10KSB

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

FORM 10-KSB

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2006.

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 For the transition period from           to           

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

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

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-KSB or any amendment to this Form 10-KSB  o.

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

Registrant’s revenues for the year ended December 31, 2006 were $18,036,933.

The aggregate market value of the voting common stock held by non-affiliates of the Registrant at March 1, 2007 was approximately $35,496,251.

As of March 1, 2007, the Registrant had 1,929,492 shares of Common Stock outstanding.

The information required in Part III, Items 9 through 12 and 14 is incorporated herein from the Registrant’s definitive proxy statement for the 2007 annual meeting of shareholders previously filed pursuant to Regulation 14A and Part II, Items 6 and 7 of the 2006 Annual Report to Shareholders filed as an exhibit hereto.

Transitional Small Business Disclosure Format (check one)         Yes o    Nox

TABLE OF CONTENTS

PART I
ITEM 1.	DESCRIPTION OF BUSINESS
ITEM 2.	DESCRIPTION OF PROPERTY
ITEM 3.	LEGAL PROCEEDINGS
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5.	MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6.	MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
ITEM 7.	FINANCIAL STATEMENTS
ITEM 8.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 8A.	CONTROLS AND PROCEDURES
ITEM 8B.	OTHER INFORMATION
PART III
ITEM 9.	DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
ITEM 10.	EXECUTIVE COMPENSATION
ITEM 11.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 12.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
ITEM 13.	EXHIBITS
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES
SIGNATURES
EXHIBIT INDEX

PART I

CERTAIN STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-KSB (“ANNUAL REPORT”), INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS “BELIEVES”, “ANTICIPATES”, “INTENDS”, “EXPECTS”, “ESTIMATES”, “MAY”, “COULD” AND WORDS OF SIMILAR IMPACT, CONSTITUTE “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES AND EXCHANGE ACT OF 1934. 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, DEMOGRAPHIC CHANGES, COMPETITION, FLUCTUATIONS IN INTEREST RATES, CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS, CHANGES IN GOVERNMENTAL REGULATION, CREDIT QUALITY, THE AVAILABILITY OF CAPITAL TO FUND THE EXPANSION OF THE COMPANY’S BUSINESS, ECONOMIC, POLITICAL AND GLOBAL CHANGES ARISING FROM THE WAR ON TERRORISM, AND OTHER FACTORS REFERENCED IN THIS REPORT, INCLUDING IN “ITEM 1. DESCRIPTION OF BUSINESS-FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS”. 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. DESCRIPTION OF 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 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, 2006, the Company had approximately $240.7 million in assets, $169.7 million in net loans, $213.0 million in deposits, and $19.1 million in stockholders’ equity.

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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.  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.

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, 2006, these four categories accounted for approximately 21%, 1%, 32% and 46%, respectively, of the Bank’s loan portfolio. See “Item 6 — 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, 2006, the Bank had approximately 8,199 demand deposit accounts consisting of non-interest bearing (demand), interest-bearing demand and money market accounts with balances totaling $119,687,000, for an average balance per account of approximately $14,598; 3,200 savings accounts with balances totaling $27,384,000, for an average balance per account of approximately $8,558; and 1,410 time certificate of deposit accounts with balances totaling $65,918,000, for an average balance per account of approximately $46,750.

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, 2006, these sources comprised 85%, 9%, 4% and 2%, 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

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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, 2006, the Bank had a total of 88 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 260,000 and 92,000 respectively, according to economic data provided by local county and title company sources.  The moderate climate allows a year round growing season for numerous vegetable and fruits.  Vineyards and cattle ranches also contribute largely to the local economy.  The Central Coast’s leading agricultural industry is the production of high quality wine grapes and production of premium quality wines.  Although on average the climate in our markets is generally very mild, we did experience a significant freeze in early 2007.  This did not have a significant impact on our business.  Vineyards in production have grown significantly over the past several years throughout the Company’s service area.  Access to numerous recreational activities, including lakes, mountains and beaches, provide 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, the area, while not immune from economic fluctuations, does tend to enjoy a more stable level of economic activity than many other areas of California.

Throughout the primary market area of the Company, the softening housing market of 2006 is expected to continue into 2007, though it is unknown just how long-lasting the slowdown might be.  The number of homes sold in 2006 was 25% less than in 2005, according to real estate research firm DataQuick.

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According to the San Luis Obispo County Outlook Economic Forecast, copyrighted and published by The Regents of the University of California (Santa Barbara), even with sales volume down in 2006, median home prices in San Luis Obispo County increased 11.4% through November 2006, and California’s median home prices are up 8.6% through the same period.  Price growth has slowed in recent months and is expected to be subdued through 2007.

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.

Effect of Government Policies and Recent Legislation

Banking is a business largely dependent on rate differentials. In general, the difference between the interest rate paid by the Company on its deposits and its other borrowings and the interest rate received by the Company on loans extended to its customers and securities held in the Company’s portfolio comprise the major portion of the Company’s earnings. These rates are highly sensitive to many factors that are beyond the control of the Company. Accordingly, the earnings and growth of the Company are subject to the influence of domestic and foreign economic conditions, including inflation, recession and unemployment.

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The commercial banking business is not only affected by general economic conditions but is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the FRB. The FRB implements national monetary policies (with objectives such as curbing inflation and combating recession) by its open-market operations in United States Government securities, by adjusting the required level of reserves for financial institutions subject to its reserve requirements and by varying the discount rates applicable to borrowings by depository institutions. The actions of the FRB in these areas influence the growth of bank loans, investments and deposits and also affect interest rates charged on loans and paid on deposits. The nature and impact on the Company of any future changes in monetary policies cannot be predicted.

From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are frequently made in Congress, in the California legislature and before various bank regulatory and other professional agencies. See “Description of Business-Supervision and Regulation.”

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.

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

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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.

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”).

The Bank

The Bank is chartered under the laws of the State of California and its deposits are insured by the 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

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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 semiannual 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

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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%.

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.

During the third quarter of 2003, the Bank undertook and completed a private placement of subordinated debentures (“notes”) to augment is 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.

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.

December 31, 2006
	Minimum		Minimum
	Capital		“Well Capitalized”		Bank		Company
	Requirements		Bank		Actual		Actual
LEVERAGE RATIO	4.0	%	5.0	%	9.1	%	10.0	%
TIER 1 RISK-BASED RATIO	4.0	%	6.0	%	11.4	%	14.0	%
TOTAL RISK-BASED RATIO	8.0	%	10.0	%	13.1	%	15.0	%

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Under applicable regulatory guidelines, the Bank was considered “Well Capitalized” at December 31, 2006.

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, 2006 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.

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.

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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 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

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

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

The FDIC is authorized to terminate a depository institution’s deposit insurance upon a finding by the FDIC that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution’s regulatory agency. The termination of deposit insurance for the Bank would have a material adverse effect on the Bank’s condition since it would result in the revocation of the Bank’s charter and the cessation of its operations as a going concern.

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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 has, and will this year, incur additional operating expense as a result of certain of the requirements of SOX, but does not expect that the anticipated expense of approximately $75,000 for such compliance costs will have a material impact on its business overall.

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

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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 face 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

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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 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.

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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

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 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.

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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.

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-KSB (Annual Report), Form 10-QSB (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-KSB.

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 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.

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Risks Associated with our Business.

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

At December 31, 2006, real estate served as the principal source of collateral with respect to approximately 78% of our loan portfolio.  A decline in current economic conditions or rising interest rates could have an adverse effect on the demand for new loans, 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 us, as well as our financial condition and results of operations in general.

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.

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 56% 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.

The Company also targets experienced local builders that are active in residential construction for owner’s use, spec construction and small-scale residential construction projects.  The Company originates loans on a limited number of large projects and 21.2% of our construction loans are in owner occupied residential construction and commercial properties for owner use.

In addition, federal banking regulators recently 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.

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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.

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.

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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 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.

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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.

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.

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.

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Risks Associated with our Stock.

Our Stock Trades Less Frequently Than Others.

Although our common stock is listed for trading 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

·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.

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.

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ITEM 2.DESCRIPTION OF PROPERTY

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.

In addition, 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.

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.

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

No matters were submitted to a vote of security holders during the fourth quarter of 2006.

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PART II

ITEM 5.MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

The Company’s Common Stock is not listed on any exchange or market. However, Maguire Investments, Morgan Stanley, Howe Barnes Hoefer & Arnett, Inc., Edward Jones, Wedbush Morgan Securities, and UBS Financial Services, Inc. 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”

On May 11, 2005 the Board of Directors of the Company approved a 4-for-1 split of the Company’s common stock effective June 30, 2005.  The per share data listed below has been retroactively restated to reflect this split.

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.

Quarter Ended	Bid Prices (1)
	Low		High
2006
December 31	$	24.00	$	29.00
September 30	24.05		27.00
June 30	26.55		34.50
March 31	25.05		30.25
2005
December 31	$	25.50	$	29.50
September 30	20.25		30.00
June 30	19.37		20.25
March 31	18.38		20.00

(1)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

As of January 31, 2007, there were approximately 383 holders of the Company’s Common Stock. There are no other classes of equity outstanding.

Dividends

The following table sets forth the per share amount and month of payment for all cash dividends paid since January 1, 2005:

Month Paid	Amount Per Share
March 2005	$	0.1875
September 2005	0.2000
March 2006	0.2000
September 2006	0.2000

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.

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

25

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 intends to pay cash dividends in the future subject to various factors including regulatory restrictions described above. Whether or not any dividends will be paid in the future will be determined by the Board of Directors after consideration of various factors. The Company’s profitability and regulatory capital ratios in addition to other financial conditions will be key factors considered by the Board of Directors in making such determinations regarding the payment of dividends by the Company.

Equity Compensation Plan

The Company has a 2006 Equity Based Compensation plan that provides for grants of incentive stock options, non-qualified stock options, and various other forms of equity awards.  The plan covers a total of 200,000 shares of Company common stock.  When the 2006 Plan was adopted, our prior stock option plans were frozen and no other awards may be granted from such plans,

The following table summarizes information as of December 31, 2006 relating to our equity based compensation plans:

	Equity Compensation Plan Information
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	65,000	$	24.85	135,000
Equity compensation plans not approved by security holders	N/A	N/A		N/A
Total	65,000	$	24.85	135,000

26

ITEM 6.MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The information required by Item 6 of Form 10-KSB is incorporated by reference from the section entitled “Management’s Discussion and Analysis and Results of Operations” in the Company’s 2006 Annual Report to Shareholders, included as an exhibit to this Annual Report.

ITEM 7.FINANCIAL STATEMENTS

The financial statements and the notes thereto required by Item 7 of Form 10-KSB are incorporated by reference from the Company’s 2006 Annual Report to Shareholders, included as an exhibit to this Annual Report.

ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 8A.CONTROLS AND PROCEDURES

(a) 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, 2006, 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, 2006 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.

(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 8B.OTHER INFORMATION

None.

27

PART III

ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

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-KSB filed on March 24, 2006, for the year ended December 31, 2005.

During 2006, there were no material changes to the procedures by which security holders may recommend nominees to our board of directors.

The remainder of the information required by Item 9 of Form 10-KSB is incorporated by reference from the information contained in the Company’s Proxy Statement for the 2007 Annual Meeting of Shareholders which has been filed pursuant to Regulation 14A.

ITEM 10.EXECUTIVE COMPENSATION

The information required by Item 10 of Form 10-KSB is incorporated by reference from the information contained in the Company’s Proxy Statement for the 2007 Annual Meeting of Shareholders which has been filed pursuant to Regulation 14A.

ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 11 of Form 10-KSB is incorporated by reference from the information contained in the Company’s Proxy Statement for the 2007 Annual Meeting of Shareholders which has been filed pursuant to Regulation 14A.

ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by Item 12 of Form 10-KSB is incorporated by reference from the information contained in the Company’s Proxy Statement for the 2007 Annual Meeting of Shareholders which has been filed pursuant to Regulation 14A.

ITEM 13.               EXHIBITS

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

28

Index to Exhibits

Exhibit		Sequentially
Number	Exhibit	Numbered Pages
3.1	Articles of Incorporation of the Bancorp, as amended	14/
3.2	Bylaws of the Bancorp, as amended	14/
3.3	Certificate of Amendment to Bylaws of Santa Lucia Bank, dated January 16, 2002	7/
10.1	Agreement and Plan of Reorganization, dated March 1, 1995 by and between the Bank and Central Coast National Bank	1/
10.2	Merger Agreement, dated June 14, 1995 by and between the Bank and Central Coast National Bank	1/
10.3	Data Processing Agreement, dated August, 1992 between the Bank and City National Information Systems and Addendum thereto	1/
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/
10.7	Santa Lucia Bank’s 1989 Stock Option Plan	1/
10.8	Santa Lucia Bank’s 1995 Stock Option 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/

29

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/
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/

30

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/
10.43	Construction Contract for new Santa Maria Branch between Santa Lucia Bank And S. J. Deferville Construction, Inc., dated December 1, 2000	6/
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 Stanley R. Cherry, dated May 10, 2000	6/
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/

31

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/
10.58	Design Services Contract for the new Arroyo Grande office between Bank and RRM Design Group, dated December 2, 2002	8/
10.59	Form of Note Purchase Agreement	9/
10.60	Subordinated Note	9/
10.61	Construction Contract for new Arroyo Grande Office between Santa Lucia Bank and Specialty Construction, Inc., dated October 8, 2003	10/
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/
10.64	Employment Agreement by and between Santa Lucia Bank and William F. Filippin 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	14/
10.67	Amended and Restated Employment Agreement by and between Santa Lucia Bank and John C. Hansen dated December 15, 2006	14/
10.68	Amended and Restated Employment Agreement by and between Santa Lucia Bank and James M. Cowan dated December 15, 2006	14/
10.69	Amended and Restated Employment Agreement by and between Santa Lucia Bank and William F. Filippin dated December 15, 2006	14/
11	Statement re: computation of per share earnings	13/
13	The Company’s 2006 Annual Report to Shareholders (parts not incorporated by reference are furnished for informational purposes only and are not filed herewith)	14/
14.1	Code of Business Conduct	14/
23.1	Consent of independent accountants from Vavrinek, Trine, Day & Co., LLP	14/
31.1	Certification of Chief Executive Officer pursuant to Rule 15d-14	14/
31.2	Certification of Chief Financial Officer pursuant to Rule 15d-14	14/
32.1	Certification pursuant to Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code	14/

32

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

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

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

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

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

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

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

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

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

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

11/Incorporated by reference from the Bank’s Form 10-KSB 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 to the section entitled “Earnings Per Share” contained in the Notes to Financial Statements in the Company’s 2006 Annual Report to Shareholders.

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

ITEM 14.               PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 of Form 10-KSB is incorporated by reference from the information contained in the Company’s Proxy Statement for the 2007 Annual Meeting of Shareholders which has been filed pursuant to Regulation 14A.

33

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/ Larry H. Putnam
LARRY H. PUTNAM
President and Chief Executive Officer
(Principal Executive Officer)
Dated: March 21, 2007
By:	/s/ John C. Hansen
JOHN C. HANSEN
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: March 21, 2007

34

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/ Larry H. Putnam	President and	March 21, 2007
LARRY H. PUTNAM	Chief Executive Officer,
	and Director
/s/ Jerry W. DeCou III	Chairman of the	March 21, 2007
JERRY W. DECOU III	Board of Directors
/s/ Douglas C. Filipponi	Vice Chairman	March 21, 2007
DOUGLAS C. FILIPPONI	of the Board of Directors
/s/ Khatchik H. Achadjian	Director	March 21, 2007
KHATCHIK H. ACHADJIAN
/s/ Stanley R. Cherry	Director	March 21, 2007
STANLEY R. CHERRY
/s/ Jean Hawkins	Director	March 21, 2007
JEAN HAWKINS
/s/ Paul G. Moerman	Director	March 21, 2007
PAUL G. MOERMAN
/s/ D. Jack Stinchfield	Director	March 21, 2007
D. JACK STINCHFIELD

35

EXHIBIT INDEX

Exhibit
Sequential
Number	Description
3.1	Articles of Incorporation of Santa Lucia Bancorp, as amended
3.2	By laws of Santa Lucia Bancorp, as amended
10.66	Amended and Restated Employment Agreement by and between Santa
	Lucia Bank and Larry H. Putnam dated December 15, 2006
10.67	Amended and Restated Employment Agreement by and between Santa
	Lucia Bank and John C. Hansen dated December 15, 2006
10.68	Amended and Restated Employment Agreement by and between Santa
	Lucia Bank and James M. Cowan dated December 15, 2006
10.69	Amended and Restated Employment Agreement by and between Santa
	Lucia Bank and William F. Filippin dated December 15, 2006
13	The Company’s 2006 Annual Report to Shareholders
	(parts not incorporated by reference are furnished for
	informational purposes only and are not filed herewith)
14.1	Code of Business Conduct
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

36

EX-3.1

Exhibit 3.1

ARTICLES OF INCORPORATION

OF

SANTA LUCIA BANCORP

ARTICLE I

The name of this corporation is: Santa Lucia Bancorp.

ARTICLE II

The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust business, or the practice of a profession permitted to be incorporated by the California Corporations Code.

ARTICLE III

The name and address in this state of this corporation’s initial agent for service of process is Mr. Larry H. Putnam, President and Chief Executive Officer, Santa Lucia Bank, 7480 El Camino Real, Atascadero, California 93423.

ARTICLE IV

(a)           The corporation is authorized to issue two classes of shares designated “Preferred Stock” and “Common Stock,” respectively.  The number of shares of Preferred Stock authorized to be issued is 20,000,000 and the number of shares of Common Stock authorized to be issued is 20,000,000.

(b)           The Preferred Stock may be divided into such number of series as the Board of Directors may determine.  The Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to and imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock.  The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series.

ARTICLE V

(a)           The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.

(b)           The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through Bylaw provisions, agreements with agents, vote of the shareholders or disinterested directors or otherwise, to the fullest extent permissible under California law.

(c)           Any amendment, repeal or modification of any provision of this Article V shall not adversely affect any right or protection to an agent of this corporation existing at the time of such amendment, repeal or modification.

Dated:  January 4, 2006
	KENNETH E. MOORE
	Incorporator

EX-3.2

Exhibit 3.2

BYLAWS OF

SANTA LUCIA BANCORP

BYLAWS

OF SANTA LUCIA BANCORP

INDEX

			PAGE
ARTICLE I - OFFICES			1
	SECTION 1.	PRINCIPAL OFFICES	1
	SECTION 2.	OTHER OFFICES	1
ARTICLE II - MEETINGS OF SHAREHOLDERS			1
	SECTION 1.	PLACE OF MEETINGS	1
	SECTION 2.	ANNUAL MEETING	1
	SECTION 3.	SPECIAL MEETING	1
	SECTION 4.	NOTICE OF SHAREHOLDERS’ MEETINGS	2
	SECTION 5.	MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE	2
	SECTION 6.	QUORUM	3
	SECTION 7.	ADJOURNED MEETING; NOTICE	3
	SECTION 8.	VOTING	4
	SECTION 9.	WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS	4
	SECTION 10.	SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING	5
	SECTION 11.	RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING CONSENTS	5
	SECTION 12.	PROXIES	6
	SECTION 13.	INSPECTORS OF ELECTION	6
ARTICLE III - DIRECTORS			7
	SECTION 1.	POWERS	7
	SECTION 2.	NUMBER AND QUALIFICATION OF DIRECTORS	7
	SECTION 3.	NOMINATION OF DIRECTORS	7
	SECTION 4.	ELECTION AND TERM OF OFFICE OF DIRECTORS	8
	SECTION 5.	REMOVAL OF DIRECTORS	8
	SECTION 6.	VACANCIES	8
	SECTION 7.	PLACE OF MEETINGS AND MEETINGS BY TELEPHONE	9
	SECTION 8.	ANNUAL MEETING	9
	SECTION 9.	OTHER REGULAR MEETINGS	9
	SECTION 10.	SPECIAL MEETINGS	9
	SECTION 11.	QUORUM	9
	SECTION 12.	WAIVER OF NOTICE	10
	SECTION 13.	ADJOURNMENT	10
	SECTION 14.	NOTICE OF ADJOURNMENT	10
	SECTION 15.	ACTION WITHOUT MEETING	10
	SECTION 16.	FEES AND COMPENSATION OF DIRECTORS	10
ARTICLE IV - COMMITTEES			10
	SECTION 1.	COMMITTEES OF DIRECTORS	10
	SECTION 2.	MEETINGS AND ACTION OF COMMITTEES	12
ARTICLE V - OFFICERS			12
	SECTION 1.	OFFICERS	12

1

	SECTION 2.	APPOINTMENT OF OFFICERS	12
	SECTION 3.	SUBORDINATE OFFICERS	12
	SECTION 4.	REMOVAL AND RESIGNATION OF OFFICERS	13
	SECTION 5.	VACANCIES IN OFFICES	13
	SECTION 6.	CHAIRMAN OF THE BOARD	13
	SECTION 7.	VICE CHAIRMAN	13
	SECTION 8.	PRESIDENT	13
	SECTION 9.	VICE PRESIDENTS	13
	SECTION 10.	SECRETARY	14
	SECTION 11.	CHIEF FINANCIAL OFFICER	14
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS			14
	SECTION 1.	INDEMNIFICATION	14
ARTICLE VII - RECORDS AND REPORTS			15
	SECTION 1.	MAINTENANCE AND INSPECTION OF SHARE REGISTER	15
	SECTION 2.	MAINTENANCE AND INSPECTION OF BYLAWS	15
	SECTION 3.	MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS	16
	SECTION 4.	INSPECTION BY DIRECTORS	16
	SECTION 5.	ANNUAL REPORT TO SHAREHOLDERS	16
	SECTION 6.	FINANCIAL STATEMENTS	16
	SECTION 7.	REPRESENTATION OF SHARES OF OTHER CORPORATIONS	17
	SECTION 8.	ANNUAL STATEMENT OF GENERAL INFORMATION	17
ARTICLE VIII - GENERAL CORPORATE MATTERS			18
	SECTION 1.	RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING	18
	SECTION 2.	CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS	18
	SECTION 3.	CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED	18
	SECTION 4.	CERTIFICATES FOR SHARES	18
	SECTION 5.	LOST CERTIFICATES	19
	SECTION 6.	CONSTRUCTION AND DEFINITIONS	19
ARTICLE IX - AMENDMENTS			19
	SECTION 1.	AMENDMENT BY SHAREHOLDERS	19
	SECTION 2.	AMENDMENT BY DIRECTORS	19
	SECTION 3.	RECORD OF AMENDMENTS	19
ARTICLE X - INTERPRETATION			20

2

BYLAWS OF

SANTA LUCIA BANCORP

ARTICLE I

OFFICES

Section 1.               PRINCIPAL OFFICES.  The principal executive office of the corporation shall be at Atascadero, California.  The board of directors shall fix the location of other offices of the corporation at any place within or outside the State of California.

Section 2.               OTHER OFFICES.  The board of directors may at any time establish subordinate offices at any place or places where the corporation is qualified to do business.

ARTICLE II

MEETINGS OF SHAREHOLDERS

Section 1.               PLACE OF MEETINGS.  Meetings of shareholders shall be held at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders’ meetings shall be held at the principal executive office of the corporation or at any place consented to in writing by all persons entitled to vote at such meeting, given before or after the meeting and filed with the Secretary of the corporation.

Section 2.               ANNUAL MEETING.  An annual meeting of the shareholders shall be held on the second Wednesday after the first Monday of March each year at 5:30 p.m.  At that  meeting, directors shall be elected.  The previous year’s operations shall be reviewed and any other proper business may be transacted at the annual meeting of shareholders.

Section 3.               SPECIAL MEETING.  A special meeting of the shareholders may be called at any time by the board of directors, the Chairman of the Board, the President, or the holders of shares entitled to case not less than ten percent (10%) of the votes at that meeting.

If a special meeting is called by any person or persons other than the board of directors or the President or the Chairman of the Board, then the request shall be in writing, specifying the time of the meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board, the President, any Vice President or the Secretary of the corporation. The officer receiving the request shall cause notice promptly to be given to the shareholders entitled to vote, in accordance with the provisions of Sections 4 and 5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request.

If the notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice.  Nothing contained in this paragraph of this

1

Section 3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held.

Section 4.               NOTICE OF SHAREHOLDERS’ MEETINGS.  All notices of meetings of shareholders shall be sent or otherwise given in accordance with Article II, Section 5 of these Bylaws no less ten (10) (or, if sent by third-class mail pursuant to Section 2.5 of these Bylaws, not less than thirty (30)) nor more than sixty (60) days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, and no business other than that specified in the notice may be transacted, or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of the mailing of the notice, intends to present for action by shareholders, but, subject to the provisions of the next paragraph of this Section 4, any proper matter may be presented at the meeting for such action.  The notice of any meeting at which directors are to be elected shall include the names of the nominees intended at the time of the notice to be presented by the board for election.

If the action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the California Corporations Code (the “Code”), (ii) an amendment of the Articles of Incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of  the Code, then the notice shall also state the general nature of that proposal.

Section 5.               MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE.  Notice of any shareholders’ meeting shall be given either personally or by first-class mail, or, if the corporation has outstanding shares held of record by five hundred (500) or more persons (determined as provided in Section 605 of the Code) on the record date for the shareholders’ meeting, notice may be sent by third-class mail, or other means of written communication, addressed to the shareholder at the address of the shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located.  The notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication.

If any notice (or any report referenced in Article VII of these Bylaws) addressed to a shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice.

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An affidavit of mailing of any notice or report in accordance with the provisions of this Section 5, executed by the Secretary, Assistant Secretary or any transfer agent, shall be prima facie evidence of the giving of the notice or report.

All notices of meetings of shareholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting.  The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders.  The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees existing management intends to present for election.

If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the California Corporations Code (the “Code”), (ii) an amendment of the Articles of Incorporation, pursuant to Section 902 of that Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of that Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of that Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of that Code, then the notice shall also state the general nature of that proposal.

Section 6.               QUORUM.  Unless otherwise provided in the Articles of Incorporation of the corporation, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the shareholders.  The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted, except as provided in the last sentence of the proceeding paragraph.

Section 7.               ADJOURNED MEETING; NOTICE.  Any shareholders’ meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at that meeting, except as provided in Section 6 of this Article II.

When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at a meeting at which the adjournment is taken, unless a new record date for the adjourned meeting is fixed, or unless the adjournment is for more than forty-five (45) days from the date set for the original meeting, in which case the board of directors shall set a new record date.  Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 4 and 5 of this Article II. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.

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Section 8.               VOTING.  The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 11 of this Article II, subject to the provisions of Sections 702 to 704, inclusive, of the Code (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership).

The shareholders’ vote may be by voice or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder before the voting has begun.

Except as provided in the last paragraph of this Section 8, or as may be otherwise provided in the Articles of Incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders.  On any matter other than elections of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder’s approving vote is with respect to all shares that the shareholder is entitled to vote.

If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the Code.

At a shareholders’ meeting at which directors are to be elected, no shareholder shall be entitled to cumulate votes unless the candidates’ names have been placed in nomination prior to commencement of the voting and a shareholder has given notice prior to commencement of the voting of the shareholder’s intention to cumulate votes. If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder’s shares are entitled, or distribute the shareholder’s votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of votes, up to the number of directors to be elected shall be elected; votes against any candidate and votes withheld shall have no legal effect.

Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS.  The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to a holding of the meeting, or an approval of the minutes of the meeting. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 4 of this Article II, the waiver of notice or consent is required to state the general nature of the action or proposed action. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

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Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting.

Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.  Any action which maybe taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted.

In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors; provided, however, that a director may be elected at any time to fill a vacancy on the board of directors (other than vacancies created by removal) that has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors.

All such consents shall be filed with the Secretary of the corporation and shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder’s proxy holder, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the Secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the Secretary.

If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders shall not have been received, the Secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. This notice shall be given in the manner specified in Section 5 of this Article II. In the case of approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (ii) indemnification of agents of the corporation, pursuant to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval, unless the consents of all shareholders entitled to vote have been solicited in writing.

Section 11.             RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING CONSENTS.  In order that the corporation may determine the shareholders entitled to notice of any meeting or to vote, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days prior to the date of such meeting nor more than sixty (60) days before any other action.  Shareholders at the close of business on the record date are entitled to notice and to vote, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation or the Code.

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A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the board of directors fixes a new record date for the adjourned meeting, but the board of directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting.

If the board of directors does not so fix a record date:

(i) The record date for determining shareholders entitled to receive notice of or to vote at a meeting of shareholders shall be at the close of business on the business  day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.

(ii)           The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action by the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later.

The record date for any other purpose shall be as provided in Section 1 of Article VII of these Bylaws.

Section 12.             PROXIES.  Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the Secretary of the corporation. A proxy shall be deemed signed if the shareholder’s name is placed on the proxy (whether by manual signature, typewriting, telegraphic or electronic transmission, or otherwise) by the shareholder or the shareholder’s attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked, or by a subsequent proxy executed by, or attendance at the meeting and voting in person by, the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted.  No proxy shall be valid after the expiration of eleven (11) months from the date of the proxy unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the  Code.

Section 13              INSPECTORS OF ELECTION.  In advance of any meeting of shareholders, the board of directors may appoint inspectors of election to act at the meeting and  any adjournment thereof.  If inspectors of election are not so appointed or designated or if any persons so appointed fail to appear or refuse to act, then the Chairman of the meeting may, and on the request of any shareholder or a shareholder’s proxy shall, appoint inspectors of election (or persons to replace those who so fail to appear) at the meeting. The number of inspectors shall be either one (1) or three (3).  If appointed at a meeting on the request of one (1) or more

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shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one (1) or three (3) inspectors are to be appointed.

The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do any other acts that may be proper to conduct the election or vote with fairness to all shareholders.

ARTICLE III

DIRECTORS

Section 1.               POWERS.  Subject to the provisions of the Code and any limitations in the Articles of Incorporation and these Bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors.  The board may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board.

Section 2.               NUMBER AND QUALIFICATION OF DIRECTORS.  The authorized number of directors shall not be less than seven (7) nor more than thirteen (13).  The exact number of directors shall be nine (9) until changed, within the limits specified above, by a bylaw amending this section, duly adopted by resolution of the board of directors or the shareholders.  The maximum or minimum number of directors cannot be changed, nor can a fixed number be substituted for the maximum and minimum numbers, except by a duly adopted amendment to the articles of incorporation if the minimum or maximum number is stated therein, or otherwise by amendment to this bylaw duly approved by a majority of the outstanding shares entitled to vote.   An amendment that would reduce the minimum number to less than five (5), however, cannot be adopted if the votes cast against its adoption at a shareholders’ meeting or the shares not consenting to an action by written consent are equal to more than one-sixth (16 2/3%) of the outstanding shares entitled to vote.   No amendment may change the stated maximum number of authorized directors to a number greater than two times the stated minimum number minus one.

Section 3.               NOMINATION OF DIRECTORS.  Nominations for election of members of the board may be made by the board or by any holder of any outstanding class of capital stock of the corporation entitled to vote for the election of directors.  Notice of intention to make any nominations (other than for persons named in the notice of the meeting called for the election of directors) shall be made in writing and shall be delivered or mailed to the President of the corporation by the later of: (i) the close of business twenty-one (21) days prior to any meeting of shareholders called for the election of directors; or (ii) seven (7) days after the date of mailing of notice of the meeting to shareholders.  Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the number of shares of

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capital stock of the corporation owned by each proposed nominee; (d) the name and residence address of the notifying shareholder; (e) the number of shares of capital stock of the corporation owned by the notifying shareholder; (f) the number of shares of capital stock of any bank, bank holding company, savings and loan association or other depository institution owned beneficially  by the nominee or by the notifying shareholder and the identities and locations of any such institutions; and (g) whether the proposed nominee has ever been convicted of or pleaded nolo contendere to any criminal offense involving dishonesty or breach of trust, filed a petition in bankruptcy or been adjudged bankrupt.  The notification shall be signed by the nominating shareholder and each nominee, and shall be accompanied by a written consent to be named as a nominee for election as a director from each proposed nominee.  Nominations not made in accordance with these procedures shall be disregarded by the Chairman of the meeting, and upon his instructions, the inspectors of election shall disregard all votes cast for each such nominee.

A copy of the preceding paragraph shall be set forth in the notice to shareholders of any meeting at which directors are to be elected.

Section 4.               ELECTION AND TERM OF OFFICE OF DIRECTORS.  Directors shall be elected at each annual meeting of the shareholders to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until a successor has been elected and qualified.

Section 5.               REMOVAL OF DIRECTORS.  The entire board of directors or any individual director may be removed from office without cause by the affirmative vote of a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire board is removed, no individual director may be removed when the votes cast against such director’s removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election at which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director’s most recent election were then being elected.

Section 6.               VACANCIES.  Vacancies in the board of directors may be filled by a majority of the remaining directors,  though less than a quorum, or by a sole remaining director, except that a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the unanimous written consent of holders of all outstanding shares entitled to vote.  Each director so elected shall hold office until a successor has been elected and qualified.

The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote.  A director may not be elected by written consent to fill a vacancy created by removal except by unanimous consent of all shares entitled to vote for the election of directors.

Any director may resign by giving written notice of resignation to the Chairman of the Board, the President, the Secretary, or the board of directors.  The resignation shall be effective immediately unless the notice specifies otherwise.  If the resignation is effective at a future time,

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the board of directors may elect a successor to take office when the resignation becomes effective.

No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

Section 7.               PLACE OF MEETINGS AND MEETINGS BY TELEPHONE.  All regular and special meetings of the board of directors shall be held at the principal executive office of the corporation unless a different place is specified by board resolutions or the notice of meeting.   Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another.  All participating directors shall be deemed to be present in person at the meeting.

Section 8.               ANNUAL MEETING.  Immediately following each annual meeting of shareholders, the board of directors shall hold a regular meeting for the purpose of organization, any desired election of officers, and the transaction of other business. Notice of this meeting shall not be required.

Section 9.               OTHER REGULAR MEETINGS.  Other regular meetings of the board of directors shall be held without call at such time as shall from time to time be fixed by the board of directors. Such regular meetings may be held without notice.

Section 10.             SPECIAL MEETINGS.  Special meetings of the board of directors for any purpose or purposes may be called at any time by the Chairman of the Board, the President, any Vice President, the Secretary or any two (2) directors.

Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director’s address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the meeting.  If the notice is delivered personally, or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation.

Section 11.             QUORUM.  A majority of the authorized number of directors shall constitute a quorum for the transaction of business except to adjourn as provided in Section 13 of this Article III. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (as to appointment of committees), and Section 317(e) of the Code (as to indemnification of directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

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Section 12.             WAIVER OF NOTICE.  The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting.  All such waivers, consents, and approvals of the minutes shall be filed with the corporate records or made a part of the minutes of the meeting.  Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting before or at its commencement, the lack of notice to that director.

Section 13.             ADJOURNMENT.  A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place.

Section 14.             NOTICE OF ADJOURNMENT.  Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four (24) hours, in which case notice of the time and place shall be given before the time of the adjourned meeting to the directors who were not present at the time of the adjournment.

Section 15.             ACTION WITHOUT MEETING.  Any action required or permitted to be taken by the board of directors may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent or consents shall be filed with the minutes of the proceedings of the board.

Section 16.             FEES AND COMPENSATION OF DIRECTORS.  Directors and members of committees of directors may receive such compensation, for their services, and such reimbursement of expenses, as may be fixed or determined by resolution of the board of directors. This Section 15 should not be construed to preclude any director from serving in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for those services.

ARTICLE IV

COMMITTEES

Section 1.               COMMITTEES OF DIRECTORS.  The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of committee members or alternative members requires the vote of a majority of the authorized number of directors.  Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to:

(i)            the approval of any action which, under the Code, also requires shareholders’ approval or approval of the outstanding shares;

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(ii)           the filling of vacancies on the board of directors or in any committee;

(iii)          the fixing of compensation of the directors for serving on the board or on any committee;

(iv)          the amendment or repeal of Bylaws or the adoption of new Bylaws;

(v)           the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable;

(vi)          a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or

(vii)         the appointment of any other committees of the board of directors or the members of these committees.

(b)  In addition, the following standing committees of the corporation shall be appointed by the board of directors:

(i)            An Audit Committee, appointed annually by the board of directors.  Each member of this committee shall serve until his or her successor is appointed and the committee shall consist of at least three (3) members of the board of directors, none of whom shall be active officers of the corporation.  The duties of this committee shall be to make suitable examinations every twelve (12) months of the affairs of the corporation.  The results of each such examination shall be reported in writing to the board of directors at the next regular meeting after the date of the audit, stating whether the corporation is in a sound and solvent condition, whether adequate internal audit controls and procedures are being maintained, and recommending to the board of directors such changes in the manner of doing business, etc., as shall be deemed advisable.  The Audit Committee, upon its own recommendation and with the approval of the board of directors, may employ a qualified firm of certified public accountants to make an examination and audit of the corporation.  If such procedure is followed, the one annual examination and audit of such firm of accountants and the presentation of its report to the board of directors will be deemed sufficient to comply with the requirements of this Section of these Bylaws.  The Audit Committee may request that the board of directors accept either a Federal Deposit Insurance Corporation or State Banking Department examination report in lieu of an audit by the Committee.

(ii)           An Investment Committee, consisting of the President, the Chief Financial Officer, and at least three (3) directors, appointed annually by the board of directors.  This committee shall have the power to discount and purchase bills, notes and other evidence of debt, to buy and sell bills of exchange, to buy and sell such investments as a proper, prudent and lawful for the corporation’s investment portfolio.

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The board of directors may appoint, from time to time, other committees, for such purposes and with such powers as the board may determine.  Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of these Bylaws, with such changes in the context of these Bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that the time of the regular meeting of committees may be determined either by resolution of the board of directors or by resolution of the committee, special meetings of committees may also be called by resolution of the board of directors, and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of committees.  Any action to be taken by a committee with members who are not also directors must be approved by directors constituting a majority of the committee or be submitted to the board of directors for approval.  The board of directors may adopt rules for government of any committee not inconsistent with the provisions of these Bylaws.

Section 2,               MEETINGS AND ACTION OF COMMITTEES.   Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Sections 7 (place of meetings), 8 and 9 (regular meetings), 10 (special meetings and notice), 11 (quorum), 12 (waiver of notice), 13 (adjournment), 14 (notice of adjournment), and 15 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee; special meetings of committees may also be called by resolution of the board of directors.  Notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.

ARTICLE V

OFFICERS

Section 1.               OFFICERS. The officers of the corporation shall be a President, a Secretary, and a Chief Financial Officer.  The corporation may also have, at the discretion of the board of directors, a Chairman of the Board, one or more Vice Chairmen, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed by the directors.  Any number of offices may be held by the same person.

Section 2.               APPOINTMENT OF OFFICERS.  The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Article V, Section 3 or Section 5, shall be chosen by the board of directors, and each shall serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment.

Section 3.               SUBORDINATE OFFICERS.  The board of directors may appoint, or may empower the Chairman of the Board or the President to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have

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such authority, and perform such duties as are provided in the Bylaws or as the board of directors may from time to time determine.

Section 4.               REMOVAL AND RESIGNATION OF OFFICERS.  Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors, at any regular or special meeting of the board, or, except in case of an officer chosen by the board of directors, by any officer upon whom such power or removal may be conferred by the board of directors.

Any officer may resign at any time by giving written notice to the corporation.  Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice.  Unless otherwise specified in that notice, acceptance of the resignation shall not be necessary to make it effective.  Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

Section 5.               VACANCIES IN OFFICES.  A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office.

Section 6.               CHAIRMAN OF THE BOARD.  The Chairman of the Board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may be assigned to him from time to time by the board of directors or prescribed by the Bylaws.  The Chairman of the Board shall be excluded from participation in major policy making functions of the corporation other than in the capacity of a director.

Section 7.               VICE CHAIRMAN.  The board of directors may appoint one or more of its members to be a Vice Chairman of the Board.  The Vice Chairman, in the absence of the Chairman, shall preside at all meetings of the shareholders and at all meetings of the board of directors and exercise and perform such other powers and duties as may be, from time to time, assigned to him by the board of directors or prescribed by these Bylaws.  Any Vice Chairman shall be excluded from participation in major policy making functions of the corporation, other than in the capacity of a director.

Section 8.               PRESIDENT.  Subject to such supervisory powers, if any, as may be given by the board of directors to the Chairman of the Board, if there be such an officer, the  President shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation.  He shall preside at all meetings of the shareholders and, in the absence of the Chairman and Vice Chairman of the Board, or if there be none, at all meetings of the board of directors.  He shall have the general powers and duties of management usually vested in the office of the President of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or these Bylaws.

Section 9.               VICE PRESIDENTS.  In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a Vice President designated by the board of directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the

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President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or the bylaws, and the President, or the Chairman of the Board.

Section 10.             SECRETARY.  The Secretary shall keep or cause to be kept at the principal executive office a book of minutes of all meetings and actions of directors, committees of directors, and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice given, the names of those present at directors’ meetings or committee meetings, the number of shares present or represented at shareholders’ meetings, and the proceedings.

The Secretary shall keep or cause to be kept at the principal executive office or at the office of corporation’s transfer agent or registrar, as determined by a resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.

The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required by the Bylaws or by law to be given, and shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these Bylaws.

Section 11.             CHIEF FINANCIAL OFFICER.  The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director.

The Chief Financial Officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the President and directors, whenever they request it, an account of all of his transactions as Chief Financial Officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or the Bylaws.

ARTICLE VI

INDEMNIFICATION OF DIRECTORS, OFFICERS

EMPLOYEES, AND OTHER AGENTS

Section 1.               INDEMNIFICATION.  The corporation shall, to the maximum extent permitted by the California General Corporation Law, have power to indemnify each of its agents against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact any such person is or

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was an agent of the corporation, and shall have power to advance to each such agent expenses incurred in defending any such proceeding to the maximum extent permitted by that law. For the purposes of this Article, an “agent” of the corporation includes any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise, or was a director, officer, employee, or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.

ARTICLE VII

RECORDS AND REPORTS

Section 1.               MAINTENANCE AND INSPECTION OF SHARE REGISTER.  The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar (if either be appointed), as determined by resolution of the board of directors, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each shareholder.

A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who hold at least one percent (1%) of such voting shares and have filed a Schedule 14A or Form F-6 with the appropriate federal regulatory agency relating to the election of directors shall have an absolute right to do either of the following: (i) inspect and copy the record of shareholders’ names, addresses and shareholdings during usual business hours on five (5) days’ prior written demand on the corporation, or (ii) obtain from the transfer agent for the corporation, upon written demand and upon the tender of such transfer agent’s usual charges for such list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders’ names and addresses who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The list shall be made available on or before the later of five (5) business days after the demand is received or the date specified therein as the date as of which the list is to be compiled.

The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to the holder’s interests as a shareholder or as the holder of a voting trust certificate.

Any inspection and copying under this Article VII, Section 1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand.

Section 2.               MAINTENANCE AND INSPECTION OF BYLAWS.  The corporation shall keep at its principal executive office, or if its principal executive office is not in the State of California, at its principal business office in California, the original or a copy of these Bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of

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California and the corporation has no principal business office in such state, then it shall, upon the written request of any shareholder, furnish to such shareholder a copy of these Bylaws as amended to date.

Section 3.               MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.  The accounting books and records and the minutes of proceedings of the shareholders and the board of directors, and committees of the board of directors shall be kept at such place or places as are designated by the board of directors or, in absence of such designation, at the principal executive office of the corporation.  The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form.

The minutes and accounting books and records shall be open to inspection upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder’s interests as a shareholder or as the holder of a voting trust certificate.  Such inspection by a shareholder or holder of a voting trust certificate may be made in person or by an agent or attorney and the right of inspection  includes the right to copy and make extracts. Such rights of inspection shall extend to the records of each subsidiary corporation of the corporation.

Section 4.               INSPECTION BY DIRECTORS.  Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and the physical properties of the corporation and each of its subsidiary corporations. This inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents.

Section 5.               ANNUAL REPORT TO SHAREHOLDERS.   The board of directors shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year adopted by the corporation and at least fifteen (15) (or, if sent by third class mail, thirty-five (35)) days before the annual meeting of shareholders to be held during the next fiscal year in the manner specified in Section 5 of Article II of these bylaws for giving notice to shareholders of the corporation.

The annual report shall contain a balance sheet as of the end of the fiscal year and an income statement and statement of changes in financial position for the fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation.

The foregoing requirement of an annual report shall be waived so long as the shares of the corporation are held by fewer than one hundred (100) holders of record.

Section 6.               FINANCIAL STATEMENTS.  If no annual report for the last fiscal year has been sent to shareholders, on written request of any shareholder made more than one hundred twenty (120) days after the close of the fiscal year the corporation shall deliver or mail to the shareholder, within thirty (30) days after receipt of the request, a balance sheet as of the end of that fiscal year and an income statement and statement of changes in financial position for that fiscal year.

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A copy of any annual financial statement and any income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period, prepared by the corporation shall be kept on file in the principal executive office of the corporation for twelve (12) months and each such statement shall be exhibited at all reasonable times to any shareholder demanding an examination of any such statement or a copy shall be mailed to any such shareholder.

If a shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month, or nine-month period of the then current fiscal year ended more than thirty (30) days before the date of the request, and a balance sheet of the corporation as of the end of that period, the chief financial officer shall cause that statement to be prepared, if not already prepared, and shall deliver personally or mail that statement or statements to the person making the request within thirty (30) days after the receipt of the request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, this report shall likewise be delivered or mailed to the shareholder or shareholders within thirty (30) days after the request.

The corporation shall also, on the written request of any shareholder, mail to the shareholder a copy of the last annual, semi-annual, or quarterly income statement which it has prepared, and a balance sheet as of the end of that period.

The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation.

Section 7.               REPRESENTATION OF SHARES OF OTHER CORPORATIONS.  The Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Secretary or Assistant Secretary of this corporation, or any other person authorized by the board of directors or the President or a Vice President, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation.  The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

Section 8.               ANNUAL STATEMENT OF GENERAL INFORMATION.  In each year, during the period ending in the month in which the original articles of incorporation were filed and commencing in the fifth preceding month, the corporation shall file with the Secretary of State of the State of California, on the prescribed form, a statement setting forth the authorized number of directors, the names and complete business or residence address of all incumbent directors, the name and complete business or residence addresses of the chief executive officer, secretary, and chief financial officer, the street address of its principal executive office  or principal business office in this state, and the general type of business constituting the principal business of the corporation, together with a designation of the agent of the corporation for the purpose of service of process, all in compliance with Section 1502 of the Code.

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ARTICLE VIII

GENERAL CORPORATE MATTERS

Section 1.               RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.  For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action.  Only shareholders of record on the date so fixed are entitled to receive the dividend, distribution, or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation or the Code.

If the board of directors does not fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the later of (i) the day on which the board adopts the applicable resolution or (ii) the sixtieth (60th) day before the date of the dividend payment, distribution, allotment of rights, or other action.

Section 2.               CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS.  All checks, drafts, or other orders for payment of money, notes, or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board of directors.

Section 3.               CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED.  The board of directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and this authority may be general or confined to specific instances.  Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent, or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

Section 4.               CERTIFICATES FOR SHARES.  A certificate or certificates for shares of the capital stock of the corporation shall be issued to each shareholder when any of these shares are fully paid.  The board of directors may authorize the issuance of certificates or shares as partly paid provided that these certificates shall state the amount of the consideration to be paid for them and the amount paid.  All certificates shall be signed in the name of the corporation by the Chairman of the Board or Vice Chairman of the Board or the President or Vice President and by the Chief Financial Officer or an assistant treasurer or the Secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be by facsimile.

In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate has ceased to be such officer, transfer agent or registrar

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before such certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue.

Section 5.               LOST CERTIFICATES.  Except as provided in this Section 5, no new certificates for shares shall be issued to replace an old certificate unless the latter is surrendered to the corporation and canceled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen, or destroyed (as evidenced by a written affidavit or affirmation of such fact), authorize the issuance of a replacement certificate on such terms and conditions as the board may require; the board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft, or destruction of the certificate or the issuance of the replacement certificate.

Section 6.               CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Code shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.

ARTICLE IX

AMENDMENTS

Section 1.               AMENDMENT BY SHAREHOLDERS.  New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the Articles of Incorporation of the corporation set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment of the Articles of Incorporation.

Section 2.               AMENDMENT BY DIRECTORS.  Subject to the rights  of the shareholders as provided in Section 1 of this Article IX, Bylaws, other than a Bylaw or an amendment of a Bylaw changing the authorized number of directors, may be adopted, amended, or repealed by the board of directors.

Section 3.               RECORD OF AMENDMENTS.  Whenever an amendment or new Bylaw is adopted, it shall be copied in the book of minutes with the original Bylaws.  If any Bylaw is repealed, the fact of repeal, with the date of the meeting at which the repeal was enacted or written consent was filed, shall be stated in said book.

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ARTICLE X

INTERPRETATION

Reference in these Bylaws to any provision of the California Corporations Code shall be deemed to include all amendments thereof.

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EX-10.66

Exhibit 10.66

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement is made and is effective as of December 15, 2006, by and between Santa Lucia Bank ("Bank") and Larry H. Putnam ("Executive") and amends and restates in its entirety that certain Employment Agreement dated August 14, 1998 between the parties. 

WHEREAS, Executive is currently employed by the Bank in the capacity as Executive Vice President and Chief Financial Officer, and Executive's background, expertise and efforts have contributed to the success and financial strength of the Bank; and

WHEREAS, the Bank wishes to assure itself of the continued opportunity to benefit from Executive's services for the period provided in this Agreement, and Executive wishes to serve in the employ of the Bank on a full-time basis solely in accordance with the terms hereof for such purposes; and

WHEREAS, the Board of Directors of the Bank ("Board") has determined that the best interests of the Bank would be served by Executive's continued employment with the Bank under the terms of this Agreement;

NOW, THEREFORE, in order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forth below.  Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:

1.             Definitions.

(a)  "Agreement" means this employment agreement and any amendments hereto complying with Section 13(a) hereof.

(b)  "Board" means the Board of Directors of the Bank unless the context otherwise requires.

(c)  "Cause" means:

(i)Executive's personal dishonesty, incompetence or willful misconduct;

(ii)Executive's breach of fiduciary duty involving personal profit;

(iii)          Executive's intentional failure to perform Executive's duties for the Bank after a written demand for performance is given to Executive by the Board which demand specifically identifies the manner in which the Board believes that Executive has not performed his duties;

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(iv)          Executive's willful violation of any law, rule, regulation or final cease and desist order (other than traffic violations or similar minor offenses) to the extent detrimental to the Bank's business or reputation; or

(v)           Executive's material breach of any provision of this Agreement.

(d)  "Change in Control" means a change of control of the Bank, or  Santa Lucia Bancorp (“Bancorp”), of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act, whether or not the Bank or Bancorp is then subject to such reporting requirement; provided, however, that a transaction in which the Bank or Bancorp is the acquiror regardless of the form of the transaction shall not be a Change in Control for purposes of this Agreement; provided further however, that without limitation, a Change in Control shall be deemed to have occurred if:

(i)            there is a transfer, voluntarily or by hostile takeover, by proxy contest

(or similar action), operation of law, or otherwise, of Control of the Bank or Bancorp;

(ii)           any Person is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act or any successor provisions thereof), directly or indirectly, of securities of the Bank or Bancorp representing 20% or more of the combined voting power of the Bank's or Bancorp’s then outstanding securities (other than in the case of the ownership by Bancorp of Bank securities);

(iii)          the individuals who were members of the Board immediately prior to a meeting of the shareholders of the Bank or Bancorp, which meeting involves a contest for the election of directors, do not constitute a majority of the Board following such meeting or election;

(iv)          a merger is completed in which the Bank or Bancorp is not the surviving entity (unless the stockholders of Bank or Bancorp, as the case may be, immediately before such merger own immediately after such merger more than a majority of the voting securities of the surviving entity), a consolidation or sale of all or substantially all of the assets of the Bank or Bancorp; or

(v)           there is a change, during any period of two consecutive years, of a majority of the Board or of the board of directors of Bancorp as constituted as of the beginning of such period, unless the election of each director who is not a director at the beginning of such period was approved by a vote of at least two-thirds of the directors then in office who were directors at the beginning of such period.

(e)  "Code"  shall mean the Internal Revenue Code of 1986, as amended.

(f)  "Control"  means the possession, direct or indirect, by any Person or "group" (as defined in Section 13(d) of the Securities Exchange Act) of the power to direct or cause the direction

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of the management policies of the Bank or Bancorp, whether through ownership of voting securities, by contract or otherwise, and in any case means the ability to determine the election of a majority of the directors of the Bank or Bancorp.

(g)  "Disability" means physical or mental illness resulting in Executive's absence on a full-time basis from Executive's duties with the Bank or Bancorp for 180 calendar days, subject to the procedure described in Section 7(a).

(h)  "Expiration" means the termination of this Agreement (including Executive's employment hereunder) and of any further obligations of the parties (except as specified in this Agreement) upon completion of the Term.

(i)  "Person" means an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization, a government or political subdivision thereof, or any other entity whatsoever.

(j)  "Term" means the initial term of this Agreement and any extensions hereof, as provided in Section 4, prior to a Change in Control.

(k)  "Termination" or "Terminate(d)" means the termination of Executive's employment hereunder for any of the following reasons unless the context indicates otherwise:

(i)            Retirement by Executive;

(ii)           Death of Executive;

(iii)          Disability;

(iv)          Expiration;

(v)           Resignation;

(vi)          Termination Without Cause; and

(vii)         Termination for Cause.

(l) "Termination Without Cause" or "Terminate(d) Without Cause" means the cessation of Executive's employment hereunder for any reason except:

(i)            A resignation by Executive;

(ii)           Termination for Cause;

(iii)          Retirement;

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(iv)          Disability;

(v)           Death; or

(vi)          Expiration.

(m)  “Total Salary” shall mean the total amount of salary paid Executive in the prior 12 months.

2.             Employment.  The Bank hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue to serve the Bank, for the period stated in Section 4 hereof and upon the terms and conditions set forth herein.

3.             Position and Responsibilities.  The Executive shall serve as Executive Vice President and Chief Financial Officer of the Bank and, subject to the provisions of Section 5 below, shall have such responsibilities, duties and authority as are generally associated with such positions and as may from time to time be assigned to the Executive by the Board that are consistent with such responsibilities, duties and authority.  During the Term of this Agreement, the Executive shall devote all his time, attention, skill and efforts during normal business hours to the business and affairs of the Bank; provided, however, this provision shall not preclude Executive from serving as a Director or member of a committee of any other organization involving no conflict of interests with the interests of the Bank, from engaging in charitable and community activities and from managing his personal investments, provided that such activities do not materially interfere with the regular performance of his duties and responsibilities under this Agreement.

4.             Term of Agreement.  Subject to the terms and provisions of this Agreement, this Agreement and the period of Executive's employment shall be deemed to have commenced as of December 15, 2006, and shall continue for an initial term expiring on December 31, 2007, unless extended as provided herein.  Prior to a Change in Control, the initial term shall automatically be extended for an additional one (1) full calendar year without further action by the parties on January 1, 2008, and on each succeeding January 1 thereafter; provided that each party, Bank or Executive, may stop an automatic calendar year extension by serving written notice upon the other within 90 calendar days prior to January 1, 2008, or within 90 calendar days prior to January 1 of any succeeding year, as the case may be, of such party's intention that this Agreement shall expire at the end of such Term.  In the event the Bank retains Executive as an employee following the expiration of the Term, such employment, absent a written agreement to the contrary, will be on an at-will basis with such compensation and upon such terms as the parties may then agree, subject to termination at any time with or without cause, and without liability.  If the Bank does not retain Executive as an employee after the Expiration of the Term, Executive's employment shall cease without further liability of the parties to each other.  Executive's employment shall also terminate, and the Term of this Agreement will expire, upon Executive's resignation, retirement, death or Disability, or upon Executive's Termination for Cause or Termination Without Cause; provided further that the Term of the Agreement shall be deemed to have terminated upon a Change in Control and the payment to Executive of all amounts owed to him upon a Change in Control as provided in Section 8(e) hereof.

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5.             Additional Duties.  With the approval of the Board, from time to time, Executive may serve, or continue to serve, on the boards of directors of, and hold any other offices or positions in, companies or charitable, political or civic organizations, which, in such Board’s judgment, will not present any material conflict of interest with the Bank and will not unfavorably affect the performance of Executive’s duties pursuant to this Agreement.

6.             Salary, Bonus Payments and Related Matters.

(a)  Salary.  During the period of the Executive's employment hereunder, the Bank shall pay to the Executive a base salary of One Hundred Seventy Five Thousand Dollars ($175,000.00) per year, payable at regular intervals in accordance with the Bank's normal payroll practices now or hereafter in effect.  During the period of the Executive’s employment hereunder, the Executive may receive such discretionary increases in salary, if any, as may be granted to him from time to time by the Board.  

(b)  Bonus Payments.  During the period of the Executive's employment hereunder, the Executive may receive such discretionary bonuses, if any, as may be granted to him from time to time by the Board.

(c)  Expenses.  During the period of the Executive's employment hereunder, the Executive shall be entitled to receive prompt reimbursement for all reasonable and customary expenses incurred by the Executive in performing services hereunder in accordance with the general policies and procedures established by the Bank.

(d)  Employee Benefits and Perks.  During the period of the Executive's employment hereunder, the Executive shall be entitled to participate in all employee benefits plans or arrangements of the Bank on the same basis as other employees of the Bank including, without limitation, plans or arrangements providing life insurance, disability insurance, sick leave, or retirement.  During the period of the Executive's employment hereunder, the Executive shall also be entitled to (i) the continuation of an automobile allowance of not less than the monthly amount paid to Executive on November 1, 2006, (ii) use of the Bank provided credit card(s), car telephone(s), pagers and such other perks (if such is (are) being so provided) upon the terms and conditions previously in effect.

7.             Termination. 

(a)  Resignation, Retirement, Death or Disability.  Executive's employment hereunder shall cease at any time by Executive's resignation, retirement, death or Disability.  Disability shall be deemed to have occurred only after the following procedure has been satisfied:  If within 30 days after a written notice of proposed Termination for Disability is given to Executive by the Bank, Executive has not returned to the full-time performance of his duties, the Bank may end Executive's employment by giving written notice of Termination for Disability.  Such notice may be given by the Bank following Executive's absence from Executive's duties by reason of physical or mental disability for one hundred fifty (150) consecutive calendar days.

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(b)  Termination for Cause.  Executive's employment shall cease upon a good faith finding of Cause by the Board; provided, however, that Executive shall be given written notice of the Board's finding of conduct by Executive amounting to Cause for such termination.  Said notice

shall be accompanied by a copy of a resolution duly adopted by the affirmative vote of not less than

a majority of a quorum of the Board at a duly-noticed meeting of the Board, finding that in the good faith opinion of the Board, Executive was guilty of conduct amounting to Cause and specifying the particulars thereof.

(c)  Termination Without Cause.  Executive's employment may be terminated Without Cause upon 30 days' notice for any reason, subject to the payment of all amounts required by Section 8 hereof.

(d)  Expiration.  Executive's employment shall cease, or shall continue on an at-will basis as provided in Section 4 hereof, upon the expiration of the Term of this Agreement as provided in Section 4 hereof.

(e)  Supervisory Suspension.  If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Sections 8(e) or (g) of the Federal Deposit Insurance Act or similar statute, rule or regulation, the Bank's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank shall, (i) pay the Executive all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

(f)  Regulatory Removal.  If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Sections 8(e) or (g) of the Federal Deposit Insurance Act or similar statute, rule or regulation, all obligations of the Bank under this Agreement shall terminate as of the effective date of the order.

8.             Payments to Executive Upon Termination or Change in Control.

(a)  Death, Disability or Retirement.  In the event of Termination of this Agreement due to Executive's death, Disability or retirement, Executive or Executive's spouse and/or estate shall be entitled to all benefits generally available to Bank employees, or their spouses and/or estates, as of the date of such death, Disability or retirement, without reduction.

(b)  Resignation or Expiration.  In the event of Executive's resignation, or upon Expiration, the Bank shall have no further obligations to Executive under this Agreement or otherwise, except as may be expressly required by law.

(c)  Termination for Cause.  In the event Executive is Terminated for Cause, the Bank shall have no further obligations to Executive under this Agreement or otherwise, except as may be expressly required by law.

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(d)  Termination Without Cause Prior to a Change in Control.  Upon the occurrence of a Termination Without Cause prior to a Change in Control, the Bank shall pay to Executive any amounts then owed to him under this Agreement, within 30 days of the date of the notice required by Section 7(c) hereof.

(e)  Change in Control.  Concurrent with a Change in Control, the Bank shall pay to Executive a lump sum payment equal to 2 times the amount of the Total Salary paid to Executive.  Such lump sum shall be paid concurrent with the Change in Control.

(f)  Source of Payments.  All payments provided in Section 8 shall be paid in cash from the general funds of the Bank, and no special or separate fund need be established and no other segregation of assets need be made to assure payment.

(g)  Consistent Returns.  The Bank and Executive agree that the payments being made under this Agreement represent reasonable compensation for services and that neither the Bank nor Executive will file any returns or reports which take a contrary position.

(h)  Reduction of Payment.  Notwithstanding anything in the foregoing to the contrary, if the payments made to Executive upon a Change in Control or any of the other payments provided for in this Agreement, together with any other payments which Executive has the right to receive from the Bank would constitute a "parachute payment" (as defined in Section 280G of the Code) the payments pursuant to this Agreement shall be reduced to the largest amount as will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the Code; provided, however, that the determination as to whether any reduction in the payments under this Agreement pursuant to this proviso is necessary shall be made in good faith by the Bank’s independent auditors or if such firm is no longer providing tax services to Bank to such other tax advisor as shall be mutually acceptable to Bank and Executive, and such determination shall be conclusive and binding on the Bank and Executive with respect to the treatment of the payment for tax reporting purposes.

(i)  Sole Remedy.  The receipt of the amounts described in this Section 8, and attorneys’ fees  as set forth in Section 12, if any, shall constitute Executive’s sole remedy for breach of this Agreement against the Bank and its officers, directors, employees and agents.

9.             Unauthorized Disclosure.  During the period of his employment hereunder and for a period of one year following the cessation of such employment (irrespective of the reason therefor), Executive shall not, except as required by any court, supervisory authority or administrative agency, without the written consent of the Board or a person authorized thereby, disclose to any person, other than an employee of the Bank or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an employee of the Bank, any confidential information obtained by him while in the employ of the Bank; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of an unauthorized disclosure by the Executive). 

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10.           Waivers not to be Continued.  Any waiver by a party of any breach of this Agreement by the other party shall not be construed as a continuing waiver or as a consent to any subsequent breach by the other party.

11.           Notices.  All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to the following addresses or to such other address as either party may designate by like notice.

A.If to the Bank, to:

Santa Lucia Bank

7480 El Camino Real

Atascadero, CA  93422

Attn: Chairman of the Board

B.If to Executive, to:

John C. Hansen

Santa Lucia Bank

7480 El Camino Real

Atascadero, CA  93422

and to such other or additional person or persons as either party shall have designated to the other party in writing by like notice.

12.           Arbitration of Claims.  The parties agree that any and all disputes, controversies or claims of any kind or nature, including but not limited to any arising out of or in any way related to Executive’s employment with or separation from the Bank or Bancorp, shall be submitted to binding arbitration under the auspices and rules of the American Arbitration Association (“AAA”) in Atascadero, California.  Included within this provision are any claims alleging fraud in the inducement of this Agreement, or relating to the general validity or enforceability of this Agreement, or claims based on a violation of any local, state or federal law, such as claims for discrimination or civil rights violations under Title VII of the Civil Rights Act of 1964, the California Fair Employment and Housing Act, the Age Discrimination in Employment Act and the Americans with Disabilities Act.  The parties shall each bear their own costs and attorneys’ fees incurred in conducting the arbitration and, except for such disputes where Executive asserts a claim under a state or federal statute prohibiting discrimination in employment (“a Statutory Claim”), or unless required otherwise by applicable law, shall split equally the fees and administrative costs charged by the arbitrator and AAA.  In disputes where Executive asserts a Statutory Claim against the Bank, Executive shall be required to pay only the AAA filing fee to the extent such filing fee does not exceed the fee to file a complaint in state or federal court.  The Bank shall pay the balance of the arbitrator’s fees and administrative costs.  The prevailing party in the arbitration, as determined by the arbitrator, shall be entitled to recover his or its reasonable attorneys’ fees and costs, including the costs or fees charged by the arbitrator and AAA.  In disputes where the Executive asserts a Statutory Claim, reasonable attorneys’ fees shall be awarded by the arbitrator based on the same standard as such fees would be awarded if the Statutory Claim had been asserted in state or federal court. 

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Judgment upon an award rendered by the arbitrator may be entered in any competent court having jurisdiction over the dispute. Executive understands that arbitration is in lieu of any and all other civil legal proceedings and that he is waiving any right he may have to resolve disputes through court or trial by jury.

13.           General Provisions.

(a)  Entire Agreement.  This Agreement constitutes the entire agreement by the parties with respect to the subject matter hereof, and supersedes and replaces all prior agreements among or between the parties, unless otherwise provided herein, including that certain employment agreement dated August 1, 1998 other than any agreements between Executive and Bank pursuant to the Bank’s or Bancorp’s Equity Plans and retirement plans including that certain Salary Continuation Agreement  dated as of April 15, 1998 together with all subsequent amendments thereto.  No amendment, waiver or termination of any of the provisions hereof shall be effective unless in writing and signed by the party against whom it is sought to be enforced.  Any written amendment, waiver, or termination hereof executed by the Bank and Executive shall be binding upon them and upon all other Persons, without the necessity of securing the consent of any other Person, and no Person shall be deemed to be a third-party beneficiary under this Agreement.

(b)  Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement.

(c)  No Waiver.  Except as otherwise expressly set forth herein, no failure on the part of any party hereto to exercise and no delay in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

(d)  Headings.  The headings of the Sections of this Agreement have been inserted for convenience of reference only and shall in no way restrict or modify any of the terms or provisions hereof.

(e)  Severability.  If for any reason any provision of this Agreement is held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision of this Agreement.  If any provision of this Agreement shall be held invalid or unenforceable in part, such invalidity or unenforceability shall in no way effect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.

(f)  Governing Law.  This Agreement shall be governed and construed and the legal relationships of the parties determined in accordance with the laws of the United States and to the extent not inconsistent therewith the laws of the State of California applicable to contracts executed and to be performed solely in California.

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(g)  Advice of Counsel.  Executive acknowledges that  (i) the Agreement has been prepared by Reitner, Stuart & Moore, counsel for the Bank and (ii) he has been encouraged to consult with legal counsel of his choosing concerning the terms of this Agreement prior to executing this Agreement.  Any failure by Executive to consult with competent counsel prior to executing this Agreement shall not be a basis for rescinding or otherwise avoiding the binding effect of this Agreement.  The parties acknowledge that they are entering into this Agreement freely and voluntarily, with full understanding of the terms of this Agreement.  Interpretation of the terms and provisions of this Agreement shall not be construed for or against either party on the basis of the identity of the party who drafted the terms or provisions in question.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

ATTEST:	SANTA LUCIA BANK
	By:
	Its:	Chairman
	Print name:
	THE EXECUTIVE
Witness	Larry H. Putnam

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EX-10.67

Exhibit 10.67

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement is made and is effective as of December 15, 2006, by and between Santa Lucia Bank ("Bank") and John C. Hansen ("Executive") and amends and restates in its entirety that certain Employment Agreement dated November 11, 2004 between the parties. 

WHEREAS, Executive is currently employed by the Bank in the capacity as Executive Vice President and Chief Financial Officer, and Executive's background, expertise and efforts have contributed to the success and financial strength of the Bank; and

WHEREAS, the Bank wishes to assure itself of the continued opportunity to benefit from Executive's services for the period provided in this Agreement, and Executive wishes to serve in the employ of the Bank on a full-time basis solely in accordance with the terms hereof for such purposes; and

WHEREAS, the Board of Directors of the Bank ("Board") has determined that the best interests of the Bank would be served by Executive's continued employment with the Bank under the terms of this Agreement;

NOW, THEREFORE, in order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forth below.  Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:

1.             Definitions.

(a)  "Agreement" means this employment agreement and any amendments hereto complying with Section 13(a) hereof.

(b)  "Board" means the Board of Directors of the Bank unless the context otherwise requires.

(c)  "Cause" means:

(i)Executive's personal dishonesty, incompetence or willful misconduct;

(ii)Executive's breach of fiduciary duty involving personal profit;

(iii)          Executive's intentional failure to perform Executive's duties for the Bank after a written demand for performance is given to Executive by the Board which demand specifically identifies the manner in which the Board believes that Executive has not performed his duties;

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(iv)          Executive's willful violation of any law, rule, regulation or final cease and desist order (other than traffic violations or similar minor offenses) to the extent detrimental to the Bank's business or reputation; or

(v)           Executive's material breach of any provision of this Agreement.

(d)  "Change in Control" means a change of control of the Bank, or  Santa Lucia Bancorp (“Bancorp”), of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act, whether or not the Bank or Bancorp is then subject to such reporting requirement; provided, however, that a transaction in which the Bank or Bancorp is the acquiror regardless of the form of the transaction shall not be a Change in Control for purposes of this Agreement; provided further however, that without limitation, a Change in Control shall be deemed to have occurred if:

(i)            there is a transfer, voluntarily or by hostile takeover, by proxy contest

(or similar action), operation of law, or otherwise, of Control of the Bank or Bancorp;

(ii)           any Person is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act or any successor provisions thereof), directly or indirectly, of securities of the Bank or Bancorp representing 20% or more of the combined voting power of the Bank's or Bancorp’s then outstanding securities (other than in the case of the ownership by Bancorp of Bank securities);

(iii)          the individuals who were members of the Board immediately prior to a meeting of the shareholders of the Bank or Bancorp, which meeting involves a contest for the election of directors, do not constitute a majority of the Board following such meeting or election;

(iv)          a merger is completed in which the Bank or Bancorp is not the surviving entity (unless the stockholders of Bank or Bancorp, as the case may be, immediately before such merger own immediately after such merger more than a majority of the voting securities of the surviving entity), a consolidation or sale of all or substantially all of the assets of the Bank or Bancorp; or

(v)           there is a change, during any period of two consecutive years, of a majority of the Board or of the board of directors of Bancorp as constituted as of the beginning of such period, unless the election of each director who is not a director at the beginning of such period was approved by a vote of at least two-thirds of the directors then in office who were directors at the beginning of such period.

(e)  "Code"  shall mean the Internal Revenue Code of 1986, as amended.

(f)  "Control"  means the possession, direct or indirect, by any Person or "group" (as defined in Section 13(d) of the Securities Exchange Act) of the power to direct or cause the direction

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of the management policies of the Bank or Bancorp, whether through ownership of voting securities, by contract or otherwise, and in any case means the ability to determine the election of a majority of the directors of the Bank or Bancorp.

(g)  "Disability" means physical or mental illness resulting in Executive's absence on a full-time basis from Executive's duties with the Bank or Bancorp for 180 calendar days, subject to the procedure described in Section 7(a).

(h)  "Expiration" means the termination of this Agreement (including Executive's employment hereunder) and of any further obligations of the parties (except as specified in this Agreement) upon completion of the Term.

(i)  "Person" means an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization, a government or political subdivision thereof, or any other entity whatsoever.

(j)  "Term" means the initial term of this Agreement and any extensions hereof, as provided in Section 4, prior to a Change in Control.

(k)  "Termination" or "Terminate(d)" means the termination of Executive's employment hereunder for any of the following reasons unless the context indicates otherwise:

(i)            Retirement by Executive;

(ii)           Death of Executive;

(iii)          Disability;

(iv)          Expiration;

(v)           Resignation;

(vi)          Termination Without Cause; and

(vii)         Termination for Cause.

(l)  "Termination Without Cause" or "Terminate(d) Without Cause" means the cessation of Executive's employment hereunder for any reason except:

(i)            A resignation by Executive;

(ii)           Termination for Cause;

(iii)          Retirement;

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(iv)          Disability;

(v)           Death; or

(vi)          Expiration.

(m)  “Total Salary” shall mean the total amount of salary paid Executive in the prior 12 months.

2.             Employment.  The Bank hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue to serve the Bank, for the period stated in Section 4 hereof and upon the terms and conditions set forth herein.

3.             Position and Responsibilities.  The Executive shall serve as Executive Vice President and Chief Financial Officer of the Bank and, subject to the provisions of Section 5 below, shall have such responsibilities, duties and authority as are generally associated with such positions and as may from time to time be assigned to the Executive by the Board that are consistent with such responsibilities, duties and authority.  During the Term of this Agreement, the Executive shall devote all his time, attention, skill and efforts during normal business hours to the business and affairs of the Bank; provided, however, this provision shall not preclude Executive from serving as a Director or member of a committee of any other organization involving no conflict of interests with the interests of the Bank, from engaging in charitable and community activities and from managing his personal investments, provided that such activities do not materially interfere with the regular performance of his duties and responsibilities under this Agreement.

4.             Term of Agreement.  Subject to the terms and provisions of this Agreement, this Agreement and the period of Executive's employment shall be deemed to have commenced as of December 15, 2006, and shall continue for an initial term expiring on December 31, 2007, unless extended as provided herein.  Prior to a Change in Control, the initial term shall automatically be extended for an additional one (1) full calendar year without further action by the parties on January 1, 2008, and on each succeeding January 1 thereafter; provided that each party, Bank or Executive, may stop an automatic calendar year extension by serving written notice upon the other within 90 calendar days prior to January 1, 2008, or within 90 calendar days prior to January 1 of any succeeding year, as the case may be, of such party's intention that this Agreement shall expire at the end of such Term.  In the event the Bank retains Executive as an employee following the expiration of the Term, such employment, absent a written agreement to the contrary, will be on an at-will basis with such compensation and upon such terms as the parties may then agree, subject to termination at any time with or without cause, and without liability.  If the Bank does not retain Executive as an employee after the Expiration of the Term, Executive's employment shall cease without further liability of the parties to each other.  Executive's employment shall also terminate, and the Term of this Agreement will expire, upon Executive's resignation, retirement, death or Disability, or upon Executive's Termination for Cause or Termination Without Cause; provided further that the Term of the Agreement shall be deemed to have terminated upon a Change in Control and the payment to Executive of all amounts owed to him upon a Change in Control as provided in Section 8(e) hereof.

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5.             Additional Duties.  With the approval of the Board, from time to time, Executive may serve, or continue to serve, on the boards of directors of, and hold any other offices or positions in, companies or charitable, political or civic organizations, which, in such Board’s judgment, will not present any material conflict of interest with the Bank and will not unfavorably affect the performance of Executive’s duties pursuant to this Agreement.

6.             Salary, Bonus Payments and Related Matters.

(a)  Salary.  During the period of the Executive's employment hereunder, the Bank shall pay to the Executive a base salary of One Hundred Forty Two Thousand Dollars ($142,000.00) per year, payable at regular intervals in accordance with the Bank's normal payroll practices now or hereafter in effect.  During the period of the Executive’s employment hereunder, the Executive may receive such discretionary increases in salary, if any, as may be granted to him from time to time by the Board.  

(b)  Bonus Payments.  During the period of the Executive's employment hereunder, the Executive may receive such discretionary bonuses, if any, as may be granted to him from time to time by the Board.

(c)  Expenses.  During the period of the Executive's employment hereunder, the Executive shall be entitled to receive prompt reimbursement for all reasonable and customary expenses incurred by the Executive in performing services hereunder in accordance with the general policies and procedures established by the Bank.

(d)  Employee Benefits and Perks.  During the period of the Executive's employment hereunder, the Executive shall be entitled to participate in all employee benefits plans or arrangements of the Bank on the same basis as other employees of the Bank including, without limitation, plans or arrangements providing life insurance, disability insurance, sick leave, or retirement.  During the period of the Executive's employment hereunder, the Executive shall also be entitled to (i) the continuation of an automobile allowance of not less than the monthly amount paid to Executive on November 1, 2006, (ii) use of the Bank provided credit card(s), car telephone(s), pagers and such other perks (if such is (are) being so provided) upon the terms and conditions previously in effect.

7.             Termination. 

(a)  Resignation, Retirement, Death or Disability.  Executive's employment hereunder shall cease at any time by Executive's resignation, retirement, death or Disability.  Disability shall be deemed to have occurred only after the following procedure has been satisfied:  If within 30 days after a written notice of proposed Termination for Disability is given to Executive by the Bank, Executive has not returned to the full-time performance of his duties, the Bank may end Executive's employment by giving written notice of Termination for Disability.  Such notice may be given by the Bank following Executive's absence from Executive's duties by reason of physical or mental disability for one hundred fifty (150) consecutive calendar days.

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(b)  Termination for Cause.  Executive's employment shall cease upon a good faith finding of Cause by the Board; provided, however, that Executive shall be given written notice of the Board's finding of conduct by Executive amounting to Cause for such termination.  Said notice

shall be accompanied by a copy of a resolution duly adopted by the affirmative vote of not less than

a majority of a quorum of the Board at a duly-noticed meeting of the Board, finding that in the good faith opinion of the Board, Executive was guilty of conduct amounting to Cause and specifying the particulars thereof.

(c)  Termination Without Cause.  Executive's employment may be terminated Without Cause upon 30 days' notice for any reason, subject to the payment of all amounts required by Section 8 hereof.

(d)  Expiration.  Executive's employment shall cease, or shall continue on an at-will basis as provided in Section 4 hereof, upon the expiration of the Term of this Agreement as provided in Section 4 hereof.

(e)  Supervisory Suspension.  If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Sections 8(e) or (g) of the Federal Deposit Insurance Act or similar statute, rule or regulation, the Bank's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank shall, (i) pay the Executive all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

(f)  Regulatory Removal.  If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Sections 8(e) or (g) of the Federal Deposit Insurance Act or similar statute, rule or regulation, all obligations of the Bank under this Agreement shall terminate as of the effective date of the order.

8.             Payments to Executive Upon Termination or Change in Control.

(a)  Death, Disability or Retirement.  In the event of Termination of this Agreement due to Executive's death, Disability or retirement, Executive or Executive's spouse and/or estate shall be entitled to all benefits generally available to Bank employees, or their spouses and/or estates, as of the date of such death, Disability or retirement, without reduction.

(b)  Resignation or Expiration.  In the event of Executive's resignation, or upon Expiration, the Bank shall have no further obligations to Executive under this Agreement or otherwise, except as may be expressly required by law.

(c)  Termination for Cause.  In the event Executive is Terminated for Cause, the Bank shall have no further obligations to Executive under this Agreement or otherwise, except as may be expressly required by law.

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(d)  Termination Without Cause Prior to a Change in Control.  Upon the occurrence of a Termination Without Cause prior to a Change in Control, the Bank shall pay to Executive any amounts then owed to him under this Agreement, within 30 days of the date of the notice required by Section 7(c) hereof.

(e)  Change in Control.  Concurrent with a Change in Control, the Bank shall pay to Executive a lump sum payment equal to 2 times the amount of the Total Salary paid to Executive.  Such lump sum shall be paid concurrent with the Change in Control.

(f)  Source of Payments.  All payments provided in Section 8 shall be paid in cash from the general funds of the Bank, and no special or separate fund need be established and no other segregation of assets need be made to assure payment.

(g)  Consistent Returns.  The Bank and Executive agree that the payments being made under this Agreement represent reasonable compensation for services and that neither the Bank nor Executive will file any returns or reports which take a contrary position.

(h)  Reduction of Payment.  Notwithstanding anything in the foregoing to the contrary, if the payments made to Executive upon a Change in Control or any of the other payments provided for in this Agreement, together with any other payments which Executive has the right to receive from the Bank would constitute a "parachute payment" (as defined in Section 280G of the Code) the payments pursuant to this Agreement shall be reduced to the largest amount as will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the Code; provided, however, that the determination as to whether any reduction in the payments under this Agreement pursuant to this proviso is necessary shall be made in good faith by the Bank’s independent auditors or if such firm is no longer providing tax services to Bank to such other tax advisor as shall be mutually acceptable to Bank and Executive, and such determination shall be conclusive and binding on the Bank and Executive with respect to the treatment of the payment for tax reporting purposes.

(i)  Sole Remedy.  The receipt of the amounts described in this Section 8, and attorneys’ fees  as set forth in Section 12, if any, shall constitute Executive’s sole remedy for breach of this Agreement against the Bank and its officers, directors, employees and agents.

9.             Unauthorized Disclosure.  During the period of his employment hereunder and for a period of one year following the cessation of such employment (irrespective of the reason therefor), Executive shall not, except as required by any court, supervisory authority or administrative agency, without the written consent of the Board or a person authorized thereby, disclose to any person, other than an employee of the Bank or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an employee of the Bank, any confidential information obtained by him while in the employ of the Bank; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of an unauthorized disclosure by the Executive). 

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10.           Waivers not to be Continued.  Any waiver by a party of any breach of this Agreement by the other party shall not be construed as a continuing waiver or as a consent to any subsequent breach by the other party.

11.           Notices.  All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to the following addresses or to such other address as either party may designate by like notice.

A.If to the Bank, to:

Santa Lucia Bank

7480 El Camino Real

Atascadero, CA  93422

Attn: Chairman of the Board

B.            If to Executive, to:

John C. Hansen

Santa Lucia Bank

7480 El Camino Real

Atascadero, CA  93422

and to such other or additional person or persons as either party shall have designated to the other party in writing by like notice.

12.           Arbitration of Claims.  The parties agree that any and all disputes, controversies or claims of any kind or nature, including but not limited to any arising out of or in any way related to Executive’s employment with or separation from the Bank or Bancorp, shall be submitted to binding arbitration under the auspices and rules of the American Arbitration Association (“AAA”) in Atascadero, California.  Included within this provision are any claims alleging fraud in the inducement of this Agreement, or relating to the general validity or enforceability of this Agreement, or claims based on a violation of any local, state or federal law, such as claims for discrimination or civil rights violations under Title VII of the Civil Rights Act of 1964, the California Fair Employment and Housing Act, the Age Discrimination in Employment Act and the Americans with Disabilities Act.  The parties shall each bear their own costs and attorneys’ fees incurred in conducting the arbitration and, except for such disputes where Executive asserts a claim under a state or federal statute prohibiting discrimination in employment (“a Statutory Claim”), or unless required otherwise by applicable law, shall split equally the fees and administrative costs charged by the arbitrator and AAA.  In disputes where Executive asserts a Statutory Claim against the Bank, Executive shall be required to pay only the AAA filing fee to the extent such filing fee does not exceed the fee to file a complaint in state or federal court.  The Bank shall pay the balance of the arbitrator’s fees and administrative costs.  The prevailing party in the arbitration, as determined by the arbitrator, shall be entitled to recover his or its reasonable attorneys’ fees and costs, including the costs or fees charged by the arbitrator and AAA.  In disputes where the Executive asserts a Statutory Claim, reasonable attorneys’ fees shall be awarded by the arbitrator based on the same standard as such fees would be awarded if the Statutory Claim had been asserted in state or federal court. 

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Judgment upon an award rendered by the arbitrator may be entered in any competent court having jurisdiction over the dispute. Executive understands that arbitration is in lieu of any and all other civil legal proceedings and that he is waiving any right he may have to resolve disputes through court or trial by jury.

13.           General Provisions.

(a)  Entire Agreement.  This Agreement constitutes the entire agreement by the parties with respect to the subject matter hereof, and supersedes and replaces all prior agreements among or between the parties, unless otherwise provided herein, including that certain employment agreement dated August 1, 1998 other than any agreements between Executive and Bank pursuant to the Bank’s or Bancorp’s Equity Plans and retirement plans including that certain Salary Continuation Agreement  dated as of April 15, 1998 together with all subsequent amendments thereto.  No amendment, waiver or termination of any of the provisions hereof shall be effective unless in writing and signed by the party against whom it is sought to be enforced.  Any written amendment, waiver, or termination hereof executed by the Bank and Executive shall be binding upon them and upon all other Persons, without the necessity of securing the consent of any other Person, and no Person shall be deemed to be a third-party beneficiary under this Agreement.

(b)  Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement.

(c)  No Waiver.  Except as otherwise expressly set forth herein, no failure on the part of any party hereto to exercise and no delay in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

(d)  Headings.  The headings of the Sections of this Agreement have been inserted for convenience of reference only and shall in no way restrict or modify any of the terms or provisions hereof.

(e)  Severability.  If for any reason any provision of this Agreement is held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision of this Agreement.  If any provision of this Agreement shall be held invalid or unenforceable in part, such invalidity or unenforceability shall in no way effect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.

(f)  Governing Law.  This Agreement shall be governed and construed and the legal relationships of the parties determined in accordance with the laws of the United States and to the extent not inconsistent therewith the laws of the State of California applicable to contracts executed and to be performed solely in California.

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(g)  Advice of Counsel.  Executive acknowledges that  (i) the Agreement has been prepared by Reitner, Stuart & Moore, counsel for the Bank and (ii) he has been encouraged to consult with legal counsel of his choosing concerning the terms of this Agreement prior to executing this Agreement.  Any failure by Executive to consult with competent counsel prior to executing this Agreement shall not be a basis for rescinding or otherwise avoiding the binding effect of this Agreement.  The parties acknowledge that they are entering into this Agreement freely and voluntarily, with full understanding of the terms of this Agreement.  Interpretation of the terms and provisions of this Agreement shall not be construed for or against either party on the basis of the identity of the party who drafted the terms or provisions in question.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

ATTEST:	SANTA LUCIA BANK
	By:
	Its: Chairman
	Print name:
	THE EXECUTIVE
Witness	John C. Hansen

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EX-10.68

Exhibit 10.68

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement is made and is effective as of December 15, 2006, by and between Santa Lucia Bank (“Bank”) and James M. Cowan (“Executive”) and amends and restates in its entirety that certain Employment Agreement dated November 11, 2004, between the parties.

WHEREAS, Executive is currently employed by the Bank in the capacity as Senior Vice President and Branch Administrator, and Executive’s background, expertise and efforts have contributed to the success and financial strength of the Bank; and

WHEREAS, the Bank wishes to assure itself of the continued opportunity to benefit from Executive’s services for the period provided in this Agreement, and Executive wishes to serve in the employ of the Bank on a full-time basis solely in accordance with the terms hereof for such purposes; and

WHEREAS, the Board of Directors of the Bank (“Board”) has determined that the best interests of the Bank would be served by Executive’s continued employment with the Bank under the terms of this Agreement;

NOW, THEREFORE, in order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forth below.  Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:

1.             Definitions.

(a)   “Agreement” means this employment agreement and any amendments hereto complying with Section 13(a) hereof.

(b)   “Board” means the Board of Directors of the Bank unless the context otherwise requires.

(c)   “Cause” means:

(i)Executive’s personal dishonesty, incompetence or willful misconduct;

(ii)Executive’s breach of fiduciary duty involving personal profit;

(iii)          Executive’s intentional failure to perform Executive’s duties for the Bank after a written demand for performance is given to Executive by the Board which demand specifically identifies the manner in which the Board believes that Executive has not performed his duties;

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(iv)          Executive’s willful violation of any law, rule, regulation or final cease and desist order (other than traffic violations or similar minor offenses) to the extent detrimental to the Bank’s business or reputation; or

(v)           Executive’s material breach of any provision of this Agreement.

(d)   “Change in Control” means a change of control of the Bank, or  Santa Lucia Bancorp (“Bancorp”), of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act, whether or not the Bank or Bancorp is then subject to such reporting requirement; provided, however, that a transaction in which the Bank or Bancorp is the acquiror regardless of the form of the transaction shall not be a Change in Control for purposes of this Agreement; provided further however, that without limitation, a Change in Control shall be deemed to have occurred if:

(i)            there is a transfer, voluntarily or by hostile takeover, by proxy contest (or similar action), operation of law, or otherwise, of Control of the Bank or Bancorp;

(ii)           any Person is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act or any successor provisions thereof), directly or indirectly, of securities of the Bank or Bancorp representing 20% or more of the combined voting power of the Bank’s or Bancorp’s then outstanding securities (other than in the case of the ownership by Bancorp of Bank securities);

(iii)          the individuals who were members of the Board immediately prior to a meeting of the shareholders of the Bank or Bancorp, which meeting involves a contest for the election of directors, do not constitute a majority of the Board following such meeting or election;

(iv)          a merger is completed in which the Bank or Bancorp is not the surviving entity (unless the stockholders of Bank or Bancorp, as the case may be, immediately before such merger own immediately after such merger more than a majority of the voting securities of the surviving entity), a consolidation or sale of all or substantially all of the assets of the Bank or Bancorp; or

(v)           there is a change, during any period of two consecutive years, of a majority of the Board or of the board of directors of Bancorp as constituted as of the beginning of such period, unless the election of each director who is not a director at the beginning of such period was approved by a vote of at least two-thirds of the directors then in office who were directors at the beginning of such period.

(e)   “Code”  shall mean the Internal Revenue Code of 1986, as amended.

(f)    “Control”  means the possession, direct or indirect, by any Person or “group” (as defined in Section 13(d) of the Securities Exchange Act) of the power to direct or cause the direction

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of the management policies of the Bank or Bancorp, whether through ownership of voting securities, by contract or otherwise, and in any case means the ability to determine the election of a majority of the directors of the Bank or Bancorp.

(g)   “Disability” means physical or mental illness resulting in Executive’s absence on a full-time basis from Executive’s duties with the Bank or Bancorp for 180 calendar days, subject to the procedure described in Section 7(a).

(h)   “Expiration” means the termination of this Agreement (including Executive’s employment hereunder) and of any further obligations of the parties (except as specified in this Agreement) upon completion of the Term.

(i)    “Person” means an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization, a government or political subdivision thereof, or any other entity whatsoever.

(j)    “Term” means the initial term of this Agreement and any extensions hereof, as provided in Section 4, prior to a Change in Control.

(k)   “Termination” or “Terminate(d)” means the termination of Executive’s employment hereunder for any of the following reasons unless the context indicates otherwise:

(i)            Retirement by Executive;

(ii)           Death of Executive;

(iii)          Disability;

(iv)          Expiration;

(v)           Resignation;

(vi)          Termination Without Cause; and

(vii)         Termination for Cause.

(l)    “Termination Without Cause” or “Terminate(d) Without Cause” means the cessation of Executive’s employment hereunder for any reason except:

(i)            A resignation by Executive;

(ii)           Termination for Cause;

(iii)          Retirement;

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(iv)          Disability;

(v)           Death; or

(vi)          Expiration.

(m)  “Total Salary” shall mean the total amount of salary paid Executive in the prior 12 months.

2.             Employment.  The Bank hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue to serve the Bank, for the period stated in Section 4 hereof and upon the terms and conditions set forth herein.

3.             Position and Responsibilities.  The Executive shall serve as Senior Vice President and Branch Administrator of the Bank and, subject to the provisions of Section 5 below, shall have such responsibilities, duties and authority as are generally associated with such positions and as may from time to time be assigned to the Executive by the Board that are consistent with such responsibilities, duties and authority.  During the Term of this Agreement, the Executive shall devote all his time, attention, skill and efforts during normal business hours to the business and affairs of the Bank; provided, however, this provision shall not preclude Executive from serving as a Director or member of a committee of any other organization involving no conflict of interests with the interests of the Bank, from engaging in charitable and community activities and from managing his personal investments, provided that such activities do not materially interfere with the regular performance of his duties and responsibilities under this Agreement.

4.             Term of Agreement.  Subject to the terms and provisions of this Agreement, this Agreement and the period of Executive’s employment shall be deemed to have commenced as of December 15, 2006, and shall continue for an initial term expiring on December 31, 2007, unless extended as provided herein.  Prior to a Change in Control, the initial term shall automatically be extended for an additional one (1) full calendar year without further action by the parties on January 1, 2008, and on each succeeding January 1 thereafter; provided that each party, Bank or Executive, may stop an automatic calendar year extension by serving written notice upon the other within 90 calendar days prior to January 1, 2008, or within 90 calendar days prior to January 1 of any succeeding year, as the case may be, of such party’s intention that this Agreement shall expire at the end of such Term.  In the event the Bank retains Executive as an employee following the expiration of the Term, such employment, absent a written agreement to the contrary, will be on an at-will basis with such compensation and upon such terms as the parties may then agree, subject to termination at any time with or without cause, and without liability.  If the Bank does not retain Executive as an employee after the Expiration of the Term, Executive’s employment shall cease without further liability of the parties to each other.  Executive’s employment shall also terminate, and the Term of this Agreement will expire, upon Executive’s resignation, retirement, death or Disability, or upon Executive’s Termination for Cause or Termination Without Cause; provided further that the Term of the Agreement shall be deemed to have terminated upon a Change in Control and the payment to Executive of all amounts owed to him upon a Change in Control as provided in Section 8(e) hereof.

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5.             Additional Duties.  With the approval of the Board, from time to time, Executive may serve, or continue to serve, on the boards of directors of, and hold any other offices or positions in, companies or charitable, political or civic organizations, which, in such Board’s judgment, will not present any material conflict of interest with the Bank and will not unfavorably affect the performance of Executive’s duties pursuant to this Agreement.

6.             Salary, Bonus Payments and Related Matters.

(a)   Salary.   During the period of the Executive’s employment hereunder, the Bank shall pay to the Executive a base salary of One Hundred Five Thousand Dollars ($105,000.00) per year, payable at regular intervals in accordance with the Bank’s normal payroll practices now or hereafter in effect.  During the period of the Executive’s employment hereunder, the Executive may receive such discretionary increases in salary, if any, as may be granted to him from time to time by the Board.

(b)   Bonus Payments.   During the period of the Executive’s employment hereunder, the Executive may receive such discretionary bonuses, if any, as may be granted to him from time to time by the Board.

(c)   Expenses.  During the period of the Executive’s employment hereunder, the Executive shall be entitled to receive prompt reimbursement for all reasonable and customary expenses incurred by the Executive in performing services hereunder in accordance with the general policies and procedures established by the Bank.

(d)   Employee Benefits and Perks.  During the period of the Executive’s employment hereunder, the Executive shall be entitled to participate in all employee benefits plans or arrangements of the Bank on the same basis as other employees of the Bank including, without limitation, plans or arrangements providing life insurance, disability insurance, sick leave, or retirement.  During the period of the Executive’s employment hereunder, the Executive shall also be entitled to (i) the continuation of an automobile allowance of not less than the monthly amount paid to Executive on November 1, 2006, (ii) use of the Bank provided credit card(s), car telephone(s), pagers and such other perks (if such is (are) being so provided) upon the terms and conditions previously in effect.

7.             Termination.

(a)   Resignation, Retirement, Death or Disability.  Executive’s employment hereunder shall cease at any time by Executive’s resignation, retirement, death or Disability.  Disability shall be deemed to have occurred only after the following procedure has been satisfied:  If within 30 days after a written notice of proposed Termination for Disability is given to Executive by the Bank, Executive has not returned to the full-time performance of his duties, the Bank may end Executive’s employment by giving written notice of Termination for Disability.  Such notice may be given by the Bank following Executive’s absence from Executive’s duties by reason of physical or mental disability for one hundred fifty (150) consecutive calendar days.

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(b)   Termination for Cause.  Executive’s employment shall cease upon a good faith finding of Cause by the Board; provided, however, that Executive shall be given written notice of the Board’s finding of conduct by Executive amounting to Cause for such termination.  Said notice shall be accompanied by a copy of a resolution duly adopted by the affirmative vote of not less than a majority of a quorum of the Board at a duly-noticed meeting of the Board, finding that in the good faith opinion of the Board, Executive was guilty of conduct amounting to Cause and specifying the particulars thereof.

(c)   Termination Without Cause.  Executive’s employment may be terminated Without Cause upon 30 days’ notice for any reason, subject to the payment of all amounts required by Section 8 hereof.

(d)   Expiration.  Executive’s employment shall cease, or shall continue on an at-will basis as provided in Section 4 hereof, upon the expiration of the Term of this Agreement as provided in Section 4 hereof.

(e)   Supervisory Suspension.  If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Sections 8(e) or (g) of the Federal Deposit Insurance Act or similar statute, rule or regulation, the Bank’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank shall, (i) pay the Executive all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

(f)    Regulatory Removal.  If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Sections 8(e) or (g) of the Federal Deposit Insurance Act or similar statute, rule or regulation, all obligations of the Bank under this Agreement shall terminate as of the effective date of the order.

8.             Payments to Executive Upon Termination or Change in Control.

(a)   Death, Disability or Retirement.  In the event of Termination of this Agreement due to Executive’s death, Disability or retirement, Executive or Executive’s spouse and/or estate shall be entitled to all benefits generally available to Bank employees, or their spouses and/or estates, as of the date of such death, Disability or retirement, without reduction.

(b)   Resignation or Expiration.  In the event of Executive’s resignation, or upon Expiration, the Bank shall have no further obligations to Executive under this Agreement or otherwise, except as may be expressly required by law.

(c)   Termination for Cause.  In the event Executive is Terminated for Cause, the Bank shall have no further obligations to Executive under this Agreement or otherwise, except as may be expressly required by law.

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(d)   Termination Without Cause Prior to a Change in Control.  Upon the occurrence of a Termination Without Cause prior to a Change in Control, the Bank shall pay to Executive any amounts then owed to him under this Agreement, within 30 days of the date of the notice required by Section 7(c) hereof.

(e)   Change in Control.  Concurrent with a Change in Control, the Bank shall pay to Executive a lump sum payment equal to 1 time the amount of the Total Salary paid to Executive.  Such lump sum shall be paid concurrent with the Change in Control.

(f)    Source of Payments.  All payments provided in Section 8 shall be paid in cash from the general funds of the Bank, and no special or separate fund need be established and no other segregation of assets need be made to assure payment.

(g)   Consistent Returns.  The Bank and Executive agree that the payments being made under this Agreement represent reasonable compensation for services and that neither the Bank nor Executive will file any returns or reports which take a contrary position.

(h)   Reduction of Payment.  Notwithstanding anything in the foregoing to the contrary, if the payments made to Executive upon a Change in Control or any of the other payments provided for in this Agreement, together with any other payments which Executive has the right to receive from the Bank would constitute a “parachute payment” (as defined in Section 280G of the Code) the payments pursuant to this Agreement shall be reduced to the largest amount as will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the Code; provided, however, that the determination as to whether any reduction in the payments under this Agreement pursuant to this proviso is necessary shall be made in good faith by the Bank’s independent auditors or if such firm is no longer providing tax services to Bank to such other tax advisor as shall be mutually acceptable to Bank and Executive, and such determination shall be conclusive and binding on the Bank and Executive with respect to the treatment of the payment for tax reporting purposes.

(i)    Sole Remedy.  The receipt of the amounts described in this Section 8, and attorneys’ fees  as set forth in Section 12, if any, shall constitute Executive’s sole remedy for breach of this Agreement against the Bank and its officers, directors, employees and agents.

9.             Unauthorized Disclosure.  During the period of his employment hereunder and for a period of one year following the cessation of such employment (irrespective of the reason therefor), Executive shall not, except as required by any court, supervisory authority or administrative agency, without the written consent of the Board or a person authorized thereby, disclose to any person, other than an employee of the Bank or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an employee of the Bank, any confidential information obtained by him while in the employ of the Bank; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of an unauthorized disclosure by the Executive).

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10.           Waivers not to be Continued.  Any waiver by a party of any breach of this Agreement by the other party shall not be construed as a continuing waiver or as a consent to any subsequent breach by the other party.

11.           Notices.  All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to the following addresses or to such other address as either party may designate by like notice.

A.If to the Bank, to:

Santa Lucia Bank

7480 El Camino Real

Atascadero, CA  93422

Attn: Chairman of the Board

B.            If to Executive, to:

James M. Cowan

Santa Lucia Bank

7480 El Camino Real

Atascadero, CA  93422

and to such other or additional person or persons as either party shall have designated to the other party in writing by like notice.

12.           Arbitration of Claims.  The parties agree that any and all disputes, controversies or claims of any kind or nature, including but not limited to any arising out of or in any way related to Executive’s employment with or separation from the Bank or Bancorp, shall be submitted to binding arbitration under the auspices and rules of the American Arbitration Association (“AAA”) in Atascadero, California.  Included within this provision are any claims alleging fraud in the inducement of this Agreement, or relating to the general validity or enforceability of this Agreement, or claims based on a violation of any local, state or federal law, such as claims for discrimination or civil rights violations under Title VII of the Civil Rights Act of 1964, the California Fair Employment and Housing Act, the Age Discrimination in Employment Act and the Americans with Disabilities Act.  The parties shall each bear their own costs and attorneys’ fees incurred in conducting the arbitration and, except for such disputes where Executive asserts a claim under a state or federal statute prohibiting discrimination in employment (“a Statutory Claim”), or unless required otherwise by applicable law, shall split equally the fees and administrative costs charged by the arbitrator and AAA.  In disputes where Executive asserts a Statutory Claim against the Bank, Executive shall be required to pay only the AAA filing fee to the extent such filing fee does not exceed the fee to file a complaint in state or federal court.  The Bank shall pay the balance of the arbitrator’s fees and administrative costs.  The prevailing party in the arbitration, as determined by the arbitrator, shall be entitled to recover his or its reasonable attorneys’ fees and costs, including the costs or fees charged by the arbitrator and AAA.  In disputes where the Executive asserts a Statutory Claim, reasonable attorneys’ fees shall be awarded by the arbitrator based on the same standard as such fees would be awarded if the Statutory Claim had been asserted in state or federal court.

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Judgment upon an award rendered by the arbitrator may be entered in any competent court having jurisdiction over the dispute. Executive understands that arbitration is in lieu of any and all other civil legal proceedings and that he is waiving any right he may have to resolve disputes through court or trial by jury.

13.           General Provisions.

(a)   Entire Agreement.  This Agreement constitutes the entire agreement by the parties with respect to the subject matter hereof, and supersedes and replaces all prior agreements among or between the parties, unless otherwise provided herein, other than any agreements between Executive and Bank pursuant to the Bank’s or Bancorp’s Equity Plans and retirement plans including that certain Salary Continuation Agreement  dated as of January 18, 2001 together with all subsequent amendments thereto.  No amendment, waiver or termination of any of the provisions hereof shall be effective unless in writing and signed by the party against whom it is sought to be enforced.  Any written amendment, waiver, or termination hereof executed by the Bank and Executive shall be binding upon them and upon all other Persons, without the necessity of securing the consent of any other Person, and no Person shall be deemed to be a third-party beneficiary under this Agreement.

(b)   Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement.

(c)   No Waiver.  Except as otherwise expressly set forth herein, no failure on the part of any party hereto to exercise and no delay in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

(d)   Headings.  The headings of the Sections of this Agreement have been inserted for convenience of reference only and shall in no way restrict or modify any of the terms or provisions hereof.

(e)   Severability.  If for any reason any provision of this Agreement is held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision of this Agreement.  If any provision of this Agreement shall be held invalid or unenforceable in part, such invalidity or unenforceability shall in no way effect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.

(f)    Governing Law.  This Agreement shall be governed and construed and the legal relationships of the parties determined in accordance with the laws of the United States and to the extent not inconsistent therewith the laws of the State of California applicable to contracts executed and to be performed solely in California.

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(g)   Advice of Counsel.  Executive acknowledges that  (i) the Agreement has been prepared by Reitner, Stuart & Moore, counsel for the Bank and (ii) he has been encouraged to consult with legal counsel of his choosing concerning the terms of this Agreement prior to executing this Agreement.  Any failure by Executive to consult with competent counsel prior to executing this Agreement shall not be a basis for rescinding or otherwise avoiding the binding effect of this Agreement.  The parties acknowledge that they are entering into this Agreement freely and voluntarily, with full understanding of the terms of this Agreement.  Interpretation of the terms and provisions of this Agreement shall not be construed for or against either party on the basis of the identity of the party who drafted the terms or provisions in question.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

ATTEST:	SANTA LUCIA BANK
	By:
	Its: Chairman
	Print name:
	THE EXECUTIVE
Witness	James M. Cowan

10

EX-10.69

Exhibit 10.69

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement is made and is effective as of December 15, 2006, by and between Santa Lucia Bank (“Bank”) and William F. Filippin (“Executive”) and amends and restates in its entirety that certain Employment Agreement dated November 11, 2004, between the parties..

WHEREAS, Executive is currently employed by the Bank in the capacity as Senior Vice President and Credit Administrator, and Executive’s background, expertise and efforts have contributed to the success and financial strength of the Bank; and

WHEREAS, the Bank wishes to assure itself of the continued opportunity to benefit from Executive’s services for the period provided in this Agreement, and Executive wishes to serve in the employ of the Bank on a full-time basis solely in accordance with the terms hereof for such purposes; and

WHEREAS, the Board of Directors of the Bank (“Board”) has determined that the best interests of the Bank would be served by Executive’s continued employment with the Bank under the terms of this Agreement;

NOW, THEREFORE, in order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forth below.  Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:

1.             Definitions.

(a)  “Agreement” means this employment agreement and any amendments hereto complying with Section 13(a) hereof.

(b)  “Board” means the Board of Directors of the Bank unless the context otherwise requires.

(c)  “Cause” means:

(i)Executive’s personal dishonesty, incompetence or willful misconduct;

(ii)Executive’s breach of fiduciary duty involving personal profit;

(iii)          Executive’s intentional failure to perform Executive’s duties for the Bank after a written demand for performance is given to Executive by the Board which demand specifically identifies the manner in which the Board believes that Executive has not performed his duties;

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(iv)          Executive’s willful violation of any law, rule, regulation or final cease and desist order (other than traffic violations or similar minor offenses) to the extent detrimental to the Bank’s business or reputation; or

(v)           Executive’s material breach of any provision of this Agreement.

(d)  “Change in Control” means a change of control of the Bank, or  Santa Lucia Bancorp (“Bancorp”), of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act, whether or not the Bank or Bancorp is then subject to such reporting requirement; provided, however, that a transaction in which the Bank or Bancorp is the acquiror regardless of the form of the transaction shall not be a Change in Control for purposes of this Agreement; provided further however, that without limitation, a Change in Control shall be deemed to have occurred if:

(i)            there is a transfer, voluntarily or by hostile takeover, by proxy contest (or similar action), operation of law, or otherwise, of Control of the Bank or Bancorp;

(ii)           any Person is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act or any successor provisions thereof), directly or indirectly, of securities of the Bank or Bancorp representing 20% or more of the combined voting power of the Bank’s or Bancorp’s then outstanding securities (other than in the case of the ownership by Bancorp of Bank securities);

(iii)          the individuals who were members of the Board immediately prior to a meeting of the shareholders of the Bank or Bancorp, which meeting involves a contest for the election of directors, do not constitute a majority of the Board following such meeting or election;

(iv)          a merger is completed in which the Bank or Bancorp is not the surviving entity (unless the stockholders of Bank or Bancorp, as the case may be, immediately before such merger own immediately after such merger more than a majority of the voting securities of the surviving entity), a consolidation or sale of all or substantially all of the assets of the Bank or Bancorp; or

(v)           there is a change, during any period of two consecutive years, of a majority of the Board or of the board of directors of Bancorp as constituted as of the beginning of such period, unless the election of each director who is not a director at the beginning of such period was approved by a vote of at least two-thirds of the directors then in office who were directors at the beginning of such period.

(e)   “Code”  shall mean the Internal Revenue Code of 1986, as amended.

 (f)  “Control”  means the possession, direct or indirect, by any Person or “group” (as defined in Section 13(d) of the Securities Exchange Act) of the power to direct or cause the direction

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of the management policies of the Bank or Bancorp, whether through ownership of voting securities, by contract or otherwise, and in any case means the ability to determine the election of a majority of the directors of the Bank or Bancorp.

(g)  “Disability” means physical or mental illness resulting in Executive’s absence on a full-time basis from Executive’s duties with the Bank or Bancorp for 180 calendar days, subject to the procedure described in Section 7(a).

(h)  “Expiration” means the termination of this Agreement (including Executive’s employment hereunder) and of any further obligations of the parties (except as specified in this Agreement) upon completion of the Term.

(i) “Person” means an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization, a government or political subdivision thereof, or any other entity whatsoever.

(j)  “Term” means the initial term of this Agreement and any extensions hereof, as provided in Section 4, prior to a Change in Control.

(k)  “Termination” or “Terminate(d)” means the termination of Executive’s employment hereunder for any of the following reasons unless the context indicates otherwise:

(i)            Retirement by Executive;

(ii)           Death of Executive;

(iii)          Disability;

(iv)          Expiration;

(v)           Resignation;

(vi)          Termination Without Cause; and

(vii)         Termination for Cause.

(l)  “Termination Without Cause” or “Terminate(d) Without Cause” means the cessation of Executive’s employment hereunder for any reason except:

(i)            A resignation by Executive;

(ii)           Termination for Cause;

(iii)          Retirement;

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(iv)          Disability;

(v)           Death; or

(vi)          Expiration.

(m)  “Total Salary” shall mean the total amount of salary paid Executive in the prior 12 months.

2.             Employment.  The Bank hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue to serve the Bank, for the period stated in Section 4 hereof and upon the terms and conditions set forth herein.

3.             Position and Responsibilities.  The Executive shall serve as Senior Vice President and Credit Administrator of the Bank and, subject to the provisions of Section 5 below, shall have such responsibilities, duties and authority as are generally associated with such positions and as may from time to time be assigned to the Executive by the Board that are consistent with such responsibilities, duties and authority.  During the Term of this Agreement, the Executive shall devote all his time, attention, skill and efforts during normal business hours to the business and affairs of the Bank; provided, however, this provision shall not preclude Executive from serving as a Director or member of a committee of any other organization involving no conflict of interests with the interests of the Bank, from engaging in charitable and community activities and from managing his personal investments, provided that such activities do not materially interfere with the regular performance of his duties and responsibilities under this Agreement.

4.             Term of Agreement.  Subject to the terms and provisions of this Agreement, this Agreement and the period of Executive’s employment shall be deemed to have commenced as of December 15, 2006, and shall continue for an initial term expiring on December 31, 2007, unless extended as provided herein.  Prior to a Change in Control, the initial term shall automatically be extended for an additional one (1) full calendar year without further action by the parties on January 1, 2008, and on each succeeding January 1 thereafter; provided that each party, Bank or Executive, may stop an automatic calendar year extension by serving written notice upon the other within 90 calendar days prior to January 1, 2008, or within 90 calendar days prior to January 1 of any succeeding year, as the case may be, of such party’s intention that this Agreement shall expire at the end of such Term.  In the event the Bank retains Executive as an employee following the expiration of the Term, such employment, absent a written agreement to the contrary, will be on an at-will basis with such compensation and upon such terms as the parties may then agree, subject to termination at any time with or without cause, and without liability.  If the Bank does not retain Executive as an employee after the Expiration of the Term, Executive’s employment shall cease without further liability of the parties to each other.  Executive’s employment shall also terminate, and the Term of this Agreement will expire, upon Executive’s resignation, retirement, death or Disability, or upon Executive’s Termination for Cause or Termination Without Cause; provided further that the Term of the Agreement shall be deemed to have terminated upon a Change in Control and the payment to Executive of all amounts owed to him upon a Change in Control as provided in Section 8(e) hereof.

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5.             Additional Duties.  With the approval of the Board, from time to time, Executive may serve, or continue to serve, on the boards of directors of, and hold any other offices or positions in, companies or charitable, political or civic organizations, which, in such Board’s judgment, will not present any material conflict of interest with the Bank and will not unfavorably affect the performance of Executive’s duties pursuant to this Agreement.

6.             Salary, Bonus Payments and Related Matters.

(a)  Salary.  During the period of the Executive’s employment hereunder, the Bank shall pay to the Executive a base salary of One Hundred Five Thousand Dollars ($105,000.00) per year, payable at regular intervals in accordance with the Bank’s normal payroll practices now or hereafter in effect.  During the period of the Executive’s employment hereunder, the Executive may receive such discretionary increases in salary, if any, as may be granted to him from time to time by the Board.

(b)  Bonus Payments.  During the period of the Executive’s employment hereunder, the Executive may receive such discretionary bonuses, if any, as may be granted to him from time to time by the Board.

(c)  Expenses.  During the period of the Executive’s employment hereunder, the Executive shall be entitled to receive prompt reimbursement for all reasonable and customary expenses incurred by the Executive in performing services hereunder in accordance with the general policies and procedures established by the Bank.

(d)  Employee Benefits and Perks.  During the period of the Executive’s employment hereunder, the Executive shall be entitled to participate in all employee benefits plans or arrangements of the Bank on the same basis as other employees of the Bank including, without limitation, plans or arrangements providing life insurance, disability insurance, sick leave, or retirement.  During the period of the Executive’s employment hereunder, the Executive shall also be entitled to (i) the continuation of an automobile allowance of not less than the monthly amount paid to Executive on November 1, 2006, (ii) use of the Bank provided credit card(s), car telephone(s), pagers and such other perks (if such is (are) being so provided) upon the terms and conditions previously in effect.

7.             Termination.

(a)  Resignation, Retirement, Death or Disability.  Executive’s employment hereunder shall cease at any time by Executive’s resignation, retirement, death or Disability.  Disability shall be deemed to have occurred only after the following procedure has been satisfied:  If within 30 days after a written notice of proposed Termination for Disability is given to Executive by the Bank, Executive has not returned to the full-time performance of his duties, the Bank may end Executive’s employment by giving written notice of Termination for Disability.  Such notice may be given by the Bank following Executive’s absence from Executive’s duties by reason of physical or mental disability for one hundred fifty (150) consecutive calendar days.

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(b)  Termination for Cause.  Executive’s employment shall cease upon a good faith finding of Cause by the Board; provided, however, that Executive shall be given written notice of the Board’s finding of conduct by Executive amounting to Cause for such termination.  Said notice shall be accompanied by a copy of a resolution duly adopted by the affirmative vote of not less than a majority of a quorum of the Board at a duly-noticed meeting of the Board, finding that in the good faith opinion of the Board, Executive was guilty of conduct amounting to Cause and specifying the particulars thereof.

(c)  Termination Without Cause.  Executive’s employment may be terminated Without Cause upon 30 days’ notice for any reason, subject to the payment of all amounts required by Section 8 hereof.

(d)  Expiration.  Executive’s employment shall cease, or shall continue on an at-will basis as provided in Section 4 hereof, upon the expiration of the Term of this Agreement as provided in Section 4 hereof.

(e)  Supervisory Suspension.  If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Sections 8(e) or (g) of the Federal Deposit Insurance Act or similar statute, rule or regulation, the Bank’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank shall, (i) pay the Executive all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

(f)  Regulatory Removal.  If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Sections 8(e) or (g) of the Federal Deposit Insurance Act or similar statute, rule or regulation, all obligations of the Bank under this Agreement shall terminate as of the effective date of the order.

8.             Payments to Executive Upon Termination or Change in Control.

(a)  Death, Disability or Retirement.  In the event of Termination of this Agreement due to Executive’s death, Disability or retirement, Executive or Executive’s spouse and/or estate shall be entitled to all benefits generally available to Bank employees, or their spouses and/or estates, as of the date of such death, Disability or retirement, without reduction.

(b)  Resignation or Expiration.  In the event of Executive’s resignation, or upon Expiration, the Bank shall have no further obligations to Executive under this Agreement or otherwise, except as may be expressly required by law.

(c)  Termination for Cause.  In the event Executive is Terminated for Cause, the Bank shall have no further obligations to Executive under this Agreement or otherwise, except as may be expressly required by law.

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(d)  Termination Without Cause Prior to a Change in Control.  Upon the occurrence of a Termination Without Cause prior to a Change in Control, the Bank shall pay to Executive any amounts then owed to him under this Agreement, within 30 days of the date of the notice required by Section 7(c) hereof.

(e)  Change in Control.  Concurrent with a Change in Control, the Bank shall pay to Executive a lump sum payment equal to 1 time the amount of the Total Salary paid to Executive.  Such lump sum shall be paid concurrent with the Change in Control.

(f)   Source of Payments.  All payments provided in Section 8 shall be paid in cash from the general funds of the Bank, and no special or separate fund need be established and no other segregation of assets need be made to assure payment.

(g)  Consistent Returns.  The Bank and Executive agree that the payments being made under this Agreement represent reasonable compensation for services and that neither the Bank nor Executive will file any returns or reports which take a contrary position.

(h)  Reduction of Payment.  Notwithstanding anything in the foregoing to the contrary, if the payments made to Executive upon a Change in Control or any of the other payments provided for in this Agreement, together with any other payments which Executive has the right to receive from the Bank would constitute a “parachute payment” (as defined in Section 280G of the Code) the payments pursuant to this Agreement shall be reduced to the largest amount as will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the Code; provided, however, that the determination as to whether any reduction in the payments under this Agreement pursuant to this proviso is necessary shall be made in good faith by the Bank’s independent auditors or if such firm is no longer providing tax services to Bank to such other tax advisor as shall be mutually acceptable to Bank and Executive, and such determination shall be conclusive and binding on the Bank and Executive with respect to the treatment of the payment for tax reporting purposes.

(i)  Sole Remedy.  The receipt of the amounts described in this Section 8, and attorneys’ fees  as set forth in Section 12, if any, shall constitute Executive’s sole remedy for breach of this Agreement against the Bank and its officers, directors, employees and agents.

9.             Unauthorized Disclosure.  During the period of his employment hereunder and for a period of one year following the cessation of such employment (irrespective of the reason therefor), Executive shall not, except as required by any court, supervisory authority or administrative agency, without the written consent of the Board or a person authorized thereby, disclose to any person, other than an employee of the Bank or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an employee of the Bank, any confidential information obtained by him while in the employ of the Bank; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of an unauthorized disclosure by the Executive).

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10.           Waivers not to be Continued.  Any waiver by a party of any breach of this Agreement by the other party shall not be construed as a continuing waiver or as a consent to any subsequent breach by the other party.

11.           Notices.  All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to the following addresses or to such other address as either party may designate by like notice.

A.If to the Bank, to:

Santa Lucia Bank

7480 El Camino Real

Atascadero, CA  93422

Attn: Chairman of the Board

B.            If to Executive, to:

William F. Filippin

Santa Lucia Bank

7480 El Camino Real

Atascadero, CA  93422

and to such other or additional person or persons as either party shall have designated to the other party in writing by like notice.

12.           Arbitration of Claims.  The parties agree that any and all disputes, controversies or claims of any kind or nature, including but not limited to any arising out of or in any way related to Executive’s employment with or separation from the Bank or Bancorp, shall be submitted to binding arbitration under the auspices and rules of the American Arbitration Association (“AAA”) in Atascadero, California.  Included within this provision are any claims alleging fraud in the inducement of this Agreement, or relating to the general validity or enforceability of this Agreement, or claims based on a violation of any local, state or federal law, such as claims for discrimination or civil rights violations under Title VII of the Civil Rights Act of 1964, the California Fair Employment and Housing Act, the Age Discrimination in Employment Act and the Americans with Disabilities Act.  The parties shall each bear their own costs and attorneys’ fees incurred in conducting the arbitration and, except for such disputes where Executive asserts a claim under a state or federal statute prohibiting discrimination in employment (“a Statutory Claim”), or unless required otherwise by applicable law, shall split equally the fees and administrative costs charged by the arbitrator and AAA.  In disputes where Executive asserts a Statutory Claim against the Bank, Executive shall be required to pay only the AAA filing fee to the extent such filing fee does not exceed the fee to file a complaint in state or federal court.  The Bank shall pay the balance of the arbitrator’s fees and administrative costs.  The prevailing party in the arbitration, as determined by the arbitrator, shall be entitled to recover his or its reasonable attorneys’ fees and costs, including the costs or fees charged by the arbitrator and AAA.  In disputes where the Executive asserts a Statutory Claim, reasonable attorneys’ fees shall be awarded by the arbitrator based on the same standard as such fees would be awarded if the Statutory Claim had been asserted in state or federal court. 

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Judgment upon an award rendered by the arbitrator may be entered in any competent court having jurisdiction over the dispute. Executive understands that arbitration is in lieu of any and all other civil legal proceedings and that he is waiving any right he may have to resolve disputes through court or trial by jury.

13.           General Provisions.

(a)   Entire Agreement.  This Agreement constitutes the entire agreement by the parties with respect to the subject matter hereof, and supersedes and replaces all prior agreements among or between the parties, unless otherwise provided herein, other than any agreements between Executive and Bank pursuant to the Bank’s or Bancorp’s Equity Plans and retirement plans including that certain Salary Continuation Agreement  dated as of May 22, 2001 together with all subsequent amendments thereto.  No amendment, waiver or termination of any of the provisions hereof shall be effective unless in writing and signed by the party against whom it is sought to be enforced.  Any written amendment, waiver, or termination hereof executed by the Bank and Executive shall be binding upon them and upon all other Persons, without the necessity of securing the consent of any other Person, and no Person shall be deemed to be a third-party beneficiary under this Agreement.

(b)  Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement.

(c)   No Waiver.  Except as otherwise expressly set forth herein, no failure on the part of any party hereto to exercise and no delay in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

(d)  Headings.  The headings of the Sections of this Agreement have been inserted for convenience of reference only and shall in no way restrict or modify any of the terms or provisions hereof.

(e)   Severability.  If for any reason any provision of this Agreement is held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision of this Agreement.  If any provision of this Agreement shall be held invalid or unenforceable in part, such invalidity or unenforceability shall in no way effect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.

(f)  Governing Law.  This Agreement shall be governed and construed and the legal relationships of the parties determined in accordance with the laws of the United States and to the extent not inconsistent therewith the laws of the State of California applicable to contracts executed and to be performed solely in California.

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(g)  Advice of Counsel.  Executive acknowledges that  (i) the Agreement has been prepared by Reitner, Stuart & Moore, counsel for the Bank and (ii) he has been encouraged to consult with legal counsel of his choosing concerning the terms of this Agreement prior to executing this Agreement.  Any failure by Executive to consult with competent counsel prior to executing this Agreement shall not be a basis for rescinding or otherwise avoiding the binding effect of this Agreement.  The parties acknowledge that they are entering into this Agreement freely and voluntarily, with full understanding of the terms of this Agreement.  Interpretation of the terms and provisions of this Agreement shall not be construed for or against either party on the basis of the identity of the party who drafted the terms or provisions in question.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

ATTEST:	SANTA LUCIA BANK
	By:
	Its: Chairman
	Print name:
	THE EXECUTIVE
Witness	William F. Filippin

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EX-13

Exhibit 13

Santa Lucia Bancorp 2006 Annual Report

2006

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 St.	1530 E. Grand Ave.	1825 S. Broadway
(805) 466-7087	(805) 239-1140	(805) 473-1988	(805) 614-9100

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Message from the President

Dear Shareholders, Customers and Friends,

Santa Lucia Bancorp (“the Company”) is pleased to report that 2006 was a very exciting and rewarding year. Santa Lucia Bank Shareholders approved the formation of a Bank Holding Company at the Annual Shareholders Meeting on March 15, 2006. Santa Lucia Bancorp became a reality on April 3, 2006. Santa Lucia Bank now operates as a wholly owned subsidiary of Santa Lucia Bancorp.

One of the primary reasons we asked our Shareholders to approve the formation of Santa Lucia Bancorp is that a Bank Holding Company can issue Trust Preferred Securities. Santa Lucia Bancorp issued $5,155,000 in Trust Preferred Securities in April 2006. The Company has since invested $3,000,000 into Santa Lucia Bank to further support the Bank’s growth and development.

Net profits for the Company reached an all time high of $3,388,271 or a 23.4% increase over 2005’s Net Income of $2,746,820. We are very pleased with the growth in Net Income in 2006, especially when you consider this is following a 50.8% increase in Net Income from 2004 to 2005. We are confident that the results support our continued commitment to providing quality, timely and personalized service to our Customers on a consistent basis.

Larry H. Putnam, President and Chief Executive Officer

Total Asset and Deposit growth were not at the same levels as prior years, in a large extent due to the redeployment of our Customers funds into their Businesses and into alternate investments. There has been a substantial improvement in Non-Bank investment alternatives during the past several years. Total Deposits grew to $212,998,452 or 2.95%, despite the reallocation of deposits by our existing Customer base. We have seen a change in the mix of our Deposits, however the Company’s non-interest bearing Demand Deposits remain relatively unchanged between 2005 and 2006. Core deposit and loan growth are two of the major factors that allowed the Company to increase its Net Income significantly since 2002.

Santa Lucia Bancorp, continued its wholly owned subsidiary’s practice of paying Cash Dividends to our Shareholders. Two Cash Dividends were paid in 2006 totaling $0.40 per share. This is the seventeenth consecutive year that Cash Dividends have been paid to our Shareholders. The results from the 4 for 1 Stock Split, that took place June 30, 2005 produced the results that

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Santa Lucia Bancorp’s Board of Directors. Standing left to right—Douglas C. Filipponi, Vice Chairman, Larry H. Putnam, President and Chief Executive Officer, Jerry W. DeCou III, Chairman of the Board. Seated left to right—Khatchik H. Achadjian, D. Jack Stinchfield, Jean Hawkins, Paul G. Moerman, and Stanley R. Cherry.

were expected. We have seen an increase in the volume of trades and the overall liquidity of the Company’s Stock. Santa Lucia Bancorp’s stock closed the year at $28.00 per share, which represents a 7.7% increase in 2006. This follows a 40.5% increase in 2005, when adjusted for the 4 for 1 stock split. Earnings per share (basic) increased 21.2% to $1.77 per share compared to $1.46 in 2005 and $0.98 in 2004.

I am very pleased with the Company’s overall performance and its ability to continue to grow its Core Business. A very important factor in our success is the continued dedication and commitment of our Board of Directors, Officers and Staff to the principal of providing quality personalized service to the markets we serve. This is enhanced by the First Class Facilities that we have strategically placed on the Central Coast of California, which is a very desirable and growing region.

In closing, I would especially like to thank all of our Loyal Customers that continually support Santa Lucia Bank. This coupled with the ongoing support of our Shareholders, Directors and Employees will allow us to improve on the Company’s performance for years to come. I would like to wish you the very best in 2007 and thank you for your continued support.

Larry H. Putnam

President

Chief Executive Officer

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SANTA LUCIA BANK
(a wholly owned subsidiary of Santa Lucia Bancorp)

Senior Management Team

	LARRY H. PUTNAM President and Chief Executive Officer JOHN C. HANSEN Executive Vice resident and Chief Financial Officer JIM COWAN Senior Vice President Branch Administrator WILLIAM F. FILIPPIN Senior Vice President Credit Administrator Eager to service your banking needs
William F. Filippin, John C. Hansen, Jim Cowan, Larry H. Putnam

Administrative Team

LARRY H. PUTNAM President and Chief Executive Officer JOHN C. HANSEN Executive Vice President and Chief Financial Officer JIM COWAN Senior Vice President Branch Administrator WILLIAM F. FILIPPIN  Senior Vice President Credit Administrator CLAUDYA OGLESBY Vice President Administration MELODEE FONTANA Vice President Operations Administrator SHARON SATTERTHWAITE Assistant VicePresident Administration KRISTIE KELLER Assistant Vice President Central Operations

Jim Cowan, John C. Hansen, Sharon Satterthwaite, Kristie Keller, William F. Filippin, Larry H. Putnam, Melodee Fontana, Claudya Oglesby

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Atascadero Office
7480 El Camino Real, Atascadero, California

	Atascadero Officer Team
TERI DAVIS Vice President Loan Officer JIM KELLEY Vice President Loan Officer LARRY WOMACK Vice President Loan Officer KIM DONALDSON Assistant Vice President Operations Officer KAREN SAMPSON Assistant Operations Officer ROBERT McCONAGHY Loan Officer
	Kim Donaldson, Teri Davis, Karen Sampson, Larry Womack, Jim Kelley, Robert McConaghy

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Paso Robles Office
1240 Spring Street, Paso Robles, California

Paso Robles Officer Team
	ROBERT COVARRUBIAS Vice President Manager CHERYL MUMFORD Assistant Vice President Operations Officer RYUN McCRORY Assistant Vice President Loan Officer J. DARREN BARNES Loan Officer
Cheryl Mumford, J. Darren Barnes, Robert Covarrubias, Ryun McCrory

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Arroyo Grande Office

1530 East Grand Avenue, Arroyo Grande, California

	Arroyo Grande Officer Team
MICHAEL W. MCKENZIEVice President ManagerJENNIFER BASSI GINDER Assistant Vice President Operations OfficerRICHARD ALLEN Assistant Vice President Loan OfficerREGINA M. SHELDON Loan Officer
	Richard Allen, Michael W. McKenzie, Regina M. Sheldon, Jennifer Bassi Ginder

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Santa Maria Office
1825 South Broadway, Santa Maria, California

Santa Maria Officer Team
	LEAH T. WEST Vice President ManagerJAMES P. BURUBELTZ Vice President Loan OfficerSTELLA MARTINEZ Operations Officer

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SANTA LUCIA BANCORP

FINANCIAL HIGHLIGHTS

As of Years Ended December 31,

The Company has only one class of securities, common stock, which is traded on the over-the-counter market. Our 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 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 2006	Low		High
December 31	$	24.00	$	29.00
September 30	24.05		27.00
June 30	26.55		34.50
March 31	25.05		30.25

Quarter Ended 2005	Low		High
December 31	$	25.50	$	29.50
September 30	20.25		30.00
June 30	19.37		20.25
March 31	18.38		20.00

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Santa Lucia Bancorp and Subsidiary

Consolidated Selected Financial Information

	Year Ended December 31,
	2006			2005			2004			2003			2002
Summary of Operations:	(dollars in thousands, except per share data)
Interest Income	$	17,027		$	13,546		$	10,220		$	9,157		$	8,426
Interest Expense	3,577			1,984			1,343			1,324			1,614
Net Interest Income	13,450			11,562			8,877			7,833			6,812
Provision for Loan Loss	240			300			110			115			30
Net Interest Income After Provision for Loan Losses	13,210			11,262			8,767			7,718			6,782
Nointerest Income	1,010			1,052			1,191			1,376			1,244
Nointerest Expense	8,590			7,808			7,060			6,609			6,082
Income Before Income Taxes	5,630			4,506			2,898			2,485			1,944
Income Taxes	2,242			1,759			1,076			873			673
Net Income	$	3,388		$	2,747		$	1,822		$	1,612		$	1,271
Cash Dividends Paid	$	768		$	730		$	697		$	685		$	672
Per Share Data:
Net Income — Basic	$	1.77		$	1.46		$	0.98		$	0.89		$	0.71
Net Income — Diluted	$	1.68		$	1.38		$	0.94		$	0.86		$	0.67
Dividends	$	0.400		$	0.388		$	0.375		$	0.375		$	0.375
Book Value	$	9.93		$	8.35		$	7.42		$	6.96		$	6.56
Common Outstanding Shares:	1,928,097			1,899,543			1,861,764			1,844,708			1,801,376
(Adjusted for 4-for-1 stock split)
Statement of Financial Condition Summary:
Total Assets	$	240,738		$	231,532		$	211,684		$	183,827		$	162,483
Total Deposits	212,988			206,879			194,868			168,033			149,831
Total Net Loans	169,680			152,563			125,586			109,949			101,506
Allowance for Loan Losses	1,654			1,470			1,200			1,112			1,026
Total Shareholders’ Equity	19,137			15,866			13,807			12,845			11,812
Selected Ratios:
Return on Average Assets	1.42		%	1.21		%	0.91		%	0.94		%	0.85		%
Return on Average Equity	19.45		%	18.67		%	13.71		%	13.00		%	11.16		%
Average Loans as a Percentage of Average Deposits	79.74		%	69.90		%	62.77		%	68.93		%	69.92		%
Allowance for Loan Losses to Total Loans	0.96		%	0.95		%	0.94		%	1.00		%	1.00		%
Company:
Tier I Capital to Average Assets	10.00		%	—			—			—			—
Tier I Capital to Risk-Weighted Assets	14.00		%	—			—			—			—
Total Capital to Risk-Weighted Assets	15.00		%	—			—			—			—
Bank:
Tier I Capital to Average Assets	9.11		%	7.16		%	6.53		%	7.00		%	7.08		%
Tier I Capital to Risk-Weighted Assets	11.43		%	9.33		%	8.80		%	9.34		%	9.47		%
Total Capital to Risk-Weighted Assets	13.13		%	11.34		%	10.85		%	11.66		%	10.34		%

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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 leasing, 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, 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, 2006.

Consolidated Results of Operations

In 2006 the Company recorded record earnings of $3,388,000, which reflects an increase of $641,000 or 23.4% over the previous year.  In 2005, earnings were $2,747,000, an increase of 50.8% from 2004’s earnings of $1,822,000, which reflected an increase of 13.0% from earnings posted in 2003.  Basic earnings per share in 2006 were $1.77 compared with $1.46 and $0.98 for 2005 and 2004, respectively.  This reflects an increase from 2005 to 2006 of 21.2%.  The earnings per share (diluted) for 2006, 2005 and 2004 were $1.68, $1.38 and $0.94, respectively, a 21.7% increase from 2005 to 2006.  The Company paid cash dividends totaling $0.40 per share during 2006 compared to $0.388 paid in 2005 and $0.375 paid in 2004.  Return on average shareholder’s equity was 19.5% in 2006 compared to 18.7% in 2005 and 13.7% in 2004.  Return on average assets was 1.42% in 2006 compared to 1.21% in 2005 and 0.91% in 2004.

The increase in the Company’s net earnings from 2005 to 2006 was due to an $11.7 million increase in average earning assets coupled with a 100 basis point increase in the prime lending rate.  The significant increase in the Company’s loans coupled with the increase in rates, resulted in a $3.5 million increase in interest income.

The Company believes that the local economies, in which it operates, Atascadero, Paso Robles, Arroyo Grande, and Santa Maria continue to remain stable.

11

Net Interest Income

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 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.  The volume of loans, investment securities and other interest earning assets, compared to the volume of interest bearing deposits and indebtedness, combined with the spread, produces changes in the net interest income between periods.

Interest income increased $3,481,000 or 25.7% in 2006 from $13,546,000 in 2005 to $17,027,000 in 2006.  This is compared to an increase of $3,326,000 or 32.5% from 2004 to 2005 and an increase of $1,063,000 or 11.6% from 2003 to 2004.  The increase in 2006 was primarily due to the 16.5% growth in the average loan portfolio.

Total interest and fees produced an 8.1% yield on average earning assets in 2006 versus 6.8% in 2005 and 5.8% in 2004.  The average loan to deposit ratio for 2006 was 79.7%, which represents an increase of 14.1% over the 69.9% average for 2005 and 62.8% for 2004.

Total interest expense increased $1,593,000, or 80.3% from $1,984,000 in 2005 to $3,577,000 in 2006 compared to an increase of $641,000 or 47.7% from 2004 to 2005.  The increase in total interest expense was due to a 99 basis point increase in the rate paid on average interest bearing liabilities, plus an $11,707,000 shift from lower interest rate NOW, Money Market and Savings accounts to higher interest rate Time Certificates of deposits, coupled with $190,000 interest expense for the $2,000,000 Subordinated Debt and $243,000 interest expense for the $5,155,000 in Trust Preferred securities that the Company issued in April of 2006.  The volume of average interest bearing liabilities increased 2.8% in 2006, while increasing 12.4% in 2005.  The rate on interest-bearing deposits increased 99 basis points from 1.52% in 2005 to 2.51% in 2006.

Net interest margin increased 59 basis points from 5.79% in 2005 to 6.38% in 2006.  The primary reason for the increase in the net interest margin was a change in the mix of the average earning assets coupled with the rising rate environment.  The loan portfolio on average increased from 72.8% of average earning assets at December 31, 2005 to 80.3% of average earning assets as of December 31, 2006, while average investment securities decreased from 27.2% at December 31, 2005 to 19.7% at December 31, 2006.  The results of this portfolio mix change increases the effective yield of earning assets.  In a rising rate environment, yields on assets tend to rise faster.  The yield on earning assets increased 129 basis points while rates paid on deposits increased 99 basis points.

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, 2006, 2005 and 2004.  Nonaccrual loans are included in the calculation of the average balances of loans, and nonaccrued interest is excluded.

	Year Ended December 31
	2006							2005							2004
	Average					Yield/		Average					Yield/		Average					Yield/
	Balance			Interest		Rate		Balance			Interest		Rate		Balance			Interest		Rate
Assets:	(dollars in thousands)
Loans	$	169,139		$	15,397	9.10	%	$	145,195		$	11,747	8.09	%	$	115,255		$	8,391	7.28	%
Investment securities	38,573			1,485		3.85	%	48,660			1,625		3.34	%	53,012			1,734		3.27	%
Federal funds sold	2,941			145		4.93	%	5,658			174		3.06	%	9,118			95		1.04	%
Interest-earning deposits with other institutions	—			—		—		—			—		—		—			—		—
Total average interest-earning assets	210,653			17,027		8.08	%	199,540			13,546		6.79	%	177,385			10,220		5.76	%
Other assets	28,808							27,913							23,752
Less allowance for loan losses	(1,593		)					(1,332		)					(1,155		)
Total average assets	$	237,868						$	226,121						$	199,982
Liabilities and Shareholders’ Equity:
Transaction accounts	$	17,784		$	61	0.34	%	$	21,097		$	57	0.27	%	$	19,137		$	38	0.20	%
Time deposits	55,853			2,317		4.15	%	40,772			1,196		2.93	%	38,353			849		2.21	%
Other	49,089			701		1.43	%	57,483			563		0.98	%	48,649			340		0.70	%
Total average interest-bearing deposits	122,726			3,079		2.51	%	119,352			1,816		1.52	%	106,139			1,227		1.16	%
Demand deposits	89,383							88,366							77,470
Total deposits	212,109							207,718							183,609
Subordinated debt	2,000			190		9.50	%	2,000			152		7.60	%	2,000			116		5.80	%
Other borrowings	4,821			308		6.39	%	439			16		3.64	%	—			—		—
Other liabilities	1,515							1,253							1,083
Shareholders’ equity	17,423							14,711							13,290
Total average liabilities and shareholders’ equity	$	237,868						$	226,121						$	199,982
Net interest income				$	13,450						$	11,562						$	8,877
Net interest margin						6.38	%						5.79	%						5.00	%

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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, 2006								Year Ended December 31, 2005
	over								over
	Year Ended December 31, 2005								Year Ended December 31, 2004
	Increase (Decrease) Due to								Increase (Decrease) Due to
	Change in (000’s)								Change in (000’s)
	Volume			Rate		Change			Volume			Rate		Change
Interest-bearing Assets:
Net Loans	2,075			1,575		3,650			2,349			1,007		3,356		)
Investment Securities	(366		)	226		(140		)	(144		)	35		(109		)
Federal funds sold	(107		)	78		(29		)	(47		)	126		79
Interest-earning deposits	—			—		—			—			—		—
Total interest income	1,602			1,879		3,481			2,158			1,168		3,326
Interest-bearing Liabilities:
Interest bearing demand — NOW	(8		)	4		(4		)	2			8		10
Money Market	(102		)	159		57			93			77		170
Savings	1			88		89			14			49		63
Time Certificates of deposit	528			593		1,121			57			289		346
Short-term borrowings	43			6		49			16			—		16
Long-term borrowings	16			265		281			—			36		36
Total interest expense	478			1,115		1,593			182			459		641
Interest differential or net interest income	$	1,124		$	764	$	1,888		$	1,976		$	709	$	2,685

Noninterest Income

Noninterest income totaled $1,010,000 compared to $1,052,000 for the same period in 2005.  That represents a decrease of $42,000 or 4.0%.  The decrease was primarily due to a decrease in mortgage origination fees.

Service charges on deposit accounts totaled $616,000, which represents an increase of $13,000 or 2.2% over the same period in 2005. The increase in services charges was primarily due to a 5.4% increase in non-sufficient fund fees.

Other noninterest income totaled $394,000 compared to $449,000 for the same period in 2005.  That represents a decrease of $55,000 or 12.3%.  The decrease is primarily due to a decrease in mortgage origination fees and equipment leasing fees.

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

Noninterest Expense

Noninterest expense increased $782,000 or 10.0% in 2006 over 2005 to $8,590,000 as compared to an increase of $748,000 or 10.6% in 2005 over 2004.  The overall increase can be largely attributed to the continued growth of the Company.

Salaries and related expenses increased $501,000 or 11.8% from 2005 to 2006 compared to an increase of $430,000 or 11.3% between 2004 and 2005.  This increase is attributed to normal staff related increases, coupled with a 7.3% increase in group health insurance and a $64,000 shared-based payment, which is part of a new requirement effective January of 2006 under SFAS 123(R), “Share-Based Payment.”  SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.

Occupancy expense for the year ended December 31, 2006 totaled $664,000, which reflects an increase of $99,000 or 17.5% over the same period in 2005.  This was primarily due to an increase in building depreciation coupled with an increase in real estate taxes associated with our new office in Arroyo Grande.

Equipment expense for the year ended December 31, 2006 totaled $691,000, which reflects an increase of $107,000 or 18.3% over the same period in 2005.  This was primarily due to an increase in depreciation and maintenance expense due to the purchase of the Company’s new item processing and imaging equipment coupled with an upgrade to the teller workstations and platform system to enhance customer service.

Professional services for the year ended December 31, 2006 totaled $538,000, which reflects an increase of $73,000 or 15.7% over the same period in 2005.  This was primarily due to the increased scope and coverage of the Company’s third party audits and expenses associated with the formation of the holding company in April of 2006.

Data processing expense for the year ended December 31, 2006 totaled $468,000, which reflects an increase of $28,000 or 6.4% from the same period in 2005.  This was primarily due to a 5% increase in contracted fees coupled with the continued growth of the Company.

Office expenses decreased $14,000 or 3.7% from $374,000 in 2005 to $360,000 in 2006.  This was primarily due to a 14.3% decrease in postage expense.

Marketing expense increased $10,000 or 2.5% from $398,000 in 2005 to $408,000 in 2006.

Director fees and expenses for the year ended December 31, 2006 totaled $263,000, which reflects an increase of $2,000 or 0.8% over the like period in 2005.

Messenger and courier expenses increased $4,000 or 2.8% from $144,000 in 2005 to $148,000 in 2006.

Other expense decreased $27,000 or 10.0% from $269,000 in 2005 to $242,000 in 2006.  This decrease was due to a $12,000 decrease in operating losses coupled with a $15,000 decrease in stockholder related fees.

The Company’s efficiency ratio for 2006 was 60.4%.  This represents an improvement from the 2005 efficiency ratio of 63.4%, which was an improvement from the 2004 ratio of 70.9%. The improvement in the efficiency ratio was primarily due to the improved profitability of our Santa Maria office combined with the overall growth of the Company.

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

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Income Taxes

The provision for income taxes was $2,242,000 in 2006, $1,759,000 in 2005 and $1,076,000 in 2004.  The effective tax rate was 39.9% in 2006 as compared to 39.0% in 2005 and 37.2% in 2004.  This increase was due to a decreasing percentage of tax-free investments.

Financial Condition

In 2006, the Company’s consolidated total assets increased to $240,738,000 compared to $231,532,000 in 2005 and $211,684,000 in 2004 for increases of 4.0%, 9.3% and 15.2% respectively.

Total deposits increased $6.1 million to $213,988,000 compared to $206,879,000 in 2005 and $194,868,000 in 2004 for increases of 3.0%, 6.2% and 16.0% respectively.

Securities available for sale totaled $42,778,000 at December 31, 2006, compared to $41,830,000 at December 31, 2005 and $57,535,000 at December 31, 2004.  This represents an increase of 2.3% over December 31, 2005.

Loan Portfolio

Total loans outstanding averaged $169,139,000 in 2006 compared to $145,195,000 in 2005.  This represents an increase of $23,944,000 or 16.5% in 2006 compared to an increase of $29,940,000 or 26.0% in 2005.  Actual net loans at December 31, 2006 equaled $169,680,000 for an increase of $17,117,000 or 11.2% over 2005.

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

	Year Ended December 31
	2006			2005			2004			2003			2002
	(dollars in thousands)
Commercial	$	36,407		$	34,139		$	32,797		$	30,490		$	29,598
Real Estate — construction	55,307			52,696			29,707			25,446			19,222
Real Estate — other	78,757			66,390			63,433			53,931			51,409
Consumer	1,604			1,493			1,570			1,645			2,749
Total gross loans	172,075			154,758			127,507			111,512			102,978
Less: unearned fees	(741		)	(725		)	(721		)	(451		)	(446		)
Less: allowance for loan losses	(1,654		)	(1,470		)	(1,200		)	(1,112		)	(1,026		)
Total net loans	$	169,680		$	152,563		$	125,586		$	109,949		$	101,506
Weighted average yield on loans for the year	9.1		%	8.1		%	7.3		%	7.3		%	7.4		%

The following table sets forth the amount of total loans outstanding at December 31, 2006 by contractual maturity date:

			After One
	One Year		Year Through		After
	or Less		Five Years		Five Years		Total
	(dollars in thousands)
Commercial	$	22,815	$	7,537	$	6,055	$	36,407
Real Estate — construction	49,909		5,398		—		55,307
Real Estate — other	1,536		12,271		64,950		78,757
Consumer	998		415		191		1,604
	$	75,258	$	25,621	$	71,196	$	172,075

A significant portion of the loan portfolio of the Company is dependent on real estate.  At December 31, 2006, real estate served as the principal source of collateral with respect to 77.9% of the Company’s loan portfolio.  A decline in current economic conditions or a continued rise in interest rates could have an adverse effect on the demand for new loans.  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 $134,064,000 or 77.9% of the total loan portfolio and $119,086,000 or 77.0% of the total loan portfolio at December 31, 2006 and 2005, 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, including vineyards.  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 to monitor industry trends within its commercial real estate portfolio.  As of December 31, 2006, the Company had $69,971,000 or 39.5% of its loans in commercial real estate.  Of this number, $38,206,000 or 56.2% is commercial real estate for owners use.  No industry type exceeds 5.0% of total loans.  The remaining $29,765,000 or 43.8% is commercial real estate for non-owners use.  Commercial real estate loans for non-owners use as a percentage of total loans equates to 17.3%.  We watch the commercial real estate loans for non-owners

14

use along with changes within our owners use very closely and are familiar with the individuals and projects and at this time we do not foresee any problems or undue risk.  It has always been a part of our business banking practice to loan to small businesses for their facilities as well as their other business needs.  Total real estate loans increased $14,705,000 or 12.3% in 2006 over 2005 compared to an increase of $25,946,000 or 27.9% in 2005 over 2004.  The increase is spread throughout construction of residential units held for resale or for the borrower’s personal residence, off-site development, or land held for future development of commercial or residential properties.  The Company has not seen a significant increase in the number of loans but rather a significant increase in the size of loans due to appreciating real estate values along the Central Coast.  The Company 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 75% of the appraised value on commercial residential real estate or 80% 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 $36,407,000 or 21.2% of the total loan portfolio and $34,139,000 or 22.1% of the total loan portfolio at December 31, 2006 and 2005, respectively.  Commercial loans increased $2,268,000 or 6.6% from 2005 to 2006 compared to an increase of $1,238,000 or 3.8% in 2005 over 2004.

Consumer and other loans equaled $1,604,000 or 0.9% of the total loan portfolio at December 31, 2006 compared to $1,533,000 or 1.0% at December 31, 2005.  Consumer loans increased $71,000 or 4.6% in 2006 over 2005 compared to a decrease of $37,000 or 2.4% in 2005 over 2004.

The Company had undisbursed loans totaling $56,557,000, $53,280,000, and $51,164,000 as of December 31, 2006, December 31, 2005 and December 31, 2004, respectively.  Standby Letters of Credit accounted for $2,603,000, $1,546,000 and $2,689,000 of the undisbursed loans as of December 31, 2006, December 31, 2005 and December 31, 2004, 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, 2006 include approximately $11,060,000 of fixed rate loans or 6.4% of the total loan portfolio compared to $7,642,000 or 4.9% of the total loan portfolio as of December 31, 2005 and $8,647,000 or 6.8% of the total loan portfolio as of December 31, 2004.  The balance of the loans that have maturities of one year or less, or are variable rate loans at December 31, 2006 totaled $161,015,000 or 93.6% compared to $147,116,000 or 95.1% as of December 31, 2005 and $118,860,000 or 93.2% as of December 31, 2004.

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
	2006			2005			2004			2003			2002
	(dollars in thousands)
Nonaccrual loans:
Commercial	$	—		$	—		$	—		$	23		$	70
Real estate	—			135			758			805			888
Consumer	—			—			—			—			—
Total	—			135			758			828			958
Loans 90 days or more past due and still accruing:
Real estate	—			—			—			—			—
Consumer	—			—			—			—			—
Commercial	550			—			—			—			—
Total	550			—			—			—			—
Total nonperforming loans:	550			135			758			828			958
OREO	—			—			—			—			329
Total nonperforming assets:	$	550		$	135		$	758		$	828		$	1,287
Nonperforming assets as a percentage of total gross loans	0.32		%	0.09		%	0.59		%	0.74		%	1.25		%
Nonperforming assets as a percentage of total assets	0.23		%	0.06		%	0.36		%	0.45		%	0.79		%
Allowance for loan losses to nonperforming loans	300.73		%	1088.89		%	158.31		%	134.30		%	107.10		%

The Company had one nonperforming loan totaling $550,000 as of December 31, 2006, compared to one nonperforming loan totaling $135,000 at December 31, 2005 and one nonperforming loan totaling $758,000 at December 31, 2004.  The current nonperforming loan is in the process of being collected and has been determined to be fully collectible.

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There were no significant loans that were current as of December 31, 2006, where serious doubt existed as to the ability of the borrower to comply with the present loan repayment terms or that represent a “troubled debt restructuring.”

The Company had no “Other Real Estate Owned” (OREO) property as of December 31, 2006.

The Company experienced net charge-offs of $56,000, $30,000 and $22,000 in 2006, 2005 and 2004 respectively

Quality of loans

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 possible loan losses.  As an integral part of this process, the allowance for possible 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 provision for possible loan losses.

The Company evaluates the allowance for possible 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 overall credit quality on an ongoing basis.  Management then considers the adequacy of the allowance for possible loan losses in relation to the total loan portfolio.

The provision for possible 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; off-balance sheet credit risk; 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 possible loan losses quarterly. 

It is management’s view that the allowance for loan losses of $1,654,000 or .96% of total loans as of December 31, 2006 is adequate after considering the above factors.  This allowance is compared to $1,470,000 or ..95% in 2005 and $1,200,000 or .94% in 2004.  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 allocation of the allowance for possible loan losses as of the end of the last five fiscal years is summarized in the following table:

	Year Ended December 31
	2006			2005			2004			2003			2002
	(dollars in thousands)
Outstanding loans:
Average for the year (net)	$	169,139		$	145,195		$	115,255		$	109,148		$	95,600
End of the year (net)	169,680			152,563			125,586			109,949			101,506
Allowance for loan losses:
Balance at beginning of year	$	1,470		$	1,200		$	1,112		$	1,026		$	1,010
Actual charge-offs:
Commercial	77			43			22			16			4
Real estate	—			—			—			—			—
Consumer	—			—			—			—			—
All other (including overdrafts)	6			3			1			17			13
Total charge-offs	83			46			23			33			17
Less Recoveries:
Commercial	26			15			—			4			2
Real estate	—			—			—			—			—
Consumer	—			—			—			—			—
All other (including overdrafts)	1			1			1			_			1
Total recoveries	27			16			1			4			3
Net loan charge-offs (recoveries)	56			30			22			29			14
Provision for loan loss	240			300			110			115			30
Balance at end of period	$	1,654		$	1,470		$	1,200		$	1,112		$	1,026
Ratios:
Net loan charge-offs (recoveries) to average loans	0.03		%	0.02		%	0.02		%	0.03		%	0.01		%
Allowance for loan losses to end of year loans	0.96		%	0.95		%	0.94		%	1.00		%	1.00		%
Net loan charge-offs (recoveries) to allowance for loan losses	3.39		%	2.04		%	1.83		%	2.61		%	1.36		%
Net loan charge-offs (recoveries) to provision charged to operating expense	23.33		%	10.00		%	20.00		%	25.22		%	46.67		%

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Investment Securities

The average balance of Federal Funds Sold (overnight investments with other banks) was $2,941,000 in 2006, $5,685,000 in 2005, and $9,118,000 in 2004.  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.   The Company’s loan-to-deposit ratio averaged 79.7% in 2006, compared to 69.9% in 2005, and 62.8% in 2004.

Average total investment securities decreased by $10,087,000 or 20.7% during 2006, compared to a decrease of $4,352,000 or 8.2% in 2005.  The decrease in 2006 was due in large part to the redeployment of assets into higher yielding loans.  The aggregate market value of the investment portfolio was $462,000 less than the amortized cost as of December 31, 2006.  While a significant number of individual investments classified as available for sale had a market value less than the amortized cost as of December 31, 2006, the Company has the ability and intent to hold these securities to maturity.  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.

	December 31
	2006									2005
	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	$	19,094,065	$	3,029	$	(76,599	)	$	19,020,495	$	22,164,983	$	—	$	(349,578	)	$	21,815,405
State and Political Subdivisions	$	4,805,053	$	9,970	$	(89,397	)	$	4,725,626	$	4,598,941	$	21,840	$	(95,856	)	$	4,524,925
Mortgage—Backed Securities	$	19,340,821	$	20,303	$	(328,828	)	$	19,032,296	$	15,891,090	$	—	$	(401,707	)	$	15,489,383
Total	$	43,239,939	$	33,302	$	(494,824	)	$	42,778,417	$	42,655,014	$	21,840	$	(847,141	)	$	41,829,713

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:

	December 31,
	2006						2005
					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	8,998,769		8,924,794		3.59	%	15,183,779		14,999,175		2.81	%
One to Five Years	8,095,296		8,095,701		5.03	%	6,981,204		6,816,230		3.14	%
Five to Ten Years	2,000,000		2,000,000		5.10	%	—		—
Over Ten Years	—		—				—		—
Total U.S. Agency	19,094,065		19,020,495		4.36	%	22,164,983		21,815,405		2.91	%
State and Political Subdivisions:
One Year or Less	708,100		702,151		4.36	%	440,000		443,410		7.69	%
One to Five Years	3,859,382		3,790,725		5.20	%	3,921,647		3,854,612		4.77	%
Five to Ten Years	237,571		232,750		5.74	%	237,294		226,903		5.57	%
Over Ten Years	—		—				—		—
Total State & Political Subdivisions	4,805,053		4,725,626		5.10	%	4,598,941		4,524,925		5.09	%
Mortgage Backed Securities:
One Year or Less	3,650,978		3,590,877		4.26	%	3,634,891		3,543,760		3.87	%
One to Five Years	11,261,147		11,033,390		4.20	%	9,503,938		9,274,471		3.94	%
Five to Ten Years	2,711,676		2,695,483		4.63	%	2,309,893		2,237,967		3.91	%
Over Ten Years	1,717,020		1,712,546		4.71	%	442,368		433,185		4.12	%
Total Mortgage Backed Securities	19,340,821		19,032,296		4.32	%	15,891,090		15,489,383		3.92	%
Total Available-for-Sale Securities	$	43,239,939	$	42,778,417	4.42	%	$	42,655,014	$	41,829,713	3.52	%

17

Deposits

Total average deposits increased $4,391,000 or 2.11% during 2006, compared to an increase of $24,109,000 or 13.1% in 2005 and an increase of $25,267,000 or 16.0% in 2004.  Average noninterest-bearing deposits increased $1,017,000 or 1.2% in 2006, compared to an increase of $10,896,000 or 14.1% in 2005 and an increase of $14,053,000 or 22.2% in 2004.  Average interest-bearing deposits increased $3,374,000 or 2.8% in 2006 compared to an increase of $13,213,000 or 12.5% in 2005 and an increase of $11,214,000 or 11.8% in 2004.

The chart below indicates a shift in lower 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 and is expected to continue in 2007 as competition for deposits remains strong.

The following table summarizes the distribution of average deposits and the average rates paid for the period indicated:

	December 31
	2006				2005				2004
	Average		Average		Average		Average		Average		Average
	Balance		Rate		Balance		Rate		Balance		Rate
	(dollars in thousands)
Noninterest-bearing demand deposits	$	89,383			$	88,366			$	77,470
Money market accounts	24,103		2.09	%	30,186		1.48	%	23,286		1.13	%
NOW accounts	14,696		0.26	%	17,834		0.24	%	16,765		0.19	%
Savings deposits	28,074		0.79	%	30,560		0.44	%	27,736		0.25	%
Time deposits of $100,000 or more	29,800		4.21	%	19,859		2.93	%	17,159		2.14	%
Other time deposits	26,053		4.08	%	20,913		2.94	%	21,193		2.27	%
Total deposits	$	212,109	1.45	%	$	207,718	0.87	%	$	183,609	0.67	%

The remaining maturities of the Company’s certificates of deposit in the amount of $100,000 or more as of December 31, 2006 are indicated in the table below.  Interest expense on these certificates of deposit totaled $1,255,000 in 2006:

Deposits Maturing in	December 31, 2006
Three months or less	$	15,934,943
Over three months through six months	10,404,297
Over six months through twelve months	7,289,250
Over twelve months	3,597,699
Total	$	37,226,189

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 2006, all Bank capital ratios were above all current Federal capital guidelines for a “well capitalized” bank.  As of December 31, 2006 the regulatory total capital to risk-weighted assets ratio was 13.1% compared to 11.3% as of December 31, 2005 and 10.9% as of December 31, 2004. The regulatory Tier I capital to risk-weighted assets ratio was 11.4% on December 31, 2006 compared to 9.3% on December 31, 2005 and 8.8% as of December 31, 2004.  The regulatory Tier I capital to average assets ratio was 9.1% as of December 31, 2006 compared to 7.2% as of December 31, 2005 and 6.5% as of December 31, 2004.

The Bank’s Tier I Capital ratio increased 190 basis points and the Bank’s Total Capital to Risk Weighted Assets ratio increased 180 basis points, due to a $3.0 million contribution from the Company, which represents a portion of its trust preferred proceeds, coupled with strong earnings for the year.

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.

18

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.

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, 2006:

																Non-Rate
	0-3 months			3-12 months			1-3 years			3-5 years			Beyond			Sensitive		Total
	(dollars in thousands)
Interest sensitive assets:
Investment securities	$	4,389		$	10,417		$	15,079		$	9,001		$	5,750		$	—	$	44,636
Loan receivables	100,964			25,833			34,585			8,555			2,203			—		172,140
Federal funds sold	—			—			—			—			—			—		—
Non-earning assets	—			—			—			—			—			23,059		23,059
Total assets	$	105,353		$	36,250		$	49,664		$	17,556		$	7,953		$	23,059	$	239,835
Interest sensitive liabilities:
Demand deposits	$	—		$	—		$	—		$	—		$	—		$	85,961	$	85,961
NOW accounts	378			1,133			3,022			3,022			5,414			—		12,969
Money Market Accounts	2,102			6,306			14,012			—			—			—		22,420
Savings deposits	966			2,899			7,732			7,732			8,055			—		27,384
Time deposits	28,022			29,680			6,334			1,795			87			—		65,918
Total saving and time deposits	$	31,468		$	40,018		$	31,100		$	12,549		$	13,556		$	85,961	$	214,652
Short-term borrowing	—			—			—			—			—			—		—
Long-term borrowing	2,000			—			—			—			—			—		2,000
Non-funding liabilities and capital	—			—			—			—			—			23,183		23,183
Total liabilities and capital	$	33,468		$	40,018		$	31,100		$	12,549		$	13,556		$	109,144	$	239,835
Interest rate sensitivity gap	$	71,885		$	(3,768	)	$	18,564		$	5,007		$	(5,603	)
Risk Indicators from GAP Analysis:
Cumulative GAP	$	71,885		$	68,117		$	86,681		$	91,688		$	86,085
Cumulative GAP (% of total assets)	29.97		%	28.40		%	36.14		%	38.23		%	35.89		%

The asset liability reports indicate that the Bank has an actual dollar risk exposure of $711,000 if interest rates fall 100 basis points.  This represents a -5.2% risk to interest income.  The Economic Value of Equity is 17.61% at zero basis points and 16.49% at a negative 100 basis points.

	Interest Income and Expense Under Rate Shock
	-200bp			-100bp			0bp			+100bp			+200bp
Net Interest Income
Earnings at Risk	$	(1,455	)	$	(711	)	$	0		$	646		$	1,281
Percent of Risk	-10.6		%	-5.2		%	0.00		%	4.7		%	9.3		%

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, 2006, the Bank’s liquidity ratio was 24.5% compared to 27.7% at December 31, 2005 and 35.4% at December 31, 2004.  The 24.5% liquidity ratio at December 31, 2006 is well within the Company’s policy limit.

19

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.

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-KSB for the fiscal year ending December 31, 2006, they can be obtained without charge by sending a written request to John C. Hansen, Executive Vice President and Chief Financial Officer, P. O. Box 6047, Atascadero, California 93423.

20

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, 2006 and 2005, and the related consolidated statements of earnings, cash flows and shareholders’ equity for the three years ended December 31, 2006.  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, 2006 and 2005, and the results of its operations and cash flows for the three years ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

Laguna Hills, California
January 17, 2007

21

Santa Lucia Bancorp and Subsidiary

Consolidated Balance Sheets

December 31, 2006 and 2005

ASSETS

	2006		2005
Cash and due from banks	$	10,139,526	$	15,293,047
Federal funds sold	—		5,000,000
TOTAL CASH AND CASH EQUIVALENTS	10,139,526		20,293,047
Securities available for sale	42,778,417		41,829,713
Loans, net	169,680,473		152,563,108
Premises and equipment, net	9,258,207		9,460,584
Deferred income tax assets	941,000		944,000
Cash surrender value of life insurance	3,336,076		3,223,142
Federal Reserve Bank and Federal Home Loan Bank stock, at cost	1,397,700		1,242,150
Accrued interest and other assets	3,206,685		1,975,819
TOTAL ASSETS	$	240,738,084	$	231,531,563

LIABILITIES & SHAREHOLDERS’ EQUITY

	2006			2005
Deposits
Noninterest-bearing demand	$	86,252,426		$	86,689,231
Interest-bearing demand and NOW accounts	12,968,951			17,755,571
Money market	20,465,756			30,984,368
Savings	27,383,605			28,893,924
Time certificates of deposit of $100,000 or more	37,226,189			21,226,735
Other time certificates	28,691,525			21,329,250
TOTAL DEPOSITS	212,988,452			206,879,079
Short-term borrowings	—			5,500,000
Long-term borrowings	7,155,000			2,000,000
Accrued interest and other liabilities	1,457,716			1,286,311
TOTAL LIABILITIES	221,601,168			215,665,390
Commitments and contingencies(Note M)	—			—
Shareholders’ equity
Common stock — no par value; 20,000,000 shares authorized; issued and outstanding: 1,928,097 shares at December 31, 2006 and 1,899,543 shares at December 31, 2005	9,566,563			9,298,748
Additional paid-in capital	216,558			—
Retained earnings	9,624,939			7,052,289
Accumulated other comprehensive income-net unrealized losses on available-for-sale securities, net of taxes of $190,378 in 2006 and $340,437 in 2005	(271,144		)	(484,864		)
TOTAL SHAREHOLDERS’ EQUITY	19,136,916			15,866,173
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	240,738,084		$	231,531,563

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

22

Santa Lucia Bancorp and Subsidiary

Consolidated Statements of Earnings

Years Ended December 31, 2006, 2005 and 2004

	2006		2005			2004
Interest income
Interest and fees on loans	$	15,397,450	$	11,747,437		$	8,391,289
Federal funds sold	145,314		173,515			94,662
Investment securities — taxable	1,352,675		1,476,915			1,557,055
Investment securities — nontaxable	131,233		148,368			177,253
	17,026,672		13,546,235			10,220,259
Interest expense
Time certificates of deposit of $100,000 or more	1,254,951		581,566			367,226
Other deposits	1,824,577		1,234,377			859,750
Long-term debt and other borrowings	497,610		167,979			116,217
	3,577,138		1,983,922			1,343,193
Net interest income	13,449,534		11,562,313			8,877,066
Provision for loan losses	240,000		300,000			110,000
Net interest income after provision for loan losses	13,209,534		11,262,313			8,767,066
Noninterest income
Service charges and fees	615,917		602,809			579,408
Dividends on cash surrender value of life insurance	138,181		132,319			147,037
Mortgage fees	48,487		94,972			78,741
Gain (loss) on sale of investment securities	—		(5,877		)	949
Gain on sale of land	—		—			123,763
Other income	207,676		227,727			261,443
	1,010,261		1,051,950			1,191,341
Noninterest expense
Salaries and employee benefits	4,743,094		4,241,897			3,812,189
Occupancy	664,482		565,467			492,821
Equipment	691,028		583,772			469,545
Professional services	538,282		465,661			463,781
Data processing	468,211		439,591			413,347
Office expenses	359,588		374,478			357,934
Marketing	407,638		397,907			327,604
Regulatory assessments	63,851		65,793			59,370
Directors’ fees and expenses	263,444		261,338			243,684
Messenger and courier expenses	148,335		143,834			117,609
Other	241,571		268,705			302,628
	8,589,524		7,808,443			7,060,512
Earnings before income taxes	5,630,271		4,505,820			2,897,895
Income taxes	2,242,000		1,759,000			1,076,000
NET EARNINGS	$	3,388,271	$	2,746,820		$	1,821,895
Per share data:
Net earnings — basic	$	1.77	$	1.46		$	0.98
Net earnings — diluted	$	1.68	$	1.38		$	0.94

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

23

Santa Lucia Bancorp and Subsidiary

Consolidated Statements of Cash Flows

Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2004
Cash flows from operating activities:
Net earnings	$	3,388,271		$	2,746,820		$	1,821,895
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization	669,159			556,907			456,176
Provision for loan losses	240,000			300,000			110,000
Amortization of investment securities	5,450			32,240			205,321
Loss (gain) on sale of investment securities	—			5,877			(948		)
Gain on sale of other real estate	—			—			(123,763		)
Deferred income taxes	(147,000		)	(25,000		)	(15,000		)
Increase in cash value of life insurance	(112,934		)	(132,319		)	(123,688		)
Other items, net	(1,156,962		)	(432,992		)	(18,940		)
Net cash provided by operating activities	2,885,984			3,051,533			2,311,053
Cash flows from investing activities:
Proceeds from maturities of investment securities.	18,962,594			11,007,571			24,845,136
Proceeds from sale of investment securities	—			6,016,550			8,093,602
Purchases of investment securities	(19,391,969		)	(2,001,378		)	(45,386,494		)
Purchase of Federal Reserve Bank and Federal Home Loan Bank stock	(155,550		)	(194,450		)	(639,600		)
Net change in loans	(17,357,365		)	(27,277,292		)	(15,747,188		)
Purchases of bank premises and equipment	(466,782		)	(347,532		)	(3,652,381		)
Proceeds from sale of bank premises and equipment	—			—			791,375
Proceeds from life insurance	—			132,255			—
Proceeds from sale of other real estate owned	—			—			—
Net cash used in investing activities	(18,409,072		)	(12,664,276		)	(31,695,550		)
Cash flows from financing activities:
Net change in deposits	6,109,373			12,011,229			26,835,033
Proceeds and tax benefit from exercise of stock options	372,781			416,562			126,702
Net (repayments) proceeds from borrowings	(345,000		)	5,500,000			—
Cash dividends paid	(767,587		)	(729,550		)	(697,460		)
Net cash provided by financing activities	5,369,567			17,198,241			26,264,275
Net increase (decrease) in cash and cash equivalents	(10,153,521		)	7,585,498			(3,120,222		)
Cash and cash equivalents at beginning of year	20,293,047			12,707,549			15,827,771
Cash and cash equivalents at end of year	$	10,139,526		$	20,293,047		$	12,707,549
Supplemental disclosure of cash flow information:
Interest paid	$	3,415,383		$	1,957,610		$	1,342,441
Income taxes paid	$	2,415,000		$	1,720,000		$	795,000
Cashless exercise of stock options	$	48,034		$	32,515		$	54,596

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

24

Santa Lucia Bancorp and Subsidiary

Consolidated Statement of Shareholders’ Equity

Years Ended December 31, 2006, 2005 and 2004

													Accumulated
				Common Stock				Additional					Other
	Comprehensive			Shares				Paid-in		Retained			Comprehensive
	Income			Outstanding		Amount		Capital		Earnings			Income
Balance at January 1, 2004				$	1,844,708	$	8,668,373	$	—	$	3,997,695		$	178,656
Cash dividends — $0.375 per share										(697,460		)
Exercise of stock options, including the realization of tax benefits of $50,000				17,056		181,298				(54,596		)
Comprehensive Income:
Net earnings for the year	$	1,821,895								1,821,895
Change in unrealized gain on available-for-sale securities, net of taxes of $202,489	(288,387		)										(288,387		)
Less reclassification adjustments for gains included in the net income,  net of taxes or $389	(560		)										(560		)
Total Comprehensive Income	$	1,532,948
Balance at December 31, 2004				1,861,764		8,849,671		—		5,067,534			(110,291		)
Cash dividends — $0.3875 per share										(729,550		)
Exercise of stock options, including the realization of tax benefits of $226,000				37,779		449,077				(32,515		)
Comprehensive Income:
Net earnings for the year	$	2,746,820								2,746,820
Change in unrealized gain on available-for-sale securities, net of taxes of $265,409	(378,040		)										(378,040		)
Less reclassification adjustments for gains included in the net income, net of taxes or $2,410	3,467												3,467
Total Comprehensive Income	$	2,372,247
Balance at December 31, 2005				1,899,543		$	9,298,748	—		7,052,289			(484,864		)
Cash dividends — $0.40 per share										(767,587		)
Exercise of stock options, including the realization of tax benefits of $153,000				28,554		267,815		153,000		(48,034		)
Stock Option Compensation Expense								63,558
Comprehensive Income:
Net earnings for the year	$	3,388,271								3,388,271
Change in unrealized loss on available-for-sale securities, net of taxes of $150,059	213,720												213,720
Total Comprehensive Income	$	3,601,991
Balance at December 31, 2006				1,928,097		$	9,566,563	$	216,558	$	9,624,939		$	(271,144	)

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

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Santa Lucia Bancorp and Subsidiary

NOTES TO FINANCIAL STATEMENTS

December 31, 2006, 2005 and 2004

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.

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 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.

Presentation of Cash Flows — 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, 2006 and 2005.

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.

Declines in the fair value of individual held-to-maturity and available-for-sale securities below their cost that are other-than-temporary result in write-downs of the individual securities to their fair value.  The related write-downs are included in earnings as realized losses.  In estimating other-than-temporary impairment losses, management

26

considers the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Provision and Allowance for Loan Losses — 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 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. 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.

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.

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 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.

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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.

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

Comprehensive Income — Beginning in 1998, the Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 130, “Reporting Comprehensive Income” (SFAS No. 130), which requires the disclosure of comprehensive income and its components.  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 M.  Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.

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

Stock-Based Compensation — The Company has adopted SFAS No. 123(R) “Shared-Based Payment.” This Statement generally requires entities to recognize 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.  This cost is recognized over the period which an employee is required to provide services in exchange for the award, generally the vesting period.

Change in Accounting Principle — The Company adopted SFAS No. 123 (R) on January 1, 2006 using the “modified prospective method.”  Under this method compensation expense is recognized using the fair-value method for all new stock option awards as well as any existing awards that are modified, repurchased or cancelled after January 1, 2006 and prior periods are not restated.  In addition, the unvested portion of previously awarded options outstanding as of January 1, 2006 will also be recognized as expense over the requisite service period based on the fair value of those options as previously calculated at the grant date under the pro-forma disclosures of SFAS No. 123.  The fair value of each grant is estimated using the Black-Scholes option pricing model. During 2006 the Company recognized pre-tax stock-based compensation expense of $63,558, as a result of adopting SFAS No. 123 (R).

Prior to the adoption of SFAS No. 123 (R), the Company accounted for stock-based awards using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations.  Accordingly, compensation cost for stock options was measured as the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock.  All of the Company’s stock option grants included exercise prices equal to the Company’s current market price per share; accordingly, no compensation expense was reported using the intrinsic value method of APB Opinion No. 25.

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Had compensation cost for the Company’s stock option plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Company’s net income and income per share for 2005 and 2004 would have changed to the pro forma amounts indicated below:

	2005			2004
Net income:
As reported	$	2,746,820		$	1,821,895
Stock-Based Compensation using the Intrinsic Value Method	—			—
Stock-Based Compensation that would have been reported using the Fair Value Method of SFAS 123	(43,436		)	(66,770		)
Pro Forma	$	2,703,384		$	1,755,125
Per share:
Net Income - Basic
As Reported	$	1.46		$	0.98
Pro Forma	$	1.44		$	0.95
Net Income - Diluted
As Reported	$	1.38		$	0.94
Pro Forma	$	1.36		$	0.90

Disclosure about Fair Value of Financial Instruments — SFAS No. 107 specifies the disclosure of the estimated fair value of financial instruments.  The Company’s estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies.

However, considerable judgment is required to develop the estimates of fair value.  Accordingly, the estimates are not necessarily indicative of the amounts the Company could have realized in a current market exchange.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since the balance sheet date and, therefore, current estimates of fair value may differ significantly from the amounts presented in the accompanying notes.

Reclassification — Certain reclassifications have been made in the 2005 and 2004 financial statements to conform to the presentation used in 2006.  These reclassifications had no impact on the Company’s previously reported financial statements.

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

	December 31, 2006
	Amortized		Unrealized		Unrealized			Estimated
	cost		gains		(losses)			fair value
U.S. Government and Agency Securities	$	19,094,065	$	3,029	$	(76,599	)	$	19,020,495
States and Political Subdivisions	4,805,053		9,970		(89,397		)	4,725,626
Mortgage-Backed Securities	19,340,821		20,303		(328,828		)	19,032,296
	$	43,239,939	$	33,302	$	(494,824	)	$	42,778,417

	December 31, 2005
	Amortized		Unrealized		Unrealized			Estimated
	cost		gains		(losses)			fair value
U.S. Government and Agency Securities	$	22,164,983	$	—	$	(349,578	)	$	21,815,405
States and Political Subdivisions	4,598,941		21,840		(95,856		)	4,524,925
Mortgage-Backed Securities	15,891,090				(401,707		)	15,489,383
	$	42,655,014	$	21,840	$	(847,141	)	$	41,829,713

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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 $14,316,000 and $13,198,000 at December 31, 2006 and 2005, respectively.  During 2005 the Bank had proceeds from the sale of available for sale securities of $6,016,550, gross gains of $1,298 and gross losses of $7,175.  During 2004 the Bank had proceeds from the sale of available for sale securities of $8,093,602, gross gains of $14,170 and gross losses of $13,221.

The amortized cost and estimated fair value of debt securities at December 31, 2006, 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	$	13,357,845	$	13,217,822
Due after one year through five years	23,215,827		22,919,816
Due after five years through ten years	4,949,247		4,928,233
Due after ten years	1,717,020		1,712,546
	$	43,239,939	$	42,778,417

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
December 31, 2006:	losses			value		losses			value		losses			value
U.S. Government & Agency Securities	$	(2,954	)	$	4,000,971	$	(73,645	)	$	6,924,3	$	(76,599	)	$	10,925,288
States and Political Subdivisions	(493		)	352,419		(88,905		)	3,587,649		(89,398		)	3,940,068
Mortgage-Backed Securities	—			—		(328,827		)	12,473,837		(328,827		)	12,473,837
	$	(3,447	)	$	4,353,390	$	(491,377	)	$	22,985,803	$	(494,824	)	$	27,339,193

	Less than					Over
	Twelve Months					Twelve Months					Total
				Estimated					Estimated					Estimated
	Unrealized			fair		Unrealized			fair		Unrealized			fair
December 31, 2005:	losses			value		losses			value		losses			value
U.S. Government & Agency Securities	$	—		$	—	$	(349,578	)	$	21,815,405	$	(349,578	)	$	21,815,405
States and Political Subdivisions	(21,158		)	1,735,427		(74,698		)	1,852,658		(95,856		)	3,588,085
Mortgage-Backed Securities	(231,446		)	11,029,374		(170,261		)	4,460,009		(401,707		)	15,489,383
	$	(252,604	)	$	12,764,801	$	(594,537	)	$	28,128,072	$	(847,141	)	$	40,892,873

As of December 31, 2006, the Company has 30 investment securities where estimated fair market value had declined 1.8% from amortized cost.  Management evaluates investment securities for other-than-temporary impairment taking into consideration the extent and length of time the fair value has been less than cost, the financial condition of the issuer and whether the Bank has the intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value.  As of December 31, 2006, no declines are deemed to be other than temporary.

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.

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

	2006			2005
Real estate — construction	$	55,307,210		$	52,695,715
Real estate — other	78,757,513			66,390,495
Commercial	36,406,663			34,178,640
Consumer	1,603,836			1,493,737
	172,075,222			154,758,587
Deferred loan fees	(741,054		)	(725,218		)
Allowance for loan losses	(1,653,695		)	(1,470,261		)
	$	169,680,473		$	152,563,108

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 credit losses are summarized as follows:

	2006			2005			2004
Balance at beginning of year	$	1,470,261		$	1,200,036		$	1,112,103
Provision charged to expense	240,000			300,000			110,000
Loans charged off	(84,002		)	(46,355		)	(22,865		)
Recoveries on loans previously charged off	27,436			16,580			798
Balance at end of year	$	1,653,695		$	1,470,261		$	1,200,036

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:

	2006		2005		2004
Recorded investment in impaired loans	$	—	$	134,872	$	758,061
Related allowance for loan losses	$	—	$	—	$	45,484
Average recorded investment in impaired loans	$	250,000	$	459,000	$	790,000
Interest income recognized for cash payments	$	3,045	$	28,581	$	49,448
Total nonaccrual loans	$	—	$	134,872	$	758,061
Total loans past-due ninety days or more and still accruing	$	550,000	$	—	$	—

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:

	2006			2005
Beginning balance	$	2,976,502		$	2,534,603
Credits granted, including renewals	2,797,483			2,786,964
Repayments	(2,039,832		)	(2,345,065		)
	$	3,734,153		$	2,976,502

Undisbursed loans amount to approximately $2,337,163 and $1,746,738 at December 31, 2006 and 2005, respectively.

Deposits from related parties held by the Bank at December 31, 2006 and 2005 amounted to $3,323,903 and $2,331,216, respectively.

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

	2006		2005
Premises	$	7,411,967	$	7,388,139
Furniture, fixtures and equipment	4,149,808		3,747,687
	11,561,775		11,135,826
Less accumulated depreciation	4,334,333		3,706,007
	7,227,442		7,429,819
Land	2,030,765		2,030,765
	$	9,258,207	$	9,460,584

NOTE F — DEPOSITS — At December 31, 2006, the scheduled maturities of time deposits are as follows:

Due in one year	$	57,701,611
Due in one to three years	6,333,836
Due after three years	1,882,267
	$	65,917,714

NOTE G — SHORT-TERM BORROWINGS — The Bank has two borrowing arrangements with the Federal Home Loan Bank of San Francisco.  The first allows the Bank to borrow up to approximately $43 million against which the Bank has pledged approximately $105 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. 

The Bank may also borrow up to $5,900,000 overnight on an unsecured basis from two correspondent banks.  As of December 31, 2006, no amounts were outstanding under these arrangements.

NOTE H — LONG-TERMBORROWINGS — 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.  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 — INCOMETAXES — 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.

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.

32

Significant components of the Company’s deferred tax liabilities and assets as of December 31 are as follows:

	2006		2005
Deferred liabilities:
Tax over book depreciation	$	493,000	$	487,000
Other	107,000		81,000
Total deferred tax liabilities	600,000		568,000
Deferred tax assets:
Allowance for loan losses	673,000		598,000
Deferred compensation plans	390,000		348,000
Market value adjustment on investment securities	190,000		340,000
State taxes	224,000		149,000
Net loss carryforward	55,000		69,000
Other	9,000		8,000
Total deferred tax assets	1,541,000		1,512,000
Net deferred tax assets	$	941,000	$	944,000

The provision for income taxes consists of the following:

	2006			2005			2004
Currently payable	$	2,389,000		$	1,784,000		$	1,091,000
Deferred taxes (benefits)	(147,000		)	(25,000		)	(15,000		)
	$	2,242,000	)	$	1,759,000	)	$	1,076,000	)

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

	2006			2005			2004
Tax over book depreciation	$	6,000		$	173,000		$	47,000
Provision for loan losses	(75,000		)	(118,000		)	(42,000		)
State taxes	(75,000		)	(46,000		)	(26,000		)
Net loss carryforward				14,000			14,000
14,000
Sale leaseback	—			—			34,000
Other	(17,000		)	(48,000		)	(42,000		)
Net deferred taxes	$	(147,000	)	$	(25,000	)	$	(15,000	)

As of December 31, 2006, the Bank had federal net operating loss carryforwards available to reduce future taxable income of approximately $163,000. These net operating loss carryforwards 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.

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:

	2006					2005					2004
Federal “expected” tax	$	1,914,000		34.0	%	$	1,532,000		34.0	%	$	985,000		34.0	%
State franchise tax, net	396,000			7.0		318,000			7.0		200,000			6.9
Tax exempt income	(80,000		)	(1.3	)	(82,000		)	(1.8	)	(104,000		)	(3.6	)
Other	12,000			0.2		(9,000		)	(0.2	)	(5,000		)	(0.1	)
Total expense	$	2,242,000		39.9	%				39.0	%	$	1,076,000		37.2	%

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. For income tax purposes, the annual contribution is limited to 15% of the compensation of eligible employees.  The Bank contributed $210,000 in 2006, $240,000 in 2005, and $225,000 in 2004, to the Employee Stock Ownership Plan.  The Bank contributed $50,000 to the 401 (k) plan in 2006.  There were no contributions to the 401 (k) plan in 2005 and 2004.

33

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 $36,000 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, 2006, 2005, and 2004 totaled $131,454, $120,715, and $103,983, 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 360,000 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 200,000 shares, including 38,200 shares rolled over from the Company’s 2000 Stock Option Plan.  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 $63,558 and $7,193 of related tax benefits.

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:

	2006			2005			2004
Risk-free rates	4.77		%	3.75		%	3.86		%
Expected volatility	20.00		%	17.00		%	13.70		%
Expected dividened yield	1.40		%	2.10		%	2.10		%
Expected term	6.0 years			6.5 years			7.0 years
Weighted-average grant date fair value	$	6.43		$	4.47		$	3.07

A summary of the status of the Company’s fixed stock option plan as of December 31, 2006 and changes during the year then ended is presented below:

	December 31, 2006
	Shares		Weighted- Average Exercise  Price		Weighted-  Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at the
beginning of the year	209,916		$	11.73
Granted	65,000		24.85
Exercised	(30,940	)	9.29
Foreited or expired	(800	)	11.00
Outstanding at the end of the year	243,176		15.55		6.7 years	$	3,028,000
Options Exercisable	130,976		$	5.08	5.2 years	$	2,235,000

The total intrinsic value of options exercised during the years ended December 31 2006, 2005 and 2004 were approximately $539,000, 760,000 and $150,000 respectively.  As of December 31, 2006 there was $480,000 of total unrecognized compensation cost related to the outstanding stock options that will be recognized over a weighted average period of 2.7 years.

34

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

	December 31, 2006
	Income		Shares
	(Numerator)		(Denominator)
Net income	$	3,388,271
Average shares outstanding			1,916,253
Used in Basic EPS	3,388,271		1,916,253
Dilutive effect of outstanding stock options			98,413
Used in Diluted EPS	$	3,388,271	2,014,666

	December 31, 2005
	Income		Shares
	(Numerator)		(Denominator)
Net income	$	2,746,820
Average shares outstanding			1,878,949
Used in Basic EPS	2,746,820		1,878,949
Dilutive effect of outstanding stock options			105,289
Used in Diluted EPS	$	2,746,820	1,984,238

	December 31, 2004
	Income		Shares
	(Numerator)		(Denominator)
Net income	$	1,821,895
Average shares outstanding			1,859,036
Used in Basic EPS	1,821,895		1,859,036
Dilutive effect of outstanding stock options			87,400
Used in Diluted EPS	$	1,821,895	1,946,436

NOTE M — 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, 2006 and 2005 amounts to approximately $56,557,000 and $53,280,000, respectively, of which approximately $2,603,000 and $1,546,000 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 N — FAIRVALUESOFFINANCIALINSTRUMENTS — 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

35

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 generally based on quoted market prices.  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.

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, 2006 and 2005 are summarized as follows:

	December 31, 2006				December 31, 2005
	Carrying		Market		Carrying		Market
	Value		Value		Value		Value
Financial Assets:
Cash and cash equivalents	$	10,139,526	$	10,139,526	$	20,293,047	$	20,293,047
Investment securities	42,778,417		42,778,417		41,829,713		41,829,713
Loans receivable, net	169,680,473		170,091,100		152,563,108		151,937,599
Cash surrender value of life insurance	3,336,076		3,336,076		3,223,142		3,223,142
Federal Reserve Bank FHLB Stock	1,397,700		1,397,700		1,242,150		1,242,150
Accrued interest receivable	1,559,551		1,559,551		1,016,760		1,016,760
Financial Liabilities:
Time deposits	$	65,917,714	$	65,838,613	$	42,555,985	$	42,517,685
Other deposits	147,070,738		147,070,738		164,323,094		164,323,094
Other borrowings	—		—		5,500,000		5,500,000
Long-term debt	7,155,000		7,155,000		2,000,000		2,000,000
Accrued interest and other liabilities	1,457,716		1,457,716		1,286,311		1,286,311

NOTE O — 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

36

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, 2006, that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2006, the most recent notification from the Federal Reserve Bank 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):

									To be well
									capitalized under
					For capital				prompt corrective
	Actual				adequacy purposes				action provisions
	Amount				Amount				Amount
	(thousands)		Ratio		(thousands)		Ratio		(thousands)		Ratio
As of December 31, 2006:
Company
Total Capital
(to Risk-Weighted Assets)	$	26,272	15.0	%	$	14,026	8.0	%	$	17,533	10.0	%
Tier 1 Capital
(to Risk-Weighted Assets)	$	24,563	14.0	%	$	7,013	4.0	%	$	10,520	6.0	%
Tier 1 Capital
(to Average Assets)	$	24,563	10.0	%	$	9,794	4.0	%	$	12,243	5.0	%
Bank
Total Capital
(to Risk-Weighted Assets)	$	25,575	13.1	%	$	15,588	8.0	%	$	19,485	10.0	%
Tier 1 Capital
(to Risk-Weighted Assets)	$	22,266	11.4	%	$	7,794	4.0	%	$	11,691	6.0	%
Tier 1 Capital
(to Average Assets)	$	22,266	9.1	%	$	9,777	4.0	%	$	12,221	5.0	%
As of December 31, 2005:
Bank
Total Capital
(to Risk-Weighted Assets)	$	19,876	11.3	%	$	14,026	8.0	%	$	17,533	10.0	%
Tier 1 Capital
(to Risk-Weighted Assets)	$	16,351	9.3	%	$	7,013	4.0	%	$	10,520	6.0	%
Tier 1 Capital
(to Average Assets)	$	16,351	7.2	%	$	9,129	4.0	%	$	11,412	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 P — 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 (CA) Capital Trust as discussed in Note H. Accordingly, no separate financial information on the Company is provided.

37

SANTA LUCIA BANCORP

SANTA LUCIA BANCORP BOARD OF DIRECTORS		SANTA LUCIA BANK BOARD OF DIRECTORS
JERRY W. DECOU III	CHAIRMAN	JERRY W. DECOU III	CHAIRMAN
DOUGLAS C. FILIPPONI	VICE CHAIRMAN	DOUGLAS C. FILIPPONI	VICE CHAIRMAN
KHATCHIK H. ACHADJIAN		KHATCHIK H. ACHADJIAN
STANLEY R. CHERRY		STANLEY R. CHERRY
JEAN HAWKINS		JEAN HAWKINS
PAUL G. MOERMAN		PAUL G. MOERMAN
LARRY H. PUTNAM		LARRY H. PUTNAM
D. JACK STINCHFIELD		D. JACK STINCHFIELD

SANTA LUCIA BANK

EXECUTIVE OFFICERS					ASSISTANT VICE PRESIDENTS
LARRY H. PUTNAM		President and Chief Executive Officer			SHARON SATTERTHWAITE				Assistant Vice President, Administration
JOHN C. HANSEN	Executive Vice President and Chief Financial Officer				JENNIFER BASSI GINDER				Assistant Vice President, Operations Officer
					KRISTIE KELLER	Assistant Vice President, Central Operations
SENIOR VICE PRESIDENTS					KIM DONALDSON	Assistant Vice President, Operations Officer
JIM COWAN			Senior Vice President, Branch Administrator		CHERYL MUMFORD		Assistant Vice President, Operations Officer
WILLIAM F. FILIPPIN			Senior Vice President, Credit Administrator		RYUN McCRORY		Assistant Vice President, Loan Officer
					RICHARD ALLEN		Assistant Vice President, Loan Officer
VICE PRESIDENTS
TERI DAVIS				Vice President, Loan Officer	OFFICERS
CLAUDYA OGLESBY				Vice President, Administration	KARENSAMPSON			Assistant Operations Officer
MELODEE FONTANA				Vice President, Operations Administrator	STELLA MARTINEZ			Operations Officer
ROBERT COVARRUBIAS				Vice President, Manager	J. DARREN BARNES			Loan Officer
LEAH T. WEST				Vice President, Manager	REGINA M. SHELDON			Loan Officer
JIM KELLEY				Vice President, Loan Officer	ROBERT McCONAGHY			Loan Officer
MICHAEL W. McKENZIE				Vice President, Manager
LARRY WOMACK				Vice President, Loan Officer
JAMES P. BURUBELTZ				Vice President, Loan Officer

ATASCADERO	PASO ROBLES	ARROYO GRANDE	SANTA MARIA
7480 EL CAMINO REAL	1240 SPRING STREET	1530 E. GRAND AVENUE	1825 S. BROADWAY
ATASCADERO, CA 93422	PASO ROBLES, CA 93446	ARROYO GRANDE, CA 93420	SANTA MARIA, CA 93454
805-466-7087	805-239-1140	805-473-1988	805-614-9100

MARKET MAKERS
GEORGE CROSBY, MAGUIRE INVESTMENTS — SANTA MARIA, CA.	805/922-6901 or 800/244-4183
MICHAEL S. HEDREI, HOWE BARNES HOEFER & ARNETT, INC. — SAN FRANCISCO, CA	415/538-5749 or 800/774-8723
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, WEDBUSH MORGAN SECURITIES — LAKE OSWEGO, OR	503/675-3104 or 800/357-3680

MEMBER FDIC

www.santaluciabank.com

38

EX-14.1

Exhibit 14.1

SANTA LUCIA BANCORP

CODE OF BUSINESS CONDUCT AND ETHICS

DATE LAST REVIEWED:

DATE ADOPTED BY BOARD: July 12, 2006

Introduction

This Code of Business Conduct and Ethics (referred to hereinafter as the “Code”) sets forth the Holding Company policies with respect to the way we conduct ourselves individually and operate our business.  The provisions of this Code are designed to promote honest and ethical behavior among our officers and directors.

In the course of performing our various roles in the Holding Company, each of us will encounter ethical questions in different forms and under a variety of circumstances.  Moments of ethical uncertainty may arise in our dealings with fellow officers of the Holding Company, other parties such as government entities or members of our community.  In achieving the high ground of ethical behavior, compliance with governmental laws is not enough.  Our officers should never be content with simply obeying the letter of the law, but must also strive to comport themselves in an honest and ethical manner.  This Code provides clear rules to assist our officers and directors in taking the proper actions when faced with an ethical dilemma

The reputation of the Holding Company is our greatest asset and its value relies on the character of its officers and directors.  In order to protect this asset, the Holding Company will not tolerate unethical behavior by officers or directors.  Those who violate the standards in this Code will be subject to disciplinary action.  If you are concerned about taking an action that may violate the Code or are aware of a violation by another officer or director, follow the guidelines set forth in the sections below entitled “Compliance Guidelines and Resources” and “Reporting Procedures”.

This Code applies equally to all officers and directors of the Holding Company.  All references to officers contained in this Code should be understood as referring to directors as well.

Compliance with laws, Rules and Regulations

Santa Lucia Bancorp policy requires that the Holding Company, as well as all officers and directors, comply fully with both the spirit and the letter of all laws, rules and regulations.  Whenever an applicable law, rule or regulation is unclear or seems to conflict with either another law or any provision of this Code, all officers and directors are urged to seek clarification from their supervisor or the appropriate compliance official as discussed below under “Compliance Guidelines and Resources”.  Beyond mere compliance with the law, we should always conduct our business with the highest standards of honesty and integrity — wherever we operate.  In the final analysis, we should operate our business in such a way that we would be proud to have all the facts disclosed.

1

Conflicts of Interest

Every officer has a primary business responsibility to the Holding Company and must avoid conflicts of interest.  A conflict of interest arises when an officer takes actions or enters into relationships that oppose the interests of the Holding Company, harm the Holding Company’s reputation or interfere with the officer’s performance or independent judgment when carrying out any actions on behalf of the Holding Company.  The Holding Company strictly prohibits its officers from taking any action or entering into any relationship that creates, or even appears to create, a conflict of interest.  For purposes of determining whether a conflict exists, the actions of an officer’s immediate family members are treated as those of the officer and are therefore subject to the same considerations.

In order to avoid a potential conflict of interest, an officer may not receive any payments, compensation, or gifts (other than gifts of nominal value), from any entity that does business or seeks to do business with the Holding Company.  Officers must be sensitive to other potential conflicts of interest that may arise and use their best efforts to avoid the conflict.

Any officer or director who is aware of a transaction or relationship that could reasonably be expected to give rise to a conflict of interest in violation of this section must inform the appropriate personnel in accordance with the procedures set forth below under “Reporting Procedures” in this Code.  If an officer has any questions regarding the Holding Company’s policy on conflicts of interest or needs assistance in avoiding a potential conflict of interest, he or she is urged to seek the advice of the President and CEO or the Ethics Officer of the Bank.

Corporate Opportunities

Officers and directors are prohibited from taking for themselves personally opportunities that are discovered through the use of Holding Company property, Holding Company information or their position in the Holding Company.  Furthermore, Officers may not use Holding Company property, information or influence or their position in the Holding Company for improper personal gain.  Finally, officers have a duty to advance the Holding Company’s legitimate interests when the opportunity to do so arises.  Consequently, officers are not permitted to compete with the Holding Company.

2

Insider Trading

Officers and directors will frequently become aware of confidential non-public information concerning the Holding Company (and the parties with which the Holding Company does business).  The Holding Company prohibits officers from using such confidential information for personal financial gain, such as for purposes of stock trading, or for any other purpose other than the conduct of our business.  Officer must maintain the confidentiality of such information and may not make disclosures to third parties, including members of the officers family.  All non-public information about the Holding Company should be treated as confidential information.  To use non-public information for personal financial benefit or to “tip” others who may make stock trades on the basis of this information is not only unethical but also illegal.  In addition to possible legal sanctions, any officer or director found to be in violation of the Holding Company’s insider trading policy will face decisive disciplinary action.

Confidentiality

Officers must maintain the confidentiality of confidential information entrusted to them by the Holding Company or its suppliers, except when disclosure is authorized by the Holding Company or required by law.  Confidential information includes proprietary information of the Holding Company, as well as all non-public information that might be of use to competitors, or harmful to the Holding Company if disclosed.

Protection and Proper Use of Holding Company Assets

All Holding Company assets should be used for legitimate business purposes and all officers and directors must make all reasonable efforts to protect the Holding Company’s assets and ensure their efficient use.  Theft, carelessness, and waste have a direct impact on the Holding Company’s profitability and must therefore be avoided.  The suspected occurrence of fraud or theft should be immediately reported to the appropriate person in accordance with the procedures set forth below under “Reporting Procedures” in this Code.

Fair Dealing

We seek to maintain a reputation for fair dealing among our competitors and the public alike.  In light of this aim, the Holding Company prohibits officers from engaging in any unethical or illegal business practices. The Holding Company relies on the judgment of each individual officer to avoid such practices.  No officer should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair business practice.

3

Books and Records and Accounting Controls

The Holding Company takes pride in the open honesty of its accounting system and relies on the cooperation of all officers who are involved in keeping financial records of any type in maintaining the integrity of the system.  Holding Company policy requires that all books and records be maintained accurately and that no fund, asset, liability, revenue or expense be concealed or incompletely recorded for any purpose.  Furthermore, all entries must be supported by documentation adequate to permit the books and records to be verified by audit.

The Audit Committee has the responsibility to review the Holding Company’s policies and practices with respect to financial reporting.  By conducting this review, the Audit Committee helps the Holding Company identify deficiencies in its practices so that they can be promptly corrected.  Auditors shall have unrestricted access to all Holding Company documents and records.  All officers are required to cooperate fully with the independent auditors.  In no case may an officer make a false or misleading statement to any internal auditor, withhold records, or otherwise interfere with an audit.

Full, Fair, Accurate, Timely, and Understandable Reporting

In addition to the pride the Holding Company takes in its accounting system, it is the Holding Company’s policy to promote full, fair, accurate, timely and understandable reporting and disclosure in all documents the Holding Company is required to file with governmental entities or that the Holding Company provides to the general public.  Accordingly, the Holding Company places ultimate responsibility for carrying this policy into effect upon the Chief Executive Officer, and Chief Financial Officer.

Waivers

The Holding Company expects all officers and directors to comply with the provisions of this Code.  Any waiver of this Code for officers or directors may be made only by the Board of Directors or a Board committee and will be promptly disclosed to the public as required by law.  When necessary, a waiver will be accompanied by appropriate controls designed to protect the Holding Company.

4

Reporting Procedures

All officers have a duty to report any violations of this Code, as well as violations of any laws, rules, or regulations.  The Holding Company does not permit retaliation of any kind against officers for good faith reports of ethical violations.

Disciplinary Action

The Holding Company has implemented the following disciplinary policies to ensure that prompt and consistent actions are taken in response to Code violations:

1.Range of Penalties.  All violations of this Code will be treated seriously and will result in the prompt imposition of penalties which may include (1) an oral or written warning, (2) a reprimand, (3) suspension, (4) termination and/or (5) restitution.

2.Disciplinary Process.  The penalty for a particular violation will be decided on a case-by-case basis and will depend on the nature and severity of the violation as well as the officers history of non-compliance and cooperation in the disciplinary process.  Significant penalties will be imposed for violations resulting from intentional or reckless behavior.  Penalties may also be imposed when an officer fails to report a violation due to the officers indifference, deliberate ignorance or reckless conduct

AMENDMENT

This Code and any provision contained herein may be amended or repealed by a majority of the Board of Directors.

5

EX-23.1

Exhibit 23.1

Consent of Independence Registered Public Accounting Firm

We hereby consent to the inclusion of our Independent Auditor’s Report dated January 17, 2007 regarding the consolidated balance sheets of Santa Lucia Bancorp and Subsidiary as of December 31, 2006 and 2005, and the related consolidated statements of earnings, changes in shareholders’ equity, and cash flows for the years then ended, in the Form 10-KSB filed with the Securities and Exchange Commision.

Laguna Hills, California

March 7, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Larry H. Putnam, President and Chief Executive Officer of Santa Lucia Bancorp, certify that:

1.             I have reviewed this annual report on Form 10-KSB 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)            (Intentionally omitted.)

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 21, 2007	/s/ Larry H. Putnam
	Larry H. Putnam
	President and Chief Executive Officer

1

EX-31.2

Exhibit 31.2

CERTIFICATION

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

1.             I have reviewed this annual report on Form 10-KSB 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)            (Intentionally omitted.)

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 21, 2007	/s/ John C. Hansen
	John C. Hansen
	Executive Vice President and Chief Financial Officer

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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-KSB for the period ended December 31, 2006 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 21, 2007	/s/ Larry H. Putnam
	Larry H. Putnam
	President and Chief Executive Officer
Date: March 21, 2007	/s/ John C. Hansen
	John C. Hansen
	Executive Vice President and Chief Financial Officer

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