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**UNITED STATES SECURITIES ANDEXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-K**

 

| **x****                              ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                          |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                                                  |
| **for  the fiscal year ended December 31, 2008.**                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                        |
| **OR**                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                        |
| **o****                                ****TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                        |
| **For the transition period from               to               **                                                                                    |

 

**File Number 000-51901**

 

**SANTALUCIA BANCORP**

(Name of small business issuer in its charter)

 

| **State of California**                                        | ** ** | **35-2267934**                       |
|----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) |       | (I.R.S. Employer Identification No.) |
| ** **                                                     | ** ** | ** **                           |
| **7480 El Camino Real, Atascadero,**                           | ** ** | **California 93422**                 |
| (Address of principal executive offices)                       |       | (Zip Code)                           |

 

Issuer’s telephone number ** (805) 466-7087**

 

Securities registered under Section 12(b) ofthe Exchange Act: **None**

 

Securities registered under Section 12(g) ofthe Exchange Act:

 

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

 

Check whether the issuer (1) filedall 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) hasbeen subject to such filing requirements for the past 90 days.  Yes x  Noo

 

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

 

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

 

Large accelerated filer o  Accelerated filer o  Non- accelerated filer o  (Do not check if smaller reportingcompany) Smaller reporting Company  x

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o   Nox

 

Registrant’s revenues for theyear ended December 31, 2008 were $16,387,267.

 

The aggregate market value ofthe voting common stock held by non-affiliates of the Registrant at March 2,2008 was approximately $10,416,331.

 

As of March 2, 2009, theRegistrant had 1,923,053 shares of Common Stock outstanding.

 

The information required in Part III,Items 9 through 12 and 14 is incorporated herein from the Registrant’sdefinitive proxy statement for the 2009 annual meeting of shareholderspreviously filed pursuant to Regulation 14A and Part II, Items 6 and 7 ofthe 2008 Annual Report to Shareholders filed as an exhibit hereto.

 

Transitional Small BusinessDisclosure Format (check one)     Yes o   Nox

 

 

 

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**TABLE OF CONTENTS**

 
| PART I   |                                                                                                                                                  | 2      |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| ITEM 1.       | DESCRIPTION OF BUSINESS                                                                                                                               | 2      |
| ITEM 1A.      | RISK FACTORS                                                                                                                                          | 19     |
| ITEM 1B.      | UNRESOLVED STAFF COMMENTS                                                                                                                             | 28     |
| ITEM 2.       | DESCRIPTION OF PROPERTY                                                                                                                               | 29     |
| ITEM 3.       | LEGAL PROCEEDINGS                                                                                                                                     | 29     |
| ITEM 4.       | SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS                                                                                                  | 29     |
| PART II  |                                                                                                                                                  | 30     |
| ITEM 5.       | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER  MATTERS                                                                                             | 30     |
| ITEM 6.       | SELECTED FINANCIAL DATA                                                                                                                               | 33     |
| ITEM 7.       | MANAGEMENT’S DISCUSSION AND ANALYSIS OR  PLAN OF OPERATION                                                                                       | 33     |
| ITEM 7A.      | QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK                                                                                           | 33     |
| ITEM 8.       | FINANCIAL STATEMENTS                                                                                                                                  | 34     |
| ITEM 9.       | CHANGES IN AND DISAGREEMENTS WITH  ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                                                                 | 34     |
| ITEM 9A(T).   | CONTROLS AND PROCEDURES                                                                                                                               | 34     |
| ITEM  9B.     | OTHER  INFORMATION                                                                                                                                    | 35     |
| PART III |                                                                                                                                                  | 35     |
| ITEM 10.      | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS  AND CONTROL PERSONS, AND CORPORATE GOVERNANCE; COMPLIANCE WITH  SECTION 16(a) OF THE EXCHANGE ACT | 35     |
| ITEM 11.      | EXECUTIVE COMPENSATION                                                                                                                                | 36     |
| ITEM 12.      | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL  OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                                                       | 36     |
| ITEM 13.      | CERTAIN RELATIONSHIPS AND RELATED  TRANSACTIONS AND DIRECTOR INDEPENDENCE                                                                             | 36     |
| ITEM 14.      | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                                                                | 36     |
|          |                                                                                                                                                  |   |
| PART IV  |                                                                                                                                                  |   |
| ITEM 15.      | EXHIBITS                                                                                                                                              | 36     |
|          |                                                                                                                                                  |   |
| SIGNATURES    | 43                                                                                                                                                    |
|          |                                                                                                                                                  |
| EXHIBIT INDEX | 45                                                                                                                                                    |

 

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** **

**PART I**

 

CERTAIN STATEMENTS CONTAINED INTHIS ANNUAL REPORT ON FORM 10-K (“ANNUAL REPORT”), INCLUDING, WITHOUTLIMITATION, 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 OF1933 AND SECTION 21E OF THE SECURITIES AND EXCHANGE ACT OF 1934. SUCHFORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES ANDOTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE ORACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKINGSTATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING:  GENERAL ECONOMIC AND BUSINESS CONDITIONS INTHOSE AREAS IN WHICH THE COMPANY OPERATES, THE ONGOING FINANCIAL CRISIS IN THEUNITED STATES AND CALIFORNIA AND BANK REGULATORY AND GOVERNMENT RESPONSETHERETO, THE RECENT DISRUPTIONS IN THE U. S. CREDIT MARKETS, DEMOGRAPHICCHANGES, COMPETITION, FLUCTUATIONS IN INTEREST RATES, CHANGES IN BUSINESSSTRATEGY OR DEVELOPMENT PLANS, CHANGES IN GOVERNMENTAL REGULATION, CREDITQUALITY, THE AVAILABILITY OF CAPITAL TO FUND THE EXPANSION OF THE COMPANY’SBUSINESS, ECONOMIC, POLITICAL AND GLOBAL CHANGES ARISING FROM THE WAR ONTERRORISM, AND OTHER FACTORS REFERENCED IN THIS REPORT, INCLUDING IN “ITEM 1.DESCRIPTION OF BUSINESS-FACTORS THAT MAY AFFECT FUTURE RESULTS OFOPERATIONS”. WHEN RELYING ON FORWARD-LOOKING STATEMENTS TO MAKE DECISIONS WITHRESPECT TO OUR COMPANY, INVESTORS AND OTHERS ARE CAUTIONED TO CONSIDER THESEAND OTHER RISKS AND UNCERTAINTIES.  THECOMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ANY SUCH FACTORS OR TO PUBLICLYANNOUNCE THE RESULTS OF ANY REVISIONS TO ANY OF THE FORWARD-LOOKING STATEMENTSCONTAINED HEREIN TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.

 

**ITEM 1.****                                                     DESCRIPTIONOF BUSINESS**

 

**General**

 

Santa LuciaBancorp (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.

 

The Bank is aCalifornia banking corporation.  The Bankwas organized as a national banking association on December 19, 1984 andcommenced operations on August 5, 1985. On May 30, 1997, the Bank converted from a national bank to aCalifornia state chartered bank licensed by the California Department ofFinancial Institutions (DFI”).  As aCalifornia state member 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.

 

At December 31,2008, the Company had approximately $251.8 million in assets, $186.6 million innet loans, $212.3 million in deposits, and $25.5 million in stockholders’equity.

 

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

 

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

 

**Banking**

 

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

 

The Bank’soperating policy since its inception has emphasized small business commercialbanking. Most of the Bank’s customers are retail customers, and small tomedium-sized businesses. The Bank takes real estate, listed and unlistedsecurities, savings and time deposits, automobiles, machinery, equipment andaccounts receivable as collateral for loans. The areas in which the Bank hasdirected virtually all of its lending activities are (i) commercial loans,(ii) installment, (iii) construction loans, and (iv) other realestate loans or commercial loans secured by real estate. As of December 31,2008, these four categories accounted for approximately 22%, 1%, 28% and 51%,respectively, of the Bank’s loan portfolio. See “Item 6 — Management’sDiscussion and Analysis of Financial Condition and Results of Operations.”

 

Most of theBank’s deposits are attracted by local promotional activities and advertisingin the local media. A material portion of the Bank’s deposits have not beenobtained from a single person or a few persons, the loss of any one or more ofwhich would have a materially adverse effect on the business of the Bank. As ofDecember 31, 2008, the Bank had approximately 9,526 demand depositaccounts consisting of non-interest bearing (demand), interest-bearing demandand money market accounts with balances totaling $116,811,000, for an averagebalance per account of approximately $12,262; 4,170 savings accounts withbalances totaling $25,902,000, for an average balance per account ofapproximately $6,212; and 2,248 time certificate of deposit accounts withbalances totaling $71,602,000, for an average balance per account ofapproximately $31,851.

 

The principalsources of the Bank’s revenues are (i) interest and fees on loans, (ii) intereston investments, (iii) service charges on deposit accounts, fees onmortgage loans and other charges and fees, and (iv) miscellaneous income.For the year ended December 31, 2008, these sources comprised 79%, 14%, 6%and 1%, 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 significantchange in the types of services offered by the Bank since its inception exceptas follows: The 

 

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Bank previouslyintroduced a telephone banking service named “Telebanking” which permits thecustomer to obtain information and perform other services over the telephone; ainternet banking system named “EZLink,” which offers online banking andcomputer bill payment; home equity lines of credit; business equipment leasing;and home mortgage loans.  In addition,the Bank introduced its new health savings account in 2005. The Bank has nopresent plans to add any new line of business that will require the investmentof a material amount of total assets. Most of the Bank’s business originatesfrom San Luis Obispo and northern Santa Barbara Counties, and there is noemphasis on foreign sources and application of funds. The Bank’s business,based upon performance to date, does not appear to be seasonal.  Management of the Bank is unaware of anymaterial effect upon the Bank’s capital expenditures, earnings or competitiveposition as a result of federal, state or local environmental regulations.

 

The Bank holdsno patents, licenses (other than licenses obtained from bank regulatoryauthorities), franchises or concessions.

 

**Employees**

 

As of December 31,2008, the Bank had a total of 86 full-time equivalent employees. The Bankbelieves that its employee relations are satisfactory.  The Company has no salaried employees.

 

**LocalEconomic Climate**

 

  The economy in the Company’sservice area is based primarily on agriculture, tourism, light industry, oiland retail trade.  Services supportingthese industries have also developed in the areas of medical, financial andeducational services.  The population ofSan Luis Obispo County and the City of Santa Maria (in northern Santa BarbaraCounty) totaled approximately 262,000 and 86,000 respectively, according toeconomic data provided by local county and title company sources.  The moderate climate allows a year roundgrowing 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 followed by a low supply of water in 2008. This did not have a significant impact on our business.  Vineyards in production have grownsignificantly over the past several years throughout the Company’s servicearea.  Access to numerous recreationalactivities, including lakes, mountains and beaches, provide a relatively stabletourist industry from many areas including the Los Angeles/Orange County basin,the San Francisco Bay area and the San Joaquin Valley.  Principally due to the diversity of thevarious industries in the Company’s service area, the area, while not immune fromeconomic fluctuations, does tend to enjoy a more stable level of economicactivity than many other areas of California.

 

According tothe San Luis Obispo County Outlook Economic Forecast, copyrighted and publishedby The Regents of the University of California (Santa Barbara), home salesvolume increased 8.6% in 2008, median home prices in San Luis Obispo Countydecreased 21.1% through November 2008. The declining prices and sales hasslowed the pace of new home construction and increased the inventory of newhomes.

 

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The UC Santa Barbara Economic Forecast Project recognizes the stressesimposed on the economy by the decline in the real estate markets and theincreasing loss of jobs. So, their forecast is for a weak recovery though 2010.

 

2008 proved tobe a challenging year not only on the national level, but within the state ofCalifornia and more specifically our primary market area.  As the U.S. housing market continued to wanethroughout 2008 and economic growth began to significantly slow, the ability ofborrowers to satisfy their obligations to the financial sector began tolanguish.  These among other factorsplaced severe stress on the U.S. financial system, leading to a crisis ofconfidence, further downturn in economic growth and unprecedented volatility inthe U.S. equity and credit markets.  Asmentioned, our primary market area has historically enjoyed a more stable levelof economic activity; however we believe these more macro level concerns havestarted to become more evident within our market area.  Recent indications show the unemployment ratewithin California to be approximately 9.3%. This is up approximately 3.4% from the 5.9% reported at December 2007.  Within our primary market area, recentindications show the unemployment rate within San Luis Obispo and Santa Barbaracounties to be approximately 6.6% and 6.3%, respectively.  This represents increases of approximately2.3% and 1.9% from the 4.3% and 4.4% reported for San Luis Obispo and SantaBarbara counties at December 2007.  Additionally,housing prices have fallen significantly year over year within California,showing an approximate 42% year over year decline as of December 2008.  Within the Company’s primary market, we haveseen housing prices fall in San Luis Obispo and Santa Barbara counties fromyear ago levels by approximately 29% and 34%, respectively.  However, sales have been relatively strongwithin the Company’s primary market area, climbing approximately 32% during2008, the majority of which can be attributed to sales of foreclosedproperties.  That said, the lack ofoversupply in our market, desirable climate, close proximity to beaches, watersport lakes and the wine industry, for both San Luis Obispo and Santa BarbaraCounties have to some degree provided support for the real-estate market in ourarea.

 

The Company believes that the localeconomies, in which it operates, Atascadero, Paso Robles, Arroyo Grande, andSanta Maria continue to decline as the loss of jobs increase and businessescash flows continue to decline. Additionally, competition for depositscontinues to be very strong both from traditional sources as well as alternativeinvestments such as mutual funds, money market accounts and the stock market.During 2008 the prime lending rate decreased 400 basis points placingadditional pressure on the Company’s margins.

 

**Competition**

 

Thebanking and financial services business in California generally, and in theCompany’s service area specifically, is highly competitive. The increasinglycompetitive environment is a result primarily of changes in regulation, changesin technology 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 Companyrelies principally 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 

 

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areawho are employed in the agricultural, professional and business fields, such asloans for 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 ofGovernment Policies and Recent 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.

 

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 curbinginflation and combating recession) by its open-market operations in UnitedStates Government 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. During 2008 the primelending rate decreased 400 basis points placing additional pressure on theCompany’s margins.

 

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. The Company cannot predict whether any of this potential legislation willbe enacted, and if enacted, the effect that it, or any implemented regulations,would have on the financial condition or results of operations of the Companyor any of its subsidiaries.  See “Descriptionof Business-Supervision and Regulation.”

 

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**Supervision and 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.

 

HoweverCongress and the executive branch are likely to consider significant newregulatory reform initiatives in the near future, which could result inmaterial changes to the current oversight structure.

 

**The Company**

 

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 certain statutorilyprescribed instances, from acquiring direct of indirect ownership or control ofmore than 5% of the outstanding voting shares of any company that is not a bankor bank holding company and from engaging, directly or indirectly, inactivities other than those of banking, managing or controlling banks orfurnishing services to its subsidiaries. However, the Company may, subject to the prior approval of the FederalReserve Board, engage in any, or acquire shares of companies engaged in,activities that are deemed by the Federal Reserve Board to be so closelyrelated to banking or managing or controlling banks as to be a proper incidentthereto.  See discussion under “FinancialModernization Act” 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.

 

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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 requirementthat the customer obtain additional services provided by us or (2) anagreement by the customer to refrain from obtaining other services from acompetitor.

 

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 theoperations of the Bank. Federal and California statutes relate to many aspectsof the Bank’s operations, including reserves against deposits, interest ratespayable on deposits, loans, investments, mergers and acquisitions, borrowings,dividends and locations of branch offices. Further, the Bank is required to maintaincertain levels of capital.

 

If, asa result of an examination of a bank, the DFI or FRB should determine that thefinancial 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 in themanner 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 

 

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law, insofar as they do not conflict with or are notpreempted by federal banking law. Various other requirements and restrictions under the laws of the UnitedStates and the State of 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 capital is subject to certain other requirements and limitations of thefederal banking agencies. The federal banking agencies require a minimum ratioof qualifying total capital to risk-adjusted assets of 8% and a minimum ratioof Tier 1 capital to risk-adjusted assets of 4%.

 

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.

 

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December 31,2008

 
| ** **              | ** ** | **Minimum**      | ** ** | **Minimum**                           | ** ** | ** ** | ** ** | ** **  | ** ** |
|-------------------------|------------|------------------|------------|---------------------------------------|------------|------------|------------|-------------|------------|
| ** **              | ** ** | **Capital**      | ** ** | **“Well Capitalized”** | ** ** | **Bank**   | ** ** | **Company** | ** ** |
| ** **              | ** ** | **Requirements** | ** ** | **Bank**                              | ** ** | **Actual** | ** ** | **Actual**  | ** ** |
| LEVERAGE RATIO          |       | 4.0              | %          | 5.0                                   | %          | 11.4       | %          | 11.9        | %          |
| TIER 1 RISK-BASED RATIO |       | 4.0              | %          | 6.0                                   | %          | 13.7       | %          | 14.4        | %          |
| TOTAL RISK-BASED RATIO  |       | 8.0              | %          | 10.0                                  | %          | 15.2       | %          | 15.9        | %          |

 

Underapplicable regulatory guidelines, the Bank was considered “Well Capitalized” atDecember 31, 2008.

 

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 thenat par thereafter.  Interest is payablequarterly beginning July 7, 2006 at 1.48% over the quarterly adjustable3-month LIBOR.  Of this $5.2 million, theCompany contributed $3.0 million to the Bank and retained $2.2 million at theCompany level.  The securities do notentitle the holders to voting rights in the Company but will contain certainrestrictive covenants, including restrictions on the payment of dividends tothe holders of the Company’s common stock in the event that interest paymentson the trust preferred securities are postponed.  The capital contribution received by the Bankfrom the trust preferred issuance is designated as Tier 1 capital forregulatory purposes.

 

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 31,2008 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.

 

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.

 

**Participation in the Capital Purchase Program of the Troubled AssetRelief Program.**

 

On October 3, 2008, President Bush signed into law the EmergencyEconomic Stabilization Act of 2008 (“EESA”) enacted by the U.S. Congress inresponse to the financial crises affecting the banking system and financialmarkets and gong concern threats to investment 

 

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banks and other financial institutions. On October 14, 2008, the U.S. Department of Treasury (“U.S.Treasury”) announced the Troubled Asset Relief Program Capital Purchase Program(“TARP”).  This program makes $250billion of capital available to U.S. financial institutions from the initial$350 billion authorized by the EESA in the form of preferred stock investmentsby the U.S. Treasury in qualifying U.S. controlled banks, savings associationsand certain bank and savings and loan holding companies under the followinggeneral terms:

 
| · | The preferred stock issued to the U.S.  Treasury would pay 5% dividends for the first five years, and then 9%  dividends thereafter;                                                                                                                                                                                                                                    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | In connection with the purchase of  preferred stock, the U.S. Treasury will receive warrants entitling the U.S.  Treasury to buy the participating institution’s common stock equivalent in  value to 15% of the preferred stock;                                                                                                                                  |
| · | The preferred stock may not be redeemed for  a period of three years, except with proceeds from high-quality private  capital;                                                                                                                                                                                                                                          |
| · | The consent of the U.S. Treasury will be  required to increase common dividends per share or any share repurchases,  with limited exceptions, during the first three years, unless the preferred  stock has been redeemed or transferred to third parties; and                                                                                                          |
| · | Participating companies must adopt the U.S.  Treasury’s standard for executive compensation and corporate governance for  the period during which the U.S. Treasury holds the equity issued under the  TARP. At the close of Company’s TARP transaction, these executive  compensation restrictions included the that the Company, among other things,  must: |
|   | ·                                                                                                                                                                                                                                                                                                                                                                  | Ensure that the incentive compensation  programs for its senior executive officers do not encourage unnecessary and  excessive risks that threaten the value of the Company |
|   | ·                                                                                                                                                                                                                                                                                                                                                                  | Implement a required clawback of any bonus  or incentive compensation paid to The Company’s senior executive officers  based on statements of earnings, gains, or other criteria that are later  proven to be materially inaccurate; |
|   | ·                                                                                                                                                                                                                                                                                                                                                                  | Not make any “golden parachute payment” (as  defined in the Internal Revenue Code) to any of The Comapany’s senior  executive officers; and |
|   | ·                                                                                                                                                                                                                                                                                                                                                                  | Agree not to deduct for tax purposes  executive compensation in excess of $500,000 in any one fiscal year for each  of the Company’s senior executive officers. |
|        |                                                                                                                                                                                                                                                                                                                                                                         |  |  |

 

On Friday, December 19, 2008, theCompany entered into a Purchase Agreement with the United States Department ofthe Treasury (the “Treasury”), pursuant to which the Company agreed to issueand sell 4,000 shares of the Company’s Preferred Stock as Fixed Rate CumulativePerpetual Preferred Stock, Series A (the “Preferred Stock) and a Warrantto purchase 37,360 shares of the Company’s Common Stock for an aggregatepurchase price of $4,000,000 in cash. In connection with this transaction theCompany incurred $50,000 in costs.

 

The Preferred Stock will qualify as Tier1 capital and will pay cumulative dividends quarterly at a rate of 5% per annumfor the first five years and 9% per annum thereafter. The Preferred Stock maybe redeemed by the Company after three years. Prior to the end of the three 

 

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years, the Preferred Stock may be redeemed onlywith proceeds from the sale of qualifying equity securities of the Company.

 

The Warrant has a 10-year term and isimmediately exercisable upon its issuance, with an exercise price, subject toanti-dilution adjustments, equal to $16.06 per share.

 

**The American Recovery and Reinvestment Act of 2009**

 

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

 

**PromptCorrective Action and Other Enforcement Mechanisms**

 

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

 

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

 
| · | the imposition of a conservator or the issuance of a cease-and-desist  order that can be judicially enforced; |
|--------|---------------------------------------------------------------------------------------------------------------|
| · | the termination of insurance of deposits (in the case of a depository  institution);                          |
| · | the imposition of civil money penalties;                                                                      |
| · | the issuance of directives to increase capital;                                                               |
| · | the issuance of formal and informal agreements;                                                               |
| · | the issuance of removal and prohibition orders against  institution-affiliated parties; and                   |

 

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

 

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

 

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

 

**Safety andSoundness 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 forDeposit Insurance**

 

The deposits of the Bank have historically been insured by the FDIC upto $100,000 per insured depositor, except certain types of retirement accounts,which are insured up to $250,000 per insured depositor. On October 3,2008, the maximum amount insured under FDIC deposit insurance was temporarilyincreased from $100,000 to $250,000 per insured depositor through December 31,2009. This increase was part of the Emergency Economic Stabilization Act of2008. Additionally, the Bank has elected to participate in the FDIC’s TemporaryLiquidity Guarantee Program. Under this program, all non-interest bearingdeposit transaction accounts at the Bank with balances over $250,000 will alsobe fully insured through December 31, 2009 at an additional cost to theBank of 10 basis points per dollar over $250,000 on a per account basis.

 

The FDIC has set a designated reserve ratio of 1.25% ($1.25 against$100 of insured deposits) for the Deposit Insurance Fund (“DIF”). The FederalDeposit Insurance Reform Act of 

 

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2005 (“FDIC Act”) provides the FDIC Board of Directors the authority toset the designated reserve ratio between 1.15% and 1.50%. The FDIC must adopt arestoration plan when the reserve ratio falls below 1.15% and begin payingdividends when the reserve ratio exceeds 1.35%. There is no requirement toachieve a specific ratio within a given time frame. The FDIC Board of Directorshas not declared any dividends as of December 31, 2008. The DIF reserveratio calculated by the FDIC that was in effect at December 31, 2008 was..76%.

 

In 2007, FDIC regulations established a new risk-based assessmentsystem under which deposit insurance assessments are based upon supervisoryratings for all insured institutions, financial ratios for most institutions,and long-term debt issuer ratings for large institutions that have them.

 

In 2007 and 2008, the annual insurance premiums on bank depositsinsured by the DIF varied between $.05 per $100 of deposits for banksclassified in the highest capital and supervisory evaluation categories to $.43per $100 of deposits for banks classified in the lowest capital and supervisoryevaluation categories. In 2007 and 2008 the Bank was classified in the highestcapital and supervisory evaluation category. Under the FDIC Act, the Bank received a one time assessment credit ofapproximately $126 thousand, discussed more fully below.  In 2007, the Bank exhausted this credit.

 

In 2006, the annual insurance premiums on bank deposits insured by theDIF varied between $0 per $100 of deposits for banks classified in the highestcapital and supervisory evaluation categories to $.27 per $100 of deposits forbanks classified in the lowest capital and supervisory evaluation categories.In 2006, the Bank paid no annual insurance premiums because of the one timeassessment credit discussed above.

 

The FDIC Act required the FDIC to establish a one-time historical assessmentcredit that provides banks a credit that could be used to offset insuranceassessments. This one-time historical assessment credit was established tobenefit banks that had funded deposit insurance funds prior to December 31,1996. This one-time historical assessment credit is based upon the Bank’sinsured deposits as of December 31, 1996. As stated above, the Bank’sone-time historical assessment credit was $126 thousand when it was establishedin 2006. During 2007, the Bank fully utilized this credit and only partiallyoffset 2007 assessments. As a result, the Bank’s Federal deposit insuranceexpense increased in 2008 and will increase further in 2009.

 

As required by law, in October 2008, the FDIC Board adopted arestoration plan that would increase the reserve ratio to the 1.15% thresholdwithin five years. As part of that plan, in December, 2008, the FDIC Board ofDirectors voted to increase risk-based assessment rates uniformly by sevencents, on an annual basis, for the first quarter of 2009 due to deterioratingfinancial conditions in the banking industry.

 

In addition to risk-based deposit insurance assessments, additionalassessments may be imposed by the Financing Corporation, a separate U.S.government agency affiliated with the FDIC, on insured deposits to pay for theinterest cost of Financing Corporation bonds. Financing Corporation assessmentrates for 2008 ranged from $.0110 to $.0114 per $100 of deposits. FinancingCorporation assessments of $[*] were paid by the Bank for 2008, 2007 and 2006,respectively, and are included in other expense.

 

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The FDIC is authorized to terminate a depository institution’s depositinsurance if it finds that the institution is being operated in an unsafe andunsound manner or has violated any rule, regulation, order or conditionadministered by the institution’s regulatory authorities. Any such terminationof deposit insurance would likely have a material adverse effect on the Bank,the severity of which would depend on the amount of deposits affected by such atermination.

 

Under federal law, deposits and certain claims for administrativeexpenses and employee compensation against an insured depository institutionare afforded a priority over other general unsecured claims against such aninstitution, including federal funds and letters of credit, in the liquidationor other resolution of such an institution by any receiver appointed byregulatory authorities. Such priority creditors would include the FDIC.

 

**Sarbanes-Oxley Act of 2002**

 

On July 30, 2002, the Sarbanes-Oxley Act of 2002 (“SOX”),was signed into law to address corporate and accounting fraud. SOX establishesa new accounting oversight board that will enforce auditing standards andrestricts the scope of services that accounting firms may provide to theirpublic company audit clients. Among other things, SOX also (i) requireschief executive officers and chief financial officers to certify to theaccuracy of periodic reports filed with the SEC; (ii) imposes newdisclosure requirements regarding internal controls, off-balance-sheettransactions, and pro forma (non-GAAP) disclosures; (iii) acceleratesthe time frame for reporting of insider transactions and periodic disclosuresby public companies; and (iv) requires companies to disclose whether ornot they have adopted a code of ethics for senior financial officers andwhether the audit committee includes at least one “audit committee financialexpert.”

 

UnderSOX, the SEC is required to regularly and systematically review corporatefilings, based on certain enumerated factors. To deter wrongdoing, SOX: (i) subjectsbonuses issued to top executives to disgorgement if a restatement of a company’sfinancial statements was due to corporate misconduct; (ii) prohibits anofficer 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 Companyby the FRB.  The Company’s common stockis not 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.

 

**FinancialServices Modernization Legislation**

 

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 

 

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organizations with the flexibility of structuring suchaffiliations through a holding company structure or through a financialsubsidiary of a bank, subject to certain limitations. The Financial ServicesModernization Act establishes a new type of bank holding company, known as afinancial holding company, which may engage in an expanded list of activitiesthat are “financial in nature,” which include securities and insurancebrokerage, securities underwriting, insurance underwriting and merchantbanking.

 

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

 

The Company does not believe that the Financial ServicesModernization Act will have a material adverse effect on its operations in thenear-term. However, to the extent that it permits banks, securities firms, andinsurance companies to affiliate, the financial services industry mayexperience further consolidation. The Financial Services Modernization Act isintended to grant to community banks certain powers as a matter of right thatlarger institutions have accumulated on an ad hoc basis. Nevertheless, this actmay have the result of increasing the amount of competition that the Companyface from larger institutions and other types of companies offering financialproducts, many of which may have substantially more financial resources thanthe Company.

 

**CommunityReinvestment 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 and moderateincome neighborhoods.  In addition tosubstantial penalties and corrective measures that may be required for aviolation of certain fair lending laws, the federal banking agencies may takecompliance with such laws and CRA into account when regulating and supervisingother activities.  A bank’s compliancewith its CRA obligations is based on a performance-based evaluation systemwhich based CRA ratings on an institution’s lending service and investmentperformance, resulting in a rating by the appropriate bank regulatory 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 the Uniting andStrengthening America by Providing Appropriate Tools Required to Intercept andObstruct Terrorism, or the Patriot Act, of 2001. Among other things, thePatriot Act (i) prohibits banks from providing correspondent accountsdirectly to foreign shell banks; (ii) imposes due diligence requirementson banks

 

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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) eliminatescivil liability for persons who file suspicious activity reports. The PatriotAct also increases governmental powers to investigate terrorism, includingexpanded government access to account records and makes rules to implementthe Patriot Act.  On March 9, 2006,the President signed the USA Patriot improvement and Reauthorization Act, whichextended 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 betweenThe Company and its “affiliates” are quantitatively and qualitativelyrestricted under the Federal Reserve Act. The Federal Deposit Insurance Act applies Sections 23A and 23B toinsured nonmember banks in the same manner and to the same extent as if theywere members of the Federal Reserve System. The FRB issued Regulation W on October 31, 2002, whichcomprehensively implements sections 23A and 23B of the Federal ReserveAct.  Sections 23A and 23B and RegulationW restrict loans by a depository institution to its affiliates, asset purchasesby a depository institution from its affiliates, and other transactions betweena depository institution and its affiliates. Regulation W unifies in one public document the FRB’s interpretations ofsections 23A and 23B.  Regulation W hadan effective date of April 1, 2003.

 

**Privacy**

 

Federalbanking rules limit the ability of banks and other financial institutionsto disclose non-public information about consumers to non-affiliated thirdparties.  Pursuant to these rules,financial institutions must provide:

 

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

·                  annual notices of theirprivacy policies to current customers; and

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

 

Theseprivacy provisions affect how consumer information is transmitted throughdiversified financial companies and conveyed to outside vendors.  We have implemented our privacy policies inaccordance with the law.

 

Inrecent years, a number of states have implemented their own versions of privacylaws.  For example, in 2003, Californiaadopted standards that are more restrictive than federal law, allowing bankcustomers the opportunity to bar financial companies from sharing informationwith their affiliates.

 

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**Predatory Lending**

 

Theterm “predatory lending”, much like the terms “safety and soundness” and “unfairand deceptive practices”, is far-reaching and covers a potentially broad rangeof behavior.  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 assetsof the borrower rather than on the borrower’s ability to repay an obligation orasset-based lending;

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

·                  engaging in fraud or deception to conceal thetrue nature of the loan obligation from an unsuspecting or unsophisticatedborrower.

 

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

 

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

·                  subordinate lien loans of 10 percentagepoints above Treasury securities, and

·                  fees such as optional insurance and similardebt protection costs paid in connection with the credit transaction whencombined with points and fees if deemed excessive.

 

Inaddition, the regulation bars loan flipping by the same lender of loan servicerwithin a year.  Lenders also will bepresumed to have violated the law; which says loans shouldn’t be made to peopleunable to repay them; unless they document that the borrower has the ability torepay.  Lenders that violate the rules facecancellation of loans and penalties equal to the finance charges paid.  The Company does not expect these rules andpotential state action in this area to have a material impact on our financialcondition or results of operations.

 

**Bank Secrecy Act**

 

In1970, Congress passed the Currency and Foreign Transactions Reporting Act, otherwiseknown as the Bank Secrecy Act (the “BSA”), which established requirements forrecordkeeping and 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 BSA requirementsis the filing of Suspicious Activity Reports. Today, the BSA requires that all banking institutions develop andprovide for the continued administration of a program reasonable designed toassure and monitor compliance with certain recordkeeping and reportingrequirements regarding both to domestic and international currencytransactions.  These programs must, at aminimum, 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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**Commercial Real Estate Lending**

 

Federalbanking regulators recently issued final guidance regarding commercial realestate lending 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 You Can Find More Information**

 

Underthe Securities Exchange Act of 1934 Sections 13 and 15(d), periodic and currentreports must be filed with the SEC.  TheCompany electronically files the following reports with the SEC:  Form 10-K (Annual Report), Form ARS(Annual Report to Shareholders), Form 10-Q (Quarterly Report), Form 8-K(Current Report), insider ownership reports and Form DEF 14A (ProxyStatement).  The Company may fileadditional forms.  The SEC maintains anInternet site, www.sec.gov. in which all forms filed electronically may beaccessed.  Additionally, all forms filedwith the SEC and additional shareholder information is available free of chargeusing 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-K.

 

**ITEM 1A.       RISK FACTORS**

 

**FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS**

 

Aninvestment in our common stock is subject to risks inherent to our business.The material risks and uncertainties that management believes may affect ourbusiness are described below. Before making an investment decision, you shouldcarefully consider the risks and uncertainties described below together withall of the other information included or incorporated by reference in thisAnnual Report. The risks and uncertainties described below are not the onlyones facing our business. Additional risks and uncertainties that management isnot aware of or focused on or that management currently deems immaterial mayalso impair our business operations. This Annual Report is qualified in itsentirety by these factors.

 

 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

 

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stock could decline significantly, and you could lose all or part ofyour investment.

 

**RisksAssociated with our Business.**

 

**Recessionand changes in domestic and foreign financial markets may have a materialnegative impact on our results of operations and financial condition.**

 

Economicindices have shown that since the fourth quarter of 2007, the United States economyhas been in a recession. This has been reflected in significant businessfailures and job losses, including the potential bankruptcies of three U.S.automobile manufacturing companies and by job losses in excess of 500,000 ineach of November and December 2008.  Job losses at thislevel are expected to continue during the first calendar quarter of 2009.

 

In addition,in the past year, the domestic and foreign financial markets, securitiestrading markets and economies generally have experienced significant turmoilincluding, without limitation, government takeovers of troubled institutions,government brokered mergers of such firms to avoid bankruptcy or failures,bankruptcies of securities trading firms and insurance companies, failures offinancial institutions and securities brokerage firms, declines in realproperty values, and wide fluctuations in energy prices, all of which havecontributed to reduced availability of credit for businesses and consumers,elevated foreclosures on residential and commercial properties, falling homeprices, reduced liquidity and a lack of stability across the entire financialsector.  These recent events and the corresponding uncertainty anddecline in financial markets are likely to continue for the foreseeable future.  Thefull extent of the repercussions to our nation’s economy in general and ourbusiness in particular therefrom are not fully known at thistime.  Such events may have a negative effect on (i) our abilityto service our existing customers and attract new customers, (ii) theability of our borrowers to operate their business as successfully as in thepast, (iii) the financial security and net worth of our customers, and (iv) theability of our customers to repay their loans with us in accordance with the termsthereof.

 

We do notbelieve these difficult conditions are likely to improve in the nearfuture.  A worsening of these conditions would likely exacerbate theadverse effects of these difficult market and economic conditions on us, ourcustomers and the other financial institutions in our market.

 

**Recently enacted legislation and other measures undertaken by theTreasury, the FRB and other governmental agencies may not help stabilize theU.S. financial system or improve the housing market.**

 

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

 

·      Authorityfor the FRB to pay interest on depository institution balances; 

 

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·      Mortgage loss mitigation and homeowner protection; 

 

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

 

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

 

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

 

EESA alsocontains a number of significant employee benefit and executive compensationprovisions, some of which apply to employee benefit plans generally, and otherswhich impose on financial institutions that participate in the TARP programrestrictions on executive compensation.

 

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

 

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

 

On February 17,2009, President Obama signed into law The American Recovery and ReinvestmentAct of 2009 (the “Stimulus Bill”), more commonly known as the economic stimulusor economic recovery package.  The StimulusBill includes a wide variety of programs intended to stimulate the economy andprovide for extensive infrastructure, energy, health and education needs.  In addition, the Stimulus Bill imposescertain new executive compensation and corporate expenditure limits on allcurrent and future TARP recipients that are in addition to those previouslyannounced by the Treasury.

 

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The actualimpact that EESA, the Stimulus Bill and such related measures undertaken toalleviate the credit crisis will have generally on the financial markets,including the extreme levels of volatility and limited credit availabilitycurrently being experienced, is unknown. The failure of such measures tohelp stabilize the financial markets and a continuation or worsening of currentfinancial market conditions could materially and adversely affect our business,financial condition, results of operations, access to credit or the tradingprice of our common stock.

 

**Current levels of market volatility areunprecedented.**

 

The capitaland credit markets have been experiencing volatility and disruption for morethan a year. In recent months, the volatility and disruption has reachedunprecedented levels.  In some cases, the markets have produceddownward pressure on stock prices and credit availability for certain issuerswithout regard to those issuers’ underlying financial strength. If current levelsof market disruption and volatility continue or worsen, there can be noassurance that we will not experience an adverse effect, which may be material,on our ability to access capital and on our business, financial condition andresults of operations.

 

**Thecurrent changing economic environment poses significant challenges for us.**

 

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

 

·                  Loan delinquencies, problem assetsand foreclosures may increase;

·                  Demand for our products and servicesmay decline;

·                  Low cost or non-interest bearingdeposits may decrease; and

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

 

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

 

At December 31,2008, real estate served as the principal source of collateral with respect toapproximately 79% of our loan portfolio. A decline in current economicconditions could have an adverse effect on the demand for new loans even ifrates continue to decline.  It is also

 

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understood that the ability ofborrowers to repay outstanding loans, the value of real estate and othercollateral securing loans and the value of real estate owned by the Company,could affect the Company’s financial condition and results of operations ingeneral and the market value of the Company’s common stock.  Acts of nature, including earthquakes andfloods, which may cause uninsured damage and other loss of value to real estatethat secures these loans, may also negatively impact the Company’s financialcondition.

 

Acts ofnature, 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 also have a high concentration in commercial real estate or CREloans.**

 

CREloans generally involve a higher degree of credit risk than residentialmortgage lending due, among other things, to the large amounts loaned toindividual borrowers.  Losses incurred onloans to a small number of borrowers could have a material adverse impact onour income and financial condition.  Unlikeresidential mortgage loans, commercial real estate loans generally depend onthe cash flow from the property to service the debt.  Cash flow may be significantly affected bygeneral economic conditions.

 

Withinthe makeup of our CRE, approximately 30% of our commercial term loans aregranted for owner use, which is repaid from the cash flow of the owner’sbusiness.  This coupled with thediversification of business types, location, conservative underwriting and losshistory further mitigates the risk in our CRE portfolio.  The Company targets commercial term loans forowners use as it supports the local business economy.  The Company feels that owner occupiedproperties do not carry the same risk as commercial strip centers and otherincome properties with higher vacancy factors that rely on third parties forrepayment.

 

Inaddition, federal banking regulators recently issued final guidance regardingcommercial real estate lending.  Thisguidance suggests that institutions that are potentially exposed to significantcommercial real estate concentration risk will be subject to increasedregulatory scrutiny.  Institutions thathave experienced 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.

 

**Depositinsurance assessments will increase substantially, which will adversely affectprofits.**

 

FDIC depositinsurance expense for the year ended December 31, 2008 was$125,062.00. Deposit insurance assessments will increase in 2009 due torecent strains on the FDIC deposit insurance fund resulting from the cost ofrecent bank failures and an increase in the

 

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number of banks likely to failover the next few years.  On December 16, 2008, the FDIC issued afinal rule increasing that assessment range for the first quarter of2009.  The FDIC has announced that it intends to issue a final rule inearly 2009, to be effective on April 1, 2009, to set new assessment ratesbeginning with the second quarter of 2009 and to make other changes to itsassessment rule.  It has also stated thatit may need to set a higher base rate schedule at the time of the issuance ofits final assessment rate rule, depending upon the information available atthat time including, without limitation, on its updated bank failure and lossprojections.

 

**Our real estate lending also exposes us to the risk of environmentalliabilities.**

 

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

 

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

 

Our earnings are impacted by changing interest rates. Changes ininterest rates impact the demand for new loans, the credit profile of ourborrowers, the rates received on loans and securities and rates paid ondeposits and borrowings. The difference between the rates received on loans andsecurities and the rates paid on deposits and borrowings is known as interestrate spread. Given our current volume and mix of interest-bearing liabilitiesand interest-earning assets, we would expect our interest rate spread toincrease if interest rates rise and, conversely, to decline if interest ratesfall. Increasing levels of competition in the banking and financial servicesbusiness may decrease our net interest margin by forcing us to offer lowerlending interest rates and pay higher deposit interest rates. Although webelieve our current level of interest rate sensitivity is reasonable,significant fluctuations in interest rates and increasing competition may havean adverse effect on our business, financial condition and results ofoperations.

 

A sustained decrease in market interest ratescould adversely affect our earnings. When interest rates decline, borrowers tend to refinance higher-rate,fixed-rate loans at lower rates, prepaying their existing loans.  Under those circumstances, we would not beable to reinvest those prepayments in assets earning interest rates as high asthe rates on the prepaid loans.  Inaddition, our commercial real estate and commercial loans, which carry interestrates that, in general, adjust in accordance with changes in the prime rate,will adjust to lower rates.  We are alsosignificantly affected by the level of loan demand available in our market. Theinability to make sufficient loans directly affects the interest income weearn. Lower loan demand will generally result in lower interest income realizedas we place funds in lower yielding investments.

 

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**Economic conditions in the Central Coast ofCalifornia area could adversely affect our operations and/or cause us tosustain losses.**

 

Ourretail and commercial banking operations are concentrated primarily in San LuisObispo and northern Santa Barbara Counties. As a result of this geographic concentration, our results of operationsdepend largely upon economic conditions in this area.  A significant source of risk arises from thepossibility that losses will be sustained if a significant number of ourborrowers, guarantors and related parties fail to perform in accordance withthe terms of their loans. This risk increases when the economy is weak. We haveadopted underwriting and credit monitoring procedures and credit policies,including the establishment and review of the allowance for credit losses, thatmanagement believes are appropriate to minimize this risk by assessing thelikelihood of nonperformance, tracking loan performance and diversifying ourcredit portfolio. These policies and procedures, however, may not preventunexpected losses that could adversely affect our results of operations ingeneral and the market value of our stock.

 

**We face strong competition from financialservice companies and other companies that offer banking services that couldhurt our business.**

 

Thefinancial services business in our market areas is highly competitive. It isbecoming increasingly competitive due to changes in regulation, technologicaladvances, and the accelerating pace of consolidation among financial servicesproviders. We face competition both in attracting quality assets and depositsand in making loans. We compete for loans principally through the interestrates and loan fees we charge and the efficiency and quality of services weprovide. Increasing levels of competition in the banking and financial servicesbusiness may reduce our market share, decrease loan demand, cause the prices wecharge for our services to fall, or decrease our net interest margin, which isour net interest income divided by our average earning assets, by forcing us tooffer lower lending interest rates and pay higher deposit interest rates.  Therefore, our results may differ in futureperiods depending upon the nature or level of competition.

 

Technologyand other changes 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 completetransactions such as paying bills and/or transferring funds directly withoutthe assistance of banks. The process of eliminating banks as intermediaries,known as “disintermediation,” could result in the loss of fee income, as wellas the loss of customer deposits and the related income generated from thosedeposits. The loss of these revenue streams and the lower cost deposits as asource of funds could have an adverse effect on our financial condition andresults of operations.

 

**Failure tosuccessfully execute our strategy could adversely affect our performance.**

 

Ourfinancial performance and profitability depends on our ability to execute ourcorporate growth strategy.  Continuedgrowth, however, may present operating and other problems that could adverselyaffect our business, financial condition and results of operations.  Factors that may adversely affect our abilityto attain our long-term financial performance goals include those statedelsewhere in this section, as well as:

 

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·                  inability to controlnon-interest expense, including, but not limited to, rising employee andhealthcare costs;

·                  inability to increasenon-interest income; and

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

 

**We may not be able to attract andretain 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 are subject to anumber of risks.**

 

We are subjectto certain operations risks, including, but not limited to, data processingsystem failures and errors, customer or employee fraud and catastrophicfailures resulting from terrorist acts or natural disasters. We maintain asystem of internal controls to mitigate against such occurrences and maintaininsurance coverage for such risks that are insurable, but should such an eventoccur that is not prevented or detected by our internal controls, uninsured orin excess of applicable insurance limits, it could have a significant adverseimpact on our business, financial condition or results of operations.

 

*InformationSystems*.  Werely heavily on communications and information systems to conduct our business.Any failure, interruption or breach in security of these systems could resultin failures 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 iscontinually undergoing rapid technological change with frequent introductionsof new technology-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.

 

*Natural Disasters, Acts Of War Or Terrorismand Other External Events*.  Natural disasters, acts of war or terrorismand other adverse external events could have a significant impact on our abilityto conduct business. Such events could affect the stability of our deposit base,impair the ability of borrowers to repay outstanding loans, impair the value ofcollateral

 

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securing loans, causesignificant property damage, result in loss of revenue and/or cause us to incuradditional expenses. For example, the Central Coast region of California issubject to earthquakes and fires. Operations in our market could be disrupted by both the evacuation oflarge portions of the population as well as damage and or lack of access to ourbanking and operation facilities. While we have not experienced such anoccurrence to date, other severe weather or natural disasters, acts of war orterrorism or other adverse external events may occur in the future. Althoughmanagement has established disaster recovery policies and procedures, theoccurrence of any such event could have an adverse effect on our business,which, in turn, could have an adverse effect on our financial condition andresults of operations.

 

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

 

As a holding company, dividends from oursubsidiary bank provide a substantial portion of our cash flow used to serviceour obligations, 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.

 

**RisksAssociated with our Industry.**

 

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

 

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

 

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

 

**Newlegislative and regulatory proposals may affect our operations and growth.**

 

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

 

**Risks Associated with our Stock.**

 

**Our Stock Trades Less Frequently Than Others.**

 

Although our common stock isquoted on the over-the-counter market, the trading volume in our common stockis less than that of other larger financial services companies.  A public trading 

 

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market having the desired characteristics ofdepth, liquidity and orderliness depends on the presence in the marketplace ofwilling buyers and sellers of our common stock at any given time.  This presence depends on the individualdecisions of investors and general economic and market conditions over which wehave no control.  Given the lower tradingvolume of our common stock, significant sales of our common stock, or theexpectation of these sales, could cause out stock price to fall.

 

**Our Stock Price Is Affected by a Variety ofFactors.**

 

Stock price volatility may makeit 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 quarterly results of operations

·                  Recommendations by securities analysts

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

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

·                  Perceptions in the marketplace regarding our company and/or itscompetitors

 

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

 

Our common stock is not a bank deposit and, therefore, is not insuredagainst loss by the FDIC, any other deposit insurance fund or by any otherpublic or private entity. Investment in our common stock is inherently riskyfor the reasons described in this “Risk Factors” section and elsewhere in thisreport and is subject to the same market forces that affect the price of commonstock in any company. As a result, if you acquire our common stock, you maylose some or all of your investment

 

**OurArticles of Incorporation and By-Laws, As Well As Certain Banking Laws, May HaveAn Anti-Takeover Effect.**

 

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

 

**ITEM 1B. Unresolved Staff Comments**

 

The Company has no unresolved commentsreceived from staff at the SEC.

 

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**ITEM 2.****                                           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 the basementis 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.

 

**ITEM 3.****                                           LEGALPROCEEDINGS**

 

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

 

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

 

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

 

**ITEM 4.****                                           SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

No matters were submitted toa vote of security holders during the fourth quarter of 2008.

 

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**PART II**

 

**ITEM 5.****                                           MARKETFOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

 

**Market Information**

 

The Company’s Common Stock isnot listed on any exchange or market. However, Maguire Investments, MorganStanley, Howe Barnes Hoefer & Arnett, Inc., Edward Jones, WedbushMorgan Securities, UBS Financial Services, Inc. and McAdams Wright andRagen. each actively 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”

 

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

 
| ** **         | ** ** | **Bid  Prices (1)** | ** ** |
|--------------------|------------|---------------------|------------|
| **Quarter  Ended** |       | **Low**             | ** ** | **High** |   |
| 2008               |       |                |       |   |   |
| December 31   |       | $                   | 13.50      |   | $ | 19.00 |   |
| September 30  |       | 14.25               |       | 21.50 |   |
| June 30       |       | 20.00               |       | 24.25 |   |
| March 31      |       | 23.25               |       | 25.00 |   |
|               |       |                |       |   |   |
| 2007               |       |                |       |   |   |
| December 31   |       | $                   | 23.25      |   | $ | 26.25 |   |
| September 30  |       | 25.00               |       | 29.00 |   |
| June 30       |       | 26.00               |       | 28.99 |   |
| March 31      |       | 26.00               |       | 29.00 |   |

 

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(1)         Basedon data reported by the market makers named above. Does not include informationon shares traded directly by shareholders or through other dealers.

 

**Holders**

 

TheCompany has two classes of stock outstanding — Common and Series APreferred. As of March 2, 2009 there were approximately 363 record holdersof the Company’s Common Stock.

 

**Dividends**

 

The following table sets forththe per share amount and month of payment for all cash dividends paid since January 1,2007:

 
| **Month Paid** | ** ** | **Amount Per Share** | ** ** |
|---------------------|------------|--------------------------------|------------|
| March 2007     |       | $                              | 0.20       |   |
| September 2007 |       | 0.25                           |       |
| March 2008     |       | 0.25                           |       |
| September 2008 |       | 0.25                           |       |
|                     |            |                                |            |  |

 

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The Company has paid a cashdividend for the past 19 year. The Company is a legal entity separate anddistinct from the Bank.  The Company’sshareholders are entitled to receive dividends when declared by its Board ofDirectors, out of funds legally available therefore, subject to therestrictions set forth in the California General Corporation Law (theCorporation law).  The Corporation Lawprovides that a corporation may make a distribution to its shareholders if thecorporation’s retained earnings equal at least the amount of the proposeddistribution.  The Corporation Law alsoprovides that, in the event that sufficient retained earnings are not availablefor the proposed distribution, a corporation may, nevertheless, make a distributionto its shareholders if it meets two conditions, which generally states are asfollows: (i) the corporation’s assets equal 1-1/4 times its liabilities,and (ii) the corporation’s current assets equal at least its currentliabilities or, if the average of the corporation’s earnings before taxes onincome and before interest expenses for the two preceding fiscal years was lessthan the average of the corporation’s interest expenses for such fiscal years,then the corporation’s interest expenses for such fiscal years, then thecorporation’s current assets must equal at least 1-1/4 times its currentliabilities.

 

The ability of the Company topay a cash dividend depends largely on the Bank’s ability to pay a cashdividend to the Company.  The payment ofcash dividends by the Bank is subject to restrictions set forth in theCalifornia Financial Code (the Financial Code). The Financial Code provides that a bank may not make a cash distributionto its shareholders in excess of the lesser of (a) the bank’s retainedearnings; or (b) the bank’s net income for its last three fiscal years,less the amount of any distributions made by the bank or by an majority-ownedsubsidiary of the bank to the shareholders of the bank during such period.  However, a bank may, with the approval of theDFI, make a distribution to its shareholders in an amount not exceeding thegreater of (x) its retained earnings; (y) its net income for its lastfiscal 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”categories for capital adequacy purposes pursuant to federal law (See, “Item 1 —Prompt Corrective Action and Other Enforcement Mechanisms.”) Additionally,while the Federal Reserve Board has no general restriction with respect to 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.

 

The Company’s junior subordinated debt agreements contain provisionswhich prohibit the paying of dividends if it defers payment of interest onoutstanding trust preferred securities (See “Item I. Business — Supervision andRegulation — Capital Standards”)

 

The Company’s participation in the TARP Capital Purchase Programincludes  restrictions on the amount ofdividends that can be paid to common stock shareholders. The Company can notpay a dividend greater than the prior dividend declared unless prior approvalfrom the United States Treasury is granted. Additionally, theCompany will be prohibited from continuing to pay dividends on its common stockunless the Company has fully paid all required 

 

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dividends on the preferred stock issued to the Treasury.  TheCompany fully expects to be able to pay all required dividends on the preferredstock, but if for any reason the Company is unable to do so in the future, thenthe Company would be precluded from paying dividends on its common stock.

 

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

 

**Equity Compensation Plan**

 

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

 

The following table summarizesinformation as of December 31, 2008 relating to our equity basedcompensation 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     |       | 154,360                                                                                                                                       |       | $                                                                                                            | 17.97      |                                                                                                                                                                                                | 45,640     |   |
| Equity compensation plans not approved by  security holders |       | N/A                                                                                                                                           |       | N/A                                                                                                          |       | N/A                                                                                                                                                                                                 |       |
| **Total**                                                   |       | 154,360                                                                                                                                       |       | $                                                                                                            | 17.97      |                                                                                                                                                                                                | 45,640     |   |

 

**Purchase of Equity Securities**

 

On October 28, 2006, the Board authorized the repurchase of up to$1,000,000 worth of the Company’s common stock. This authorization did not have an expiration date.  During the third quarter 2008 the Companypurchased all authorized shares, thereby completing this authority.  No shares were repurchased in the fourthquarter.

 

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**ITEM 6**.                                           **SELECTED FINANCIAL DATA**

 

**Theinformation required by Item 6 of Form 10-K is incorporated by Referencefrom the section entitled “Management’s Discussion and Analysis and Results ofOperations” in the Company’s 2008 Annual Report to Shareholders,**included as anexhibit to this Annual Report.

 

**ITEM 7.****                                           MANAGEMENT’SDISCUSSION AND ANALYSIS OR PLAN OF OPERATION.**

** **

**Theinformation required by Item 7 of Form 10-K is incorporated by referencefrom the section entitled “Management’s Discussion and Analysis and Results ofOperations” in the Company’s 2008 Annual Report to Shareholders,**included as anexhibit to this Annual Report.

 

**ITEM 7A. - QUANTITATIVE ANDQUALITIVE DISCLOSURES ABOUT MARKET RISK**

 

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

 

Interest rate risk isaddressed by our Asset Liability Management Committee (“ALCO”) which iscomprised of senior management officers of the bank. The ALCO monitors interestrate risk by analyzing the potential impact on the net equity value and netinterest income from potential changes in interest rates, and considers theimpact of alternative strategies or changes in balance sheet structure. TheALCO manages the Company’s balance sheet in part to maintain, within acceptableranges, the potential impact on net equity value and net interest incomedespite fluctuations in market interest rates. 

 

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

 

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**ITEM 8.****                                           FINANCIALSTATEMENTS**

 

Thefinancial statements and the notes thereto required by Item 8 of Form 10-Kare incorporated by reference from the Company’s 2008 Annual Report toShareholders, included as an exhibit to this Annual Report.

 

**ITEM 9.****                                           CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

Not applicable.

 

**ITEM 9A (T).****              CONTROLSAND PROCEDURES**

 

**Evaluation of Disclosure Controls andProcedures**

 

The Company’s management carried out anevaluation, under the supervision and with the participation of the Company’sPresident and Chief Executive Officer and the Company’s Executive VicePresident and Chief Financial Officer, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures (as such term isdefined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)as of December 31, 2008, pursuant to Exchange Act Rule 13a-15. Basedupon that evaluation, the Company’s President and Chief Executive Officer alongwith the Company’s Executive Vice President and Chief Financial Officerconcluded that the Company’s disclosure controls and procedures as of December 31,2008 are effective in timely alerting them to material information relating tothe Company (including its consolidated subsidiaries) required to be includedin the Company’s periodic filings under the Exchange Act.

 

**Internal Control Over Financial Reporting**

 

(**a)          Management’sAnnual Report on Internal Control Over Financial Reporting*.***

 

The managementof the Company is responsible for establishing and maintaining adequateinternal control over financial reporting. The Company’s internal control overfinancial reporting is a process designed under the supervision of the Company’sChief Executive Officer and Chief Financial Officer to provide reasonableassurance regarding the reliability of financial reporting and the preparationof the Company’s financial statements for external purposes in accordance withU.S. generally accepted accounting principles.

 

As of December 31,2008, management assessed the effectiveness of the Company’s internal controlover financial reporting based on the criteria for effective internal controlover financial reporting established in InternalControl—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (“COSO”) and SEC guidance onconducting such assessments. Based on the assessment, management determinedthat the Company maintained effective internal control over financial reportingas of December 31, 2008, based on those criteria.

 

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The Company’smanagement, including its Chief Executive Officer and Chief Financial Officer,does not expect that its disclosure controls and procedures, or its internalcontrols will prevent all error and all fraud. A control system, no matter howwell conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the control system are met. Further, thedesign of a control system must reflect the fact that there are resourceconstraints, and the benefit of controls must be considered relative to theircosts. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within the Company have been detected.

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

 

(**b)           Changes in Internal Control OverFinancial Reporting.**

 

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

 
| **ITEM 9B.** | ** ** | **OTHER  INFORMATION** |
|--------------|------------|------------------------|

** **

None.

 

**PART III**

 
| **ITEM 10.** | ** ** | **DIRECTORS,  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;  COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT** |
|--------------|------------|---------------------------------------------------------------------------------------------------------------------------------|

 

The Company has adopted a Codeof Business Conduct and Ethics that applies to all employees and directors ofthe Company, and complies with the SEC’s requirements for a code of ethicsapplicable to senior executive officers. A copy of the Code of Business Conduct and Ethics was attached to the Form 10-Kfiled on March 24, 2006, for the year ended December 31, 2005.

 

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

 

The remainder of theinformation required by Item 9 of Form 10-K is incorporated by referencefrom the information contained in the Company’s Proxy Statement for the 2009Annual Meeting of Shareholders which has been filed pursuant to Regulation 14A.

 

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**ITEM 11.****               EXECUTIVECOMPENSATION**

 

The information required byItem 10 of Form 10-K is incorporated by reference from the informationcontained in the Company’s Proxy Statement for the 2009 Annual Meeting ofShareholders which has been filed pursuant to Regulation 14A.

 

**ITEM 12.****               SECURITYOWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

The information required byItem 11 of Form 10-K is incorporated by reference from the informationcontained in the Company’s Proxy Statement for the 2009 Annual Meeting ofShareholders which has been filed pursuant to Regulation 14A.

 

**ITEM 13.****               CERTAINRELATIONSHIPS AND RELATEDTRANSACTIONS AND DIRECTOR INDEPENDENCE**

 

The information required byItem 12 of Form 10-K is incorporated by reference from the informationcontained in the Company’s Proxy Statement for the 2009 Annual Meeting ofShareholders which has been filed pursuant to Regulation 14A.

 

**ITEM 14****                PRINCIPALACCOUNTANT FEES AND SERVICES**

 

Theinformation required by Item 14 of Form 10K is incorporated by referencefrom the information contained in the Company’s Proxy Statement for the 2009Annual Meeting of Shareholders which has been filed pursuant to Regulation 14A.

 

**ITEM 15.****               EXHIBITS**

 

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

 

**Index to Exhibits**

 
| **Exhibit** | ** ** |                                                                                 |       | **Sequentially**    |
|-------------|------------|--------------------------------------------------------------------------------------|------------|---------------------|
| **Number**  | ** ** | **Exhibit**                                                                          | ** ** | **Numbered  Pages** |
|        |       |                                                                                 |       |                |
| 3.1         |       | Articles of Incorporation of the Bancorp, as amended                                 |       | 13/                 |
|        |       |                                                                                 |       |                |
| 3.2         |       | Bylaws of the Bancorp, as amended                                                    |       | 13/                 |
|        |       |                                                                                 |       |                |
| 3.3         |       | Certificate  of Amendment to Bylaws of Santa Lucia Bank, dated January 16, 2002 |       | 7/                  |
|        |       |                                                                                 |       |                |
| 3.4         |       | Amendment to  Bylaws of Santa Lucia Bank, dated January 21, 2009                |       | 17/                 |
|        |       |                                                                                 |       |                |
| 10.4        |       | Santa Lucia Bank’s Employee Stock Ownership Plan                                |       | 1/                  |
|        |       |                                                                                 |       |                |
| 10.5        |       | Plan Administrator’s Guide for the Bank’s Employee Stock Ownership  Plan   |       | 1/                  |
|        |       |                                                                                 |       |                |
| 10.6        |       | Santa Lucia Bank’s Profit Sharing Plan                                          |       | 1/                  |

 

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| 10.9   |   | Salary Continuation agreement by and between Santa Lucia Bank and  Stanley R. Cherry, dated February 1, 1997        |   | 2/     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                     |   |   |
| 10.10  |   | Salary Continuation agreement by and between Santa Lucia Bank and  Larry H. Putnam, dated February 1, 1997          |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 10.11  |   | Deferred Fee Agreement by and Between Santa Lucia Bank and Khatchik  Achadjian, dated February 1, 1997              |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 10.12  |   | Deferred Fee Agreement by and Between Santa Lucia Bank and Dino  Boneso, dated February 1, 1997                     |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 10.13  |   | Deferred Fee Agreement by and Between Santa Lucia Bank and Jerry W.  DeCou, III, dated February 1, 1997        |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 10.14  |   | Deferred Fee Agreement by and Between Santa Lucia Bank and Douglas C.  Filipponi, dated February 1, 1997            |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 10.15  |   | Deferred Fee Agreement by and Between Santa Lucia Bank and Jean  Hawkins, dated February 1, 1997                    |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 10.16  |   | Deferred Fee Agreement by and Between Santa Lucia Bank and Paul G.  Moerman, dated February 1, 1997                 |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 10.17  |   | Deferred Fee Agreement by and Between Santa Lucia Bank and Norman J.  Norton, Jr., dated February 1, 1997      |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 10.18  |   | Deferred Fee Agreement by and Between Santa Lucia Bank and William S.  Osibin, dated February 1, 1997               |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 10.19  |   | Deferred Fee Agreement by and Between Santa Lucia Bank and D. Jack  Stinchfield, dated February 1, 1997             |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 10.20  |   | Director Retirement Agreement by and between Santa Lucia Bank and Khatchik  Achadjian, dated February 1, 1997       |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 10.21  |   | Director Retirement Agreement by and between Santa Lucia Bank and Dino  A. Boneso, dated February 1, 1997           |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 10.22  |   | Director Retirement Agreement by and between Santa Lucia Bank and Jerry  W. DeCou, III, dated February 1, 1997 |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 10.23  |   | Director Retirement Agreement by and between Santa Lucia Bank and Douglas  C. Filipponi, dated February 1, 1997     |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 10.24  |   | Director Retirement Agreement by and between Santa Lucia Bank and Jean  Hawkins, dated February 1, 1997             |   | 2/     |
|   |   |                                                                                                                     |   |   |
| 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/     |

 

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| 10.28  |   | Agreement for Data Processing Services between Santa Lucia Bank and Fiserv  Savings and Community Bank Group, dated February 21, 1997 |   | 3/     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                                       |   |   |
| 10.29  |   | Equipment Sales Agreement between Santa Lucia Bank and Information Technology, Inc.,  dated February 14, 1997                    |   | 3/     |
|   |   |                                                                                                                                       |   |   |
| 10.30  |   | Equipment Sales Agreement between Santa Lucia Bank and Information Technology, Inc.,  dated February 14, 1997                    |   | 3/     |
|   |   |                                                                                                                                       |   |   |
| 10.31  |   | Equipment Sales Agreement between Santa Lucia Bank and Information Technology, Inc.,  dated February 14, 1997                    |   | 3/     |
|   |   |                                                                                                                                       |   |   |
| 10.32  |   | Software License Agreement between Santa Lucia Bank and Information Technology, Inc.,  dated February 14, 1997                   |   | 3/     |
|   |   |                                                                                                                                       |   |   |
| 10.33  |   | Product License Agreement between Santa Lucia Bank and Information Technology, Inc.,  dated February 14, 1997                    |   | 3/     |
|   |   |                                                                                                                                       |   |   |
| 10.34  |   | Product License Agreement between Santa Lucia Bank and Information Technology, Inc.,  dated February 14, 1997                    |   | 3/     |
|   |   |                                                                                                                                       |   |   |
| 10.35  |   | Product License Agreement between Santa Lucia Bank and Information Technology, Inc.,  dated February 14, 1997                    |   | 3/     |
|   |   |                                                                                                                                       |   |   |
| 10.36  |   | Services Agreement between Santa Lucia Bank and Information Technology, Inc.,  dated February 14, 1997                           |   | 3/     |
|   |   |                                                                                                                                       |   |   |
| 10.37  |   | Remote Access Support Agreement between Santa Lucia Bank and Information  Technology, Inc., dated February 14, 1997              |   | 3/     |
|   |   |                                                                                                                                       |   |   |
| 10.38  |   | Salary Continuation Agreement by and between Santa Lucia Bank and John  C. Hansen, dated August 1, 1998                               |   | 4/     |
|   |   |                                                                                                                                       |   |   |
| 10.39  |   | Employment Agreement by and between Santa Lucia Bank and Stanley R.  Cherry, dated August 1, 1998                                     |   | 4/     |
|   |   |                                                                                                                                       |   |   |
| 10.40  |   | Employment Agreement by and between Santa Lucia Bank and Larry H.  Putnam, dated August 1, 1998                                       |   | 4/     |
|   |   |                                                                                                                                       |   |   |
| 10.41  |   | Employment Agreement by and between Santa Lucia Bank and John C.  Hansen dated August 1, 1998                                         |   | 4/     |
|   |   |                                                                                                                                       |   |   |
| 10.42  |   | Santa Lucia Bank 2000 Stock Option Plan and form of stock option  agreement                                                                |   | 5/     |
|   |   |                                                                                                                                       |   |   |
| 10.44  |   | Amendment to Salary Continuation Agreement of Stanley R. Cherry, Dated  April 15, 1998                                                |   | 6/     |
|   |   |                                                                                                                                       |   |   |
| 10.45  |   | Amendment to Salary Continuation Agreement of Larry H. Putnam, dated  April 15, 1998                                                  |   | 6/     |
|   |   |                                                                                                                                       |   |   |
| 10.46  |   | Amendment to Salary Continuation Agreement of Stanley R. Cherry,  dated May 10, 2000                                                  |   | 6/     |
|   |   |                                                                                                                                       |   |   |
| 10.47  |   | Amendment to Santa Lucia Bank Director Retirement Agreement with  Khatchik H. Achadjian                                                    |   | 6/     |

 

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

 

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

 

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

 

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| 10.107 |   | First Amended and Restated Santa Lucia Bank Director Retirement  Agreement by and between Santa Lucia Bank and Paul G. Moerman dated  December 17, 2008     |   | 17/    |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                                                             |   |   |
| 10.108 |   | First Amended and Restated Santa Lucia Bank Director Retirement  Agreement by and between Santa Lucia Bank and D. Jack Stinchfield dated  December 17, 2008 |   | 17/    |

 
| 13.1   |   | Annual  Report to Shareholders                                                                                                 |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                           |
| 14.1   |   | Code of  Business Conduct and Ethics                                                                                           |
|   |   |                                                                                                                           |
| 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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| 1/     |   | Incorporated by reference  from the Bank’s Form 10-K for the year ended December 31, 1995      |
|--------|--------|---------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                          |
| 2/     |   | Incorporated by reference  from the Bank’s Form 10-K for the year ended December 31, 1996      |
|   |   |                                                                                                          |
| 3/     |   | Incorporated by reference  from the Bank’s Form 10-K for the year ended December 31, 1997      |
|   |   |                                                                                                          |
| 4/     |   | Incorporated by reference  from the Bank’s Form 10-K for the year ended December 31, 1998      |
|   |   |                                                                                                          |
| 5/     |   | Incorporated by reference  from the Bank’s  Form 10-K for the year ended December 31, 1999     |
|   |   |                                                                                                          |
| 6/     |   | Incorporated by reference  from the Bank’s Form 10-K for the year ended December 31, 2000      |
|   |   |                                                                                                          |
| 7/     |   | Incorporated by reference  from the Bank’s Form 10-K for the year ended December 31, 2001      |
|   |   |                                                                                                          |
| 8/     |   | Incorporated by reference  from the Bank’s Form 10-K for the year ended December 31, 2002      |
|   |   |                                                                                                          |
| 9/     |   | Incorporated by reference  from the Bank’s Form 10-Q for the period ended September 30, 2003   |
|   |   |                                                                                                          |
| 10/    |   | Incorporated by reference  from the Bank’s Form 10-K for the period ended December 31, 2003    |
|   |   |                                                                                                          |
| 11/    |   | Incorporated by reference  from the Bank’s Form 10-K for the period ended December 31, 2004    |
|   |   |                                                                                                          |
| 12/    |   | Filed as part of  Registrants Registration Statement on Form S-8 (File #333-137997) (Filed  on 10/13/06) |
|   |   |                                                                                                          |
| 13/    |   | Incorporated by reference from the Bank’s  Form 10-K for the period ended December 31, 2006    |
|   |   |                                                                                                          |
| 14/    |   | Incorporated by reference from the Bank’s  Form 10-Q for the period ended March 31, 2007       |
|   |   |                                                                                                          |
| 15/    |   | Incorporated by reference from the Bank’s  Form 10-Q for the period ended March 31, 2008       |
|   |   |                                                                                                          |
| 16/    |   | Incorporated by reference from the Bank’s  Form 10-Q for the period ended September 30, 2008   |
|   |   |                                                                                                          |
| 17/    |   | Incorporated by reference  from the Bank’s Form 10-K for the period ended December 31, 2008    |

 

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**ITEM 14.               PRINCIPAL ACCOUNTANT FEES ANDSERVICES**

 

The information required byItem 14 of Form 10-K is incorporated by reference from the informationcontained in the Company’s Proxy Statement for the 2009 Annual Meeting ofShareholders which has been filed pursuant to Regulation 14A.

 

**SIGNATURES**

** **

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

 

 
| ** ** | **SANTA LUCIA BANCORP**                               |
|------------|-------------------------------------------------------|
|       |                                                  |
|       |                                                  |
| By:        | /s/ John C. Hansen                                    |
|       | JOHN C. HANSEN                                        |
|       | President and Chief Executive Officer                 |
|       | (Principal Executive Officer)                         |
|       | Dated:  March 30, 2009                 |
|       |                                                  |
|       |                                                  |
| By:        | /s/ James M. Cowan                                    |
|       | JAMES M. COWAN                                        |
|       | Executive Vice President and Chief  Financial Officer |
|       | (Principal Financial and Accounting  Officer)         |
|       | Dated:  March 30, 2008                 |

 

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In accordance with therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 
| ** **                | ** ** | ** **                              | ** ** | **Dated:**          |
|---------------------------|------------|-----------------------------------------|------------|---------------------|
|                      |       |                                    |       |                |
| /s/ John C.  Hansen       |       | President and Chief Executive Officer   |       | March 30, 2009 |
| John C. Hansen            |       |                                    |       |                |
|                      |       |                                    |       |                |
| /s/ Jerry W.  DeCou III   |       | Chairman of the Board of Directors      |       | March 30, 2009 |
| JERRY W. DECOU III        |       |                                    |       |                |
|                      |       |                                    |       |                |
| /s/ Douglas  C. Filipponi |       | Vice Chairman of the Board of Directors |       | March 30, 2009 |
| DOUGLAS C. FILIPPONI      |       |                                    |       |                |
|                      |       |                                    |       |                |
| /s/ Khatchik H. Achadjian |       | Director                                |       | March 30, 2009 |
| KHATCHIK H. ACHADJIAN     |       |                                    |       |                |
|                      |       |                                    |       |                |
| /s/ Stanley R. Cherry     |       | Director                                |       | March 30, 2009 |
| STANLEY R. CHERRY         |       |                                    |       |                |
|                      |       |                                    |       |                |
| /s/ Jean Hawkins          |       | Director                                |       | March 30, 2009 |
| JEAN HAWKINS              |       |                                    |       |                |
|                      |       |                                    |       |                |
| /s/ Paul G. Moerman       |       | Director                                |       | March 30, 2009 |
| PAUL G. MOERMAN           |       |                                    |       |                |
|                      |       |                                    |       |                |
| /s/ Larry H. Putnam       |       | Director                                |       | March 30, 2009 |
| LARRY H. PUTNAM           |       |                                    |       |                |
|                      |       |                                    |       |                |
| /s/ D. Jack Stinchfield   |       | Director                                |       | March 30, 2009 |
| D. JACK STINCHFIELD       |       |                                    |       |                |

 

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**EXHIBIT INDEX**

** **
| **Exhibit**    |       |                                                                                                                                                               |
|----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Sequential** |       |                                                                                                                                                               |
| **Number**     | ** ** | **Description**                                                                                                                                                    |
|           |       |                                                                                                                                                               |
| 3.4            |       | Amendment to Bylaws of Santa Lucia Bank, dated January 21, 2009                                                                                               |
|           |       |                                                                                                                                                               |
| 10.92          |       | Salary  Continuation Agreement by and between Santa Lucia Bank and Larry H. Putnam  dated December 17, 2008                                                   |
|           |       |                                                                                                                                                               |
| 10.93          |       | First  Amended and Restated Salary Continuation Agreement by and betweenSanta Lucia Bank and Larry H. Putnam dated  December 17, 2008                         |
|           |       |                                                                                                                                                               |
| 10.94          |       | Salary  Continuation Agreement by and between Santa Lucia Bank andJohn C. Hansen dated December 17, 2008                                                      |
|           |       |                                                                                                                                                               |
| 10.95          |       | First  Amended and Restated Salary Continuation Agreement by and betweenSanta Lucia Bank and John C. Hansen dated  December 17, 2008                          |
|           |       |                                                                                                                                                               |
| 10.96          |       | First  Amended and Restated Salary Continuation Agreement by and betweenSanta Lucia Bank and James M. Cowan dated  December 17, 2008                          |
|           |       |                                                                                                                                                               |
| 10.97          |       | First Amended and Restated Deferred Fee Agreement by and between  Santa Lucia Bank and Jerry W. DeCou III dated December 17, 2008                             |
|           |       |                                                                                                                                                               |
| 10.98          |       | First Amended and Restated Deferred Fee Agreement by and between  Santa Lucia Bank and Douglas C. Filipponi dated December 17, 2008                           |
|           |       |                                                                                                                                                               |
| 10.99          |       | First Amended and Restated Deferred Fee Agreement by and between  Santa Lucia Bank and Khatchik H. Achadjian dated December 17, 2008                          |
|           |       |                                                                                                                                                               |
| 10.100         |       | First Amended and Restated Deferred Fee Agreement by and between  Santa Lucia Bank and Jean Hawkins dated December 17, 2008                                   |
|           |       |                                                                                                                                                               |
| 10.101         |       | First Amended and Restated Deferred Fee Agreement by and between  Santa Lucia Bank and Paul G. Moerman dated December 17, 2008                                |
|           |       |                                                                                                                                                               |
| 10.102         |       | First Amended and Restated Deferred Fee Agreement by and between  Santa Lucia Bank and D. Jack Stinchfield dated December 17, 2008                            |
|           |       |                                                                                                                                                               |
| 10.103         |       | First Amended and Restated Santa Lucia Bank Director Retirement  Agreement by and between Santa Lucia Bank and Jerry W. DeCou III dated December 17,  2008    |
|           |       |                                                                                                                                                               |
| 10.104         |       | First Amended and Restated Santa Lucia Bank Director Retirement  Agreement by and between Santa Lucia Bank and Douglas C. Filipponi dated  December 17, 2008  |
|           |       |                                                                                                                                                               |
| 10.105         |       | First Amended and Restated Santa Lucia Bank Director Retirement  Agreement by and between Santa Lucia Bank and Khatchik H. Achadjian dated  December 17, 2008 |
|           |       |                                                                                                                                                               |
| 10.106         |       | First Amended and Restated Santa Lucia Bank Director Retirement  Agreement by and between Santa Lucia Bank and Jean Hawkins dated  December 17, 2008          |
|           |       |                                                                                                                                                               |
| 10.107         |       | First Amended and Restated Santa Lucia Bank Director Retirement  Agreement by and between Santa Lucia Bank and Paul G. Moerman dated  December 17, 2008       |

 

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| 10.108 |   | First Amended and Restated Santa Lucia Bank Director Retirement  Agreement by and between Santa Lucia Bank and D. Jack Stinchfield dated  December 17, 2008 |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                             |
| 13.1   |   | Annual  Report to Shareholders                                                                                                                                   |
|   |   |                                                                                                                                                             |
| 14.1   |   | Code of  Business Conduct and Ethics                                                                                                                             |
|   |   |                                                                                                                                                             |
| 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                                    |

 

46

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