**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549**

**FORM 10-KSB**

** **

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 

**SECURITIES EXCHANGE ACTOF 1934 for the fiscal year ended December 31, 2006.**

 

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

**SECURITIES EXCHANGE ACTOF 1934 For the transition period from           to          **

 

**FileNumber                    000-51901**

**SANTA LUCIA BANCORP**

(Name of smallbusiness 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

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

Securitiesregistered 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 theissuer (1) filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes x  No o

Check if there isno disclosure of delinquent filers in response to Item 405 of Regulation S-Bcontained in this form, and no disclosure will be contained, to the best of theregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or any amendment tothis Form 10-KSB  o.

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

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

The aggregatemarket value of the voting common stock held by non-affiliates of theRegistrant 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 informationrequired in Part III, Items 9 through 12 and 14 is incorporated herein from theRegistrant’s definitive proxy statement for the 2007 annual meeting ofshareholders previously filed pursuant to Regulation 14A and Part II, Items 6and 7 of the 2006 Annual Report to Shareholders filed as an exhibit hereto.

Transitional SmallBusiness Disclosure Format (check one)        Yes o    Nox

 

 

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**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 |   |                                                                                                                                        |

 

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# **PART I**

CERTAIN STATEMENTSCONTAINED 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-LOOKINGSTATEMENTS” WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 ANDSECTION 21E OF THE SECURITIES AND EXCHANGE ACT OF 1934. SUCH FORWARD-LOOKINGSTATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORSTHAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANYTO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTSEXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE,AMONG OTHERS, THE FOLLOWING:  GENERALECONOMIC AND BUSINESS CONDITIONS IN THOSE AREAS IN WHICH THE COMPANY OPERATES,DEMOGRAPHIC CHANGES, COMPETITION, FLUCTUATIONS IN INTEREST RATES, CHANGES INBUSINESS STRATEGY OR DEVELOPMENT PLANS, CHANGES IN GOVERNMENTAL REGULATION,CREDIT QUALITY, THE AVAILABILITY OF CAPITAL TO FUND THE EXPANSION OF THECOMPANY’S BUSINESS, ECONOMIC, POLITICAL AND GLOBAL CHANGES ARISING FROM THE WARON TERRORISM, AND OTHER FACTORS REFERENCED IN THIS REPORT, INCLUDING IN “ITEM1. DESCRIPTION OF BUSINESS-FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS”.WHEN RELYING ON FORWARD-LOOKING STATEMENTS TO MAKE DECISIONS WITH RESPECT TOOUR COMPANY, INVESTORS AND OTHERS ARE CAUTIONED TO CONSIDER THESE AND OTHERRISKS AND UNCERTAINTIES.  THE COMPANY DISCLAIMSANY OBLIGATION TO UPDATE ANY SUCH FACTORS OR TO PUBLICLY ANNOUNCE THE RESULTSOF ANY REVISIONS TO ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TOREFLECT FUTURE EVENTS OR DEVELOPMENTS.
| **ITEM 1.** | **DESCRIPTION OF BUSINESS** |
|-------------|-----------------------------|

** **

**General**

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

TheBank 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 anational bank to a California state chartered bank licensed by the CaliforniaDepartment 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 FederalReserve System (“FRB”).  The Bank is alsosubject to certain other federal laws and regulations.  The deposits of the Bank are insured by theFederal Deposit Insurance Corporation (“FDIC”) up to the applicable limitsthereof.

AtDecember 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 instockholders’ equity.

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OnApril 26, 2006, the Company formed Santa Lucia Bancorp (CA) Capital Trust (“Trust”).  Trust is a statutory business trust formedunder the laws of Delaware.  The Trust isa wholly owned, non-financial, non-consolidated subsidiary of the Company.

Otherthan holding the shares of the Bank, the Company conducts no significantactivities.

**Banking**

 

TheBank is headquartered in Atascadero, with branch offices in Paso Robles, ArroyoGrande and Santa Maria. The Bank conducts a commercial banking business in SanLuis 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 internetbanking access, issues cashiers checks and money orders, sells travelerschecks, and provides bank-by-mail, night depository, safe deposit boxes, andother customary banking services. The Bank does not offer trust services orinternational banking services and does not plan to do so in the near future.

TheBank’s operating policy since its inception has emphasized small businesscommercial banking. Most of the Bank’s customers are retail customers, andsmall to medium-sized businesses. The Bank takes real estate, listed andunlisted securities, savings and time deposits, automobiles, machinery,equipment and accounts receivable as collateral for loans. The areas in whichthe Bank has directed virtually all of its lending activities are (i)commercial loans, (ii) installment, (iii) construction loans, and (iv) otherreal estate loans or commercial loans secured by real estate. As of December31, 2006, these four categories accounted for approximately 21%, 1%, 32% and46%, respectively, of the Bank’s loan portfolio. See “Item 6 — Management’sDiscussion and Analysis of Financial Condition and Results of Operations.”

Mostof the Bank’s deposits are attracted by local promotional activities andadvertising in the local media. A material portion of the Bank’s deposits havenot been obtained from a single person or a few persons, the loss of any one ormore of which would have a materially adverse effect on the business of theBank. As of December 31, 2006, the Bank had approximately 8,199 demand depositaccounts consisting of non-interest bearing (demand), interest-bearing demandand money market accounts with balances totaling $119,687,000, for an averagebalance per account of approximately $14,598; 3,200 savings accounts withbalances totaling $27,384,000, for an average balance per account ofapproximately $8,558; and 1,410 time certificate of deposit accounts withbalances totaling $65,918,000, for an average balance per account ofapproximately $46,750.

Theprincipal sources of the Bank’s revenues are (i) interest and fees on loans,(ii) interest on investments, (iii) service charges on deposit accounts, feeson 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 engagedin any material research activities relating to the development of new servicesor the improvement of existing bank services. There has been no significant 

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change in the types ofservices offered by the Bank since its inception except as follows: The Bankpreviously introduced a telephone banking service named “Telebanking” whichpermits the customer to obtain information and perform other services over thetelephone; a internet banking system named “EZLink,” which offers onlinebanking and computer bill payment; home equity lines of credit; businessequipment 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 requirethe investment of a material amount of total assets. Most of the Bank’sbusiness originates from San Luis Obispo and northern Santa Barbara Counties,and there is no emphasis on foreign sources and application of funds. The Bank’sbusiness, based upon performance to date, does not appear to be seasonal.  Management of the Bank is unaware of anymaterial effect upon the Bank’s capital expenditures, earnings or competitiveposition as a result of federal, state or local environmental regulations.

TheBank holds no patents, licenses (other than licenses obtained from bankregulatory authorities), franchises or concessions.

**Employees**

Asof December 31, 2006, the Bank had a total of 88 full-time equivalentemployees. The Bank believes that its employee relations are satisfactory.  The Company has no salaried employees.

**LocalEconomic Climate**

Theeconomy 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 ofmedical, financial and educational services. The population of San Luis Obispo County and the City of Santa Maria (innorthern Santa Barbara County) totaled approximately 260,000 and 92,000respectively, according to economic data provided by local county and titlecompany sources.  The moderate climateallows a year round growing season for numerous vegetable and fruits.  Vineyards and cattle ranches also contributelargely to the local economy.  TheCentral Coast’s leading agricultural industry is the production of high qualitywine grapes and production of premium quality wines.  Although on average the climate in ourmarkets is generally very mild, we did experience a significant freeze in early2007.  This did not have a significantimpact on our business.  Vineyards inproduction have grown significantly over the past several years throughout theCompany’s service area.  Access tonumerous recreational activities, including lakes, mountains and beaches,provide a relatively stable tourist industry from many areas including the LosAngeles/Orange County basin, the San Francisco Bay area and the San JoaquinValley.  Principally due to the diversityof the various industries in the Company’s service area, the area, while notimmune from economic fluctuations, does tend to enjoy a more stable level ofeconomic activity than many other areas of California.

Throughoutthe primary market area of the Company, the softening housing market of 2006 isexpected to continue into 2007, though it is unknown just how long-lasting theslowdown might be.  The number of homessold in 2006 was 25% less than in 2005, according to real estate research firmDataQuick.

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Accordingto the San Luis Obispo County Outlook Economic Forecast, copyrighted andpublished by The Regents of the University of California (Santa Barbara), evenwith sales volume down in 2006, median home prices in San Luis Obispo Countyincreased 11.4% through November 2006, and California’s median home prices areup 8.6% through the same period.  Pricegrowth has slowed in recent months and is expected to be subdued through 2007.

**Competition**

Thebanking and financial services business in California generally, and in the Company’sservice area specifically, is highly competitive. The increasingly competitiveenvironment is a result primarily of changes in regulation, changes intechnology and product delivery systems, and the accelerating pace ofconsolidation among financial services providers.

TheCompany’s business is concentrated in its service area, which encompassesprimarily San Luis Obispo and northern Santa Barbara Counties. In order tocompete with other financial institutions in its service area, the Company reliesprincipally upon local advertising programs; direct personal contact byofficers, directors, employees, and shareholders; and specialized services suchas courier pick-up and delivery of non-cash banking items. The Companyemphasizes to its customers the advantages of dealing with a locally owned andcommunity oriented institution. The Company also seeks to provide specialservices and programs for individuals in its primary service area who areemployed in the agricultural, professional and business fields, such as loansfor equipment, furniture, tools of the trade or expansion of practices orbusinesses. Larger banks may have a competitive advantage because of higherlending limits and major advertising and marketing campaigns. They also performservices, such as trust services, international banking, discount brokerage andinsurance services, that the Company is not authorized or prepared to offercurrently. The Company has made arrangements with its correspondent banks andwith others to provide such services for its customers.

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

**Effect of Government Policies andRecent Legislation**

Bankingis a business largely dependent on rate differentials. In general, thedifference between the interest rate paid by the Company on its deposits andits other borrowings and the interest rate received by the Company on loansextended to its customers and securities held in the Company’s portfoliocomprise the major portion of the Company’s earnings. These rates are highlysensitive to many factors that are beyond the control of the Company.Accordingly, the earnings and growth of the Company are subject to theinfluence of domestic and foreign economic conditions, including inflation,recession and unemployment.

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Thecommercial banking business is not only affected by general economic conditionsbut is also influenced by the monetary and fiscal policies of the federalgovernment and the policies of regulatory agencies, particularly the FRB. TheFRB implements national monetary policies (with objectives such as curbing inflationand combating recession) by its open-market operations in United StatesGovernment securities, by adjusting the required level of reserves forfinancial institutions subject to its reserve requirements and by varying thediscount rates applicable to borrowings by depository institutions. The actionsof the FRB in these areas influence the growth of bank loans, investments anddeposits 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 policiescannot be predicted.

Fromtime to time, legislation is enacted which has the effect of increasing thecost of doing business, limiting or expanding permissible activities oraffecting the competitive balance between banks and other financialinstitutions. Proposals to change the laws and regulations governing theoperations and taxation of banks, bank holding companies and other financialinstitutions are frequently made in Congress, in the California legislature andbefore various bank regulatory and other professional agencies. See “Descriptionof Business-Supervision and Regulation.”

**Supervisionand Regulation**

**General**

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

**TheCompany**

TheCompany is a bank holding company within the meaning of the Bank HoldingCompany Act of 1956, as amended (the “Bank Holding Company Act”), and isregistered as such with, and subject to the supervision of, the Federal ReserveBoard.  The Company is required to filewith the Federal Reserve Board quarterly and annual reports and such additionalinformation as the Federal Reserve Board may require pursuant to the BankHolding Company Act.  The Federal ReserveBoard may conduct examinations of bank holding companies and theirsubsidiaries.

TheCompany is required to obtain the approval of the Federal Reserve Board beforeit may acquire all or substantially all of the assets of any bank, or ownershipor control of the voting shares of any bank if, after giving effect to suchacquisition of shares, the Company would own or control more than 5% of anyclass of outstanding voting shares of such bank.  Prior approval of the Federal Reserve Boardis also required for the merger of consolidation of the Company and anotherbank holding company.

TheCompany is prohibited by the Bank Holding Company Act, except in certainstatutorily prescribed instances, from acquiring direct of indirect ownershipor control of more than 

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5% of theoutstanding voting shares of any company that is not a bank or bank holdingcompany and from engaging, directly or indirectly, in activities other thanthose of banking, managing or controlling banks or furnishing services to itssubsidiaries.  However, the Company may,subject to the prior approval of the Federal Reserve Board, engage in any, oracquire shares of companies engaged in, activities that are deemed by theFederal Reserve Board to be so closely related to banking or managing orcontrolling banks as to be a proper incident thereto.  See discussion under “Financial ModernizationAct” below for additional information.

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

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

TheCompany and the Bank are prohibited from engaging in certain tie-inarrangements in connection with any extension of credit, sale or lease ofproperty or furnishing of services.  Forexample, with certain exceptions, neither the Company nor the Bank maycondition an extension of credit to a customer on either (1) a requirement thatthe customer obtain additional services provided by us or (2) an agreement bythe customer to refrain from obtaining other services from a competitor.

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

**The Bank**

TheBank is chartered under the laws of the State of California and its depositsare insured by the FDIC to the extent provided by law. The Bank is subject tothe supervision of, and is regularly examined by, the DFI and the FRB. Suchsupervision and regulation include comprehensive reviews of all major aspectsof the Bank’s business and condition. Various requirements and restrictionsunder the laws of the United States and the State of California affect 

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the operations ofthe Bank. Federal and California statutes relate to many aspects of the Bank’soperations, including reserves against deposits, interest rates payable ondeposits, loans, investments, mergers and acquisitions, borrowings, dividendsand locations of branch offices. Further, the Bank is required to maintaincertain levels of capital.

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

The deposits of the Bank are insured by the FDIC inthe manner and to the extent provided by law. For this protection, the Bank pays a semiannual statutoryassessment.  The Bank is also subject tocertain regulations of the Federal Reserve Board and applicable provisions ofCalifornia law, insofar as they do not conflict with or are not preempted byfederal banking law.  Various otherrequirements and restrictions under the laws of the United States and the Stateof California affect the operations of the Bank.  Federal and California statutes andregulations relate to many aspects of the Bank’s operations, including reservesagainst deposits, interest rates payable on deposits, loans, investments,mergers and acquisitions, borrowings, divi­dends, locations of branch offices,capital requirements and disclosure obliga­tions to depositors andborrowers.  Further, the Bank is requiredto maintain certain levels of capital.

**Capital Standards**

TheFRB and the FDIC have adopted risk-based minimum capital guidelines intended toprovide a measure of capital that reflects the degree of risk associated with abanking organization’s operations for both transactions reported on the balancesheet as assets and transactions, such as letters of credit and recoursearrangements, which are recorded as off balance sheet items. Under theseguidelines, nominal dollar amounts of assets and credit equivalent amounts ofoff balance sheet items are multiplied by one of several risk adjustmentpercentages, which range from 0% for assets with low credit risk, such ascertain U.S. Treasury securities, to 100% for assets with relatively highcredit risk, such as business loans.

Abanking organization’s risk-based capital ratios are obtained by dividing itsqualifying capital by its total risk adjusted assets. The regulators measurerisk-adjusted assets, which includes off balance sheet items, against bothtotal qualifying capital (the sum of Tier 1 capital and limited amounts of Tier2 capital) and Tier 1 capital. Tier 1 capital consists primarily of commonstock, retained earnings, non-cumulative perpetual preferred stock (cumulativeperpetual preferred stock for bank holding companies) and minority interests incertain subsidiaries, less most intangible assets. Tier 2 capital may consistof a limited amount of the allowance for possible loan and lease losses,cumulative preferred stock, long term preferred stock, eligible termsubordinated debt and certain other instruments with some characteristics ofequity.  The inclusion of elements ofTier 2 

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capital is subjectto certain other requirements and limitations of the federal banking agencies.The federal banking agencies require a minimum ratio of qualifying totalcapital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital torisk-adjusted assets of 4%.

SantaLucia Bancorp issued $5,155,000 in junior subordinated debt securities (the “debtsecurities”) to the Santa Lucia Bancorp (CA) Capital Trust, a statutory trustcreated under the laws of the State of Delaware.  These debt securities are subordinated toeffectively all borrowings of the Company and are due and payable on July 7,2036.  These debt securities may beredeemed for 105% of the principal balance through July 7, 2011 and then at parthereafter.  Interest is payablequarterly beginning July 7, 2006 at 1.48% over the quarterly adjustable 3-monthLIBOR.  Of this $5.2 million, the Companycontributed $3.0 million to the Bank and retained $2.2 million at the Companylevel.  The securities do not entitle theholders to voting rights in the Company but will contain certain restrictivecovenants, including restrictions on the payment of dividends to the holders ofthe Company’s common stock in the event that interest payments on the trustpreferred securities are postponed.  Thecapital contribution received by the Bank from the trust preferred issuance isdesignated as Tier 1 capital for regulatory purposes.

Duringthe third quarter of 2003, the Bank undertook and completed a private placementof subordinated debentures (“notes”) to augment is tier 2 capital.  The total principal amount of the notesissued was $2,000,000.  The notes weresold pursuant to an applicable exemption from registration under the SecuritiesAct of 1933 to certain accredited investors, including some of the Company’sdirectors and executive officers.  Thenotes include quarterly payment of interest at prime plus 1.5% and quarterlyprincipal installments of approximately $166,666 commencing on September 30,2008 until paid in full on June 30, 2011.

Inaddition to the risk-based guidelines, federal banking regulators requirebanking organizations to maintain a minimum amount of Tier 1 capital to totalassets, referred to as the leverage ratio. For a banking organization rated inthe highest of the five categories used by regulators to rate bankingorganizations, the minimum leverage ratio of Tier 1 capital to total assets is3%. For all banking organizations not rated in the highest category, theminimum leverage ratio must be at least 4%. In addition to these uniformrisk-based capital guidelines and leverage ratios that apply across theindustry, the regulators have the discretion to set individual minimum capitalrequirements for specific institutions at rates significantly above the minimumguidelines and ratios. Future changes in regulations or practices could furtherreduce the amount of capital recognized for purposes of capital adequacy. Sucha change could affect the ability of the Bank to grow and could restrict theamount of profits, if any, available for the payment of dividends. It is theBank’s policy to remain “well capitalized” status, and review alternatives forraising 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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Underapplicable regulatory guidelines, the Bank was considered “Well Capitalized” atDecember 31, 2006.

Underapplicable regulatory guidelines, the Company’s trust preferred securitiesissued by our subsidiary capital trust qualify as Tier 1 capital up to amaximum limit of 25% of Tier 1 capital. Any additional portion of the trust preferred securities would qualifyas Tier II capital.  As of December 31,2006 the subsidiary trust had $5.2 million in trust preferred securitiesoutstanding, all of which qualifies as Tier 1 capital.

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

**Prompt Corrective Action andOther Enforcement Mechanisms**

Federal bankingagencies possess broad powers to take corrective and other supervisory actionto resolve the problems of insured depository institutions, including but notlimited to those institutions that fall below one or more prescribed minimumcapital ratios described above. An institution that, based upon its capitallevels, is classified as well capitalized, adequately capitalized, orundercapitalized may be treated as though it were in the next lower capitalcategory if the appropriate federal banking agency, after notice andopportunity for hearing, determines that an unsafe or unsound condition or anunsafe or unsound practice warrants such treatment. At each successive lowercapital category, an insured depository institution is subject to morerestrictions. The federal banking agencies, however, may not treat asignificantly undercapitalized institution as critically undercapitalizedunless its capital ratio actually warrants such treatment.

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

·                  theimposition of a conservator or the issuance of a cease-and-desist order thatcan be judicially enforced;

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

·                  theimposition of civil money penalties;

·                  theissuance of directives to increase capital;

·                  theissuance of formal and informal agreements;

·                  theissuance of removal and prohibition orders against institution-affiliatedparties; and

·                  theenforcement of such actions through injunctions or restraining orders basedupon a judicial determination that the agency would be harmed if such equitablerelief was not granted.

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Banksare also subject to certain Federal Reserve Board restrictions on extensions ofcredit to executive officers, directors, principal shareholders or any relatedinterests of such persons (i.e., insiders). Extensions of credit (1) must bemade on substantially the same terms and pursuant to the same creditunderwriting procedures as those for comparable transactions with persons whoare neither insiders nor employees, and (2) must not involve more than thenormal risk of repayment or present other unfavorable features. Banks are alsosubject to certain lending limits and restrictions on overdrafts to insiders. Aviolation of these restrictions may result in regulatory sanctions on the bankor its insiders.

Additionally, aholding company’s inability to serve as a source of strength to its subsidiarybanking organizations could serve as an additional basis for a regulatoryaction against the holding company

**Safety and Soundness Standards**

TheFederal Deposit Insurance Corporation Improvement Act (“FDICIA”) imposescertain specific restrictions on transactions and requires federal bankingregulators to adopt overall safety and soundness standards for depositoryinstitutions related to internal control, loan underwriting and documentationand asset growth.  Among other things,FDICIA limits the interest rates paid on deposits by undercapitalizedinstitutions, restricts the use of brokered deposits, limits the aggregateextensions of credit by a depository institution to an executive officer,director, principal shareholder or related interest, and reduces deposit insurancecoverage for deposits offered by undercapitalized institutions for deposits bycertain employee benefits accounts. The federal banking agencies may require aninstitution to submit to an acceptable compliance plan as well as have theflexibility to pursue other more appropriate or effective courses of actiongiven the specific circumstances and severity of an institution’s noncompliancewith one or more standards.

**Premiums for Deposit Insurance**

TheBank’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 insurancepremiums, which are assessed semiannually and paid quarterly.  In November 2006 the FDIC adopted a newrisk-based insurance assessment system effective January 1, 2007 designed totie what banks pay for deposit insurance more closely to the risks theypose.  The FDIC also adopted a new baseschedule of rates that the FDIC can adjust up or down, depending on the needsof the DIF, and set initial premiums for 2007 that range from 5 cents per $100of domestic deposits for banks in the lowest risk category to 43 cents per $100of domestic deposits for banks in the highest risk category.  The new assessment system is not expected toresult in a material impact on the Bank.

TheFDIC is also empowered to make special assessments on insured depositoryinstitutions in amounts determined by the FDIC to be necessary to give itadequate assessment income to repay amounts borrowed from the U.S. Treasury andother sources or for any other purpose the FDIC deems necessary.

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

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**Sarbanes-Oxley Act of 2002**

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

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

As apublic reporting company, the Company is subject to the requirements of SOX andrelated rules and regulations issued by the SEC and applied to the Company bythe FRB.  The Company’s common stock isnot listed on any national exchange such as the NYSE or NASDAQ.  As such, the Company is not required tocomply with the additional SOX requirements adopted by such exchanges.  The Company has, and will this year, incuradditional operating expense as a result of certain of the requirements of SOX,but does not expect that the anticipated expense of approximately $75,000 forsuch compliance costs will have a material impact on its business overall.

**Financial Services ModernizationLegislation**

On November 12, 1999, the Gramm-Leach-Bliley Act of1999 (the “Financial Services Modernization Act”) was signed into law. TheFinancial Services Modernization Act is intended to modernize the bankingindustry by removing barriers to affiliation among banks, insurance companies,the securities industry and other financial service providers. It providesfinancial organizations with the flexibility of structuring such affiliationsthrough a holding company structure or through a financial subsidiary of abank, subject to certain limitations. The Financial

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Services Modernization Act establishes a new type of bank holdingcompany, known as a financial holding company, which may engage in an expandedlist of activities that are “financial in nature,” which include securities andinsurance brokerage, securities underwriting, insurance underwriting andmerchant banking.

The Financial Services Modernization Act also setsforth a system of functional regulation that makes the Federal Reserve Boardthe “umbrella supervisor” for holding companies, while providing for thesupervision of the holding company’s subsidiaries by other federal and stateagencies.In addition,the Company is subject to other provisions of the Financial ServicesModernization Act, including those relating to CRA, privacy and safe-guardingconfidential customer information, regardless of whether the Company elects tobecome a financial holding company or to conduct activities through a financialsubsidiary of the Company. The Company does not, however, currently intend tofile notice with the Federal Reserve Board to become a financial holdingcompany or to engage in expanded financial activities through a financialsubsidiary of the Company.

The Company does not believe that the FinancialServices Modernization Act will have a material adverse effect on itsoperations in the near-term. However, to the extent that it permits banks,securities firms, and insurance companies to affiliate, the financial servicesindustry may experience further consolidation. The Financial ServicesModernization Act is intended to grant to community banks certain powers as amatter of right that larger institutions have accumulated on an ad hoc basis.Nevertheless, this act may have the result of increasing the amount ofcompetition that the Company face from larger institutions and other types ofcompanies offering financial products, many of which may have substantiallymore financial resources than the Company.

**Community Reinvestment Act**

TheBank is subject to certain fair lending requirements and reporting obligationsinvolving home mortgage lending operations and Community Reinvestment Act (“CRA”)activities.  The CRA generally requiresthe federal banking agencies to evaluate the record of a financial institutionin meeting the credit needs of their local communities, including low andmoderate income neighborhoods.  Inaddition to substantial penalties and corrective measures that may be requiredfor a violation of certain fair lending laws, the federal banking agencies maytake compliance with such laws and CRA into account when regulating andsupervising other activities.  A bank’scompliance with its CRA obligations is based on a performance-based evaluationsystem which based CRA ratings on an institution’s lending service andinvestment performance, resulting in a rating by the appropriate bankregulatory agency of “outstanding”, “satisfactory”, “needs to improve” or “substantialnoncompliance.”  At its last examinationby the FRB, the Bank received a CRA rating of “Satisfactory.”

**USA Patriot Act of 2001**

On October 26, 2001, President Bush signed theUniting and Strengthening America by Providing Appropriate Tools Required toIntercept and Obstruct Terrorism, or the Patriot Act, of 2001. Among other things,the Patriot Act (i) prohibits banks from providing correspondent accountsdirectly to foreign shell banks; (ii) imposes due diligence requirements onbanks

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opening or holding accounts for foreign financialinstitutions or wealthy foreign individuals (iii) requires financialinstitutions 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 toimplement 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 ourrecordkeeping and reporting expenses, we do not believe that it will have amaterial adverse effect on our business and operations.

**Transactions between Affiliates**

Transactions between TheCompany and its “affiliates” are quantitatively and qualitatively restrictedunder the Federal Reserve Act.  TheFederal Deposit Insurance Act applies Sections 23A and 23B to insured nonmemberbanks in the same manner and to the same extent as if they were members of theFederal Reserve System.  The FRB issuedRegulation W on October 31, 2002, which comprehensively implements sections 23Aand 23B of the Federal Reserve Act. Sections 23A and 23B and Regulation W restrict loans by a depositoryinstitution to its affiliates, asset purchases by a depository institution fromits affiliates, and other transactions between a depository institution and itsaffiliates.  Regulation W unifies in onepublic document the FRB’s interpretations of sections 23A and 23B.  Regulation W had an effective date of April1, 2003.

**Privacy**

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

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

·                  annual notices of their privacy policiesto current customers; and

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

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

In recent years, a numberof states have implemented their own versions of privacy laws.  For example, in 2003, California adoptedstandards that are more restrictive than federal law, allowing bank customersthe opportunity to bar financial companies from sharing information with theiraffiliates.

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**PredatoryLending**

The term “predatorylending”, much like the terms “safety and soundness” and “unfair and deceptivepractices”, is far-reaching and covers a potentially broad range ofbehavior.  As such, it does not lenditself to a concise or a comprehensive definition.  But typically predatory lending involves atleast one, and perhaps all three, of the following elements:

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

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

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

Federal ReserveBoard regulations aimed at curbing such lending significantly widened the poolof high-cost home-secured loans covered by the home Ownership and EquityProtection Act of 1994, a federal law that requires extra disclosures andconsumer protections to borrowers.  Thefollowing triggers coverage under the home ownership and Equity Protection Actof 1994:

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

·                  subordinate lien loans of 10 percentage points aboveTreasury securities, and

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

In addition, theregulation bars loan flipping by the same lender of loan servicer within ayear.  Lenders also will be presumed tohave violated the law; which says loans shouldn’t be made to people unable torepay them; unless they document that the borrower has the ability torepay.  Lenders that violate the rulesface cancellation of loans and penalties equal to the finance chargespaid.  The Company does not expect theserules and potential state action in this area to have a material impact on ourfinancial condition or results of operations.

**Bank Secrecy Act**

In 1970, Congress passedthe Currency and Foreign Transactions Reporting Act, otherwise known as theBank Secrecy Act (the “BSA”), which established requirements for recordkeepingand reporting by banks and other financial institutions.  The BSA was designed to help identify thesource, volume and movement of currency and other monetary instruments into andout of the United States in order to help detect and prevent money launderingconnected with drug trafficking, terrorism and other criminal activities.  The primary tool used to implement BSArequirements is the filing of Suspicious Activity Reports.  Today, the BSA requires that all bankinginstitutions develop and provide for the continued administration of a programreasonable designed to assure and monitor compliance with certain recordkeepingand reporting requirements regarding both to domestic and internationalcurrency transactions.  These programsmust, at a minimum, provide for a system of internal controls to assure ongoingcompliance, provide for independent testing of such systems and compliance,designate individuals responsible for such compliance and provide appropriatepersonnel training.

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**CommercialReal Estate Lending**

Federal bankingregulators recently issued final guidance regarding commercial real estatelending to address a concern that rising commercial real estate lendingconcentrations may expose institutions to unanticipated earnings and capitalvolatility in the event of adverse changes in the general commercial realestate market.  This guidance suggeststhat institutions that are potentially exposed to significant commercial realestate concentration risk will be subject to increased regulatoryscrutiny.  Institutions that haveexperienced rapid growth in commercial real estate lending, have notableexposure to specific types of commercial real estate lending, or areapproaching or exceed certain supervisory criteria that measure an institution’scommercial real estate portfolio against its capital levels, may be subject tosuch increased regulatory scrutiny.  Ourcommercial real estate portfolio may be viewed as falling within one or more ofthe foregoing categories, and accordingly we may become subject to increasedregulatory scrutiny because of our commercial real estate portfolio.  If it is determined by our regulator that wehave an undue concentration in commercial real estate lending, we may berequired to maintain increased levels of capital and/or be required to reduceour concentration in commercial real estate loans.

**Where YouCan Find More Information**

Under the SecuritiesExchange Act of 1934 Sections 13 and 15(d), periodic and current reports mustbe filed with the SEC.  The Companyelectronically 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 andForm DEF 14A (Proxy Statement).  TheCompany may file additional forms.  TheSEC maintains an Internet site, www.sec.gov. in which all forms filed electronicallymay be accessed.  Additionally, all formsfiled with the SEC and additional shareholder information is available free ofcharge using the Link on the Company’s website: www.santaluciabank.com.  TheCompany makes these reports available to the website as soon as reasonablepracticable after filing them with the SEC. None of the information on or hyperlinked from the Company’s website isincorporated into this Annual Report on Form 10-KSB.

**FACTORSTHAT MAY AFFECT FUTURE RESULTS OF OPERATIONS**

An investment in ourcommon stock is subject to risks inherent to our business. The material risksand uncertainties that management believes may affect our business aredescribed below. Before making an investment decision, you should carefullyconsider the risks and uncertainties described below together with all of theother information included or incorporated by reference in this Annual Report.The risks and uncertainties described below are not the only ones facing ourbusiness. Additional risks and uncertainties that management is not aware of orfocused on or that management currently deems immaterial may also impair ourbusiness operations. This Annual Report is qualified in its entirety by thesefactors.  If any of the following risksactually occur, our financial condition and results of operations could bematerially and adversely affected.  Ifthis 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.**

**Asignificant portion of our loan portfolio is secured by real estate and adownturn in the local economy and real estate market could affect our business.**

AtDecember 31, 2006, real estate served as the principal source of collateralwith respect to approximately 78% of our loan portfolio.  A decline in current economic conditions orrising 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 estateand 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.

Actsof nature, including earthquakes, floods and fires, which may cause uninsureddamage and other loss of value to real estate that secures these loans, mayalso negatively impact our financial condition.

**We alsohave a high concentration in commercial real estate or CRE loans.**

CRE loans generallyinvolve 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 ofborrowers could have a material adverse impact on our income and financialcondition.  Unlike residential mortgageloans, commercial real estate loans generally depend on the cash flow from theproperty to service the debt.  Cash flowmay be significantly affected by general economic conditions.

Within the makeup of ourCRE, 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 ofbusiness types, location, conservative underwriting and loss history furthermitigates the risk in our CRE portfolio. The Company targets commercial term loans for owners use as it supportsthe local business economy.  The Companyfeels that owner occupied properties do not carry the same risk as commercialstrip centers and other income properties with higher vacancy factors that relyon third parties for repayment.

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

In addition, federalbanking regulators recently issued final guidance regarding commercial realestate lending.  This guidance suggeststhat institutions that are potentially exposed to significant commercial realestate concentration risk will be subject to increased regulatoryscrutiny.  Institutions that haveexperienced rapid growth in commercial real estate lending, have notableexposure to specific types of commercial real estate lending, or areapproaching or exceed certain supervisory criteria that measure an institution’scommercial real estate portfolio against its capital levels, may be subject tosuch increased regulatory scrutiny.

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Our commercialreal estate portfolio may be viewed as falling within one or more of theforegoing categories, and accordingly we may become subject to increasedregulatory scrutiny because of our commercial real estate portfolio.  If it is determined by our regulator that wehave an undue concentration in commercial real estate lending, we may berequired to maintain increased levels of capital and/or be required to reduceour concentration in commercial real estate loans.

**Our real estate lendingalso exposes us to the risk of environmental liabilities.**

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

**Ourbusiness is subject to interest rate risk and changes in interest rates mayadversely affect our performance and financial condition.**

Our earnings areimpacted by changing interest rates. Changes in interest rates impact thedemand for new loans, the credit profile of our borrowers, the rates receivedon loans and securities and rates paid on deposits and borrowings. Thedifference between the rates received on loans and securities and the ratespaid on deposits and borrowings is known as interest rate spread. Given ourcurrent volume and mix of interest-bearing liabilities and interest-earningassets, we would expect our interest rate spread to increase if interest ratesrise and, conversely, to decline if interest rates fall. Increasing levels ofcompetition in the banking and financial services business may decrease our netinterest margin by forcing us to offer lower lending interest rates and payhigher deposit interest rates. Although we believe our current level ofinterest rate sensitivity is reasonable, significant fluctuations in interestrates 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 ourearnings.  When interest rates decline,borrowers tend to refinance higher-rate, fixed-rate loans at lower rates,prepaying their existing loans.  Underthose circumstances, we would not be able to reinvest those prepayments inassets earning interest rates as high as the rates on the prepaid loans.  In addition, our commercial real estate andcommercial loans, which carry interest rates that, in general, adjust inaccordance with changes in the prime rate, will adjust to lower rates.  We are also significantly affected by thelevel of loan demand available in our market. The inability to make sufficientloans directly affects the interest income we earn. Lower loan demand willgenerally result in lower interest income realized as we place funds in loweryielding investments.

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

Our retail andcommercial banking operations are concentrated primarily in San Luis Obispo andnorthern Santa Barbara Counties.  As aresult of this geographic concentration, our results of operations dependlargely upon economic conditions in this area. A significant source of risk arises from the possibility that losseswill be sustained if a significant number of our borrowers, guarantors andrelated parties fail to perform in accordance with the terms of their loans.This risk increases when the economy is weak. We have adopted underwriting andcredit monitoring procedures and credit policies, including the establishmentand review of the allowance for credit losses, that management believes areappropriate to minimize this risk by assessing the likelihood ofnonperformance, tracking loan performance and diversifying our creditportfolio. These policies and procedures, however, may not prevent unexpectedlosses that could adversely affect our results of operations in general and themarket value of our stock.

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

The financial servicesbusiness in our market areas is highly competitive. It is becoming increasinglycompetitive due to changes in regulation, technological advances, and theaccelerating pace of consolidation among financial services providers. We facecompetition both in attracting quality assets and deposits and in making loans.We compete for loans principally through the interest rates and loan fees wecharge and the efficiency and quality of services we provide. Increasing levelsof competition in the banking and financial services business may reduce ourmarket share, decrease loan demand, cause the prices we charge for our servicesto fall, or decrease our net interest margin, which is our net interest incomedivided by our average earning assets, by forcing us to offer lower lendinginterest rates and pay higher deposit interest rates.  Therefore, our results may differ in futureperiods depending upon the nature or level of competition.

Technology and otherchanges are allowing parties to complete financial transactions thathistorically have involved banks through alternative methods. For example,consumers can now maintain funds that would have historically been held as bankdeposits in brokerage accounts or mutual funds. Consumers can also complete transactionssuch as paying bills and/or transferring funds directly without the assistanceof 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 depositsand the related income generated from those deposits. The loss of these revenuestreams and the lower cost deposits as a source of funds could have an adverseeffect on our financial condition and results of operations.

**Failureto successfully execute our strategy could adversely affect our performance.**

Our financial performanceand profitability depends on our ability to execute our corporate growthstrategy.  Continued growth, however, maypresent operating and other problems that could adversely affect our business,financial condition and results of operations.

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Factors that mayadversely affect our ability to attain our long-term financial performancegoals 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 novobranching and/or acquisitions of other banks.

**We maynot be able to attract and retain skilled people**.

Our successdepends, 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 wemay not be able to hire people or to retain them. The unexpected loss ofservices of one or more of our key personnel could have an adverse impact onour business because of their skills, knowledge of our market, years ofindustry experience and the difficulty of promptly finding qualifiedreplacement personnel.

**Our internal operations aresubject to a number of risks.**

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

*InformationSystems*.  We relyheavily on communications and information systems to conduct our business. Anyfailure, interruption or breach in security of these systems could result infailures or disruptions in our customer relationship management, generalledger, deposit, loan and other systems. While we have policies and proceduresdesigned to prevent or limit the effect of the failure, interruption orsecurity breach of our information systems, there can be no assurance that anysuch failures, interruptions or security breaches will not occur or, if they dooccur, that they will be adequately addressed. The occurrence of any failures,interruptions or security breaches of our information systems could damage ourreputation, result in a loss of customer business, subject us to additionalregulatory scrutiny, or expose us to civil litigation and possible financialliability, any of which could have a material adverse effect on our financialcondition and results of operations.

*TechnologicalAdvances*. The financial services industry is continuallyundergoing rapid technological change with frequent introductions of newtechnology-driven products and services. The effective use of technologyincreases efficiency and enables financial institutions to better servecustomers and to reduce costs. Our future success depends, in part, upon ourability to address the needs of our customers by using technology to provideproducts and services that will satisfy customer demands, as well as to createadditional efficiencies in our operations.

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*NaturalDisasters, Acts Of War Or Terrorism and Other External Events*.  Natural disasters, acts of war or terrorismand other adverse external events could have a significant impact on ourability to conduct business. Such events could affect the stability of ourdeposit base, impair the ability of borrowers to repay outstanding loans,impair the value of collateral securing loans, cause significant propertydamage, result in loss of revenue and/or cause us to incur additional expenses.For example, the Central Coast region of California is subject to earthquakesand fires.  Operations in our marketcould be disrupted by both the evacuation of large portions of the populationas well as damage and or lack of access to our banking and operationfacilities. While we have not experienced such an occurrence to date, othersevere weather or natural disasters, acts of war or terrorism or other adverseexternal events may occur in the future. Although management has establisheddisaster recovery policies and procedures, the occurrence of any such eventcould have an adverse effect on our business, which, in turn, could have anadverse effect on our financial condition and results of operations.

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

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

**Risks Associated with our Industry.**

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

Thefinancial services industry is regulated extensively. Federal and Stateregulation is designed primarily to protect the deposit insurance funds andconsumers, and not to benefit our shareholders. These regulations can sometimesimpose significant limitations on our operations.

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

**New legislative and regulatoryproposals may affect our operations and growth.**

Proposals to change the laws and regulationsgoverning the operations and taxation of, and federal insurance premiums paidby, banks and other financial institutions and companies that control suchinstitutions are frequently raised in the U.S. Congress, statelegislatures and before bank regulatory authorities. The likelihood of anymajor changes in the future and the impact such changes might have on us or oursubsidiaries are impossible to determine. Similarly, proposals to change theaccounting treatment applicable to banks and other depository institutions arefrequently raised by the SEC, the federal banking agencies, the IRS and otherappropriate authorities. The likelihood and impact of any additional futurechanges in law or regulation and the impact such changes might have on us or oursubsidiaries 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 islisted for trading on the over-the-counter market, the trading volume in ourcommon stock is less than that of other larger financial services companies.  A public trading market having the desiredcharacteristics of depth, liquidity and orderliness depends on the presence inthe marketplace of willing buyers and sellers of our common stock at any giventime.  This presence depends on theindividual decisions of investors and general economic and market conditionsover which we have no control.  Given thelower trading volume of our common stock, significant sales of our commonstock, 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 maymake it more difficult for you to resell your common stock when you want and atprices you find attractive.  Our stockprice can fluctuate significantly in response to a variety of factors discussedin this section, including among other things:

·                  Actual or anticipated variations in quarterlyresults of operations

·                  Recommendations by securities analysts

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

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

·                  Perceptions in the marketplace regarding ourcompany and/or its competitors

**Our CommonStock Is Not An Insured Deposit**.

Our common stock is not abank deposit and, therefore, is not insured against loss by the FDIC, any otherdeposit insurance fund or by any other public or private entity. Investment inour common stock is inherently risky for the reasons described in this “RiskFactors” section and elsewhere in this report and is subject to the same marketforces that affect the price of common stock in any company.

**Our Articles of Incorporation andBy-Laws, As Well As Certain Banking Laws, May Have An Anti-Takeover Effect.**

Provisions of our articlesof incorporation, bylaws and federal banking laws, including regulatoryapproval requirements, could make it more difficult for a third party toacquire us, even if doing so would be perceived to be beneficial to ourshareholders. The combination of these provisions may hinder a non-negotiatedmerger or other business combination, which, in turn, could adversely affectthe market price of our common stock.

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## **ITEM2.****                                                     DESCRIPTIONOF PROPERTY**

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

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

TheCompany owns the land and building of its office located at 1530 East GrandAvenue in Arroyo Grande.  The building isa two-story building of approximately 10,200 square feet.

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

TheCompany believes that all of its properties are well maintained and aresuitable for their respective present needs and operations.

## **ITEM3.****                                                     LEGALPROCEEDINGS**

The Company is,from time to time, subject to various pending and threatened legal actionswhich arise out of the normal course of its business. The Company is not aparty to any pending legal or administrative proceedings (other than ordinaryroutine litigation incidental to the Company’s business) and no suchproceedings are known to be contemplated.

Thereare no material proceedings adverse to the Company to which any director,officer, affiliate of the Company or 5% shareholder of the Company, or anyassociate of any such director, officer, affiliate or 5% shareholder of theCompany is a party, and none of the above persons has a material interestadverse to the Company.

## **ITEM4.****                                                     SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

Nomatters were submitted to a vote of security holders during the fourth quarterof 2006.

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# **PART II**

## **ITEM5.****                                                     MARKETFOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

**MarketInformation**

TheCompany’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. eachactively make a market****in the Company’sCommon Stock. Certain information concerning the Common Stock is quoted on theOTC Bulletin Board under the symbol “SLBA.OB”

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

The information inthe following table indicates the high and low bid prices of the Company’sCommon Stock for each quarterly period during the last two years based uponinformation provided by certain of the firms mentioned above who serve as theCompany’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)             Basedon data reported by the market makers named above. Does not include informationon shares traded directly by shareholders or through other dealers.

24

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**Holders**

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

**Dividends**

Thefollowing table sets forth the per share amount and month of payment for allcash 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                         |       |
|                 |            |                                |            |  |

 

TheCompany is a legal entity separate and distinct from the Bank.  The Company’s shareholders are entitled toreceive dividends when declared by its Board of Directors, out of funds legallyavailable therefore, subject to the restrictions set forth in the CaliforniaGeneral Corporation Law (the Corporation law). The Corporation Law provides that a corporation may make a distributionto its shareholders if the corporation’s retained earnings equal at least theamount of the proposed distribution.  TheCorporation Law also provides that, in the event that sufficient retainedearnings are not available for the proposed distribution, a corporation may,nevertheless, make a distribution to its shareholders if it meets twoconditions, which generally states are as follows: (i) the corporation’s assetsequal 1-1/4 times its liabilities, and (ii) the corporation’s current assetsequal at least its current liabilities or, if the average of the corporation’searnings before taxes on income and before interest expenses for the twopreceding fiscal years was less than the average of the corporation’s interestexpenses for such fiscal years, then the corporation’s interest expenses forsuch fiscal years, then the corporation’s current assets must equal at least1-1/4 times its current liabilities.

The abilityof the Company to pay a cash dividend depends largely on the Bank’s ability topay a cash dividend to the Company.  Thepayment of cash dividends by the Bank is subject to restrictions set forth inthe California Financial Code (the Financial Code).  The Financial Code provides that a bank maynot 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 threefiscal years, less the amount of any distributions made by the bank or by anmajority-owned subsidiary of the bank to the shareholders of the bank duringsuch period.  However, a bank may, withthe approval of the DFI, make a distribution to its shareholders in an amountnot exceeding the greater of (x) its retained earnings; (y) its net income forits last fiscal year; or (z) its net income for its current fiscal year.  In the event that the DFI determines that theshareholders’ equity of the bank is inadequate or that the making of adistribution by the bank would be unsafe or unsound, the DFI may order the bankto refrain from making a proposed distribution. The FDIC may also restrict the payment of dividends if such payment ofsuch dividends, the bank would be included in one of the “undercapitalized” categoriesfor capital adequacy purposes pursuant to 

25

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federal law (See, “Item1 — Prompt Corrective Action and Other Enforcement Mechanisms.”) Additionally,while the Federal Reserve Board has no general restriction with respect to thepayment of cash dividends by an adequately capitalized  bank to its parent holding company, theFederal Reserve Board might, under certain circumstances, place restrictions onthe ability of a particular bank to pay dividends based upon peer groupaverages and the performance and maturity of the particular bank, or object tomanagement fees to be paid by a subsidiary bank to its holding company on thebasis that such fees cannot be supported by the value of the services renderedor are not the result of an arm’s length transaction.

TheCompany intends to pay cash dividends in the future subject to various factorsincluding regulatory restrictions described above. Whether or not any dividendswill be paid in the future will be determined by the Board of Directors afterconsideration of various factors. The Company’s profitability and regulatorycapital ratios in addition to other financial conditions will be key factorsconsidered by the Board of Directors in making such determinations regardingthe payment of dividends by the Company.

**EquityCompensation Plan**

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

Thefollowing table summarizes information as of December 31, 2006 relating to ourequity 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

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## **ITEM6.****                                                     MANAGEMENT’SDISCUSSION AND ANALYSIS OR PLAN OF OPERATION.**

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

## **ITEM7.****                                                     FINANCIALSTATEMENTS**

The financialstatements and the notes thereto required by Item 7 of Form 10-KSB areincorporated by reference from the Company’s 2006 Annual Report toShareholders, included as an exhibit to this Annual Report.

## **ITEM8.****                                                     CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

Notapplicable.

## **ITEM8A.****                                            CONTROLSAND PROCEDURES**

**(a) Evaluation of Disclosure Controls andProcedures**

The Company’s management carried out an evaluation,under the supervision and with the participation of the Company’s President andChief Executive Officer and the Company’s Executive Vice President and ChiefFinancial Officer, of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures (as such term is defined in Rules13a-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’sPresident and Chief Executive Officer along with the Company’s Executive VicePresident and Chief Financial Officer concluded that the Company’s disclosurecontrols and procedures as of December 31, 2006 are effective in timelyalerting them to material information relating to the Company (including itsconsolidated subsidiaries) required to be included in the Company’s periodicfilings under the Exchange Act.

**(b) Changes in Internal Control Over FinancialReporting**

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

## **ITEM8B.****                                            OTHERINFORMATION**

None.

27

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# **PART III**

## **ITEM9.****                                                     DIRECTORS,EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION16(a) OF THE EXCHANGE ACT**

TheCompany has adopted a Code of Business Conduct and Ethics that applies to allemployees and directors of the Company, and complies with the SEC’srequirements for a code of ethics applicable to senior executive officers.  A copy of the Code of Business Conduct andEthics was attached to the Form 10-KSB filed on March 24, 2006, for the yearended December 31, 2005.

During2006, there were no material changes to the procedures by which securityholders may recommend nominees to our board of directors.

Theremainder of the information required by Item 9 of Form 10-KSB is incorporatedby reference from the information contained in the Company’s Proxy Statementfor the 2007 Annual Meeting of Shareholders which has been filed pursuant toRegulation 14A.

## **ITEM10.****                                              EXECUTIVECOMPENSATION**

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

## **ITEM11.****                                              SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS**

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

## **ITEM12.****                                              CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE**

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

## **ITEM13.               EXHIBITS**

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

28

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**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

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| 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

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| 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

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----

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

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

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

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

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

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

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

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

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

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

11/                                Incorporated by reference from the Bank’sForm 10-KSB for the period ended December 31, 2004

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

13/                                Incorporated by reference to the sectionentitled “Earnings Per Share” contained in the Notes to Financial Statements inthe Company’s 2006 Annual Report to Shareholders.

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

** **

** **

**ITEM14.               PRINCIPALACCOUNTANT FEES AND SERVICES**

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

33

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# **SIGNATURES**

Inaccordance with Section 13 or 15(d) of the Exchange Act, the registrant causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.
| **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                                |                |   |
|                                                       |                     |        |  |  |  |

 

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Inaccordance with the requirements of the Securities Exchange Act of 1934, thisreport has been signed below by the following persons on behalf of theregistrant 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       |   |                      |            |       |

 

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**EXHIBITINDEX**

** **
| 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                                    |

 

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