition, dividends on cash surrender value life insurance increased $10,000 and other income increased $35,000.

Service charges on deposit accounts totaled $517,000, which represents a decrease of $37,000 or 6.6% compared to a decrease of $29,000 or 5.0% over the same period in 2008. The decrease in services charges was primarily due to the decrease in non sufficient fund fees collected.

Refer to the “Statement of Earnings” for a breakdown of noninterest income.

Noninterest Expense

Noninterest expense increased $102,000 or 1.0% in 2009 over 2008 from $9,763,000 to $9,865,000 as compared to an increase of $734,000 or 8.1% in 2008 over 2007. The overall increase can be largely attributed to the FDIC special assessment levied on all banks coupled with the increase in the quarterly assessment fees and the participation in the TGLP Transaction Account Guarantee Program.

Regulatory assessment fees for the year ended December 31, 2009 were $511,000, which reflects an increase of $343,000 or 204.2% compared to $168,000 for an increase of $104,000 or 162.5% over the same period in 2008. This was primarily due to the $120,000 special FDIC assessment levied on the bank during the first six months of 2009; the special assessment was levied against all financial institutions to replenish the FDIC’s deposit insurance fund. The FDIC also increased the deposit insurance premium during the last three quarters of 2009 and the additional expense of $9,000 for the participation in the TGLP Transaction Account Guarantee Program.

Salaries and related expenses decreased $291,000 or 5.2% from $5,650,000 in 2008 to $5,359,000 in 2009 compared to an increase of $391,000 or 7.4% between 2007 and 2008. The decrease is attributed to the retirement of Larry H. Putnam, the freezing of officer salaries and the reduction in salary continuation plan expense due to the retirement of Mr. Putnam.

Occupancy expense for the year ended December 31, 2009 totaled $663,000, which reflects an increase of $10,000 or 1.6% compared to an increase of $25,000 or 3.9% over the same period in 2008. This was primarily due to the depreciation of building repairs.

Equipment expense for the year ended December 31, 2009 totaled $633,000, which reflects a decrease of $37,000 or 5.5% compared to an increase of $4,000 or 0.6% over the same period in 2008.

Professional services for the year ended December 31, 2009 totaled $638,000, which reflects an increase of $37,000 or 6.2% compared to an increase of $174,000 or 40.9% over the same period in 2008. This was primarily due to the increases in legal fees related to the collection of nonaccrual loans.

Data processing expense for the year ended December 31, 2009 totaled $520,000, which reflects an increase of $16,000 or 3.1% compared to an increase of $16,000 or 3.3% from the same period in 2008. This was primarily due to the continued growth of the Company.

14

Office expenses for the year ended December 31, 2009 totaled $413,000, which reflects an increase of $21,000 or 5.3% compared to an increase of $30,000 or 8.2% for the same period in 2008.

Messenger and courier expenses decreased $28,000 or 22.5% from $123,000 in 2008 to $95,000 in 2009. This decrease was due to the Bank switching to electronic cash letters.

Other expense increased $31,000 or 12.6% from $249,000 in 2008 to $280,000 in 2009. This increase was due to additional loan related expenses associated with the collection of nonaccrual loans coupled with Other Real Estate Owned expenses.

The Company’s efficiency ratio for 2009 was 81.8%. This represents a worsening from the 2008 efficiency ratio of 78.0%, which was a worsening from the 2007 ratio of 64.7%. The decrease in the efficiency ratio was primarily due to the decrease in net interest income coupled with the increase in non interest expense.

Refer to the “Statement of Earnings” for a breakdown of noninterest expense.

Income Taxes

The provision for income tax was ($1,434,000) in 2009, $633,000 in 2008 and $1,934,000 in 2007. The effective tax rate was (44.0%) in 2009 as compared to 35.7% in 2008 and 39.1% in 2007.

Financial Condition

In 2009, the Company’s consolidated total assets increased to $269,923,000 compared to $251,880,000 in 2008 and $248,640,000 in 2007 for increases of 7.2%, 1.3% and 3.3% respectively.

Total deposits increased $26,406,000 to $238,723,000 compared to $212,317,000 in 2008 and $212,718,000 in 2007 for an increase of 12.4% for 2009, compared to a decrease of 0.2% and 0.1% for 2008 and 2007 respectively. Despite deposit competition continuing to be very strong in both the traditional bank deposits and alternative investments available in the market place the Company’s total deposits increased significantly during the past year. The increase in deposits is largely due to the increased confidence in community banks and the increase in the FDIC insurance limits to $250,000 on Time Certificates of Deposit. The recent trend of customers depositing excess funds into Time Certificates of Deposit or other interest bearing accounts continued throughout 2009. Average time certificates of deposits increased $11,052,000, average money market accounts increased $6,126,000 and average savings increased $1,221,000 in 2009 compared to 2008. Despite this trend, the Company had 29.3% of total deposits in non-interest bearing deposits as of December 31, 2009 compared to 35.4% as of December 31, 2008. Non-interest bearing deposits at these levels continue to be above industry averages.

Securities available for sale totaled $40,990,000 at December 31, 2009, compared to $38,470,000 at December 31, 2008 and $56,107,000 at December 31, 2007. This represents an increase of $2,520,000 or 6.5% over December 31, 2008.

Loan Portfolio

Total loans outstanding averaged $199,228,000 in 2009 compared to $177,988,000 in 2008. This represents an increase of $21,240,000 or 11.9% in 2009 compared to an increase of $14,247,000 or 8.7% in 2008. Actual net loans at December 31, 2009 equaled $198,099,000 for an increase of $11,467,000 or 6.1% over 2008

The following table sets forth the amount of total loans outstanding in each category for the years indicated:

	Year Ended December 31
	2009			2008			2007			2006			2005
	(dollars in thousands)
Commercial	$	41,744		$	41,478		$	38,017		$	36,407		$	34,139
Real Estate – construction	47,458			52,389			47,819			55,307			52,696
Real Estate – other	111,183			94,372			81,895			78,757			66,390
Consumer	1,783			1,415			1,237			1,604			1,533
Total gross loans	202,168			189,654			168,968			172,075			154,758
Less: unearned fees	(683		)	(712		)	(676		)	(741		)	(725		)
Less: allowance for loan losses	(3,386		)	(2,310		)	(1,673		)	(1,654		)	(1,470		)
Total net loans	$	198,099		$	186,632		$	166,619		$	169,680		$	152,563
Weighted average yield on loans for the year	6.2		%	7.3		%	9.2		%	9.1		%	8.1		%

15

The following table sets forth the amount of total gross loans outstanding at December 31, 2009 by contractual maturity date:

			After One
	One Year		Year Through		After
	or Less		Five Years		Five Years		Total
	(dollars in thousands)
Commercial	$	20,906	$	11,578	$	9,260	$	41,744
Real Estate – construction	32,840		10,492		4,126		47,458
Real Estate – other	1,663		12,467		97,053		111,183
Consumer	947		385		451		1,783
	$	56,356	$	34,922	$	110,890	$	202,168

A significant portion of the loan portfolio of the Company is collateralized by real estate. At December 31, 2009, real estate served as the principal source of collateral with respect to 78.5% of the Company’s loan portfolio. A decline in current economic conditions has had an adverse effect on the demand for new loans even as rates continue to decline. It is also understood that the ability of borrowers to repay outstanding loans, the value of real estate and other collateral securing loans and the value of real estate owned by the Company, could affect the Company’s financial condition and results of operations in general and the market value of the Company’s common stock. Acts of nature, including earthquakes and floods, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively impact the Company’s financial condition.

Real estate construction and other real estate loans equaled $158,641,000 or 78.5% of the total loan portfolio and $146,761,000 or 77.4% of the total loan portfolio at December 31, 2009 and 2008, respectively. Other real estate loans are comprised of loans to individuals for their businesses, consumer real estate loans including home equity lines of credit and loans for farmland. The company has known for some time that it has a concentration in commercial real estate loans. As a means to more closely monitor this concentration, the Company has instituted the use of NAICS codes, individual commercial real estate stress tests and an overall portfolio stress test to monitor industry trends within its commercial real estate portfolio. As of December 31, 2009, the Company had $90,610,000 or 45.0% of its loans in commercial real estate. Of this number, $53,404,000 or 58.9% is commercial real estate for owners use. No industry type exceeds 10.0% of total loans. The remaining $37,206,000 or 41.0% is commercial real estate for non-owners use. Commercial real estate loans for non-owners use as a percentage of total loans equates to 18.5%. We watch the commercial real estate loans for non-owners use along with changes within our owners use very closely and are familiar with the individuals and projects. Total real estate loans increased $11,879,958 or 8.1% in 2009 over 2008 compared to an increase of $17,047,000 or 13.1% in 2008 over 2007. The increase is spread throughout construction of residential units held for sale, construction of commercial properties and commercial income properties. The Company has seen a significant decrease in the number of residential construction loans, due to the softening in the real estate market. The Company has construction loans to customers with a long history of successful developments in our market areas, as well as a long-term relationship with Santa Lucia Bank. The Company has experience and knowledge in construction lending and does not feel that there is any undue risk to the Company. These loans are secured by real estate, and in general, do not exceed 70% of the appraised value on commercial residential real estate or 75% on an individual’s personal residence.

The Company makes commercial loans to small and mid-size businesses for various reasons, including working capital, inventory and equipment. Commercial loans equaled $41,744,000 or 20.6% of the total loan portfolio and $41,478,000 or 21.9% of the total loan portfolio at December 31, 2009 and 2008, respectively. Commercial loans increased $266,000 or 0.6% from 2009 to 2008 compared to an increase of $3,461,000 or 9.1% in 2008 over 2007.

Consumer and other loans equaled $1,783,000 or 0.9% of the total loan portfolio at December 31, 2009 compared to $1,415,000 or 0.7% at December 31, 2008. Consumer loans increased $368,000 or 26.0% in 2009 over 2008 compared to a decrease of $178,000 or 14.4% in 2008 over 2007.

The Company had undisbursed loans totaling $43,105,000, $57,168,000, and $57,326,000 as of December 31, 2009, December 31, 2008 and December 31, 2007, respectively. Standby Letters of Credit accounted for $1,298,000, $3,106,000 and $4,286,000 of the undisbursed loans as of December 31, 2009, December 31, 2008 and December 31, 2007, respectively. The Company uses the same credit policies in making these commitments as is done for all of its lending activities. As such, the credit risk involved in these transactions is the same as that involved in extending loan facilities to customers.

Loans with maturities greater than one year at December 31, 2009 totaled $145,812,000 and include approximately $4,754,000 of fixed rate loans or 2.3% of the total loan portfolio compared to $11,291,000 or 6.0% of the total loan portfolio as of December 31, 2008 and $7,704,000 or 4.6% of the total loan portfolio as of December 31, 2007. The balance of the loans that have maturities of one year or less, or are variable rate loans at December 31, 2009 totaled $197,414,000 or 97.7% compared to $178,363,000 or 94.0% as of December 31, 2008 and $161,265,000 or 95.4% as of December 31, 2007. The $97,053,000 in other real estate loans with five years or greater maturities are primarily owner occupied commercial properties.

Overall management of the Bank’s loan portfolio is considered good; however, loans have been adversely affected by the decline in the economy and its impact on our borrowers, especially in the real estate sector. Throughout 2009 the Bank tightened its overall underwriting standards and strengthened credit administration with the addition of a Senior Vice President who is familiar with the lending philosophy of Santa Lucia Bank.

16

Troubled Debt Restructurings

The Bank has eight loans to three borrowers totaling $3,768,000, which were considered Troubled Debt Restructurings (TDR’s) as of December 31, 2009.

The loan categories and Interest Income received during 2009 are as follows:

	Principal Balance		Interest Paid		Interest Earned
Residential Real Estate	$	1,105,000	$	50,281	$	44,706
Commercial Property for Owners Use	1,468,000		100,635		93,934
Offsite Developement	565,000		34,283		32,381
Land	630,000		36,191		34,965

As of December 31, 2009 all loans considered TDR’s were on accrual status. The Bank generally returns loans to accrual status after six monthly payments are made on a timely basis.

Concessions granted by the Bank were reductions in interest rate. Thus far, the concessions granted have allowed the borrowers to retain their properties and/or to continue to operate their business.

The Residential Real Estate loans considered TDR’s were measured for impairment utilizing the expected future cash flows. This method was chosen as each property has a rental contract in place. The borrowers anticipate either selling the properties when the real estate market rebounds or they will obtain long term financing and retain the properties as rentals.

The remaining loans were analyzed utilizing the fair value of the collateral. The borrowers have the properties listed for sale and the Bank expects to receive repayment of the principal balances of the loans from sale proceeds. The determined impairments of these loans were reserved for in the allowance for loan losses, however no direct charge was made as the borrowers have additional repayment sources available should the sale of the collateral be insufficient.

Nonperforming loans

Interest income is accrued daily as earned on all loans. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. The accrual of interest on loans is discontinued when principal or interest is past due 90 days based on the contractual terms of the loan or when, in the opinion of management, there is reasonable doubt as to collectibility. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible.

The composition of nonperforming loans as of the end of the last five fiscal years is summarized in the following table:

	Year Ended December 31
	2009			2008			2007			2006			2005
	(dollars in thousands)
Nonaccrual loans:
Commercial	$	221		$	714		$	113		$	—		$	—
Real estate	6,186			900			2,062			—			135
Consumer	—			—			—			—			—
Total	6,407			1,614			2,175			—			135
Loans 90 days or more past due and still accruing:
Real estate	—			—			—			—			—
Consumer	—			—			—			—			—
Commercial	—			—			—			550			—
Total	—			—			—			550			—
Total nonperforming loans:	6,407			1,614			2,175			550			135
OREO	428			—			—			—			—
Total nonperforming assets:	$	6,835		$	1,614		$	2,175		$	550		$	135
Nonperforming assets as a percentage of total gross loans	3.38		%	0.85		%	1.29		%	0.32		%	0.09		%
Nonperforming assets as a percentage of total assets	2.53		%	0.64		%	0.87		%	0.23		%	0.06		%
Allowance for loan losses to nonperforming loans	52.85		%	143.12		%	76.92		%	300.73		%	1088.89		%

The Company had eight nonperforming loans totaling $6,407,000 as of December 31, 2009, compared to three nonperforming loan totaling $1,614,000 at December 31, 2008 and one nonperforming loan totaling $2,175,000 at December 31, 2007. The increase in nonperforming loans as of December 31, 2009 was a result of the current economic downturn and a reduction in real estate collateral values. For loans that were considered to be impaired, the Bank determined the fair value of the real estate collateral and charged-off the portions of such loans considered uncollectible based on these analyses.

17

There are three nonperforming loans in the Commercial and Industrial category totaling $221,000 which are largely secured by real estate.

Nonperforming real estate secured loans consists of five loans totaling $6,186,000, which were written down in the aggregate total of $2,818,000 prior to year end. Two of these loans are on homes built for speculative purposes. The first home has been sold and escrow is expected to close in the first quarter of 2010. The Bank took the second home into “Other Real Estate Owned” OREO in January 2010. There is one loan for an individual’s personal residence within this category. The Bank is working with legal counsel and has begun the foreclosure process. The Bank placed an offsite development loan for a mixed use project on nonaccrual as of December 31, 2009. The development has not progressed and the Bank is exploring options (including legal) at this time. The last loan in this category is an offsite development loan that the Bank has a participation interest in totaling $1,576,000 after write-down. The property is located outside the Bank’s service area. One of the guarantors and the owner of additional collateral that was pledged in support of this loan have filed bankruptcy. The Bank is working with the originating bank and legal counsel to vigorously pursue the collection of this loan from both the borrower and guarantors.

The Company had one “Other Real Estate Owned” OREO property as of December 31, 2009 totaling $428,000 and added another property in the amount of $427,000 for an aggregate total of $855,000 as of January 31, 2010. The first property is actively being marketed for sale at this time with minimal loss anticipated. The second piece of property is currently in escrow and the Company anticipates closure in March 2010 with a minimal loss.

Allowance for Loan Losses

Inherent in lending is the fact that loan losses will be experienced and that the risk of loss will vary with the type of loan extended and the creditworthiness of the borrower. To reflect the estimated risks of loss associated with its loan portfolio, provisions are made to the Company’s allowance for loan losses. As an integral part of this process, the allowance for loan losses is subject to review and possible adjustment as a result of regulatory examinations conducted by governmental agencies and through management’s assessment of risk. The Company’s entire allowance is a valuation allocation; that is, it has been created by direct charges against operations through the allowance for loan losses.

The Company evaluates the allowance for loan losses based upon an individual analysis of specific categories of loans, specific categories of classified loans and individual classified assets. The adequacy of the allowance is determinable only on an approximate basis, since estimates as to the magnitude and timing of loan losses are not predictable because of the impact of external events. In addition, the Company contracts with an independent loan review firm to evaluate new loans on a monthly basis and an overall credit quality examination on an annual basis. Management then considers the adequacy of the allowance quarterly for possible loan losses in relation to the total loan portfolio.

The allowance for loan losses charged against operating expense is based upon an analysis of the actual migration of loans to losses plus an amount for other factors that, in management’s judgment, deserve recognition in estimating possible loan losses. These factors include numerous items among which are: specific loan conditions as determined by management; the historical relationship between charge-offs and the level of the allowance; the estimated future loss in all significant loans; known deterioration in concentrations of credit; certain classes of loans or pledged collateral; historical loss experience based on volume and type of loan; the results of any independent review or evaluation of the loan portfolio quality conducted by or at the direction of the Company’s management or by bank regulatory agencies; trends in portfolio volume, maturity, and composition; volume and trends in delinquencies and nonaccruals; lending policies and procedures including those for charge-off, collection, and recovery; national and local economic conditions and downturns in specific local industries; and the experience, ability, and depth of the lending staff and management. The Company evaluates the adequacy of its allowance for loan losses at least quarterly.

The following table summarizes the allocation of the allowance for loan losses by type for the years indicated and the percent of loans in each category to total loans (dollar amounts in thousands):

	December 31, 2009				December 31, 2008				December 31, 2007				December 31, 2006				December 31, 2005
									(dollars in thousands)
			Loan				Loan				Loan				Loan				Loan
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
Commerical	$	1,145	20.65	%	$	696	21.87	%	$	525	22.50	%	$	495	21.16	%	$	536	22.06	%
Real Estate - construction	784		23.47	%	483		27.62	%	229		28.30	%	126		32.14	%	118		34.05	%
Real Estate - other	1,412		55.00	%	1,073		49.76	%	572		48.47	%	362		45.77	%	274		42.90	%
Consumer	39		0.88	%	39		0.75	%	32		0.73	%	38		0.93	%	36		0.99	%
Unallocated	6		n/a		19		n/a		315		n/a		633		n/a		506		n/a
Total	$	3,386	100.00	%	$	2,310	100.00	%	$	1,673	100.00	%	$	1,654	100.00	%	$	1,470	100.00	%

The Company experienced net charge-offs (recoveries) of $4,384,000, $338,000 and ($19,000) in 2009, 2008 and 2007 respectively.

18

The Company increased the allowance for loan losses $5,460,000 during the twelve month period ending December 31, 2009 compared to $975,000 for the same period in 2008. The primary reasons for the increase was the amount of net loan charge-offs, the increase in non-performing loans, the write-downs of several loans to the fair value due to the downturn in the real estate market and the $12,515,000 or 6.6% growth in gross loans.

Management views the allowance for loan losses of $3,386,000 or 1.67% of total loans as of December 31, 2009 to be adequate after considering the above factors. This allowance is compared to $2,310,000 or 1.22% in 2008 and $1,673,000 or .99% in 2007. However, there can be no assurance that in any given period the Company will not sustain charge-offs that are substantial in relation to the size of the allowance.

The activity in the allowance for loan losses as of the end of the last five fiscal years is summarized in the following table:

	Year Ended December 31
	2009			2008			2007			2006			2005
	(dollars in thousands)
Outstanding loans:
Average for the year (net)	$	199,228		$	177,988		$	163,741		$	169,139		$	145,195
End of the year (net)	198,099			186,632			166,619			169,680			152,563
Allowance for loan losses:
Balance at beginning of year	$	2,310		$	1,673		$	1,654		$	1,470		$	1,200
Actual charge-offs:
Commercial	1,080			308			51			77			43
Real estate	3,262			—			—			—			—
Consumer	38			31			—			—			—
All other (including overdrafts)	6			13			10			6			3
Total charge-offs	4,386			352			61			83			46
Less Recoveries:
Commercial	1			12			4			26			15
Real estate	—			—			76			—			—
Consumer	—			—			—			—			—
All other (including overdrafts)	1			2			—			1			1
Total recoveries	2			14			80			27			16
Net loan charge-offs (recoveries)	4,384			338			(19		)	56			30
Provision for loan loss	5,460			975			—			240			300
Balance at end of period	$	3,386		$	2,310		$	1,673		$	1,654		$	1,470
Ratios:
Net loan charge-offs (recoveries) to average loans	2.20		%	0.19		%	-0.01		%	0.03		%	0.02		%
Allowance for loan losses to end of year loans	1.67		%	1.22		%	0.99		%	0.96		%	0.95		%
Net loan charge-offs (recoveries) to allowance for loan losses	129.47		%	14.63		%	-1.14		%	3.39		%	2.04		%
Net loan charge-offs (recoveries) to provision charged to operating expense	80.29		%	34.67		%	0.00		%	23.33		%	10.00		%

Interest Reserves

The Bank provides interest reserves on construction loan projects, if requested by the borrower and if the request meets the underwriting criteria of the Bank. The borrower must demonstrate the ability to cash flow the interest carry on the project once the interest reserve is exhausted and the project, including interest reserves, must meet the loan to value parameters set forth by the Bank’s Loan Policy. If construction is not complete at the initial maturity date and an extension of time is requested, additional interest reserves are not provided. The Bank advances funds on construction loans via the 5 or 10-draw system, percentage of completion or by vouchers. The 5 or 10-draw system for construction loans is utilized occasionally by contractors for payment. The Bank divides the construction project into segments with funds being advanced to the contractor after each segment is completed and inspected by the Bank Inspector. Inspections are made to ensure work has been completed prior to funding for both the draw system and percentage of completion. Loans that are funded via the voucher system are inspected to ensure work is completed on a monthly basis.

The Bank has one loan in the amount of $670,000 that was extended in early 2009 with additional interest reserves. A new appraisal was obtained prior to extension and the loan to value is very low, affording the borrowers to request cash out to service the debt. The borrowers have been informed that any further extension requests will not include additional interest reserves.

The Bank also has one loan with interest reserves that is nonperforming in the amount of $427,000. The loan is for a speculative construction project. This property was taken into OREO in January 2010 and listed for sale. The Bank recently received and accepted an offer on the home with escrow expected to close in early March 2010.

Investment Securities

The average balance of Federal Funds Sold (overnight investments with other banks) was $5,082,000 in 2009, $1,309,000 in 2008, and $4,954,000 in 2007. These investments are maintained primarily for the short-term liquidity needs of the Company. The major factors influencing the levels of required liquidity are the loan demand of the Company’s customers and fluctuations in the Company’s deposits.

19

Average total investment securities decreased by $9,421,000 or 20.3% during 2009, compared to a decrease of $2,584,000 or 5.3% in 2008. The decrease in securities was primarily due to the maturities, called securities and the principal pay downs of mortgage backed securities coupled with the sale of $5,176,000 in mortgage backed securities. The aggregate market value of the investment portfolio was $560,000 over the amortized cost as of December 31, 2009. It is the Company’s policy not to engage in securities trading transactions. There are no investments in the portfolio deemed to be permanently impaired. The Company has classified all of its investment securities as available for sale. The exposure to sub prime loans in the mortgage-backed securities portfolio is minimal due to the fact these securities are guaranteed by United States Government Agencies and, as such, can be viewed as having credit risk comparable to United States Treasury securities.

	Year Ended December 31
	2009									2008
	Amortized		Unrealized		Unrealized			Estimated		Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		(Losses)			Fair Value		Cost		Gains		(Losses)			Fair Value
Securities available for sale:
U.S. Government and Agency Securities	$	21,824,979	$	217,016	$	(8,531	)	$	22,033,464	$	16,093,125	$	565,115	$	—		$	16,658,240
State and Political Subdivisions	3,714,014		95,484		(5,416		)	3,804,082		5,742,575		49,245		(51,056		)	5,740,764
Mortgage-Backed Securities	14,890,559		294,505		(32,711		)	15,152,353		15,787,914		345,063		(61,505		)	16,071,472
Total	$	40,429,552	$	607,005	$	(46,658	)	$	40,989,899	$	37,623,614	$	959,423	$	(112,561	)	$	38,470,476

The amortized cost, estimated fair value, and weighted average yield for investment securities available for sale based on maturity date are set forth in the table below. The weighted average yield is based on the amortized cost of the securities using a method that approximates the level yield method:

	Year Ended December 31,
	2009						2008
					Weighted						Weighted
	Book		Market		Average		Book		Market		Average
	Value		Value		Yield		Value		Value		Yield
Available-for-Sale Securities:
U.S. Government and Agency Securities
One Year or Less	$	3,996,116	$	4,080,570	3.14	%	$	4,103,572	$	4,216,776	5.11	%
One to Five Years	17,828,863		17,952,894		2.61	%	11,989,553		12,441,464		5.05	%
Five to Ten Years	—		—				—		—
Over Ten Years	—		—				—		—
Total U.S. Agency	21,824,979		22,033,464		2.71	%	16,093,125		16,658,240		5.06	%
State and Political Subdivisions:
One Year or Less	762,383		769,203		5.26	%	2,017,532		2,028,376		4.57	%
One to Five Years	1,207,750		1,238,794		5.96	%	1,482,818		1,493,854		6.02	%
Five to Ten Years	1,743,881		1,796,085		5.91	%	2,242,225		2,218,534		6.17	%
Over Ten Years	—		—				—		—
Total State & Political Subdivisions	3,714,014		3,804,082		5.79	%	5,742,575		5,740,764		5.57	%
Mortgage Backed Securities:
One Year or Less	2,091,548		2,162,657		3.99	%	3,797,529		3,830,610		4.35	%
One to Five Years	4,562,519		4,705,152		4.12	%	6,763,493		6,876,346		4.65	%
Five to Ten Years	3,079,177		3,126,799		3.89	%	2,069,490		2,135,980		5.05	%
Over Ten Years	5,157,315		5,157,745		3.24	%	3,157,402		3,228,536		5.08	%
Total Mortgage Backed Securities	14,890,559		15,152,353		4.72	%	15,787,914		16,071,472		4.72	%
Total Available-for-Sale Securities	$	40,429,552	$	40,989,899	3.37	%	$	37,623,614	$	38,470,476	5.00	%

Deposits

Total average deposits increased $14,574,000 or 6.9% during 2009, compared to a decrease of $2,834,000 or 1.3% in 2008 and an increase of $3,202,000 or 1.4% in 2007. Average noninterest-bearing deposits decreased $4,817,000 or 6.4% in 2009, compared to a decrease of $5,962,000 or 7.3% in 2008 and a decrease of $7,669,000 or 8.6% in 2007. Average interest-bearing deposits increased $19,391,000 or 14.2% in 2009 compared to an increase of $3,128,000 or 2.3% in 2008 and an increase of $10,689,000 or 8.7% in 2007.

20

The following chart below indicates a shift in noninterest bearing demand deposits and an increase in interest-bearing deposits (NOW, Money Market and Savings) to higher interest rate Time Certificates of Deposit. This appears to be a trend that is common throughout the local banking industry during 2009 and is expected to continue in 2010. It was management’s strategy to retain and attract deposits to offset loss of funds to non-bank competition:

	Year Ended December 31
	2009				2008				2007
	Average		Average		Average		Average		Average		Average
	Balance		Rate		Balance		Rate		Balance		Rate
	(dollars in thousands)
Noninterest-bearing demand deposits	$	70,935	0.00	%	$	75,752	0.00	%	$	81,714	0.00	%
Money Market Accounts	32,196		1.83	%	26,070		2.08	%	24,929		2.90	%
NOW accounts	13,628		0.36	%	12,636		0.32	%	13,391		0.41	%
Savings deposits	27,387		0.25	%	26,166		0.34	%	27,076		1.07	%
Time deposits of $100,000 or more	46,533		2.45	%	39,021		3.62	%	39,242		4.67	%
Other time deposits	36,190		2.51	%	32,650		3.66	%	28,777		4.60	%
Total deposits	$	226,869	1.21	%	$	212,295	1.54	%	$	215,129	1.96	%

The remaining maturities of the Company’s certificates of deposit in the amount of $100,000 or more as of December 31, 2009 are indicated in the table below. Interest expense on these certificates of deposit totaled $1,139,000 in 2009:

Deposits Maturing in	December 31, 2009
Three months or less	$	32,341,136
Over three months through six months	19,126,904
Over six months through twelve months	25,280,711
Over twelve months	13,034,130
Total	$	89,782,881

Capital

The Bank is required to maintain a minimum leverage-capital ratio of Tier I (as defined) to total assets based on the Bank’s ratings under the regulatory rating system. At the end of 2009, all Bank capital ratios were above all current Federal capital guidelines for a “well capitalized” bank. The Bank and Company ratios are indicated in the table below:

	Actual				For capital adequacy purposes				To be well captitalized under prompt corrective action provisions
	Amount				Amount				Amount
	(thousands)		Ratio		(thousands)		Ratio		(thousands)		Ratio
As of December 31, 2009
Company
Total Capital (to Risk-Weighted Assets)	$	30,808	13.9	%	$	17,773	8.0	%	$	22,216	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	$	27,856	12.5	%	$	8,886	4.0	%	$	13,330	6.0	%
Tier 1 Capital (to Average Assets)	$	27,856	10.3	%	$	10,834	4.0	%	$	13,543	5.0	%
Bank
Total Capital (to Risk-Weighted Assets)	$	29,223	13.2	%	$	17,740	8.0	%	$	22,175	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	$	26,276	11.9	%	$	8,870	4.0	%	$	13,305	6.0	%
Tier 1 Capital (to Average Assets)	$	26,276	9.7	%	$	10,821	4.0	%	$	13,526	5.0	%
As of December 31, 2008
Company
Total Capital (to Risk-Weighted Assets)	$	33,373	15.9	%	$	16,770	8.0	%	$	20,963	10.	%
Tier 1 Capital (to Risk-Weighted Assets)	$	30,208	14.4	%	$	8,385	4.0	%	$	12,578	6.0	%
Tier 1 Capital (to Average Assets)	$	30,208	11.9	%	$	10,074	4.0	%	$	12,592	5.0	%
Bank
Total Capital (to Risk-Weighted Assets)	$	31,748	15.2	%	$	16,746	8.0	%	$	20,933	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	$	28,583	13.7	%	$	8,373	4.0	%	$	12,560	6.0	%
Tier 1 Capital (to Average Assets)	$	28,583	11.4	%	$	9,995	4.0	%	$	12,494	5.0	%

In 2008, as part of the United States Treasury’s Capital Purchase Program, the Company entered into a Letter Agreement on December 19, 2008 with the United States Department of Treasury, where the Company issued and sold 4,000 shares of the Company’s Preferred Stock and a warrant to purchase 38,107 shares of the Company’s Common Stock (adjusted for the 2% stock dividend issued in 2009) for an aggregate purchase price of $4,000,000 in cash. The Preferred Stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of 5% per annum for the first five years and 9% per annum thereafter. It is the Company’s intention to repay the capital within five years of issuance. The warrant has a 10-year term and is immediately exercisable upon its issuance, with an exercise price equal to $15.745 per share of the Common Stock (adjusted for 2% stock dividend).

21

Short-term Borrowings

As of December 31, 2009 the Bank had no short term borrowings.

Long-term Borrowings

Santa Lucia Bancorp issued $5,155,000 in junior subordinated debt securities (the “debt securities”) to the Santa Lucia Bancorp (CA) Capital Trust, a statutory trust created under the laws of the State of Delaware. These debt securities are subordinated to effectively all borrowings of the Company and are due and payable on July 7, 2036. These debt securities may be redeemed for 105% of the principal balance through July 7, 2011 and then at par thereafter. Interest is payable quarterly beginning July 7, 2006 at 1.48% over the quarterly adjustable 3-month LIBOR. Of this $5.2 million, the Company contributed $3.0 million to the Bank and retained $2.0 million at the Company level. The securities do not entitle the holders to voting rights in the Company but will contain certain restrictive covenants, including restrictions on the payment of dividends to the holders of the Company’s common stock in the event that interest payments on the trust preferred securities are postponed. The capital received from the trust preferred issuance is designated as Tier 1 capital for regulatory purposes.

During the third quarter of 2003, the Bank undertook and completed a private placement of subordinated debentures (“notes”) to augment its Tier 2 capital. The total principal amount of the notes issued was $2,000,000. The notes were sold pursuant to an applicable exemption from registration under the Securities Act of 1933 to certain accredited investors, including some of the Company’s directors and executive officers. The notes include quarterly payment of interest at prime plus 1.5% and quarterly principal installments of approximately $166,666 commencing on September 30, 2008 until paid in full on June 30, 2011. As of December 31, 2009 the outstanding balance of subordinated debt was $999,932.

Interest Rate Sensitivity and Liquidity

The Company closely follows the maturities and repricing opportunities of both assets and liabilities to reduce gaps in interest spreads. An analysis is performed quarterly to determine the various interest sensitivity gaps that exist. In general, the Company is asset sensitive, meaning that when interest rates change, assets (loans) will reprice faster than short-term liabilities (deposits). Therefore, higher interest rates improve short-term profits and lower rates decrease short-term profits. Currently, management’s analysis indicates that the Company’s asset sensitive position would not materially affect income for interest rate changes of one percent or less in one year.

The following table presents the Bank’s Rate Sensitivity Gap Report as of December 31, 2009.

	0-3 months			3-12 months			1-3 years			3-5 years			Beyond			Non-Rate Sensitive		Total
	(dollars in thousands)
Interest sensitive assets:
Investment securities	$	2,896		$	6,630		$	18,005		$	7,041		$	7,501		$	—	$	42,073
Loan receivables	90,659			23,147			65,678			21,584			1,100			—		202,168
Federal funds sold	2,500			—			—			—			—			—		2,500
Non-earning assets	—			—			—			—			—			20,097		20,097
Total assets	$	96,055		$	29,777		$	83,683		$	28,625		$	8,601		$	20,097	$	266,838
Interest sensitive liabilities:
Demand deposits	$	—		$	—		$	—		$	—		$	—		$	69,111	$	69,111
NOW accounts	414			1,242			3,312			3,312			5,934			—		14,214
Money Market Accounts	3,624			10,871			24,158			—			—			—		38,653
Savings deposits	970			2,910			7,758			7,759			8,082			—		27,479
Time deposits	32,341			44,408			11,694			1,182			158			—		89,783
Total saving and time deposits	$	37,349		$	59,431		$	46,922		$	12,253		$	14,174		$	69,111	$	239,240
Short-term borrowing	—			—			—			—			—			—		—
Long-term borrowing	1,000			—			—			—			—			—		1,000
Non-funding liabilities and capital	—			—			—			—			—			26,598		26,598
Total liabilities and capital	$	38,349		$	59,431		$	46,922		$	12,253		$	14,174		$	95,709	$	266,838
Interest rate sensitivity gap	$	57,706		$	(29,654	)	$	36,761		$	16,372		$	(5,573	)
Risk Indicators from GAP Analysis:
Cumulative GAP	$	57,706		$	28,052		$	64,813		$	81,185		$	75,612
Cumulative GAP (% of total assets)	21.63		%	10.51		%	24.29		%	30.42		%	28.34		%

22

Liquidity

The Company closely monitors its liquidity so that the cash requirements for loans and deposit withdrawals are met in an orderly manner. Management monitors liquidity in relation to trends of loans and deposits for short term and long-term requirements. Liquidity sources are cash, deposits with other banks, overnight Federal Fund investments, investment securities and the ability to sell loans. As of December 31, 2009, the Bank’s liquidity ratio was 20.9% compared to 20.2% at December 31, 2008 and 25.0% at December 31, 2007. The 20.9% liquidity ratio at December 31, 2009 is within the Company’s policy limit. The Company’s loan-to-deposit ratio averaged 87.8% in 2009, compared to 83.8% in 2008, and 76.1% in 2007.

Critical Accounting Policies

This discussion should be read in conjunction with the consolidated financial statements of the Company, including the notes thereto.

Our accounting policies are integral to understanding the results reported. Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments.

Use of Estimates in the Preparation of Financial Statements

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 certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of certain revenues and expenses during the reporting period. Actual results could differ from those estimates.

Allowance for Loan Losses

The allowance for loan losses represents management’s best estimate of losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. The provision for loan losses is determined based on management’s assessment of several factors: reviews and evaluation of specific loans, changes in the nature and volume of the loan portfolio, current economic conditions and the related impact on specific borrowers and industry groups, historical loan loss experiences, the level of classified and nonperforming loans and the results of regulatory examinations.

Loans are considered impaired if, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate stipulated in the loan agreement, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. In measuring the fair value of the collateral, management uses assumptions and methodologies consistent with those that would be utilized by unrelated third parties.

Changes in the financial condition of individual borrowers, in economic conditions, in historical loss experience and in the condition of the various markets in which collateral may be sold may all affect the required level of the allowance for loan losses and the associated provision for loan losses.

Available-for-Sale Securities

The fair value of most securities classified as available-for-sale are based on quoted market prices. If quoted market prices are not available, fair values are extrapolated from the quoted prices of similar instruments.

23

Deferred Tax Assets

We use an estimate of future earnings to support our position that the benefit of our deferred tax assets will be realized. If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced.

Deferred Compensation Liabilities

Management estimates the life expectancy of the participants and the accrual methods used to accrue compensation expense. If individuals outlive their assumed expectancies the amounts accrued for the payment of their benefits will be inadequate and additional changes to income will be required.

Availability of Form 10-KSB

If any shareholder would like a copy of the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2009, they can be obtained without charge by sending a written request to James M. Cowan, Executive Vice President and Chief Financial Officer, P. O. Box 6047, Atascadero, California 93423.

24

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Santa Lucia Bancorp and Subsidiary

We have audited the consolidated balance sheets of Santa Lucia Bancorp and Subsidiary (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of earnings, cash flows and shareholders’ equity for the three years ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Santa Lucia Bancorp and Subsidiary as of December 31, 2009 and 2008, and the results of its operations and cash flows for the three years ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

Laguna Hills, California

March 12, 2010

25231 Paseo De Alicia, Suite 100 Laguna Hills, CA 92653 Tel: 949.768.0833 Fax: 949.768.8408  www.vtdcpa.com

FRESNO  ·  LAGUNA HILLS  ·  PALO ALTO  ·  PLEASANTON  ·  RANCHO CUCAMONGA

25

Santa Lucia Bancorp and Subsidiary

Consolidated Balance Sheets

December 31, 2009 and 2008

ASSETS

	2009		2008
Cash and due from banks	$	6,588,396	$	8,220,406
Federal funds sold	2,500,000		—
TOTAL CASH AND CASH EQUIVALENTS	9,088,396		8,220,406
Securities available for sale	40,989,899		38,470,476
Loans, net	198,098,998		186,631,960
Premises and equipment, net	8,223,225		8,624,148
Deferred income tax assets	1,429,000		974,000
Cash surrender value of life insurance	5,390,410		5,194,688
Federal Reserve Bank andFederal Home Loan Bank stock, at cost	1,643,400		1,516,850
Other Real Estate Owned	428,000		—
Accrued interest and other assets	4,631,529		2,246,995
TOTAL ASSETS	$	269,922,857	$	251,879,523

LIABILITIES & SHAREHOLDERS’ EQUITY

	2009		2008
Deposits
Noninterest-bearing demand	$	69,850,394	$	75,155,323
Interest-bearing demand and NOW accounts	14,214,894		12,888,894
Money market	37,396,049		26,214,153
Savings	27,478,300		26,754,057
Time certificates of deposit of $100,000 or more	52,145,948		37,893,469
Other time certificates	37,636,939		33,410,702
TOTAL DEPOSITS	238,722,524		212,316,598
Short-term borrowings	—		5,000,000
Long-term borrowings	6,154,932		6,821,644
Accrued interest and other liabilities	2,015,491		2,190,584
TOTAL LIABILITIES	246,892,947		226,328,826
Commitments and contingencies (Note M)	—		—
Shareholders’ equity
Preferred Stock - Series A	3,839,202		3,799,003
Common stock – no par value; 20,000,000 shares authorized;issued and outstanding: 1,961,334 shares at December 31, 2009and 1,923,053 shares at December 31, 2008	9,894,507		9,894,507
Additional paid-in capital	813,765		676,734
Retained earnings	8,153,232		10,682,922
Accumulated other comprehensive income-net unrealizedlosses on available-for-sale securities, net of taxesof $231,143 in 2009 and $349,330 in 2008	329,204		497,531
TOTAL SHAREHOLDERS’ EQUITY	23,029,910		25,550,697
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	269,922,857	$	251,879,523

The accompanying notes are an integral part of these financial statements.

26

Santa Lucia Bancorp and Subsidiary

Consolidated Statements of Earnings

Years Ended December 31, 2009, 2008 and 2007

	2009			2008		2007
Interest income
Interest and fees on loans	$	12,355,119		$	12,994,444	$	15,030,928
Federal funds sold	5,148			24,487		249,434
Investment securities – taxable	1,319,123			2,051,637		2,232,966
Investment securities – nontaxable	171,721			205,934		205,285
	13,851,111			15,276,502		17,718,613
Interest expense
Time certificates of deposit of $100,000 or more	1,138,962			1,411,081		1,833,831
Other deposits	1,613,306			1,863,907		2,389,580
Long-term debt and other borrowings	268,761			602,120		600,727
	3,021,029			3,877,108		4,824,138
Net interest income	10,830,082			11,399,394		12,894,475
Provision for loan losses	5,460,000			975,000		—
Net interest income afterprovision for loan losses	5,370,082			10,424,394		12,894,475
Noninterest income
Service charges and fees	517,209			554,018		583,445
Dividends on cash surrender value oflife insurance	239,898			230,010		222,071
Gain on sale of investment securities	224,875			108,163		—
Other income	253,354			218,574		265,798
	1,235,336			1,110,765		1,071,314
Noninterest expense
Salaries and employee benefits	5,358,634			5,650,160		5,259,456
Occupancy	662,587			652,335		627,685
Equipment	632,954			669,527		666,003
Professional services	638,264			600,977		426,667
Data processing	520,208			504,688		488,636
Office expenses	412,597			391,655		362,057
Marketing	402,129			427,635		422,914
Regulatory assessments	511,281			168,090		64,436
Directors’ fees and expenses	351,296			326,792		328,801
Messenger and courier expenses	95,152			122,833		156,870
Other	279,791			248,563		225,445
	9,864,893			9,763,255		9,028,970
Earnings (losses) before income taxes	(3,259,475		)	1,771,904		4,936,819
Income taxes	(1,434,000		)	633,000		1,934,000
Net earnings (loss)	$	(1,825,475	)	$	1,138,904	$	3,002,819
Per share data:
Net earnings (loss) per common share - basic	$	(1.05	)	$	0.59	$	1.55
Net earnings (loss) per common - diluted	$	(1.05	)	$	0.58	$	1.51

The accompanying notes are an integral part of these financial statements.

27

Santa Lucia Bancorp and Subsidiary

Consolidated Statements of Cash Flows

Years Ended December 31, 2009, 2008 and 2007

	2009			2008			2007
Cash flows from operating activities:
Net earnings (losses)	$	(1,825,475	)	$	1,138,904		$	3,002,819
Adjustments to reconcile net earnings (losses) tonet cash provided (used) by operating activities:
Depreciation and amortization	598,783			643,241			652,290
Provision for loan losses	5,460,000			975,000			—
Loss (gain) on sale of investment securities	(224,875		)	(108,163		)	—
Deferred income taxes	(337,000		)	(371,000		)	(201,000		)
Dividends on cash value of life insurance	(239,898		)	(230,010		)	(222,071		)
Other items, net	(2,414,012		)	789,187			1,101,676
Net cash provided by operating activities	1,017,523			2,837,159			4,333,714
Cash flows from investing activities:
Proceeds from maturities of investment securities	16,677,933			12,616,836			14,202,010
Proceeds from sale of investment securities	5,176,324			5,513,276			—
Purchases of investment securities	(24,426,873		)	—			(26,658,965		)
Purchase of Federal Reserve Bankand Federal Home Loan Bank stock	(126,550		)	—			—
Net change in loans	(17,818,538		)	(20,987,466		)	3,060,979
Purchases of bank premises and equipment	(197,860		)	(398,882		)	(262,590		)
Proceeds on sale of OREO	490,074			—			(1,485,000		)
Net cash used in investing activities	(20,225,490		)	(3,256,236		)	(11,143,566		)
Cash flows from financing activities:
Net change in deposits	26,406,685			(401,780		)	(270,074		)
Proceeds and tax benefit from exerciseof stock options	—			34,390			164,275
Proceeds from Issuance of Preferred Stock, Net	—			3,950,000			—
Stock repurchases	—			(146,649		)	(853,351		)
Net (repayments) proceeds from borrowings	(5,666,712		)	(1,233,356		)	5,900,000
Dividends paid on Preferred Stock	(181,111		)	—			—
Cash dividends paid Common Stock	(482,905		)	(962,534		)	(871,112		)
Net cash provided (used) by financing activities	20,075,957			1,240,071			4,069,738
Increase (decrease) in cash andcash equivalents	867,990			820,994			(2,740,114		)
Cash and cash equivalents at beginning of year	8,220,406			7,399,412			10,139,526
Cash and cash equivalents at end of year	$	9,088,396		$	8,220,406		$	7,399,412
Supplemental disclosure of cash flow information:
Interest paid	$	3,170,170		$	3,925,557		$	4,824,138
Income taxes paid	$	265,000		$	1,130,000		$	1,865,000
Cashless exercise of stock options	$	—		$	27,725		$	120,554
Transfer of Loans to Other Real Estate Owned	$	891,500		$	—		$	—

The accompanying notes are an integral part of these financial statements.

28

Santa Lucia Bancorp and Subsidiary

Consolidated Statement of Shareholders’ Equity

Years Ended December 31, 2009, 2008 and 2007

						Common Stock				Additional					Accumulated Other
	ComprehensiveIncome			PreferredStock		SharesOutstanding		Amount		Paid-inCapital		Retained Earnings			ComprehensiveIncome
Balance at January 1, 2007						1,928,097		$	9,566,563	$	216,558	$	9,624,939		$	(271,144	)
Cash dividends — $0.45 per share												(871,112		)
Exercise of stock options, including the realization of tax benefits of $19,000						29,247		284,829		19,000		(120,554		)
Repurchase and retirement of stock						(32,471	)					(853,351		)
Stock Option Compensation Expense										122,645
Comprehensive Income:
Net earnings for the year	$	3,002,819										3,002,819
Change in unrealized loss on available-for-sale securities, net of taxes of $328,353	467,654														467,654
Total Comprehensive Income	$	3,470,473
Balance at December 31, 2007						1,924,873		9,851,392		358,203		10,782,741			196,510
Cash dividends — $0.50 per share												(962,534		)
Exercise of stock options, including the realization of tax benefits of $19,000						4,360		43,115		19,000		(27,725		)
Repurchase and retirement of stock						(6,180	)					(146,649		)
Cumulative — effect adjustment of change in accounting for split-dollar life insurance arrangements												(101,815		)
Preferred Stock — Series A				$	3,799,003					150,997
Stock Option Compensation Expense										148,534
Comprehensive Income:
Net earnings for the year	$	1,138,904										1,138,904
Change in unrealized gain on available-for-sale securities, net of taxes of $255,702	364,837														364,837
Less reclassification adjustment for gains included in net income, deferred of tax of $44,347	(63,816		)												(63,816		)
Total Comprehensive Income	$	1,439,925
Balance at December 31, 2008				3,799,003		1,923,053		9,894,507		676,734		10,682,922			497,531
Dividends Preferred Stock												(181,111		)
Cash dividends — $0.25 per share												(480,763		)
Stock dividend — 2%						38,281
Cash in lieu for fractional shares												(2,142		)
Accretion on Preferred Stock				40,199								(40,199		)
Stock Option Compensation Expense										136,272
Comprehensive Income:
Net earnings (losses) for the year	$	(1,825,475	)									(1,825,475		)
Change in unrealized gain on available-for-sale securities, net of taxes of $210,949	(300,441		)												(300,441		)
Less reclassification adjustment for gains included in net income, deferred of tax of ($92,761)	132,114														132,114
Refund TARP expenses										759
Total Comprehensive Income	$	(1,993,802	)
Balance at December 31, 2009				$	3,839,202	1,961,334		$	9,894,507	$	813,765	$	8,153,232		$	329,204

The accompanying notes are an integral part of these financial statements.

29

Santa Lucia Bancorp and Subsidiary

NOTES TO FINANCIAL STATEMENTS

December 31, 2009, 2008 and 2007

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — The consolidated financial statements include the accounts of Santa Lucia Bancorp and its wholly owned subsidiary Santa Lucia Bank (the “Bank”), collectively referred to herein as the “Company.” All significant intercompany transactions have been eliminated.

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the Unites States of America and prevailing practices within the banking industry.  A summary of the significant accounting policies consistently applied in preparation of the accompanying financial statements follows:

Nature of Operations — The Company has been organized as a single operating segment and maintains four branches in the San Luis Obispo and northern Santa Barbara Counties. The Company’s primary source of revenue is interest income from loans to customers. The Company’s customers are predominantly small and middle-market businesses and individuals.

Santa Lucia Bancorp has no significant business activities other than its investment in Santa Lucia Bank and its investment and related borrowings from Santa Lucia Bancorp Trusts as discussed in Note H. Accordingly, no separate financial information on the Company is provided.

Subsequent Events — As required by ASC Topic 855, Subsequent Events, the Company has evaluated subsequent events through March 12, 2010, which is the date of the filing of its consolidated financial statements with the SEC.

Use of Estimates in the Preparation of Financial Statements — 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 at the date of the financial statements and the reported amounts of certain revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents — For the purposes of reporting cash flows, cash and cash equivalents includes cash, noninterest-earning deposits and federal funds sold. Generally, federal funds are sold for one day periods.

Cash and Due From Banks — Banking regulations require that all banks maintain a percentage of their deposits as reserves in cash or on deposit with the Federal Reserve Bank. The Bank was in compliance with the reserve requirements as of December 31, 2009 and 2008.

The Company periodically maintains amounts due from banks that exceed federally insured limits. The Company has not experienced any losses in such accounts.

Investment Securities — Bonds, notes, and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.

Investments not classified as trading securities nor as held-to-maturity securities are classified as available-for-sale securities and recorded at fair value. Unrealized gains or losses on available-for-sale securities are excluded from net income and reported as an amount net of taxes as a separate component of other comprehensive income included in shareholders’ equity. Premiums or discounts on held-to-maturity and available-for-sale securities are amortized or accreted into income using the interest method. Realized gains or losses on sales of held-to-maturity or available-for-sale securities are recorded using the specific identification method.

Management evaluates securities for other-than-impaired (OTTI) at least on a quarterly basis and more frequently when economic or market conditions warrant.

Loans — Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances reduced by any charge-offs or specific valuation accounts and net of any deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans.

The determination of the balance in the allowance for loan losses is based on an analysis of the loan portfolio and reflects an amount which, in management’s judgment, is adequate to provide for potential credit losses after giving consideration to the character of the loan portfolio, current economic conditions, past credit loss experience and such other factors as deserve current recognition in estimating credit losses. The provision for loan losses is charged to expenses.

The Company considers a loan to be impaired when it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Measurement of impairment is based on the expected future cash flows of an impaired loan, which are to be discounted at the loan’s effective interest rate, or measured by reference to an observable market value, if one exists, or the fair value of the collateral for a collateral-dependent loan. The Company selects the measurement method on a loan-by-loan basis except that collateral-dependent loans for which foreclosure is probable are measured at the fair value of the collateral. The Company recognizes interest income on impaired loans based on its existing methods of recognizing interest income on nonaccrual loans.

Interest and Fees on Loans — Interest income is accrued daily as earned on all loans. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. The accrual of interest on loans is discontinued when principal or interest is past due 90 days based on contractual terms of the loan or when, in the opinion of management, there is reasonable doubt as to collectability. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible. Interest accruals are resumed on such loans only when they are brought current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to all principal and interest. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan. Amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status.

Premises and Equipment — Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives, which ranges from three to ten years for furniture and fixtures and forty years for buildings. Expenditures for betterments or major repairs are capitalized and those for ordinary repairs and maintenance are charged to operations as incurred.

Company Owned Life Insurance — Company owned life insurance is recorded at the amount that can be realized under insurance contracts at the date of the statement of financial condition, which is the cash surrender value adjusted for other charges or the amounts due that are probable at settlement.

Other Real Estate Owned — Other real estate owned represents real estate acquired through foreclosure and is carried at the lower of the recorded investment in the property or its fair value.  Prior to

30

foreclosure, the value of the underlying loan is written down to the fair market value of the real estate to be acquired by a charge to the allowance for credit losses, if necessary. Any subsequent write-downs are charged against operating expenses. Operating expenses of such properties, net of related income, are included in other expenses.

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) Stock — The Bank is a member of the FHLB and the FRB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors and may invest in additional amounts. FHLB and FRB stock are carried at cost, classified as restricted securities, and periodically evaluated for impairment based on the ultimate recovery of par value. Both cash and stock dividends are reported as income.

Income Taxes — Deferred income taxes are computed using the asset and liability method, which recognizes a liability or asset representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in the financial statements. A valuation allowance is established to reduce the deferred tax asset to the level at which it is “more likely than not” that the tax asset or benefits will be realized. Realization of tax benefits of deductible temporary differences and operating loss carryforwards depends on having sufficient taxable income of an appropriate character within the carryforward periods.

The Company has adopted guidance issued by the Financial Accounting Standards Board that clarifies the accounting for uncertainty in tax positions taken or expected to be taken on a tax return and provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities. Interest and penalties related to uncertain tax positions are recorded as part of income tax expense.

Advertising Costs — The Company expenses the costs of advertising in the period incurred.

Comprehensive Income — Changes in unrealized gain or loss on available-for-sale securities net of income taxes is the only component of accumulated other comprehensive income for the Company.

Financial Instruments — In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, and standby letters of credit as described in Note N. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.

Earnings Per Common Share (EPS) — Basic earnings per common share (“EPS”) are based on the weighted average number of common shares outstanding before any dilution from common stock equivalents. Diluted earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. All outstanding stock options were not considered in computing diluted earnings per share for 2009 because they were antidilutive.

Stock-Based Compensation — The Company has two stock option plans, which are fully described in Note K in the Bank’s Annual Report on Form 10-K. The Company recognizes the cost of employee services received in exchange for awards of stock options or other equity instruments, based on the grant-date fair value of those awards. The cost is recognized over the period which an employee is required to provide services in exchange for the award, generally the vesting period.

Fair Value Measurement — Fair values is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Current accounting guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value.

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a Bank’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

See note P for more information and disclosures relating to the Bank’s fair value measurement.

Reclassifications — Certain reclassifications have been made in the 2008 and 2007 financial statements to conform to the presentation used in 2009. These reclassifications had no impact on the Company’s previously reported financial statements.

Adoption of New Accounting Standards

Subsequent Events — In May 2009, the FASB issued guidance which requires the effects of events that occur subsequent to the balance-sheet date be evaluated through the date the financial statements are either issued or available to be issued. Entities are to disclose the date through which subsequent events have been evaluated and whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. Entities are required to reflect in their financial statements the effects of the subsequent events that provide additional evidence about conditions at the balance-sheet date (recognized subsequent events). Entities are also prohibited from reflecting in their financial statements the effect of subsequent events that provide evidence about conditions that arose after the balance-sheet date (nonrecognized subsequent events), but requires information about those events to be discussed if the financial statements would otherwise be misleading. This guidance was effective for annual financial periods ended after June 15, 2009 with prospective application. The Company adopted the guidance for the year ended December 31, 2009 by including the required disclosures in Note A to the financial statements.

Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles — In June 2009, accounting standards were revised to establish the Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”). The Codification does not change current GAAP, but is intended to simplify user access to all authoritative literature related to a particular topic in one place. The Codification is effective for annual periods ended after September 15, 2009, and as of the effective date, all existing accounting standard documents were superseded. Adoption of the Codification in 2009 did not have a material impact on the Company’s financial statements.

Fair Value Measurements — In April 2009, accounting standards were amended to provide additional guidance for determining the fair value of a financial asset or financial liability when the volume and level of activity for such asset or liability decreased significantly and also to provide guidance for determining whether a transaction is orderly. The amendments were effective for annual reporting periods ended after June 15, 2009. Adoption of the amendments in 2009 did not have a material impact on the Company’s financial statements.

In February 2008, the FASB issued instructions that delayed the effective date of fair value measurement for all non-financial assets and non-

Continued on next page           

31

financial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) for fiscal years beginning after November 15, 2008. Adoption of the fair value measurement rules in 2009 for non-financial assets and non-financial liabilities subject to the delay did not have a material impact on the Company’s financial statements.

Other-Than-Temporary Impairment — In April 2009, accounting standards were amended to provide expanded guidance concerning the recognition and measurement of other-than-temporary impairments of debt securities classified as available for sale or held to maturity. The amendments require an entity to recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the noncredit component in other comprehensive income when the entity does not intend to sell the security prior to recovery. Expanded disclosures are also required concerning such impairments. The amendments were effective for annual reporting periods ended after June 15, 2009. Adoption of the amendments in 2009 did not have a material impact on the Company’s financial statements.

Newly Issued Not Yet Effective Accounting Standards — In June 2009, accounting standards were amended to clarify when a transferor has surrendered control over transferred financial assets and thus is entitled to account for the transfer as a sale. The amendments established specific conditions for accounting for the transfer of a financial asset, or a portion of a financial asset, as a sale. The amendments could impact when a loan participation or SBA loan sale may be accounted for as a sale and the related transferred asset derecognized by the company. The guidance is effective for transfers occurring on or after January 1, 2010. The Bank has not yet completed its evaluation of these amendments, but does not expect that they will have a material impact on its balance sheet or statement of operations.

NOTE B — INVESTMENT SECURITIES — The amortized cost, carrying value and estimated fair values of investment securities available for sale as of December 31, 2009 and December 31, 2008 are as follows:

	December 31, 2009
	Amortized		Unrealized		Unrealized			Estimated
	cost		gains		(losses)			fair value
U.S. Government andAgency Securities	$	21,824,979	$	217,016	$	(8,531	)	$	22,033,464
States and PoliticalSubdivisions	3,714,014		95,484		(5,416		)	3,804,082
Mortgage-Backed Securities	14,890,559		294,505		(32,711		)	15,152,353
	$	40,429,552	$	607,005	$	(46,658	)	$	40,989,899
	December 31, 2008
	Amortized		Unrealized		Unrealized			Estimated
	cost		gains		(losses)			fair value
U.S. Government andAgency Securities	$	16,093,125	$	565,115	$	—		$	16,658,240
States and PoliticalSubdivisions	5,742,575		49,245		(51,056		)	5,740,764
Mortgage-Backed Securities	15,787,914		345,063		(61,505		)	16,071,472
	$	37,623,614	$	959,423	$	(112,561	)	$	38,470,476

The carrying value of investment securities pledged to secure public funds, borrowings and for other purposes as required or permitted by law amounts to approximately $12,556,000 and $13,493,000 at December 31, 2009 and 2008, respectively. During 2009 the Bank had proceeds from the sale of $5,176,324 in Mortgage Backed Securities and gross gains of $224,875 during 2009 compared to $108,163 for the period ending 2008.

The amortized cost and estimated fair value of debt securities at December 31, 2009, by contractual maturity, are shown below. Mortgage-backed securities are classified in accordance with their estimated lives.  Expected maturities may differ from contractual maturities because borrowers may have the right to prepay obligations.

	Amortized		Estimated
	cost		fair value
Securities available-for-sale:
Due in one year or less	$	6,850,047	$	7,012,430
Due after one year through five years	23,599,132		23,896,840
Due after five years through ten years	4,823,058		4,922,884
Due after ten years	5,157,315		5,157,745
	$	40,429,552	$	40,989,899

The gross unrealized loss and related estimated fair value of investment securities that have been in a continuous loss position for less than twelve months and over twelve months at December 31, are as follows:

	Less than					Over
	Twelve Months					Twelve Months					Total
				Estimated					Estimated					Estimated
	Unrealized			fair		Unrealized			fair		Unrealized			fair
	losses			value		losses			value		losses			value
December 31, 2009:
U.S. Government & Agency Securities	$	(8,531	)	$	3,995,450	$	—		$	—	$	(8,531	)	$	3,995,450
States and Political Subdivisions	—			—		(5,416		)	290,678		(5,416		)	290,678
Mortgage-Backed Securities	(31,845		)	3,038,225		(866		)	198,720		(32,711		)	3,236,945
	$	(40,376	)	$	7,033,675	$	(6,282	)	$	489,398	$	(46,658	)	$	7,523,073

	Less than				Over
	Twelve Months				Twelve Months					Total
			Estimated					Estimated					Estimated
	Unrealized		fair		Unrealized			fair		Unrealized			fair
	losses		value		losses			value		losses			value
December 31, 2008:
U.S. Government & Agency Securities	$	—	$	—	$	—		$	—	$	—		$	—
States and Political Subdivisions	—		—		(51,056		)	1,176,019		(51,056		)	1,176,019
Mortgage-Backed Securities	—		—		(61,505		)	2,414,802		(61,505		)	2,414,802
	$	—	$	—	$	(112,561	)	$	3,590,821	$	(112,561	)	$	3,590,821

As of December 31, 2009, the Company has six investment securities where estimated fair market value had decreased 0.61% from amortized cost. Unrealized losses on the six securities have not been recognized into income because the issuer bonds are of high credit quality (rated AAA), management does not intend to sell and it is not likely that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the bonds approach maturity.

NOTE C — LOANS — The Bank’s loan portfolio consists primarily of loans to borrowers within San Luis Obispo and northern Santa Barbara Counties, California. Although the Bank seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, real estate and real estate associated businesses are among the principal industries in the Bank’s market areas. As a result, the Bank’s loan and collateral portfolios are, to some degree, concentrated in those industries.

As of December 31, 2009 the Bank could pledge $131 million of loans to secure the borrowing arrangements discussed in Note G.

The composition of the loan portfolio at December 31, is as follows:

	2009			2008
Real Estate — construction	$	47,457,781		$	52,388,923
Real Estate — other	111,183,199			94,372,099
Commercial	41,743,898			41,477,697
Consumer	1,783,495			1,414,867
	202,168,373			189,653,586
Deferred loan fees	(683,384		)	(711,852		)
Allowance for loan losses	(3,385,991		)	(2,309,774		)
	$	198,098,998		$	186,631,960

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The allowance for loan losses is increased by the provision to income and decreased by net charge-offs. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions.

Transactions in the allowance for loan losses are summarized as follows:

	2009			2008			2007
Balance at beginning of year	$	2,309,774		$	1,673,410		$	1,653,695
Provision charged to expense	5,460,000			975,000			—
Loans charged off	(4,385,741		)	(351,983		)	(60,779		)
Recoveries on loanspreviously charged off	1,958			13,347			80,494
Balance at end of year	$	3,385,991		$	2,309,774		$	1,673,410

The following is a summary of the investment in impaired loans, the related allowance for loan losses, income recognized and information pertaining to nonaccrual and past due loans as of December 31, 2009:

	2009		2008		2007
Recorded investment inimpaired loans	$	10,175,114	$	1,613,647	$	2,175,694
Related allowance forloan losses	$	472,170	$	394,000	$	144,000
Average recorded investment inimpaired loans	$	4,831,826	$	1,528,000	$	591,000
Interest income recognizedfor cash payments	$	205,986	$	—	$	—
Total nonaccrual loans	$	6,407,114	$	1,613,647	$	2,175,694
Total loans past-due ninety daysor more and still accruing	$	—	$	—	$	—

NOTE D — RELATED PARTY TRANSACTIONS — In the ordinary course of business, the Bank has granted loans to certain executive officers, directors and the businesses with which they are associated. All such loans and commitments to lend were made under terms which are consistent with the Bank’s normal lending policies.

The following is an analysis of the activity of all such loans:

	2009			2008
Beginning balance	$	5,197,043		$	4,951,537
Credits granted, including renewals	1,179,500			1,176,000
Repayments	(1,296,340		)	(930,494		)
	$	5,080,203		$	5,197,043

Undisbursed loans amount to approximately $699,537 and $764,183 at December 31, 2009 and 2008, respectively.

Deposits from related parties held by the Bank at December 31, 2009 and 2008 amounted to $841,828 and $3,656,080 respectively.

NOTE E — PREMISES AND EQUIPMENT — The composition of premises and equipment at December 31 is as follows:

	2009		2008
Premises	$	7,750,465	$	7,753,334
Furniture, fixtures and equipment	4,298,039		4,115,960
	12,048,504		11,869,294
Less accumulated depreciation	5,856,044		5,275,911
	6,192,460		6,593,383
Land	2,030,765		2,030,765
	$	8,223,225	$	8,624,148

NOTE F — DEPOSITS — At December 31, 2009, the scheduled maturities of time deposits are as follows:

Due in one year	$	76,748,757
Due from one to three years	10,548,778
Due after three years	2,485,352
	$	89,782,887

NOTE G — SHORT-TERM BORROWINGS — The Bank has two borrowing arrangements with the Federal Home Loan Bank of San Francisco. The first would allow the Bank to borrow up to approximately $48 million against which the Bank could pledge approximately $131 million of its real estate secured loans. The second arrangement allows the Bank to borrow up to approximately $11 million against which the Bank has pledged approximately $11 million of its investment securities.

As of December 31, 2009 the Bank had no borrowings.

The Bank may also borrow up to $6,000,000 overnight on an unsecured basis from two correspondent banks.

NOTE H — LONG-TERM BORROWINGS — During the third quarter of 2003, the Bank issued Subordinated Debentures to nineteen investors including executive officers and members of the Bank’s Board of Directors, in the total sum of $2,000,000 (“Debentures”). The total amount issued to executive officers and directors was $1,100,000. The Debentures include quarterly payment of interest at prime plus 1.5% and quarterly principal installments of $166,666 commencing on September 30, 2008 until paid in full on June 30, 2011. As of December 31, 2009 the Debentures totaled $999,932 and an average rate of 4.75% . The Debentures, which are subordinated to the right of payment to depositors and other creditors, partially qualify as Tier 2 Capital.

On April 28, 2006, the Company issued $5,155,000 in junior subordinated debt securities (the “debt securities”) to the Santa Lucia Bancorp (CA) Capital Trust, a statutory trust created under the laws of the State of Delaware.  These debt securities are subordinated to effectively all borrowings of the Company and are due and payable on July 7, 2036. These debt securities may be redeemed for 105% of the principal balance through July 7, 2011 and then at par thereafter. Interest is payable quarterly beginning July 7, 2006 at 1.48% over the quarterly adjustable 3-month LIBOR.

The Company also purchased a 3% minority interest in Santa Lucia Bancorp (CA) Capital Trust. The balance of the equity of Santa Lucia Bancorp (CA) Capital Trust is comprised of mandatorily redeemable preferred securities.

NOTE I — INCOME TAXES — The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Continued on next page           

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets as of December 31 are as follows:

	2009		2008		2007
Deferred liabilities:
Tax over book depreciation	300,000		369,000		425,000
Market value adjustment oninvestment securities	231,000		349,000		138,000
Other	129,000		130,000		111,000
Total deferred tax liabilities	$	660,000	$	848,000	$	674,000
Deferred tax assets:
Allowance for loan losses	1,009,000		909,000		673,000
Deferred compensation plans	699,000		671,000		498,000
State taxes	1,000		95,000		191,000
Net loss carryforward	232,000		28,000		41,000
Other	148,000		119,000		85,000
Total deferred tax assets	2,089,000		1,822,000		1,488,000
Net deferred tax assets	$	1,429,000	$	974,000	$	814,000

The provision for income taxes consists of the following:

	2009			2008			2007
Currently payable	$	(1,097,000	)	$	1,004,000		$	2,135,000
Deferred taxes (benefits)	(337,000		)	(371,000		)	(201,000		)
	$	(1,434,000	)	$	633,000		$	1,934,000

The principal sources of deferred income taxes and the tax effect of each are as follows:

	2009			2008			2007
Tax over book depreciation	$	(69,000	)	$	(56,000	)	$	(68,000	)
Provision for loan losses	(100,000		)	(236,000		)	—
State taxes	94,000			96,000			33,000
Net loss carryforward	(204,000		)	13,000			14,000
Deferred compensation plans	(28,000		)	(173,000		)	(108,000		)
Other	(30,000		)	(15,000		)	(72,000		)
Net deferred taxes	$	(337,000	)	$	(371,000	)	$	(201,000	)

As of December 31, 2009, the Bank had federal net operating loss carry forwards available to reduce future taxable income of approximately $40,617. The net operating loss carry forwards expire in 2010. The 1995 merger with Central Coast National Bank resulted in an ownership change as defined in the Internal Revenue Code Section 382. Accordingly, the utilization of the net operating loss will be subject to the limitations prescribed in Section 382.

The Bank has net operating loss carryforwards of approximately $2,854,815 for state income tax purposes that will expire in 2029 if not previously utilized.

As a result of the following items, the total tax expense was different from the amount computed by applying the statutory income tax rate to earnings before income taxes:

	2009					2008					2007
Federal “expected” tax	$	(1,108,000	)	(34.0	)%	$	602,000		34.0	%	$	1,679,000		34.0	%
State franchise tax, net	(240,000		)	(7.4	)	122,000			6.9		347,000			7.0
Tax exempt income	(119,000		)	(3.7	)	(128,000		)	(7.2	)	(122,000		)	(2.5	)
Other	33,000			1.1		37,000			2.1		30,000			0.6
Total expense	$	(1,434,000	)	(44.0	)%	$	633,000		35.7	%	$	1,934,000		39.1	%

The Company is subject to Federal income tax and California franchise tax. Federal income tax returns for the years ended December 31, 2008, 2007 and 2006 are open to audit by the Federal authorities and California returns for the years ended December 31, 2008, 2007, 2006 and 2005 are open to audit by state authorities.

NOTE J — EMPLOYEE PROFIT SHARING AND DEFERRED COMPENSATION — The Bank sponsors a 401 (k) plan for the benefit of its employees. In 1994 the Bank also approved the creation of an Employee Stock Ownership Plan for the benefit of its employees. Contributions to these plans are determined by the Board of Directors. The Bank contributed $154,000 in 2009, $202,000 in 2008, and $203,000 in 2007, to the Employee Stock Ownership Plan. The Bank contributed $56,000 to the 401 (k) plan in 2009, $58,000 to the 401 (k) plan in 2008 and $57,000 in 2007.

The Bank has entered into deferred compensation agreements with key officers and board members. Under these agreements, the Bank is obligated to provide, upon retirement, a lifetime benefit for the officers and directors. The annual benefits ranging from $25,000 to $75,000 for key officers and $4,000 to $6,000 for directors. The estimated present value of future benefits to be paid is being accrued over the period from the effective date of the agreements until the expected retirement dates of the participants. The expense incurred and amount accrued for this plan for the years ended December 31, 2009, 2008, and 2007 totaled $137,185, $275,140, and $292,385, respectively.  The Bank is a beneficiary of life insurance policies that have been purchased as a method of financing the benefits under the agreements.

NOTE K — STOCK OPTIONS — The Company sponsors one compensatory incentive and non-qualified stock option plan which provides certain key employees and the Board of Directors with the option to purchase shares of common stock, and one Equity Based Compensation Plan which provides certain key employees and the Board of Directors with the award of any Option, Stock Appreciation Right, Restricted Stock Award, Restricted Share Unit, Performance Share Award, Dividend Equivalent, or any combination thereof. In 1999, the Bank adopted a stock option plan (the 2000 plan) under which up to 367,200 shares of the Bank’s common stock may be issued to directors, officers, and key employees.  In 2006, the Company adopted the 2006 Equity Based Compensation Plan (the Plan), which the maximum number of shares of common stock that may be awarded under this Plan shall not exceed 204,000 shares, including 38,964 shares rolled over from the Company’s 2000 Stock Option Plan which expires on August 15, 2015. Option prices may not be less than 100% of the fair market value of the stock at the date of grant. Options became exercisable at the rate of 20% per year beginning at various dates and expire not more than ten years from the date of grant. The Company recognized stock-based compensation costs of $136,272, $148,534 and $122,645 and related tax benefits of $26,400, $41,700 and $18,450 for 2009, 2008 and 2007, respectively.

The fair value of each option granted was estimated on the date of grant using the Black-Scholes options pricing model with the following assumptions:

	2008		2007
Risk-free rates	3.18	%	4.65	%
Expected volatility	20.00	%	20.00	%
Expected dividend yield	1.40	%	1.40	%
Expected term	6.0 years		6.0 years
Weighted-average grant date fair value	$4.98		$6.59

There were no options granted in 2009.

34

A summary of the status of the Company’s fixed stock option plan as of December 31, 2009 and changes during the year then ended is presented below:

	December 31, 2009
		Weighted-		Weighted-
		Average		Average	Aggregate
		Exercise		Remaining	Intrinsic
	Shares	Price		Contractual Term	Value
Outstanding at thebeginning of the year	233,131	$	19.05
Granted	—	—
Exercised	—	—
Foreited or expired	—	—
Outstanding at theend of the year	233,131	19.05		5.5 years	$	None
Options Exercisable	208,316	$	15.25	4.2 years	$	None

The total intrinsic value of options exercised during the years ended December 31, 2009, 2008, and 2007 were approximately $0, $92,810, and $638,000 respectively. As of December 31, 2009 there was $271,000 of total unrecognized compensation cost related to the outstanding stock options that will be recognized over a weighted average period of 1.7 years.

NOTE L — DIVIDENDS — The Company paid cash dividends of $0.25 per share to all shareholders of record as of March 31, 2009 and declared a 2% stock dividend to all shareholders of record as of September 30, 2009. All of the per share data in the financial statements have been retroactively adjusted to reflect the 2% stock dividend.

NOTE M — EARNINGS PER SHARE (EPS) — The following is a reconciliation of net earnings (loss) and shares outstanding to the income and number of shares used to compute EPS:

	December 31, 2009
	Income			Shares
	(Numerator)			(Denominator)
Net income (loss)	$	(1,825,475	)
Less dividends earned onPreferred Stock	$	(200,000	)
Accreted discount onPreferred Stock	$	(40,199	)
Average shares outstanding				1,961,483
Used in Basic EPS	(2,065,674		)	1,961,483
Dilutive effect of outstandingstock options
Used in Diluted EPS	$	(2,065,674	)	1,961,483

	December 31, 2008
	Income		Shares
	(Numerator)		(Denominator)
Net income	$	1,138,904
Average shares outstanding			1,924,023
Used in Basic EPS	1,138,904		1,924,023
Dilutive effect of outstandingstock options			48,465
Used in Diluted EPS	$	1,138,904	1,972,488

	December 31, 2007
	Income		Shares
	(Numerator)		(Denominator)
Net income	$	3,002,819
Average shares outstanding			1,933,231
Used in Basic EPS	3,002,819		1,933,231
Dilutive effect of outstandingstock options			59,823
Used in Diluted EPS	$	3,002,819	1,993,054

NOTE N — COMMITMENTS AND CONTINGENCIES — The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those commitments.  Commitments to extend credit (such as the unfunded portion on lines of credit and commitments to fund new loans) as of December 31, 2009 and 2008 amounts to approximately $43,105,000 and $57,168,000, respectively, of which approximately $1,298,000 and $3,106,000 are related standby letters of credit, respectively. The Company uses the same credit policies in these commitments as is done for all of its lending activities. As such, the credit risk involved in these transactions is essentially the same as that involved in extending loan facilities to customers.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Company evaluates each client’s credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company is based on management’s credit evaluation of the customer. The majority of the Company’s commitments to extend credit and standby letters of credit are secured by real estate.

In the normal course of business, the Company is involved in various litigation. In the opinion of management, and based on the advise of the Company’s legal counsel, the disposition of all pending litigation will not have a material effect on the Company’s financial position.

NOTE O — PREFFERED STOCK AND RELATED WARRANT — December 19, 2008, the Company entered into a Purchase Agreement with the United States Department of the Treasury (the “Treasury”), pursuant to which the Company agreed to issue and sell 4,000 shares of the Company’s Preferred Stock as Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Preferred Stock) and a Warrant to purchase 37,360 shares of the Company’s Common Stock for an aggregate purchase price of $4,000,000 in cash. In connection with this transaction the Company incurred $50,000 in costs.

The Preferred Stock qualifies as Tier 1 capital and will pay cumulative dividends quarterly at a rate of 5% per annum for the first five years and 9% per annum thereafter. The Preferred Stock may be redeemed by the Company after three years. Prior to the end of the three years, the Preferred Stock may be redeemed only with proceeds from the sale of qualifying equity securities of the Company.

The Warrant has a 10-year term and is immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution adjustments, equal to $16.06 per share. On September 21, 2009 the Board of Directors declared a 2% stock dividend which automatically increased the number of common shares subject to the warrant to 38,107 and reduced the exercise price of the warrant to $15.745.

If the Company receives aggregate gross cash proceeds of not less than $4,000,000 from a Qualified Equity Offering on or prior to December 31, 2009, the number of shares of Common Stock issuable pursuant to Treasury’s exercise of the Warrant will be reduced by one half of the original number of shares, taking into account all adjustments, underlying the Warrant. Pursuant to the Purchase Agreement, the Treasury has agreed not to exercise voting power with respect to any shares of Common Stock issued upon exercise of the Warrant.

Neither the Preferred Stock nor the Warrant will be subject to any contractual restrictions on transfer, except that Treasury may only transfer or exercise an aggregate of one-half of the Warrant Shares prior to the earlier of the redemption of 100% of the shares of Preferred Stock and December 31, 2009.

Continued on next page           

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In the Purchase Agreement, the Company agreed that, until such time as Treasury ceases to own any debt or equity securities of the Company acquired pursuant to the Purchase Agreement, the Company will take all necessary action to ensure that its benefit plans with respect to its senior executive officers comply with Section 111(b) of the Emergency Economic Stabilization Act of 2008 (the “EESA”) as implemented by any guidance or regulation under the EESA that has been issued and is in effect as of the date of the issuance of the Preferred Stock and the Warrant, and has agreed to not adopt any benefit plans with respect to, or which covers, its senior executive officers that do not comply with the EESA, and the applicable executives have consented to the foregoing.

The net proceeds from the issuance of the Preferred Stock and Warrant of $3,950,000 were allocated between the Preferred Stock and the Warrant based on their estimated relative fair values. The resulting discount of $200,997 on the Preferred Stock will be accreted against retained earnings over the estimated five-year life of the Preferred Stock reducing the reported income available for common shareholders.

NOTE P — FAIR VALUE MEASUREMENT — The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:

Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1).

Collateral-Dependent Impaired Loans: The Bank does not record loans at fair value on a recurring basis. However, from time to time, fair value adjustments are recorded on these loans to reflect (1) partial write-downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. In some cases, the properties for which market quotes or appraised values have been obtained are located in areas where comparable sales data is limited, outdated, or unavailable. Fair value estimates for collateral-dependent impaired loans are obtained from real estate brokers or other third-party consultants (Level 3).

Other Real Estate Owned: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at the lower of carrying amount of fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

The following table provides the hierarchy and fair value for each major category of assets and liabilities measured at fair value at December 31, 2009 and 2008:

	Fair Value Measurements as of December 31, 2009 using
	Level 1		Level 2		Level 3		Level 4
Assets and liabilitiesmeasured at fair valueon a recurring basis
Assets:
Securities Available forSale	$	40,989,899	$	—	$	—	$	40,989,899
Assets measured atfair value on a non-recurringbasis
Collateral-DependentImpaired Loans, Netof Specific Reserves	$	—	$	—	$	6,407,114	$	6,407,114
Other Real EstateOwned	$	—	$	—	$	428,000	$	428,000

	Fair Value Measurements as of December 31, 2008 using
	Level 1		Level 2		Level 3		Level 4
Assets and liabilitiesmeasured at fair valueon a recurring basis
Assets:
Securities Available forSale	$	38,470,476	$	—	$	—	$	38,470,476
Assets measured atfair value on a non-recurringbasis
Collateral-DependentImpaired Loans, Netof Specific Reserves	$	—	$	—	$	1,219,647	$	1,219,647

Collateral-dependent impaired loans had a net carrying value of $6,407,114, which is made up of the loan balance, net of specific reserves of $0 at December 31, 2009 compared to $1,219,647 at December 31, 2008.

Other real estate owned had a net carrying amount of $428,000, which is made up of the outstanding balance of $428,000, net of a valuation allowance of $0 at December 31, 2009.

NOTE Q — FAIR VALUE OF FINANCIAL INSTRUMENTS — The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature, involve uncertainties and matters of judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on financial instruments both on and off the balance sheet without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Additionally, tax consequences related to the realization of the unrealized gains and losses can have a potential effect on fair value estimates and have not been considered in many of the estimates.

The following methods and assumptions were used to estimate the fair value of significant financial instruments:

Financial Assets — The carrying amounts of cash, short term investments, due from customers on acceptances and bank acceptances outstanding are considered to approximate fair value. Short term investments include federal funds sold, securities purchased under agreements to resell, and interest bearing deposits with banks. The fair values of investment securities, including available for sale, are discussed in Note P. The fair value of loans are estimated using a combination of techniques, including discounting estimated future cash flows and quoted market prices of similar instruments where available.

36

Financial Liabilities — The carrying amounts of deposit liabilities payable on demand, commercial paper, and other borrowed funds are considered to approximate fair value. For fixed maturity deposits, fair value is estimated by discounting estimated future cash flows using currently offered rates for deposits of similar remaining maturities. The fair value of long term debt is based on rates currently available for debt with similar terms and remaining maturities.

Off-Balance Sheet Financial Instruments — The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. The fair values of these financial instruments are not deemed to be material.

The estimated fair value of financial instruments at December 31, 2009 and 2008 are summarized as follows:

	December 31, 2009				December 31, 2008
	Carrying		Market		Carrying		Market
	Value		Value		Value		Value
Financial Assets:
Cash and cash equivalents	$	6,588,396	$	6,588,396	$	8,220,406	$	8,220,406
Investment securities	40,989,899		40,989,899		38,470,476		38,470,476
Loans receivable, net	198,098,998		195,723,998		186,631,960		185,936,829
Cash surrender value of life insurance	5,390,410		5,390,410		5,194,688		5,194,688
Federal Reserve Bank and FHLB Stock	1,643,400		1,643,400		1,516,850		1,516,850
Accrued interest receivable and other assets	6,060,529		6,060,529		2,246,995		2,246,995
Financial Liabilities:
Time deposits	$	89,782,887	$	90,088,000	$	71,304,171	$	71,175,000
Other deposits	148,939,637		145,844,637		141,012,427		140,601,598
Other borrowings	—		—		5,000,000		5,000,000
Long-term debt	6,154,932		6,154,932		6,821,644		6,821,644
Accrued interest and other liabilities	2,015,491		2,015,491		2,190,584		2,190,584

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2009, that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2009, the most recent notification from the Federal Reserve Bank (FRB) categorized the Bank as well capitalized under the regulatory framework for prompt corrective action (there are no conditions or events since that notification that management believes have changed the Bank’s category). To be categorized as well capitalized, the Bank must maintain minimum ratios as set forth in the table below.

The following table also sets forth the Company’s and Bank’s actual capital amounts and ratios (dollar amounts in thousands):

	Actual				For capital adequacy purposes				To be well capitalized under prompt corrective action provisions
	Amount (thousands)		Ratio		Amount (thousands)		Ratio		Amount (thousands)		Ratio
As of December 31, 2009:
Company
Total Capital (to Risk-Weighted Assets)	$	30,808	13.9	%	$	17,773	8.0	%	$	22,216	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	$	27,856	12.5	%	$	8,886	4.0	%	$	13,330	6.0	%
Tier 1 Capital (to Average Assets)	$	27,856	10.3	%	$	10,834	4.0	%	$	13,543	5.0	%
Bank
Total Capital (to Risk-Weighted Assets)	$	29,223	13.2	%	$	17,740	8.0	%	$	22,175	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	$	26,276	11.9	%	$	8,870	4.0	%	$	13,305	6.0	%
Tier 1 Capital (to Average Assets)	$	26,276	9.7	%	$	10,821	4.0	%	$	13,526	5.0	%
As of December 31, 2008:
Company
Total Capital (to Risk-Weighted Assets)	$	33,373	15.9	%	$	16,770	8.0	%	$	20,963	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	$	30,208	14.4	%	$	8,385	4.0	%	$	12,578	6.0	%
Tier 1 Capital (to Average Assets)	$	30,208	11.9	%	$	10,074	4.0	%	$	12,592	5.0	%
Bank
Total Capital (to Risk-Weighted Assets)	$	31,748	15.2	%	$	16,746	8.0	%	$	20,933	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	$	28,583	13.7	%	$	8,373	4.0	%	$	12,560	6.0	%
Tier 1 Capital (to Average Assets)	$	28,583	11.4	%	$	9,995	4.0	%	$	12,494	5.0	%

The California Financial Code provides that a bank may not make a cash distribution to its shareholders in excess of the lesser of the Bank’s undivided profits or the Bank’s net income for its last three fiscal years less the amount of any distribution made by the Bank to shareholders during the same period.

With certain exceptions the Company may not pay a dividend to its shareholders unless its retained earnings equal at least the amount of the proposed dividend.

NOTE S — HOLDING COMPANY — On April 3, 2006 Santa Lucia Bancorp acquired all the outstanding shares of Santa Lucia Bank by issuing 1,909,837 shares of common stock in exchange for the surrender of all outstanding shares of the Bank’s common stock. There was no cash involved in this transaction. The acquisition was accounted for like a pooling of interest and the consolidated financial statements contained herein have been restated to give full effect to this transaction. Santa Lucia Bancorp has no significant business activities other than its investment in Santa Lucia Bank and its investment and related borrowings from Santa Lucia Bancorp (CA) Capital Trust as discussed in Note H.  Accordingly, no separate financial information on the Company is provided.

37

SANTA LUCIA BANK MISSION STATEMENT

Provide the best products and employ the best people to
give the highest quality service to our
customers, in order to maximize
our shareholders’ value.

38

Products and Services

Free Business Checking*

· No minimum balance

· No monthly service charge

· No returned item fee

*Offer may not be available for accounts with very high volume.

EZLink

· 24 hour online Internet access

· PAYTRAXX Online Bill Pay

· ACH Origination

24 Hour Telebanking

· Atascadero & Paso Robles (805) 460-0125

· Arroyo Grande & Santa Maria (877) 475-2265

VISA Credit Cards

· Issued in business or personal names

VISA Debit Cards

· Use this card instead of writing checks

It debits your designated account

ATMs (Automatic Teller Machines)

· Access your account worldwide

Merchant Credit Card Processing

Commercial Loans

· Working capital

· Debt restructuring

· Equipment

· Facilities expansion, purchase
or relocation

Guaranteed Business Loans

· Small Business Administration

· California Coastal Rural Development Corporation

· United States Department of Agriculture

· Economic Vitality Corporation

Business Equipment Leases

· Capital Leases

· Operating Leases

Construction Loans

· Residential and Commercial

· Progress payments funded promptly

Mortgage Loans

· Purchase

· Refinance

· Home Equity Line of Credit

Payroll Tax Depository

Plus many other personalized bank services:

Checking, Savings, Certificates of Deposit, Health Savings Accounts, IRA’s, Night Depository, Safe Deposit, Wire Transfers,  Moneycard, Cashiers Checks, Money Orders, Overdraft Protection, Courier Service

www.santaluciabank.com

EQUAL OPPORTUNITY
LENDER

39

SANTA LUCIA BANCORP

SANTA LUCIA BANCORP BOARD OF DIRECTORS

JERRY W. DECOU III	CHAIRMAN
DOUGLAS C. FILIPPONI	VICE CHAIRMAN
KHATCHIK H. ACHADJIAN
STANLEY R. CHERRY
JOHN C. HANSEN
JEAN HAWKINS
PAUL G. MOERMAN
LARRY H. PUTNAM
D. JACK STINCHFIELD

SANTA LUCIA BANK BOARD OF DIRECTORS

JERRY W. DECOU III	CHAIRMAN
DOUGLAS C. FILIPPONI	VICE CHAIRMAN
KHATCHIK H. ACHADJIAN
STANLEY R. CHERRY
JOHN C. HANSEN
JEAN HAWKINS
PAUL G. MOERMAN
LARRY H. PUTNAM
D. JACK STINCHFIELD

SANTA LUCIA BANCORP EXECUTIVE OFFICERS
JOHN C. HANSEN	PRESIDENT AND CHIEF EXECUTIVE OFFICER
JAMES M. COWAN	EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER

SANTA LUCIA BANK

EXECUTIVE OFFICERS

JOHN C. HANSEN	President and Chief Executive Officer
JAMES M. COWAN	Executive Vice President, Chief Admin. Officer, Chief Credit Officer
JOHN McNINCH	Executive Vice President, Credit Administrator

SENIOR VICE PRESIDENTS

TERI DAVIS	Senior Vice President, Manager - Atascadero
MELODEE FONTANA	Senior Vice President, Operations Administrator
ROBERT COVARRUBIAS	Senior Vice President, Manager - Paso Robles
CLAUDYA OGLESBY	Senior Vice President, Credit Administration

VICE PRESIDENTS

SHARON SATTERTHWAITE	Vice President, Controller
JENNIFER BASSI GINDER	Vice President, Operations Officer
KRISTIE KELLER	Vice President, Central Operations
KIM DONALDSON	Vice President, Operations Officer
RYUN McCRORY	Vice President, Loan Officer
LEAH T. WEST	Vice President, Manager - Santa Maria
JIM KELLEY	Vice President, Loan Officer
MICHAEL W. McKENZIE	Vice President, Manager - Arroyo Grande
LARRY WOMACK	Vice President, Assistant Credit Administrator
JAMES P. BURUBELTZ	Vice President, Loan Officer
RICHARD ALLEN	Vice President, Loan Officer
JULIE A. JOSLIN	Vice President, Cashier
JOSHUA R. BIVIN	Vice President, Loan Officer

ASSISTANT VICE PRESIDENTS

CHERYL MUMFORD	Assistant Vice President, Operations Officer
J. DARREN BARNES	Assistant Vice President, Loan Officer
REGINA M. SHELDON	Assistant Vice President, Loan Officer

OFFICERS

LILA BOGARDUS	Note Department Manager
KAREN SAMPSON	Assistant Operations Officer
STELLA MARTINEZ	Operations Officer
GEORGE GARCIA	IT Manager
ROBERT J. McCONAGHY	Loan Officer

FINANCIAL HIGHLIGHTS

The Company has two classes of stock outstanding - Common and Series A Preferred. Our common stock trades over-the-counter and is quoted on the OTC Bulletin Board under the symbol SLBA.OB. There is no active market for the Series A Preferred and all of the outstanding preferred is held by one shareholder. The information in the following table indicates the high and low bid prices of the Company’s common stock for each quarterly period during the last two years based upon information provided by the Company market makers. These prices do not include retail mark ups, mark downs or commissions, but have been adjusted to reflect the Bank’s 4-for-1 stock split that was effective June 2005.

Quarter Ended 2009	Low		High
December 31	$	10.10	$	11.89
September 30	11.55		15.00
June 30	10.50		13.00
March 31	8.20		14.75

Quarter Ended 2008	Low		High
December 31	$	13.50	$	19.00
September 30	14.25		21.50
June 30	20.00		24.25
March 31	23.25		25.00

MARKET MAKERS

Randy Krumland, Edward Jones — Atascadero, CA	805/466-0244 or 800/467-0244
Jim Moffatt, Morgan Stanley — Paso Robles, CA	805/239-0920 or 800/733-0920
Trevor Morris, UBS Financial Services, Inc. — Los Angeles, CA	213/972-1511 or 800/443-5203
Joey J. Warmenhoven, McAdams Wright Ragen — Portland, OR	503/922-4888 or 866/662-0351

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We hereby consent to the inclusion of our Independent Auditor’s Report dated March 12, 2010 regarding the consolidated balance sheets of Santa Lucia Bancorp and Subsidiary as of December 31, 2009 and 2008, and the related consolidated statements of earnings, changes in shareholders’ equity, and cash flows for the years then ended December 31, 2009, in the Form 10-K filed with the Securities and Exchange Commission.

/s/ Vavrinek, Trine, Day, & Co., LLP

Laguna Hills, California

March 26, 2010

EX-31.1

Exhibit 31.1

CERTIFICATION

I, John C. Hansen, President and Chief Executive Officer of Santa Lucia Bancorp, certify that:

1.I have reviewed this annual report on Form 10-K of Santa Lucia Bancorp;

2.Based on my knowledge, this annual 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 annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4.The registrant’s other certifying officers 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 we 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 annual 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 officers 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 function):

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:	March 26, 2010	/s/ John C. Hansen
		John C. Hansen
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, James M. Cowan, Executive Vice President and Chief Financial Officer of Santa Lucia Bancorp, certify that:

1.I have reviewed this annual report on Form 10-K of Santa Lucia Bancorp;

2.Based on my knowledge, this annual 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 annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4.The registrant’s other certifying officers 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 we 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 annual 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 officers 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 function):

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:	March 26, 2010	/s/ James M. Cowan
		James M. Cowan
		Executive Vice President and Chief Financial Officer

EX-32.1

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

Each of the undersigned hereby certifies in his capacity as an officer of Santa Lucia Bancorp (the “Company”) that the Annual Report of the Company on Form 10-K for the period ended December 31, 2009 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.

Date:	March 26, 2010	/s/ John C. Hansen
		John C. Hansen
		President and Chief Executive Officer
Date:	March 26, 2010	/s/ James M. Cowan
		James M. Cowan
		Executive Vice President and Chief Financial Officer

EX-99.1

Exhibit 99.1

SANTA LUCIA BANCORP

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, John C. Hansen, certify, based on my knowledge, that:

(i) The compensation committee of Santa Lucia Bancorp (the “Company”) has discussed, reviewed, and evaluated with senior risk officers at least every six months during the period beginning on the later of September 14, 2009, or ninety days after the closing date of the agreement between the TARP recipient and Treasury and ending with the last day of the TARP recipient’s fiscal year containing that date (the applicable period), the senior executive officer (SEO) compensation plans and the employee compensation plans and the risks these plans pose to the Company;

(ii) The compensation committee of the Company has identified and limited during the applicable period any features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the Company, and during that same applicable period has identified any features of the employee compensation plans that pose risks to the Company and has limited those features to ensure that the Company is not unnecessarily exposed to risks;

(iii) The compensation committee has reviewed, at least every six months during the applicable period, the terms of each employee compensation plan and identified any features of the plan that could encourage the manipulation of reported earnings of the Company to enhance the compensation of an employee, and has limited any such features;

(iv) The compensation committee of the Company will certify to the reviews of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;

(v) The compensation committee of the Company will provide a narrative description of how it limited during any part of the most recently completed fiscal year that included a TARP period the features in:

(A)SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the Company;

(B)Employee compensation plans that unnecessarily expose the Company to risks; and

(C)Employee compensation plans that could encourage the manipulation of reported earnings of the Company to enhance the compensation of an employee;

(vi) The Company has required that bonus payments, as defined in the regulations and guidance established under section 111 of EESA (bonus payments), of the SEOs and twenty next most highly compensated employees be subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;

(vii) The Company has prohibited any golden parachute payment, as defined in the regulations and guidance established under section 111 of EESA, to a SEO or any of the next five most highly compensated employees during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or September 14, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(viii) The Company has limited bonus payments to its applicable employees in accordance with section 111 of EESA and the regulations and guidance established thereunder during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or September 14, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(ix) The board of directors of the Company has established an excessive or luxury expenditures policy, as defined in the regulations and guidance established under section 111 of EESA, by the later of September 14, 2009, or ninety days after the closing date of the agreement between the TARP recipient and Treasury; this policy has been provided to Treasury and its primary regulatory agency; the Company and its employees have complied with this policy during the applicable period; and any expenses that, pursuant to this policy, required approval of the board of directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility were properly approved;

(x) The Company will permit a non-binding shareholder resolution in compliance with any applicable federal securities rules and regulations on the disclosures provided under the federal securities laws related to SEO compensation paid or accrued during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or September 14, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(xi) the Company will disclose the amount, nature, and justification for the offering during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or June 15, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date of any perquisites, as defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus payment limitations identified in paragraph (viii);

(xii) The Company will disclose whether the Company, the board of directors of the Company, or the compensation committee of TARP recipient has engaged during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or September 14, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date, a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;

(xiii) The Company has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or September 14, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(xiv) The Company has substantially complied with all other requirements related to employee compensation that are provided in the agreement between the Company and Treasury, including any amendments;

(xv) The Company has submitted to Treasury a complete and accurate list of the SEOs and the twenty next most highly compensated employees for the current fiscal year and the most recently completed fiscal year, with the non SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each SEO and most highly compensated employee identified; and

(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both. (See, for example, 18 USC 1001).

/s/ John C. Hansen

Name: John C. Hansen

Title: Chief Executive Officer

Dated: February 16, 2010

EX-99.2

Exhibit 99.2

SANTA LUCIA BANCORP

 CHIEF FINACIAL OFFICER CERTIFICATION

I, James M. Cowan, certify, based on my knowledge, that:

(i) The compensation committee of Santa Lucia Bancorp (the “Company”) has discussed, reviewed, and evaluated with senior risk officers at least every six months during the period beginning on the later of September 14, 2009, or ninety days after the closing date of the agreement between the TARP recipient and Treasury and ending with the last day of the TARP recipient’s fiscal year containing that date (the applicable period), the senior executive officer (SEO) compensation plans and the employee compensation plans and the risks these plans pose to the Company;

(ii) The compensation committee of the Company has identified and limited during the applicable period any features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the Company, and during that same applicable period has identified any features of the employee compensation plans that pose risks to the Company and has limited those features to ensure that the Company is not unnecessarily exposed to risks;

(iii) The compensation committee has reviewed, at least every six months during the applicable period, the terms of each employee compensation plan and identified any features of the plan that could encourage the manipulation of reported earnings of the Company to enhance the compensation of an employee, and has limited any such features;

(iv) The compensation committee of the Company will certify to the reviews of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;

(v) The compensation committee of the Company will provide a narrative description of how it limited during any part of the most recently completed fiscal year that included a TARP period the features in:

(D)SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the Company;

(E)Employee compensation plans that unnecessarily expose the Company to risks; and

(F)Employee compensation plans that could encourage the manipulation of reported earnings of the Company to enhance the compensation of an employee;

(vi) The Company has required that bonus payments, as defined in the regulations and guidance established under section 111 of EESA (bonus payments), of the SEOs and twenty next most highly compensated employees be subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;

(vii) The Company has prohibited any golden parachute payment, as defined in the regulations and guidance established under section 111 of EESA, to a SEO or any of the next five most highly compensated employees during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or September 14, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(viii) The Company has limited bonus payments to its applicable employees in accordance with section 111 of EESA and the regulations and guidance established thereunder during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or September 14, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(ix) The board of directors of the Company has established an excessive or luxury expenditures policy, as defined in the regulations and guidance established under section 111 of EESA, by the later of September 14, 2009, or ninety days after the closing date of the agreement between the TARP recipient and Treasury; this policy has been provided to Treasury and its primary regulatory agency; the Company and its employees have complied with this policy during the applicable period; and any expenses that, pursuant to this policy, required approval of the board of directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility were properly approved;

(x) The Company will permit a non-binding shareholder resolution in compliance with any applicable federal securities rules and regulations on the disclosures provided under the federal securities laws related to SEO compensation paid or accrued during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or September 14, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(xi) the Company will disclose the amount, nature, and justification for the offering during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or June 15, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date of any perquisites, as defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus payment limitations identified in paragraph (viii);

(xii) The Company will disclose whether the Company, the board of directors of the Company, or the compensation committee of the TARP recipient has engaged during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or September 14, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date, a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;

(xiii) The Company has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during the period beginning on the later of the closing date of the agreement between the TARP recipient and Treasury or September 14, 2009 and ending with the last day of the TARP recipient’s fiscal year containing that date;

(xiv) The Company has substantially complied with all other requirements related to employee compensation that are provided in the agreement between the Company and Treasury, including any amendments;

(xv) The Company has submitted to Treasury a complete and accurate list of the SEOs and the twenty next

most highly compensated employees for the current fiscal year and the most recently completed fiscal year, with the non SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each SEO and most highly compensated employee identified; and

(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both. (See, for example, 18 USC 1001).

/s/ James M. Cowan

Name: James M. Cowan

Title: Chief Financial Officer

Dated: February 16, 2010