10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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, 2007

or

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

For the transition period from                                     to                                    

Commission File No. 333-148302

1^st Century Bancshares, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization) 26-1169687 (IRS Employer Identification Number)

1875 Century Park East, Suite 1400

Los Angeles, California   90067

(Address of Principal Executive Offices including Zip Code)

(310) 270-9500

(Registrant’s Telephone Number including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on which Registered
Common Stock, par value $0.01 per share	OTC Bulletin Board (OTC BB)

Securities registered pursuant to Section 12(g) of the Act: None

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form

10-K.  o

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

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company x
(do not check if a smaller reporting company)

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

Yes o No  x

The aggregate value of the 9,898,884 shares of Common Stock of the registrant issued and outstanding, which excludes 2,155,551 shares held by all directors and executive officers of the registrant as a group, was approximately $54.2 million based on the last closing sales price on a share of Common Stock of $7.00 as of June 30, 2007.

9,913,884 shares of Common Stock of the registrant were outstanding at February 29, 2008.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for its 2008 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.

1^st Century Bancshares, Inc.

Index to

Annual Report on Form 10-K

For the Year Ended December 31, 2007

		Page
	PART I
Item 1.	Business	1
Item 1A	Risk Factors	15
Item 1B	Unresolved Staff Comments	23
Item 2.	Properties	23
Item 3.	Legal Proceedings	23
Item 4.	Submission of Matters to a Vote of Security Holders	23
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
Item 6.	Selected Financial Data	26
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	28
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	43
Item 8.	Financial Statements and Supplementary Data	45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	45
Item 9A.	Controls and Procedures	46
Item 9B.	Other Information	47
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	48
Item 11.	Executive Compensation	48
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	48
Item 13.	Certain Relationships and Related Transactions, and Director Independence	48
Item 14.	Principal Accounting Fees and Services	49
	PART IV
Item 15.	Exhibits, Financial Statement Schedules	50
Signatures and Certifications		51
Consolidated Financial Statements		56

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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This Annual Report on Form 10-K may contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  These statements are based upon our current expectations and speak only as of the date hereof.  Our actual results may differ materially and adversely from those expressed in any forward-looking statements as a result of various factors and uncertainties, including but not limited to, the impact of changes in interest rates, a decline in economic conditions and increased competition among financial service providers, our ability to attract deposit and loan customers, the quality of 1^st Century Bancshares, Inc.’s earning assets, government regulations, and management’s ability to manage our growth.  This Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, as well as, certain Current Reports on Forms 8-K, and other SEC filings discuss some of the important risk factors that may affect our business, results of operations and financial condition.  We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

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PART I

Item 1 - Business

Overview

1^st Century Bancshares, Inc. (“Bancshares”) is registered with the Board of Governors of the Federal Reserve System (“FRB”) as a Bank Holding Company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”).  Effective December 2007, Bancshares, a Delaware corporation, acquired all of the outstanding stock of 1^st Century Bank, N.A., a National Association (the “Bank”), pursuant to a Plan of Reorganization, by and between Bancshares and the Bank.  In connection with the reorganization, the shares of the Bank’s common stock were exchanged for shares of Bancshares common stock on a one-for-one basis.  As a result of the Plan of Reorganization, the Bank became a wholly owned subsidiary of Bancshares, Bancshares became the holding company to the Bank and the shareholders of the Bank became shareholders of Bancshares.

Bancshares and the Bank are collectively referred to herein as “we”, “our”, “us” or “the Company.”

In December 2007, shares of Bancshares’ common stock began trading on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “FCTY”.  Prior to the formation of Bancshares, shares of the Bank’s common stock were quoted on OTCBB under the symbol “FCNA”.  Our common stock is not listed on any exchange including the NASDAQ stock market.  The OTCBB is a regulated quotation service that displays real-time bid and ask prices, last sales prices and volume information in over-the-counter equity securities.  Unlike NASDAQ stock market, however, the OTCBB does not impose listing standards and does not provide automated trade executions.  Any investment in our common stock should be considered a long-term investment in the event that no active trading market for our stock develops.  In addition, the price obtained is unpredictable.

Bancshares’ principal source of income is dividends from the Bank. Bancshares’ operating costs, including (but not limited to) the payment of dividends to shareholders, if and when declared by the Board of Directors, the cost of servicing debt, certain professional fees, and shareholder costs will generally be paid from dividends paid to Bancshares by the Bank.

At December 31, 2007, the Company had consolidated assets of $223.9 million, deposits of $161.2 million and shareholders’ equity of $58.6 million.

The Internet address of the Company’s website is “http://www.1^stcenturybank.com.” The Company makes available free of charge through the Company’s website, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports. The Company makes these reports available on its website on the same day they appear on the Securities and Exchange Commission’s (“SEC”) website.

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1^st Century Bank, N.A.

The Bank is a full service commercial bank headquartered in the Century City area of Los Angeles, California. The Bank’s primary focus is relationship banking to family and closely held middle market businesses, professional service firms, and high net worth individuals, real estate investors and entrepreneurs. The Bank also provides a wide range of banking services to meet the financial needs of the local residential community, with an orientation primarily directed toward owners and employees of our business client base.

The Bank was organized as a national banking association on October 27, 2003 and opened for business on March 1, 2004.

The Bank is based in the heart of West Los Angeles at 1875 Century Park East, Los Angeles, California 90067. Century City was chosen as our headquarters due to the area’s superior economic and business characteristics and prominence as an area of highly successful businesses and business professionals. The Bank’s founders and directors represent over one hundred leading business executives and professionals in many industries with extensive personal contacts, and business, professional and community relationships throughout the Los Angeles area. The Bank’s strategy is to access the network of personal, business and professional relationships of our founders, directors, and initial shareholders by providing banking products and services with a high level of personal service. The Bank’s management team brings together a wealth of experience with complementary skills necessary to build and grow a superior financial institution from these relationships.

Market Area

The general market area we serve is loosely defined as La Cienega Boulevard on the east, the Santa Monica Mountains on the north, the Pacific Ocean on the west and the Los Angeles International Airport on the south.  This is a highly diversified market with most businesses operating in the service industry. Other major employers are government, manufacturing and the retail trade.  No one industry represents over 20% of total employment.  According to the Los Angeles Economic Development Corporation, the average annual wage of the Greater Westside of the Los Angeles area was $55,860 in 2004 exceeding all other regions of Los Angeles County and far exceeding the County average of $45,112. Smaller businesses dominate this market with 64.5% of employers having less than 5 employees.

The micro-economic market of Century City, where the Bank is based, is much more concentrated.  According to the U.S. Department of Commerce, Bureau of the Census data for 2005, there are approximately 2,400 businesses located in Century City’s one square mile area, of which 579 (24.5%) are legal services firms.  Other industries heavily represented in Century City include entertainment, financial services, real estate investment and accounting/business management.

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Target Customers

The initial target market for our products and services is those middle market business and professional firms with basic borrowing needs between $250,000 and $5,000,000 and/or with the need for non-credit services, including operating account services and cash management needs. Loans in excess of our borrowing limits to one customer or related entities are participated out to other financial institutions as a way of accommodating customers with higher borrowing needs. Our market territory is characterized by a sizeable number of small businesses in proportion to the number of large employers. Service firms, merchandising, distribution and support industries make up the vast majority of firms and the employment base. Within the professional services markets, we have made loans to and attracted deposits from law firms, medical practices and individual physicians, business management and accounting firms, real estate professionals, managers and investors and other family and closely held corporations. We also supply credit and depository services to meet the personal needs of their principals, families and employees.

We develop business through personalized and direct marketing programs, utilizing experienced banking officers. We rely greatly on our ability to access our investor and founder base, along with referrals from satisfied clients. In addition, we have a very strong commitment to civic, community and business groups important to our client base.

Competition

The banking and financial services business in California generally, and in the Company’s market areas specifically, is highly competitive. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems, and the consolidation among financial service providers. The Company competes for loans, deposits and customers for financial services with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other non-bank financial service providers. Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader array of financial services than the Company. In order to compete with the other financial service providers, the Company principally relies upon local promotional activities, personal relationships established by officers, directors, and employees with its customers, and specialized services tailored to meet its customers’ needs. In those instances where the Company is unable to accommodate a customer’s needs, the Company seeks to arrange for such loans on a participation basis with other financial institutions or to have those services provided in whole or in part by its correspondent banks. See Item 1 - “BUSINESS - Supervision and Regulation.”

Products and Services

The Bank’s goal is to deliver the most responsive and adaptive depository and lending products and services to our clientele.  While the Bank will endeavor to maintain maximum flexibility with regards to structure, pricing and terms, the Bank’s product offerings will be along the following lines:

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Loans

·Business and personal lines of credit and term loans;

·Tenant improvement and equipment financing;

·Bridge and/or specific purpose loans;

·Commercial, industrial and multi-family real estate lending;

·Personal home equity loans and lines of credit; and

·Credit cards for business and personal use.

Deposits

·Business checking, money market and certificates of deposit;

·Personal checking, money market and certificates of deposits;

·Attorney-Client trust accounts;

·Trust accounts;

·Cash management and on-line banking; and

·Debit cards

Credit Quality

Our success will largely be dependent on the quality of our loan portfolio.  Accordingly, we seek borrowers with the highest reputation and integrity.  Key objectives of our loan policy are:

·Extension of credit based on demonstrated cash flow and a balance sheet sufficient to support the credit;

·Development of desirable customer and community relationships based on mutual understanding, respect and integrity;

·Prudent monitoring of financial and collateral performance to ensure ongoing relationship viability;

·Maintenance of a balanced and profitable loan portfolio, which contributes to our continued growth and profitability;

·Aggressive solicitation of all business where the relationship would be mutually rewarding; and

·Extension of credit products consistent with all laws and regulations and with a high sense of integrity.

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Our Board of Directors (“Board”) establishes lending policies to ensure the above objectives are met.  The Board has intentionally kept approval authorities low to assure a high level of review relative to any credit consideration.  The Board has established two committees with the authority to approve loans, the Bank’s Officers’ Loan Committee (the “Officers’ Loan Committee”) and the Bank’s Directors’ Loan Committee (the “Directors’ Loan Committee”).

The Officers’ Loan Committee consists of two senior officers.  The Executive Vice President/Chief Credit Officer serves as Chairman of the Officers’ Loan Committee and the President/Chief Executive Officer is the other member. The Officers’ Loan Committee has approval authority up to $1,000,000 for any one loan; however, the Officers’ Loan Committee may approve loans up to $2,000,000 if it receives additional approval from either one of two specific Directors’ Loan Committee members.

The Directors’ Loan Committee consists of four outside board members and the Chairman of the Board, and has approval authority up to $5,000,000 for any one loan.

In addition to the Officers’ Loan Committee and the Directors’ Loan Committee, the full Board of Directors has approval authority to approve loans up to the legal lending limit, which was approximately $9.2 million at December 31, 2007.

Loan Review

We recognize that the proper monitoring of loans is essential for evaluating the quality of our loan portfolio and for ensuring that the allowance for loan and lease losses is adequate. We have established a loan grading system consisting of nine different categories (Grades 1 through 4 and 4w, and 5 through 8). Grades 1 through 4 and 4w reflect strong, good and satisfactory risk. Grades 5 through 8 include Special Mention (criticized assets) and the classified assets categories of Substandard, Doubtful, and Loss.

The following describes grades 5 through 8 of our loan grading system:

· Special Mention – Grade 5. Loan Assets categorized as “Special Mention” have potential weaknesses that deserve Management’s close attention. Borrower and Guarantor’s capacity to meet all financial obligations is marginally adequate or deteriorating;

· Substandard – Grade 6. Loan Assets classified “Substandard” are inadequately protected by the paying capacity of the Borrower and/or collateral pledged. The Borrower or Guarantor is unwilling or unable to meet loan terms or loan covenants for the foreseeable future;

· Doubtful – Grade 7. Loan Assets classified as “Doubtful” have all the weakness inherent in one classified as Substandard with the added characteristic that those weaknesses in place make the collection or liquidation in full, on the basis of current conditions, highly questionable and improbable; and

· Loss – Grade 8. Loan Assets classified as “Loss” are considered uncollectible or no longer a bankable asset. This classification does not mean that the asset has absolutely no recoverable value. In fact, a certain salvage value is inherent in these loans. Nevertheless, it is not practical or desirable to defer writing off a portion or whole of a perceived asset even though partial recovery may be collected in the future.

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It is the originating officer’s responsibility to grade each credit. However, the grade may be changed as the loan moves through the approval process. All loans that are graded Special Mention or worse require approval by the Officers’ Loan Committee, the Directors’ Loan Committee, and by the full Board of Directors up to their respective approval limits.

To further ensure proper risk grading of loans and administration of the loan portfolio, the Executive Vice President / Chief Risk Management Officer (who reports to the Audit Committee of the Board) performs ongoing reviews of the quality of (i) the current administration of the loans, (ii) loans that require the attention of management, and (iii) the proper risk grade identification. The review assesses credit quality, compliance with internal policies, loan agreement covenants, laws and regulations, and documentation.

Concentrations/Customers

Approximately 40.1% of total loans at December 31, 2007, consisted of real estate loans, including first and junior trust deeds on single family residential properties, undeveloped land, multi-family residential properties, commercial/industrial real estate, and construction-in-process. Of the total loans outstanding at December 31, 2007, there are 60 loans that have outstanding balances of $1,000,000 or more, which totals approximately $138.8 million or 80.5% of the total loan portfolio (some lending relationships will include more than one of these loans). Overall, the loan portfolio has changed from 208 loans totaling approximately $128.0 million at December 31, 2006 to 199 loans totaling approximately $172.3 million at December 31, 2007, excluding overdrafts. The average balance per loan has increased to $866,000 from $615,000 comparing December 31, 2007 to December 31, 2006.

Correspondent Banks

Correspondent bank deposit accounts are maintained to enable the Bank to transact types of activity that it would otherwise be unable to perform or would not be cost effective due to the size of the Bank or volume of activity. The Bank has utilized several correspondent banks to process a variety of transactions.

Economic Conditions, Government Policies, Legislation, and Regulation

Our profitability, like most financial institutions, is primarily dependent on interest rate differentials. In general, the difference between the interest rates paid by us on interest-bearing liabilities, such as deposits and other borrowings, and the interest rates received by us on our interest-earning assets, such as loans extended to our clients and securities held in our investment portfolio, comprises the major portion of our earnings. These rates are highly sensitive to many factors that are beyond our control, such as inflation, the rate of economic growth, employment levels, and the impact of future changes in domestic and foreign economic conditions that might have an impact on us cannot be predicted.

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Our business is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the FRB. The FRB implements national monetary policies (with objectives such as curbing inflation and combating recession) through its open-market operations in U.S. Government securities by adjusting the required level of reserves for depository institutions subject to its reserve requirements, and by varying the target federal funds and discount rates applicable to borrowings by depository institutions. The actions of the FRB in these areas influence the growth of bank loans, investments, and deposits and also affect interest rates earned on interest-earning assets and paid on interest-bearing liabilities. The nature and impact on us of any future changes in monetary and fiscal policies cannot be predicted.

From time to time, legislation, as well as regulations, are enacted which have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, and other financial institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures, and before various regulatory agencies. This legislation may change banking statutes and our operating environment in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have on our financial condition or results of operations.  See Item 1 below - “BUSINESS - Supervision and Regulation.”

Supervision and Regulation

Introduction

We are extensively regulated under both Federal and certain state laws. Regulation and supervision by the federal and state banking agencies is intended primarily for the protection of depositors and the Deposit Insurance Fund (“DIF”) administered by the Federal Deposit Insurance (“FDIC”), and not for the benefit of stockholders.  Consequently, the growth and earnings performance of Bancshares and the Bank can be affected not only by management decisions and general economic conditions, but also by the requirements of applicable state and federal statues, regulations and the policies of various governmental regulatory authorities, including the FRB, the Office of the Comptroller of the Currency (“OCC”).

Set forth below is a summary description of the key laws and regulations that relate to our operations. These descriptions are qualified in their entirety by reference to the applicable laws and regulations.

Bancshares

As a bank and financial holding company, we are subject to regulation and examination by the FRB under the BHCA.  Accordingly, we are subject to the FRB’s authority to:

·require periodic reports and such additional information as the FRB may require.

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· require us to maintain certain levels of capital. See Item I. “Business – Capital Standards - Regulatory Capital Guidelines.”

· require that bank holding companies serve as a source of financial and managerial strength to subsidiary banks and commit resources as necessary to support each subsidiary bank. A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the FRB to be an unsafe and unsound banking practice or a violation of FRB regulations or both.

· terminate an activity or terminate control of or liquidate or divest certain subsidiaries, affiliates or investments if the FRB believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any bank subsidiary.

· regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt and require prior approval to purchase or redeem our securities in certain situations.

· approve acquisitions and mergers with other banks or savings institutions and consider certain competitive, management, financial and other factors in granting these approvals. Similar California and other state banking agency approvals may also be required.

Non-Banking and Financial Activities

Subject to certain prior notice or FRB approval requirements, bank holding companies may engage in any, or acquire shares of companies engaged in, those non-banking activities determined by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Bancshares may engage in these non-banking activities and broader securities, insurance, merchant banking and other activities that are determined to be “financial in nature” or are incidental or complementary to activities that are financial in nature without prior FRB approval pursuant to its election to become a financial holding company. Pursuant to the Gramm-Leach-Bliley Act of 1999 (the “GLBA”), in order to elect and retain financial holding company status, all depository institution subsidiaries of a bank holding company must be well capitalized, well managed, and, except in limited circumstances, be in satisfactory compliance with the Community Reinvestment Act (“CRA”). Failure to sustain compliance with these requirements or correct any non-compliance within a fixed time period could lead to divestiture of subsidiary banks or require all activities to conform to those permissible for a bank holding company.

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Securities Registration

Our securities are registered with the Securities and Exchange Commission (“SEC”) under the Exchange Act of 1934, as amended (the “Exchange Act”). As such, we are subject to the information, proxy solicitation, insider trading, corporate governance, and other requirements and restrictions of the Exchange Act.

The Sarbanes-Oxley Act

We are subject to the accounting oversight and corporate governance requirements of the Sarbanes-Oxley Act of 2002, including:

·required executive certification of financial presentations;

·increased requirements for board audit committees and their members;

·enhanced disclosure of controls and procedures and internal control over financial reporting;

·enhanced controls on, and reporting of, insider trading; and

·increased penalties for financial crimes and forfeiture of executive bonuses in certain circumstances.

The Bank

The Bank, as a nationally chartered bank, is subject to primary supervision, periodic examination, and regulation by the OCC.  To a lesser extent, the Bank is also subject to certain regulations promulgated by the FRB.  If, as a result of an examination of the Bank, the OCC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank’s operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, the OCC and separately the FDIC as insurer of the Bank’s deposits, have residual authority to:

· require affirmative action to correct any conditions resulting from any violation or practice

· direct an increase in capital

· restrict the Bank’s growth geographically, by products and services or by mergers and acquisitions

· enter into informal nonpublic or formal public memoranda of understanding or written agreements; enjoin unsafe and unsound practices and issue cease and desist orders to take corrective action and

· remove officers and directors and assess civil monetary penalties

· take possession and close and liquidate the Bank

Various requirements and restrictions under the laws of the State of California and federal banking laws and regulations affect the operations of the Bank.  State and federal statutes and regulations relate to many aspects of the Bank’s operations, including reserves against deposits, ownership of deposit accounts, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of banking centers and capital requirements.  Furthermore, the Bank is required to maintain certain levels of capital.

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As a national bank, the Bank may form subsidiaries to engage in the many so-called “closely related to banking” or “nonbanking” activities commonly conducted by national banks in operating subsidiaries, and, further, pursuant to GLBA, the Bank may conduct certain “financial” activities in a subsidiary to the same extent as may a national bank, provided the Bank is and remains  “well-capitalized,” “well-managed” and in satisfactory compliance with the CRA.

In September, 2007, the SEC and the FRB finalized joint rules required by the Financial Services Regulatory Relief Act of 2006 to implement exceptions provided for in GLBA for securities activities which banks may conduct without registering with the SEC as securities broker or moving such activities to a broker-dealer affiliate.  The FRB’s final  Regulation R provides exceptions for networking arrangements with third party broker dealers and authorizes compensation for bank employees who refer and assist retail and high net worth bank customers with their securities, including sweep accounts to money market funds, and with related trust, fiduciary, custodial and safekeeping needs.  The final rules, which will not be effective until 2009 and  are not expected to have a material effect on the current securities activities which the Bank now conducts for customers.

Federal Home Loan Bank System

The Bank is a member and stockholder of the capital stock of the Federal Home Loan Bank of San Francisco. Among other benefits, each Federal Home Loan Bank (“FHLB”) serves as a reserve or central bank for its members within its assigned region and makes available loans or advances to its members. Each FHLB is financed primarily from the sale of consolidated obligations of the FHLB system.

Federal Reserve System

The FRB requires all depository institutions to maintain noninterest-bearing reserves at specified levels against their transaction accounts (primarily checking and non-personal time deposits). At December 31, 2007, the Bank was in compliance with these requirements.

Dividends and Other Transfers of Funds

Bancshares is a legal entity separate and distinct from the Bank.  Our ability to pay cash dividends is limited by Delaware law.  Dividends from the Bank constitute the principal source of income to Bancshares. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends. In addition, the banking agencies have the authority to prohibit the Bank from paying dividends, depending upon the Bank’s financial condition, if such payment is deemed to constitute an unsafe or unsound practice. Furthermore, under the Federal Prompt Corrective Action regulations, the FRB may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “undercapitalized.” See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Dividends” for a further discussion of restrictions on the Bank’s ability to pay dividends to Bancshares without the approval of the FRB.

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Capital Standards

The Federal banking agencies have adopted risk-based minimum capital guidelines for bank holding companies and banks that are intended to provide a measure of capital that reflects the degree of risk associated with a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions that are recorded as off-balance sheet items. The risk-based capital ratio is determined by classifying assets and certain off-balance sheet financial instruments into weighted categories, with higher levels of capital being required for those categories perceived as representing greater risk. Under the capital guidelines, a banking organization’s total capital is divided into tiers. “Tier 1 capital” includes common equity and trust-preferred securities, subject to certain criteria and quantitative limits. The risk-based capital guidelines require a minimum ratio of qualifying total capital to risk-adjusted assets of 8 percent and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4 percent.

An institution’s risk-based capital, leverage capital and tangible capital ratios together determine the institution’s capital classification. An institution is treated as well capitalized if its total capital to risk-weighted assets ratio is 10.0 percent or more; its core capital to risk-weighted assets ratio is 6.0 percent or more; and its core capital to adjusted total assets ratio is 5.0 percent or more. In addition to the risk-based guidelines, the Federal bank regulatory agencies require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio. For a banking organization rated “well-capitalized,” the minimum leverage ratio of Tier 1 capital to total assets must be 3.0 percent.

A bank’s assets and off-balance sheet items are classified under several risk categories, with each category assigned a particular risk weighting from 0% to 100%. The following table sets forth the regulatory capital guidelines and the actual capitalization levels for the Bank and Bancshares as of December 31, 2007:

	Adequately Capitalized		Well Capitalized for the Bank Only		The		Company
	(greater than or equal to)				Bank		(consolidated)
Total risked-based capital	8.00	%	10.00	%	30.07	%	30.07	%
Tier 1 risk-based capital ratio	4.00	%	6.00	%	28.82	%	28.82	%
Tier 1 leverage capital ratio	4.00	%	5.00	%	24.32	%	24.32	%

As of December 31, 2007, management believes that the Company’s capital levels met all minimum regulatory requirements and that the Bank was considered “well capitalized” under the regulatory framework for prompt corrective action.

The current risk-based capital guidelines are based upon the 1988 capital accord of the International Basel Committee on Banking Supervision. A new international accord, referred to as Basel II, which emphasizes internal assessment of credit, market and operational risk, supervisory assessment and market discipline in determining minimum capital requirements, currently becomes mandatory for large international banks outside the U.S. in 2008, is optional for others, and must be complied with in a “parallel run” for two years along with the existing Basel I standards. A separate rule is expected to be released and issued in final by the Federal

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regulatory agencies in 2008, which will offer U.S. banks that will not adopt Basel II an alternative “standardized approach under Basel II” option and address concerns that the Basel II framework may offer significant competitive advantages for the largest U.S. and international banks. The U.S. banking agencies have indicated, however, that they will retain the minimum leverage requirement for all U.S. banks. Further proposals and revisions to the Basel II framework may also occur in response to recent adverse liquidity and securitization market developments.

The Federal Deposit Insurance Act, as amended (the “FDI Act”) gives the Federal banking agencies the additional broad authority to take “prompt corrective action” to resolve the problems of insured depository institutions that fall within any undercapitalized category, including requiring the submission of an acceptable capital restoration plan. The Federal banking agencies have also adopted non-capital safety and soundness standards to assist examiners in identifying and addressing potential safety and soundness concerns before capital becomes impaired. The guidelines set forth operational and managerial standards relating to: (i) internal controls, information systems and internal audit systems, (ii) loan documentation, (iii) credit underwriting, (iv) asset quality and growth, (v) earnings, (vi) risk management, and (vii) compensation and benefits.

FDIC Insurance

Through the Deposit Insurance Fund (“DIF), the FDIC insures Bank customers’ deposits up to prescribed limits for each depositor.  The amount of FDIC assessments paid by each DIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other supervisory factors. The FDIC may increase or decrease the assessment rate schedule on a semi-annual basis.  The Federal Deposit Insurance Reform Act of 2006, or FDIRA, and implementing regulations provide for changes in the formula and factors to be considered by the FDIC in calculating the FDIC reserve ratio, assessments and dividends, including business line concentrations and risk of failure and severity of loss in the event of failure. It is unclear whether the FDIC may need to increase assessments in the near term or longer term to address the risks and costs of any increase in bank failures.

The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices that pose a risk to the DIF or that may prejudice the interest of the bank’s depositors.  The termination of deposit insurance for the Bank would also result in the revocation of the Bank’s charter by the OCC.

Loans-to-One Borrower Limitations

With certain limited exceptions, the maximum amount of obligations, secured or unsecured, that  any borrower (including certain related entities) may owe to a national bank at any one time may not exceed 15% of the unimpaired capital and surplus of the Bank, plus an additional 10%, of unimpaired capital and surplus for loans fully seasoned by readily marketable collateral.  The Bank has established internal loan limits which are lower than these legal lending limits.

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Extensions of Credit to Insiders and Transactions with Affiliates

The Federal Reserve Act and FRB Regulation O place limitations and conditions on loans or extensions of credit to:

·	a bank or bank holding company’s executive officers, directors and principal shareholders (i.e., in most cases, those persons who own, control or have power to vote more than 10 percent of any class of voting securities);
·	any company controlled by any such executive officer, director or shareholder; or
·	any political or campaign committee controlled by such executive officer, director or principal shareholder.
	Such loans and leases:
·	must comply with loan-to-one-borrower limits;
·	require prior full board approval when aggregate extensions of credit to the person exceed specified amounts;
·	must be made on substantially the same terms (including interest rates and collateral) and follow credit-underwriting procedures no less stringent than those prevailing at the time for comparable transactions with non-insiders;
·	must not involve more than the normal risk of repayment or present other unfavorable features; and
·	in the aggregate limit not exceeds the bank’s unimpaired capital and unimpaired surplus.

The Bank also is subject to certain restrictions imposed by Federal Reserve Act Sections 23A and 23B and FRB Regulation W on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, any affiliates, the purchase of, or investments in, stock or other securities thereof, the taking of such securities as collateral for loans, and the purchase of assets of any affiliates. Affiliates include parent holding companies, sister banks, sponsored and advised companies, financial subsidiaries and investment companies where the Bank’s affiliate serves as investment advisor. Sections 23A and 23B and Regulation W generally:

· prevent any affiliates from borrowing from the Bank unless the loans are secured by marketable obligations of designated amounts;

· limit such loans and investments to or in any affiliate individually to 10 percent of the Bank’s capital and surplus;

· limit such loans and investments to all affiliate in the aggregate to 20 percent of the Bank’s capital and surplus; and

· require such loans and investments to or in any affiliate to be on terms and under conditions substantially the same or at least as favorable to the Bank as those prevailing for comparable transactions with nonaffiliated parties.

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Additional restrictions on transactions with affiliates may be imposed on the Bank under the FDI Act prompt corrective action provisions and the supervisory authority of the Federal and state banking agencies.

USA PATRIOT Act and Anti-Money Laundering Compliance

The USA PATRIOT Act of 2001 and its implementing regulations significantly expanded the anti-money laundering and financial transparency laws, including the Bank Secrecy Act. The Bank has adopted comprehensive policies and procedures to address the requirements of the USA PATRIOT Act. Material deficiencies in anti-money laundering compliance can result in public enforcement actions by the banking agencies, including the imposition of civil money penalties and supervisory restrictions on growth and expansion. Such enforcement actions could also have serious reputation consequences for Bancshares and the Bank.

Consumer Laws

The Bank and Bancshares are subject to many Federal and state consumer protection laws and regulations prohibiting unfair or fraudulent business practices, untrue or misleading advertising and unfair competition, including:

· The Home Ownership and Equity Protection Act of 1994 (“HOEPA), which requires extra disclosures and consumer protections to borrowers from certain lending practices, such as practices deemed to be “predatory lending.”

· Privacy policies required by Federal and state banking laws and regulations, which limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.

· The Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act (“the FACT Act”), which requires financial firms to help deter identity theft, including developing appropriate fraud response programs, and gives consumers more control of their credit data.

· The Equal Credit Opportunity Act (“ECOA”), which generally prohibits discrimination in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act.

· The Truth in Lending Act (“TILA”), which requires that credit terms be disclosed in a meaningful and consistent way so that consumers may compare credit terms more readily and knowledgeably.

· The Fair Housing Act, which regulates many lending practices, including making it unlawful for any lender to discriminate in its housing-related lending activities against any person because of race, color, religion, national origin, sex, handicap or familial status.

· The CRA, which requires insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities; directs the federal regulatory agencies, in examining insured depository institutions, to assess a bank’s record of

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	helping meet the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with safe and sound banking practices and further requires the agencies to take a financial institution’s record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, mergers or acquisitions, or holding company formations.
·	The Home Mortgage Disclosure Act (“HMDA”), which includes a “fair lending” aspect that requires the collection and disclosure of data about applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes.
·	The Real Estate Settlement Procedures Act (“RESPA”), which requires lenders to provide borrowers with disclosures regarding the nature and cost of real estate settlements and prohibits certain abusive practices, such as kickbacks.
·	The National Flood Insurance Act, which requires homes in flood-prone areas with mortgages from a federally regulated lender to have flood insurance.

Employees

At December 31, 2007, the Company had 39 full-time equivalent employees. The Company’s employees are not represented by any union or collective bargaining agreement and the Company believes its employee relations are satisfactory.

Item 1A.Risk Factors

In addition to other information contained in this report, the following discusses certain factors which may affect our financial results and operations and should be considered in evaluating the Company’s future results.

We have a limited operating history, which makes it difficult to predict our future prospects and financial performance.

We began banking operations in March 2004.  Because of our limited operating history, it may be difficult to evaluate our business prospects or performance.  Our prospects are subject to the risks and uncertainties frequently encountered by companies in their early stages of development, including the risk that we will not be able to implement our business strategies.  Accordingly, our financial performance to date may not be representative of our long-term future performance or indicative of whether our business strategies will be successful.

If we are unable to generate profits on a consistent basis, our ability to compete effectively could be adversely affected.

From inception to the end of 2006, we incurred significant operating losses. We had organizational and pre-opening expenses of $1.6 million, and for the ten months of operations ended on December 31, 2004 and the year ended December 31, 2005, we incurred net losses of $2.8 million and $2.2 million, respectively. In 2006, we experienced net income totaling $145,000 and in 2007, we recorded pretax income totaling $792,000.

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We may have difficulty managing our growth which may divert resources and limit our ability to successfully expand our operations.

We have grown substantially since we began operations in March 2004. At December 31, 2007, we had $223.9 million in total assets, $169.9 million in net loans and $161.2 million in deposits. Our future success will depend on the ability of our officers and key employees to continue to implement and improve our operational, financial and management controls, reporting systems and procedures, and manage a growing number of customer relationships.

We expect to continue to experience growth in the amount of our assets, the level of our deposits and the scale of our operations. Our future level of profitability will depend in part on our continued ability to grow; however, we may not be able to sustain our historical growth rate or even be able to grow at all.

We rely heavily on our senior management team and other employees, the loss of whom could significantly harm our business.

Our success depends heavily on the abilities and continued service of our executive officers, especially Alan I. Rothenberg, our Chairman and Chief Executive Officer, Jason P. DiNapoli, our President and Chief Operating Officer, Dan T. Kawamoto, our Executive Vice President and Chief Financial Officer, Donn Jakosky, our Executive Vice President and Chief Credit Officer, and Paul Manning, our Executive Vice President and Chief Risk Management Officer. These five individuals are integral to implementing our business plan. If we lose the services of any of our executive officers, our business, financial condition, results of operations and cash flows may be adversely affected. Furthermore, attracting suitable replacements may be difficult and may require significant management time and resources.

We also rely to a significant degree on the abilities and continued service of our deposit generating, lending, administrative, operational, accounting and financial reporting, marketing and technical personnel. Competition for qualified employees in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the California independent banking industry. The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy. If we fail to attract and retain the necessary deposit generation, loan, administrative, marketing and technical personnel, our business, financial condition, results of operations and cash flows may be materially adversely affected.

Lack of seasoning in our loan portfolio may increase the risk of credit defaults in the future.

All loans in our loan portfolio were originated since March 2004. In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process referred to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a portfolio of recently originated loans. Because our loan portfolio is relatively unseasoned, the current level of delinquencies may be below the level that will prevail when the portfolio becomes more seasoned.

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Until our portfolio becomes more seasoned, we must rely in part on the historical loan loss experience of other financial institutions and the experience of our management in determining our allowance for loan losses, which may not be comparable to what may occur with our portfolio.

Because most of the loans in our loan portfolio were originated within the past four years, our loan portfolio does not provide an adequate history of loan losses for our management to rely upon in establishing our allowance for loan losses. We therefore rely to a significant extent upon other financial institutions’ histories of loan losses and their allowance for loan losses, as well as our management’s estimates based on their experience in the banking industry, when determining our loss allowance. The history of loan losses, the reserving policies of other financial institutions and our management’s judgment may not result in reserving policies that will be adequate for our business operations or applicable to our loan portfolio.

If our underwriting practices are not effective, we may suffer losses in our loan portfolio and our results of operations may be affected.

We seek to mitigate the risks inherent in our loan portfolio by adhering to specific underwriting practices. Depending on the type of loan, these practices include analysis of a borrower’s prior credit history, financial statements, tax returns and cash flow projections, valuation of collateral based on reports of independent appraisers and verification of liquid assets. Although we believe that our underwriting criteria are appropriate for the types of loans we make, we cannot assure you that they will be effective in mitigating all risks. If our underwriting criteria prove to be ineffective, we may incur losses in our loan portfolio, and these losses may exceed the amounts set aside as reserves in our allowance for loan losses.

If our allowance for loan losses is inadequate to cover actual losses, our financial results would be affected.

A significant source of risk arises from the possibility that losses could be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loans. The underwriting and credit monitoring policies and procedures that we have adopted to address this risk may not prevent unexpected losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows. Unexpected losses may arise for a wide variety of reasons, many of which are beyond our ability to predict, influence or control. Some of these reasons could include a prolonged economic downturn in the State of California, a decline in the California real estate market, changes in the interest rate environment and natural disasters.

Like all financial institutions, we maintain an allowance for loan losses to provide for loan defaults and non-performance. Our allowance for loan losses may not be adequate to cover actual loan losses, and future provisions for loan losses could materially and adversely affect our business, financial condition, results of operations and cash flows. Our allowance for loan losses reflects our best estimate of the losses inherent in the existing loan portfolio at the relevant balance sheet date and is based on management’s evaluation of the collectability of the loan portfolio, which evaluation is based on historical loss experience and other significant factors. The determination of an appropriate level of loan loss allowance is an inherently difficult process and is based on numerous assumptions. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, that may be

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beyond our control and these losses may exceed current estimates. While we believe that our allowance for loan losses is adequate to cover current losses, we cannot assure that we will not increase the allowance for loan losses further or that regulators will not require us to increase this allowance. Either of these occurrences could materially adversely affect our business, financial condition, results of operations and cash flows.

Bank regulators may require us to increase our allowance for loan losses, which could have a negative effect on our financial condition and results of operations.

Bank regulators, as an integral part of their respective supervisory functions, periodically review our allowance for loan losses. They may require us to increase our provision for loan losses or to recognize further loan charge-offs based upon their judgments, which may be different from ours. Any increase in the allowance for loan losses required by bank regulators could have a negative effect on our financial condition and results of operations.

Our lending limit may adversely affect our competitiveness.

Our regulatory lending limit as of December 31, 2007 to any one customer or related group of customers was $9.2 million. Our lending limit is substantially smaller than those of most financial institutions with which we compete. While we believe that our lending limit is sufficient for our targeted market of small to mid-size businesses, and individuals, it may affect our ability to attract or maintain customers or to compete with other financial institutions. Moreover, to the extent that we incur losses and do not obtain additional capital, our lending limit, which depends upon the amount of our capital, will decrease.

We face strong competition from financial services companies and other companies that offer banking services, and our failure to compete effectively with these companies could have a material adverse affect on our business, financial condition, results of operations and cash flows.

Within the Los Angeles metropolitan area we face intense competition for loans, deposits, and other financial products and services. Increased competition within our pricing market may result in reduced loan originations and deposits. Ultimately, we may not be able to compete successfully against current and future competitors. Many competitors offer the types of loans and banking services that we offer. These competitors include national banks, regional banks and other independent banks. We also face competition from many other types of financial institutions, including finance companies, brokerage firms, insurance companies, mortgage banks and other financial intermediaries. In particular, our competitors include financial institutions whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns. Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions may have larger lending limits which would allow them to serve the credit needs of larger customers. These institutions, particularly to the extent they are more diversified than we are, may be able to offer the same loan products and services we offer at more competitive rates and prices.

To define banking competition in Century City, where our only office is located, a four zip code area was analyzed, 90024 (Westwood), 90025, 90064 (both West Los Angeles) and 90067 (Century City). We compete against several banks, many of which have greater lending limits, and a wider variety of products and services than us. We also compete against community

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banks for both loans and deposits. According to the FDIC, as of June 30, 2007, total deposits in the four zip code area equaled $14.3 billion. Within the same territory, Century City (90067) has the largest share of bank deposits at $7.9 billion.

We also face competition from out-of-state financial intermediaries that have opened loan production offices or that solicit deposits in our market areas. If we are unable to attract and retain banking customers, we may be unable to continue our loan growth and level of deposits, and our business, financial condition, results of operations and cash flows may be materially adversely affected.

If we cannot attract deposits, our growth may be inhibited.

We plan to increase the level of our assets, including our loan portfolio. Our ability to increase our assets depends in large part on our ability to attract additional deposits at competitive rates. We intend to seek additional deposits by continuing to establish and strengthen our personal relationships with our customers and by offering deposit products that are competitive with those offered by other financial institutions in our markets. We cannot ensure that these efforts will be successful. Our inability to attract additional deposits at competitive rates could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our inability to raise additional capital when needed or on favorable terms could inhibit our growth and could harm our operations.

To the extent that our deposits and total assets continue to grow, we may need to increase our capital in order to maintain our compliance with regulatory capital requirements. We may also need additional capital to fund growth in our loan portfolio or in the event we are unable to attract sufficient deposits in order to fund our growth. We cannot predict the timing and amount of our future capital requirements. If our capital needs exceed our earnings, we may seek funding through the capital markets; however, we may not be able to obtain capital when we need to or when it would be advantageous for us to do so. Failure to raise capital when needed could limit or eliminate our ability to grow, or in extreme instances, materially adversely affect our operations. Moreover, even if capital is available, it may be upon terms that are not favorable to existing common shareholders and could dilute their interest.

We rely on communications, information, operating and financial control systems technology from third-party service providers, and we may suffer an interruption in or break of those systems that may result in lost business and we may not be able to obtain substitute providers on terms that are as favorable if our relationships with our existing service providers are interrupted.

We rely heavily on third-party service providers for much of our communications, information, operating and financial control systems technology, including customer relationship management, general ledger, deposit, servicing and loan origination systems. Any failure or interruption or breach in security of these systems could result in failures or interruptions in our customer relationship management, general ledger, deposit, servicing and/or loan origination systems. We cannot assure that such failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by us or the third parties on which we rely. The occurrence of any failures or interruptions could have a material adverse effect on our business,

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financial condition, results of operations and cash flows. If any of our third-party service providers experience financial, operational or technological difficulties, or if there is any other disruption in our relationships with them, we may be required to locate alternative sources of such services, and we cannot assure that we could negotiate terms that are as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all. Any of these circumstances could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may experience certain risks in connection with our online banking services that could adversely affect our business.

Our business will depend in part upon the use of the internet and online services as a medium for banking and commerce by customers. Our inability to modify or adapt our infrastructure in a timely manner or the expenses incurred in making such adaptations could hurt our business. Additionally, any compromise in the secured transmission of confidential information over public networks could hurt our business.

Changes in economic conditions, and in particular a prolonged economic slowdown in the State of California, could hurt our business materially.

Our business is directly affected by factors such as economic, political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in governmental monetary and fiscal policies and inflation, all of which are beyond our control. We are particularly susceptible to conditions and changes affecting the State of California and Southern California in view of the concentration of our operations and the collateral securing, and likely to secure, our loan portfolio in Southern California. Deterioration in economic conditions, in California and Southern California in particular, could result in the following consequences, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows:

· Problem assets and foreclosures may increase;

· Loan delinquencies may increase;

· Demand for loans and our other products and services may decline;

· Deposits may decrease; and

· Collateral for loans made by us, especially real estate, may decline in value, in turn reducing customers’ borrowing power or capacity to repay, and reducing the value of assets and collateral associated with our existing loans.

In addition, because we plan to make loans to small to medium-sized businesses, many of our customers may be particularly susceptible to economic slowdowns or recessions and may be unable to make scheduled principal or interest payments during these periods.

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Many of our loans will be secured by real estate, and a downturn in the real estate market could have a material adverse effect on our business, financial condition, results of operations and cash flows.

A downturn in real estate market could hurt our business because we anticipate that most of our loans will be secured by real estate. At December 31, 2007, approximately 40.1% of our total loans consisted of various real estate loans. Real estate values and real estate markets are generally affected by changes in national, regional or local economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other laws, regulations and policies and acts of nature. In addition, real estate values in California could be affected by, among other things, earthquakes and national disasters particular to the state. If real estate prices decline, the value of real estate collateral securing our loans will be reduced. As a result, we may experience greater charge-offs and, similarly, our ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished and we would be more likely to suffer losses on defaulted loans.

A natural disaster or recurring energy shortage, especially in California, could harm our business.

Historically, Southern California has been vulnerable to natural disasters. Therefore, we are susceptible to the risks of natural disasters, such as earthquakes, wildfires, floods and mudslides. Natural disasters could harm our operations directly through interference with communications, as well as through the destruction of facilities and our operational, financial and management information systems. Uninsured or underinsured disasters may reduce a borrower’s ability to repay mortgage loans. Disasters may also reduce the value of the real estate securing our loans, impairing our ability to recover on defaulted loans. Southern California has also experienced energy shortages which, if they recur, could impair the value of the real estate in those areas affected. The occurrence of natural disasters or energy shortages in Southern California could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our operations are concentrated in the Los Angeles metropolitan area.

Our loan activities are largely based in the Los Angeles metropolitan area. To a lesser extent, our deposit base is also generated from this area. As a result, our financial performance will depend largely upon economic conditions in this area. Adverse local economic conditions could cause us to experience an increase in loan delinquencies, a reduction in deposits, an increase in the number of borrowers who default on their loans and a reduction in the value of the collateral securing their loans, all of which could adversely affect our profitability.

We are subject to extensive government regulation, and these regulations may hamper our ability to increase assets and earnings and could result in a decrease in the value of the shares.

Our operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. Because our business is highly regulated, the laws, rules and regulations applicable to us are subject to regular modification and change, which may have the effect of increasing or decreasing the cost of doing business, modifying permissible activities or enhancing the competitive position of other

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financial institutions. These laws are primarily intended for the protection of consumers, depositors and the deposit insurance funds and not for the protection of shareholders of bank holding companies or banks. There are currently proposed various laws, rules and regulations that, if adopted, would impact our operations. We cannot assure that these proposed laws, rules and regulations or any other laws, rules or regulations will not be adopted in the future, which could make compliance much more difficult or expensive, restrict our ability to originate, further limit or restrict the amount of commissions, interest or other charges earned on loans originated by us or otherwise adversely affect our business, financial condition, results of operations or cash flows.

Environmental liability associated with lending activities could result in losses.

In the course of our business, we may foreclose on and take title to properties securing our loans.  If hazardous substances were discovered on any of these properties, we may be liable to governmental entities or third parties for the costs of remediation of the hazard, as well as for personal injury and property damage. Many environmental laws can impose liability regardless of whether we knew of, or were responsible for, the contamination. In addition, if we arrange for the disposal of hazardous or toxic substances at another site, we may be liable for the costs of cleaning up and removing those substances from the site, even if we neither own nor operate the disposal site. Environmental laws may require us to incur substantial expenses and may materially limit use of properties we acquire through foreclosure, reduce their value or limit our ability to sell them in the event of a default on the loans they secure. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability.

The threat of terrorism has created uncertainty and further terrorist acts on the United States could depress the economy.

The terrorist attacks and international conflicts of recent years have resulted in continued uncertainty regarding the economic outlook of the United States. The possibility of further terrorist attacks, as well as continued terrorist threats, may prolong the depth and length of this economic uncertainty. Future terrorist acts and responses to such activities could adversely affect us in a number of ways, including an increase in delinquencies, bankruptcies or defaults that could result in a higher level of non-performing assets, net charge-offs and provision for loan losses.

Changes in interest rates could reduce our income, cash flows and asset values.

Our income and cash flows and the value of our assets depend to a great extent on the difference between the interest rates we earn on interest-earning assets, such as loans and investment securities, and the interest rates we pay on interest-bearing liabilities such as deposits and borrowings. These rates are highly sensitive to many factors which are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the FRB. Changes in monetary policy, including changes in interest rates, will influence not only the interest we receive on our loans and investment securities and the amount of interest we pay on deposits, it will also affect our ability to originate loans and obtain deposits and our costs in doing so. If the rate of interest we pay on our deposits and other borrowings increases more than the rate of interest we earn on our loans and other investments, our net interest income, and therefore our earnings, could be adversely affected. Our earnings

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could also be adversely affected if the rates on our loans and other investments fall more quickly than those on our deposits and other borrowings.

Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

The main and executive offices of Bancshares and the Bank are located at 1875 Century Park East, Los Angeles, California 90067, with a branch office in this same location.

Main Office

The main offices of 1^st Century Bank, N.A. are located at 1875 Century Park East, Los Angeles, California 90067 on the 1^st and 14^th floors of a multi-story commercial building.  In June 2006, the Bank amended its lease to include an additional 2,735 square feet of usable office space located on the 14^th floor. Our main office now consists of approximately 3,158 square feet of usable ground floor space for the branch office and 10,843 square feet of usable space for the administrative offices on the 14th floor of the building. The amended lease term is the same as the original lease term and expires in June 2014. The total future minimum commitments for the 1^st and 14^th floor office lease at 1875 Century Park East at December 31, 2007 will be $3.3 million.

In October 2007, the Bank entered into a ten-year lease for additional ground floor office space at its headquarters location effective December 1, 2007.  This location is the Bank’s Private Banking Center and was opened on January 28, 2008.  The future minimum lease commitments at December 31, 2007 over the ten-year lease term will be approximately $1.0 million.

Item 3.                  Legal Proceedings

At present, there are no pending or threatened proceedings against us which, if determined adversely, would have a material effect on our business, results of operations, or financial position. In the ordinary course of operations, we expect to be party to various legal proceedings.

Item 4.Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 2007.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Effective December 2007, Bancshares, acquired all of the outstanding stock of the Bank, pursuant to a Plan of Reorganization, by and between Bancshares and the Bank.  In connection with the reorganization, the shares of the Bank’s common stock were exchanged for shares of Bancshares common stock on a one-for-one basis.  As a result of the Plan of Reorganization, the Bank became a wholly owned subsidiary of Bancshares, Bancshares became the holding company to the Bank and the shareholders of the Bank became shareholders of Bancshares.

In December 2007, the Company’s common stock began trading on the OTCBB under the symbol “FCTY.” Prior to the formation of Bancshares, shares of the Bank’s common stock were quoted on OTCBB under the symbol “FCNA”.  Our common stock is not listed on any exchange including the NASDAQ Stock Market. The OTCBB is a regulated quotation service that displays real-time bid and ask prices, last sale prices and volume information in over-the-counter equity securities. Unlike the NASDAQ Stock Market, however, the OTCBB does not impose listing standards and does not provide automated trade executions.  Any investment in our common stock should be considered a long-term investment in the event that no active trading market for our stock develops. In addition, the price obtained is unpredictable.

Trading prices are based on information received from the OTCBB based on all transactions reported on the OTCBB and do not include retail markups, markdowns or commissions and may not represent actual transactions. The following table below sets forth the range of high and low “bid” and “ask” prices of our common stock for the years ended December 31, 2007 and 2006.

Bancshares (or the Bank prior to December 2007)

Year ended December 31, 2007	High		Low
Fourth Quarter	$	6.53	$	5.65
Third Quarter	$	7.00	$	6.45
Second Quarter	$	7.50	$	6.95
First Quarter	$	8.75	$	7.23

Year ended December 31, 2006	High		Low
Fourth Quarter	$	9.10	$	6.50
Third Quarter	$	9.75	$	8.38
Second Quarter	$	10.00	$	8.65
First Quarter	$	10.10	$	9.00

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As of January 8, 2008, there were 1,129 registered shareholders of record of our common stock, including the number of persons or entities holding stock in nominee or street name through various brokers or banks.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

In 2007, three holders of stock options under the Company’s 2004 Founder Stock Option Plan exercised their stock options to purchase 2,000 shares of the common stock of the Company at an exercise price of $5.00 per share (on a post stock-split basis). The exercise was made in cash for an aggregate purchase price of $10,000.  The common stock was issued upon exercise of these options, pursuant to an exemption from registration under Section 4(2) of the Securities Act for transactions by an issuer not involving any public offering.  There was no general solicitation and no general advertising for these option shares.

Dividends

As a bank holding company that currently has no significant assets other than its equity interest in the Bank, Bancshares’ ability to declare dividends depends primarily upon dividends it receives from the Bank.  The Bank’s dividend practices in turn depend upon legal restrictions, the Bank’s earnings, financial position, current and anticipated capital requirements, and other factors deemed relevant by the Bank’s Board of Directors at that time.

The Company’s general dividend policy is to pay cash dividends within the range of typical peer payout ratios, provided that such payments do not adversely affect the Company’s financial condition and are not overly restrictive to our growth capacity. However, no assurance can be given that earnings and/or growth expectations in any given year will justify the payment of such a dividend.

During any period in which the Company has deferred payment of interest otherwise due and payable on its subordinated debt securities, it may not make any dividends or distributions with respect to its capital stock (see “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources”). The ability of the Bank’s Board of Directors to declare cash dividends is also subject to statutory and regulatory restrictions which limit the amount available for cash dividends depending upon the earnings, financial condition and cash needs of the Bank, as well as general business conditions.

Our regulators have the authority to prohibit the payment of dividends, depending upon our financial condition, if such payment is deemed to constitute an unsafe or unsound practice. As a national bank, we must obtain the prior approval of the OCC to pay a dividend if the total of all dividends declared by us in any calendar year would exceed our net income for the year combined with its retained net income for the preceding two calendar years, less any required transfers to surplus or to fund the retirement of any preferred stock.

To date, we have not paid any cash dividends.  Payment of stock or cash dividends in the future will depend upon our earnings and financial condition and other factors deemed relevant by our Board, as well as our legal ability to pay dividends.  Accordingly, no assurance can be given that any cash dividends will be declared in the foreseeable future.

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Additionally, the FRB’s policy regarding dividends provides that a bank holding company should not pay cash dividends exceeding its net income or which can only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing.

For regulatory restrictions on payment of dividends by the Company, see Item 1- “BUSINESS - Supervision and Regulation - Limitations on Dividends Payments.”

Item 6.                    Selected Financial Data

The selected financial data set forth below as of and for the years ended December 31, 2007, 2006 and 2005 and as of and for the period from March 1, 2004 (date operations commenced) to December 31, 2004 are derived from our audited consolidated financial statements of the Company and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.  The consolidated financial statements, together with the notes thereto, are included in Item 8 of this Report and the data set forth below should be read in conjunction with those consolidated financial statements and also with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Report.

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	At or for the period ended December 31,
(in thousands, except per share and share data)	2007			2006			2005			2004
Balance Sheet Data:
Total assets	$	223,855		$	200,752		$	161,635		$	86,147
Loans, net	169,864			126,312			84,988			33,197
Securities – Available for Sale	36,516			42,406			45,572			19,404
Securities – Held to Maturity	5,307			6,270			7,231			2,936
Deposits	161,193			145,087			107,090			64,015
Other Borrowings	2,000			—			—			—
Total stockholders’ equity	58,612			54,109			53,116			21,563
Tangible book value per share (1)	5.91			5.53			5.47			4.12
Statement of Income Data:
Total interest income	$	14,704		$	11,752		$	5,933		$	1,372
Total interest expense	4,934			3,032			1,039			249
Net interest income	9,770			8,720			4,894			1,123
Provision for loan losses	701			504			829			335
Net interest income after provision	9,069			8,216			4,065			788
Noninterest income	614			209			99			18
Noninterest expense	8,891			8,280			6,382			3,626
Income (loss) before income taxes	792			145			(2,218		)	(2,820		)
Income tax benefit	2,120			—			—			—
Net income (loss)	$	2,912		$	145		$	(2,218	)	$	(2,820	)
Pre-opening expenses	—			—			—			(816		)
Net income (loss)	$	2,912		$	145		$	(2,218	)	$	(3,636	)
Per share data:
Net income (loss) per share – basic (1)	$	0.30		$	0.01		$	(0.31	)	$	(0.53	)
Net income (loss) per share – diluted (1)	$	0.28		$	0.01		$	(0.31	)	$	(0.53	)
Average shares outstanding (1)	9,865,471			9,746,435			7,124,871			5,280,000
Shares outstanding at the end of the year (1)	9,913,884			9,783,722			9,716,613			5,280,000
Financial ratios:
Return on average assets (2)	1.32		%	0.08		%	(1.82		)%	(4.61		)%
Return on average equity (3)	5.30		%	0.27		%	(6.39		)%	(12.21		)%
Dividend payout ratio (4)	—			—			—			—
Avg equity to avg assets (5)	24.90		%	29.94		%	28.56		%	37.72		%

(1)	Adjusted for 2-for-1 stock split that occurred on February 28, 2005.
(2)	Net income (loss) divided by average total assets.
(3)	Net income (loss) divided by average shareholders’ equity.
(4)	Dividends paid out divided by net income.
(5)	Average shareholders’ equity divided by average total assets

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Item 7.                    Management’s Discussion and Analysis of Financial Condition and Results of Operation

Critical Accounting Policies and Estimates

Our significant accounting policies are described in Note 1 to the 2007 consolidated financial statements. We believe that the following estimates and assumptions require management’s most subjective judgments and are most important to the portrayal of our financial condition and results of operations. These estimates and assumptions help form the basis for the accounting policies which are deemed to be the most critical to the Company.

Prior to 2006, the Company accounted for share-based compensation to employees under the intrinsic value method of Accounting Principles Board (“APB”) Opinion No. 25 (“APB No. 25”), Accounting for Stock Issued to Employees.  On October 20, 2005, the Company’s Board of Directors approved the acceleration of vesting for all of the then outstanding options.  Expenses recognized per the Financial Accounting Standards Board (“FASB”) Interpretation No. 44 Accounting for Certain Transactions involving Stock Compensation were approximately $27,000, $196,000, and $29,000 for the years ended December 31, 2007, 2006 and 2005, respectively.  Future non-cash stock compensation related to the acceleration of the vesting may fluctuate as a result of changes in management’s estimate due to unforeseen changes in the employment status of option holders.

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised) (“SFAS No. 123R”), Share-Based Payment.  The Company elected to use the modified prospective transition method as permitted by SFAS No. 123R and therefore has not restated the financial results for prior periods.  No options have been granted since the adoption of SFAS No. 123R.

The allowance for loan losses is established through a provision for loan losses charged to operations. The provisions reflect management’s evaluation of the adequacy of the allowance based upon estimates used from and comparisons to historical peer group loan loss data because the Company began operations in March 2004 and lacks sufficient historical data from the performance of loans in the loan portfolio. Management carefully monitors changing economic conditions, the concentrations of loan categories and collateral, the financial condition of the borrowers, the history of the loan portfolio, and historical peer group loan loss data to determine the adequacy of the allowance for loan losses. The allowance is based on estimates, and actual losses may vary from the estimates. No assurance can be given that adverse future economic conditions will not lead to delinquent loans, increases in the provision for loan losses and/or charge-off of loans. Management believes that the allowance as of December 31, 2007 is adequate to absorb known and inherent risks in the loan portfolio.

The Company has established a deferred tax asset, the majority of which is represented by future benefits realizable from the loan loss provision and the cumulative net operating loss. In order for the Company to utilize the benefit of the deferred tax asset, the Company must generate aggregate taxable earnings equal to the amount of the deferred tax asset prior to expiration. Estimates of future taxable income are considered in evaluating if it is more likely than not that the benefit of our deferred tax asset will be realized. At December 31, 2007, management assessed the need for a valuation allowance and believes it is more likely than not

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that the Company will realize the deferred tax assets in future periods based upon the 2006 and 2007 historical profits; therefore, no valuation allowance has been provided.

Summary of the Results of Operations and Financial Condition

For the year ended December 31, 2007, the Company recorded net income of $2.9 million or $0.28 per diluted share. For the year ended December 31, 2006, net income was $145,000 or $0.01 per diluted share.  For the year ended December 31, 2005, net loss was $2.2 million or $(0.31) per diluted share, adjusted retroactively for the two-for-one stock split effective February 28, 2005.  The improvement in the Company’s net income was primarily the result of the $2.1 million income tax benefit and the growth in earning assets, principally loans and federal funds sold funded by deposit growth.

Total assets at December 31, 2007 were $223.9 million representing an increase of approximately $23.1 million or 11.5% from $200.8 million reported at December 31, 2006. Gross loans at December 31, 2007 were $172.4 million, which represents an increase of $44.3 million or 34.6% from $128.1 million at December 31, 2006. Total deposits increased approximately $16.1 million or 11.1% from $145.1 million at December 31, 2006 to $161.2 million at December 31, 2007.

Average interest-earning assets increased $41.6 million or 23.8% from $174.9 million for 2006 to $216.5 million for 2007.  Also, the weighted average interest rate on interest-earning assets increased to 6.79% for the year ended December 31, 2007 from 6.72% and 5.00% for the years ended December 31, 2006 and 2005, respectively.

Set forth below are certain key financial performance ratios and other financial data for the periods indicated:

	Years ended December 31,
	2007		2006		2005
Return on average assets	1.32	%	0.08	%	(1.82	)%
Return on average stockholders’ equity	5.30	%	0.27	%	(6.39	)%
Average Equity to Average Assets	24.90	%	29.94	%	28.56	%
Net interest margin	4.51	%	4.98	%	4.12	%

Results of Operations

Net Interest Income

The management of interest income and interest expense is fundamental to the performance of the Company. Net interest income, which is the difference between interest income on interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and other borrowings, is the largest component of the Company’s total revenue. Management closely monitors both total net interest income and the net interest margin (net interest income divided by average earning assets).

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Net interest income and net interest margin are affected by several factors including (1) the level of, and the relationship between, the dollar amount of interest earning assets and interest-bearing liabilities; and (2) the relationship between repricing or maturity of our variable-rate and fixed-rate loans, securities, deposits and borrowings.

The national prime rate, which generally follows the federal funds rate and is the main driver for interest rate movement, was 7.25% at December 31, 2007, as compared to 8.25% at December 31, 2006.  The FRB cut the targeted federal funds rate by a total of 100 basis points in the last three meetings of 2007.   The decrease in the federal funds rate prompted the national prime rate to decrease 100 basis points in the second half of 2007.  In addition, the FRB cut the targeted federal funds rate by another 125 basis points in January 2008.  The cuts prompted the national prime rate to continue to decrease 100 basis points.  The national prime rate at January 31, 2008 was 6.00%.  The Company currently believes it is reasonably possible the federal funds rate and the national prime rate will decrease further in the foreseeable future; however, there can be no assurance to that effect or as to the magnitude of any decrease should a decrease occur, as changes in market interest rates are dependent upon a variety of factors that are beyond the Company’s control.  Management anticipates that there will be continued pressure on the net interest margin as the federal funds rate declines.

The Company, through its asset and liability policies and practices, seeks to maximize net interest income without exposing the Company to an excessive level of interest rate risk. Interest rate risk is managed by monitoring the pricing, maturity and repricing options of all classes of interest-bearing assets and liabilities. This is discussed in more detail in Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Asset/Liability Management.

For the year ended December 31, 2007, average interest-earning assets were $216.5 million, generating net interest income of $9.8 million. This compares favorably to the year ended December 31, 2006, during which we had average interest-earning assets of $174.9 million, and net interest income of $8.7 million. The growth in earning assets was primarily in loans, funded by an increase in certificates of deposit.

For the year ended December 31, 2006, average interest-earning assets were $174.9 million, generating net interest income of $8.7 million. This compares favorably to the year ended December 31, 2005, during which we had average interest-earning assets of $118.8 million, and net interest income of $4.9 million. The growth in earning assets was primarily in loans and funded from an increase in certificates of deposit and the proceeds from the August 2005 secondary offering.

The Company’s net interest spread (yield on interest-earning assets less the rate paid on interest-bearing liabilities) was 2.92% for the year ended December 31, 2007 compared to 3.55% and 3.75% for the years ended December 31, 2006 and 2005, respectively.

The Company’s net interest margin (net interest income divided by average interest-earning assets) was 4.51% for the year ended December 31, 2007 and 4.98% and 4.12% for the years ended December 31, 2006 and 2005, respectively.

The net interest margin decreased 0.47% comparing the year ended December 31, 2007 to the year ended December 31, 2006. The decrease in net interest margin was primarily due to

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an increase in the average balances of certificates of deposits at higher interest rates, and as a percentage of all total interest-bearing liabilities and an increase in rates paid for money market deposits.

The net interest margin expanded 0.86% comparing the year ended December 31, 2006 to the year ended December 31, 2005. The increase was primarily due to: (i) deployment of our liquidity to loan balances outstanding thereby constituting a greater percentage of higher interest-earning assets, therefore increasing the weighted average yield; (ii) increases in the weighted average yield on investment securities and short-term investments; and (iii) increases in the short-term rates effecting our short-term investments and increases in the prime rate increasing the yield on our loans that are tied to the prime rate index.

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The following table sets forth our average balance sheet, average yields on earning assets, average rates paid on interest-bearing liabilities, net interest margins and net interest income/spread for the years ended December 31, 2007, 2006, and 2005.

	Years ended December 31,
	2007						2006						2005
	Average		Interest				Average		Interest				Average		Interest
(dollars in thousands)	Balance		Inc/Exp		Yield		Balance		Inc/Exp		Yield		Balance		Inc/Exp		Yield
Assets
Federal funds sold	$	28,534	$	1,431	5.02	%	$	14,422	$	694	4.81	%	$	15,748	$	503	3.19	%
Interest-earning deposits at other financial institutions	267		12		4.60	%	3,837		190		4.95	%	11,256		355		3.15	%
U.S. Gov’t Treasuries	150		7		4.89	%	100		4		4.42	%	89		2		2.99	%
U.S. Gov’t-Sponsored Agencies	5,396		223		4.12	%	9,086		325		3.57	%	10,322		313		3.03	%
Mortgage-backed securities and CMO’s	36,667		1,751		4.77	%	44,487		2,131		4.79	%	26,531		1,120		4.22	%
Federal Reserve Bank stock	1,653		99		5.99	%	1,605		96		6.00	%	791		47		6.01	%
Federal Home Loan Bank stock	938		37		3.99	%	737		39		5.31	%	354		15		4.30	%
Loans (1)	142,880		11,144		7.80	%	100,655		8,273		8.22	%	53,666		3,578		6.67	%
Earning assets	216,485		14,704		6.79	%	174,929		11,752		6.72	%	118,757		5,933		5.00	%
Other assets	4,344						4,134						2,803
Total assets	$	220,829					$	179,063					$	121,560
Liabilities & Equity
Interest checking (NOW)	$	4,429	26		0.58	%	$	5,213	56		1.07	%	$	3,604	21		0.59	%
Money market deposits	51,948		1,522		2.93	%	44,648		924		2.07	%	45,804		538		1.17	%
Savings	650		3		0.49	%	462		2		0.50	%	318		2		0.49	%
CDs	70,403		3,383		4.81	%	44,358		2,001		4.51	%	15,690		476		3.04	%
Borrowings	7		—		4.16	%	906		49		5.39	%	44		2		3.69	%
Total interest- bearing deposits and borrowings	127,437		4,934		3.87	%	95,587		3,032		3.17	%	65,460		1,039		1.25	%
Demand deposits	36,606						28,418						17,531
Other liabilities	1,799						1,448						3,861
Total liabilities	165,842						125,453						86,852
Equity	54,987						53,610						34,708
Total liabilities & equity	$	220,829					$	179,063					$	121,560
Net interest income / spread			$	9,770	2.92	%			$	8,720	3.55	%			$	4,894	3.75	%
Net interest margin					4.51	%					4.98	%					4.12	%

(1)  Loan fee income was $178,000, $340,000 and $96,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

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The Volume and Rate Variances table below sets forth the dollar difference in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the noted periods, and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates. Volume variances are equal to the increase or decrease in the average balance times the prior period rate and rate variances are equal to the increase or decrease in the average rate times the prior period average balance. Variances attributable to both rate and volume changes are equal to the change in rate times the change in average balance and are included below in the average volume column.

	Years ended December 31,
	2007 Compared to 2006
	Increase (Decrease)
	due to Changes in:
							Total
	Average			Average			Increase
(dollars in thousands)	Volume			Rate			(Decrease)
Interest income:
Federal funds sold	$	708		$	29		$	737
Interest-earning deposits at other financial institutions	(177		)	(1		)	(178		)
U.S. Gov’t Treasuries	3			—			3
U.S. Gov’t-Sponsored Agencies	(152		)	50			(102		)
Mortgage-backed securities and CMO’s	(373		)	(7		)	(380		)
Federal Reserve Bank stock	3			—			3
Federal Home Loan Bank stock	8			(10		)	(2		)
Loans	3,293			(422		)	2,871
Total increase (decrease) in interest income	3,313			(361		)	2,952
Interest expense:
Interest checking (NOW)	(5		)	(25		)	(30		)
Savings and money market deposits	215			384			599
CD’s	1,258			124			1,382
Borrowings	(37		)	(12		)	(49		)
Total increase in interest expense	1,431			471			1,902
Net increase (decrease) in net interest income	$	1,882		$	(832	)	$	1,050

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	Years ended December 31,
	2006 Compared to 2005
	Increase (Decrease)
	due to Changes in:
						Total
	Average			Average		Increase
(dollars in thousands)	Volume			Rate		(Decrease)
Interest income:
Federal funds sold	$	(64	)	$	255	$	191
Interest-earning deposits at other financial institutions	(367		)	202		(165		)
U.S. Gov’t Treasuries	1			1		2
U.S. Gov’t-Sponsored Agencies	(44		)	56		12
Mortgage-backed securities and CMO’s	860			151		1,011
Federal Reserve Bank stock	49			—		49
Federal Home Loan Bank stock	20			4		24
Loans	3,861			834		4,695
Total increase in interest income	4,316			1,503		5,819
Interest expense:
Interest checking (NOW)	17			18		35
Savings and money market deposits	(24		)	410		386
CD’s	1,294			231		1,525
Borrowings	46			1		47
Total increase in interest expense	1,333			660		1,993
Net increase in net interest income	$	2,983		$	843	$	3,826

Non-Interest Income

Non-interest income primarily consists of loan arrangement fees, loan syndication fees, service charges and fees on deposit accounts, as well as other operating income which mainly consists of outgoing funds transfer wire fees.  Non-interest income was $614,000 for the year ended December 31, 2007 compared to $209,000 for the year ended December 31, 2006 and $99,000 for the year ended December 31, 2005.

Comparing 2007 to 2006 the increase in non-interest income of 193.8% or $405,000 was primarily due to loan arrangement fees totaling $219,000 and loan syndication fees totaling $196,000.  Loan arrangement fees are related to a college loan funding program the Company established with a student loan provider in mid 2007.  The Company initially funds student loans originated by the student loan provider in exchange for non-interest income.  All loans are purchased by the student loan provider immediately after funding.  All purchase commitments are supported by a collateralized certificate of deposit. The loan syndication fees were related to three loans in which the Company provided syndication services for other financial institutions.  A syndicated loan is a loan in which the Company sources, arranges, and manages a multi-bank facility.  The increase of 111.1% or $110,000 comparing 2006 to 2005 was primarily due to an increase in fees collected for service charges and fees on deposit accounts.

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Non-Interest Expense

Non-interest expense was $8.9 million for 2007 compared to $8.3 million for 2006 and $6.4 million for 2005. The increases were $611,000, or 7.4%, for 2007, $1.9 million, or 29.7%, for 2006.

Compensation and benefits increased $374,000, or 8.1%, to $5.0 million in 2007 from $4.6 million in 2006.  The increase was primarily due to an increase in average FTE employees to 39 in 2007 from 34 in 2006.  Occupancy expenses were $783,000 and $988,000 for the years ended December 31, 2007 and 2006, respectively.  The decrease of $205,000 primarily relates to the onetime charge of $174,000 in 2006 in connection with lease abandonment for the loan production office in the South Bay area of Los Angeles County.  Professional fees decreased $199,000, or 16.3%, to $1.0 million in 2007 compared to $1.2 million in 2006. The decrease was primarily due to a reduction in SOX related expenses.  Technology expense increased $243,000, or 85.9%, primarily related to an expense accrual of $150,000 for the core system contract cancellation fee.   The Company plans to convert its core processing system in May 2008 and cancelled the contract with its current core processing system vendor in the fourth quarter of 2007.  Other operating expense increased $460,000 or 52.3% to $1.3 million in 2007 compared to $880,000 in 2006. Other operating expense increased in general due to growth in our loan and deposit portfolio.  Included in other operating expense was the FDIC insurance premium, which increased $92,000 or 707.7% from $13,000 in 2006 to $105,000 in 2007, as a result of an increase in total deposits and the FDIC Insurance Reform Act of 2005 which set higher new assessment rates effective January 1, 2007.  Also included in other operating expense was recruitment expense, which increased $72,000 in 2007 compared to none in 2006, as a result of hiring additional personnel.

Compensation and benefits increased $1.0 million, or 29.3%, to $4.6 million in 2006 from $3.6 million in 2005. This increase was primarily due to hiring of additional management and staff to support growth.  Occupancy expense also increased $318,000 or 47.5% to $1.0 million in 2006 from $0.7 million in 2005, primarily due to the opening of new loan production office in the South Bay area of Los Angeles County.  In December 2006, we made a decision to abandon the lease due to insufficient business generated.  In December 2006, we expensed approximately $174,000 in connection with the lease abandonment, which was included in occupancy expenses.   Professional fees increased $537,000 or 78.4% to $1.2 million in 2006 from $0.7 million in 2005. Included in professional fees was $466,000 in SOX related expenses.

Stock-Based Compensation

Prior to 2006, the Company accounted for share-based compensation to employees under the intrinsic value method in Accounting Principles Board (“APB”) Opinion No. 25 (“APB No. 25”), Accounting for Stock Issued to Employees.  On October 20, 2005, the Company’s Board of Directors approved the acceleration of vesting for all of the then outstanding options.  Expenses recognized per the Financial Accounting Standards Board (“FASB”) Interpretation No. 44 Accounting for Certain Transactions involving Stock Compensation were approximately $27,000, $196,000, and $29,000 for the years ended December 31, 2007, 2006 and 2005, respectively.  Future non-cash stock compensation related to the acceleration of the vesting may fluctuate as a result of changes in management’s estimate due to unforeseen changes in the employment status of option holders.

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On January 1, 2006, the Company began recognizing compensation expense for stock options in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised) (“SFAS No. 123R”), Share-Based Payment.  The Company elected to use the modified prospective transition method as permitted by SFAS No. 123R and therefore has not restated the financial results for prior periods.  No options have been granted since the adoption of SFAS No. 123R.

The Company has granted several restricted stock awards to directors and employees under the Equity Incentive Plan.  On October 20, 2005, the Company granted 24,000 restricted stock awards to the directors with a vesting period of three months and 31,000 restricted stock awards to certain employees with a cliff vesting period of three years. On May 1, 2006, the Company granted 26,500 restricted stock awards to the directors and 50,000 restricted stock awards to employees with a cliff vesting period of three years.  On January 25, 2007, the Company granted 40,000 restricted stock awards to certain employees with various cliff vesting periods: 5,000 awards vesting on the grant date, 5,000 awards with a cliff vesting period of eight months, 10,000 awards with a cliff vesting period of twenty-one months, 10,000 awards with a cliff vesting period of thirty-two months, and 10,000 awards with a cliff vesting period of three years. Also, in January 2007, the Board granted 5,347 restricted stock awards to consultants, which immediately vested.  On May 1, 2007, the Company granted 127,500 restricted stock awards to certain employees with a cliff vesting period of three years.  On June 1, 2007, the Board granted 50,000 restricted stock awards to one employee with graded vesting over four years.  On November 1, 2007, the Company granted 24,000 restricted stock awards to the directors with a cliff vesting period of three years and 1,500 restricted stock awards to one employee with a cliff vesting period of three years.  The restricted stock awards, accounted for under SFAS No. 123R, are considered fixed awards as the number of shares and fair value is known at the date of grant and the value is amortized over the vesting and/or service period.

Non-cash stock compensation expense recognized in the statements of income related to the restricted stock awards was $716,000 in 2007, $376,000 in 2006, and $186,000 in 2005.  Non-cash stock consulting fees recognized was $50,000 in 2007, zero in 2006, and zero in 2005.

Income Tax Benefit

The income tax benefit for 2007 was $2.1 million compared to none in 2006 and 2005.  In the fourth quarter of 2007, management determined that the valuation allowance for the Company’s deferred tax assets was no longer needed.  See discussion of management’s evaluation regarding the valuation allowance for the deferred tax assets at Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation – Financial Condition – Deferred Tax Asset.

Financial Condition

ASSETS

Total assets increased 11.5% or $23.1 million to $223.9 million at December 31, 2007, from $200.8 million at December 31, 2006. The growth in assets was primarily in loans, net of the allowance for loan losses and net unearned fees, which increased 34.5% or $43.6 million to $169.9 million at December 31, 2007 compared to $126.3 million at December 31, 2006.  Loan

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growth was funded primarily by an increase in savings and money market deposit accounts and a decrease in federal funds sold.

Cash and Cash Equivalents

Cash and cash equivalents (consisting of cash and due from banks and federal funds sold) amounted to $4.8 million at December 31, 2007 and $21.2 million at December 31, 2006. Our cash and cash equivalents are managed based upon our liquidity needs by investing our excess liquidity in higher yielding assets such as loans or securities. See the section “Liquidity and Asset/Liability Management” below.

Investment Securities

The investment securities portfolio is the second largest component of the Company’s interest earning assets, and the structure and composition of this portfolio is important to any analysis of the financial condition of the Company. The investment portfolio serves the following purposes:  (i) it can be readily reduced in size to provide liquidity for loan balance increases or deposit balance decreases; (ii) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (iii) it can be used as an interest rate risk management tool, since it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and other funding sources of the Company; (iv) it is an alternative interest-earning use of funds when loan demand is weak or when deposits grow more rapidly than loans; and (v) it can enhance the Company’s tax position by providing partially tax exempt income.

The Company uses two portfolio classifications for its securities: “Held to Maturity”, and “Available for Sale”. The Held to Maturity portfolio can consist only of securities that the Company has both the intent and ability to hold until maturity, to be sold only in the event of concerns with an issuer’s credit worthiness, a change in tax law that eliminates their tax exempt status, or other infrequent situations as permitted by generally accepted accounting principles.  FASB Statement 115 requires Available for Sale securities to be marked to market with an offset, net of taxes, to accumulated other comprehensive income, a component of shareholders’ equity. Monthly adjustments are made to reflect changes in the market value of the Company’s Available for Sale securities.

The Company’s investment portfolio is currently composed primarily of: (i) U.S. Treasury and Agency issues for liquidity and pledging; (ii) mortgage-backed securities, which in many instances can also be used for pledging, and which generally enhance the yield of the portfolio; and (iii) collateralized mortgage obligations, which generally enhance the yield of the portfolio.

The Company has not used interest rate swaps or other derivative instruments to hedge fixed rate loans or to otherwise mitigate interest rate risk.

At December 31, 2007, our securities amounted to $41.8 million, decreasing 14.2% or $6.9 million compared to $48.7 million at December 31, 2006.  No securities were sold in 2006.  In 2007, $5.0 million in Available for Sale securities were sold, resulting in no gain or loss.

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See Note 3 – Investment Securities in Item 8 for more information regarding investment securities at December 31, 2007 and 2006.

Loans

Loans, net of the allowance for loan losses and unearned fees increased 34.5% or $43.6 million from $126.3 million at December 31, 2006 to $169.9 million at December 31, 2007.  The increase in the loan portfolio was the result of direct marketing efforts in our target markets.

As of December 31, 2007 and 2006, gross loans outstanding totaled $172.4 million and $128.1 million, respectively, within the following loan categories:

	December 31,
	2007					2006					2005					2004
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
(dollars in thousands)	Outstanding			of Total		Outstanding			of Total		Outstanding			of Total		Outstanding			of Total
Commercial loans (1)	$	95,617		55.5	%	$	92,849		72.4	%	$	52,313		60.6	%	$	14,953		44.5	%
Real estate – residential mortgage	3,551			2.0	%	4,728			3.7	%	6,717			7.8	%	10,153			30.3	%
Real estate – commercial mortgage	42,394			24.6	%	20,710			16.2	%	16,063			18.6	%	4,870			14.5	%
Real estate – land and construction	13,446			7.8	%	—			—	%	—			—	%	—			—	%
Home equity	9,850			5.7	%	6,797			5.3	%	6,207			7.2	%	3,412			10.2	%
Consumer and other (2)	7,506			4.4	%	3,051			2.4	%	5,068			5.8	%	170			0.5	%
Loans, gross	172,364			100.0	%	128,135			100.0	%	86,368			100.0	%	33,558			100.0	%
Less – net unearned fee income	(131		)			(155		)			(216		)			(26		)
Less – allowance for loan losses	(2,369		)			(1,668		)			(1,164		)			(335		)
Loans, net	$	169,864				$	126,312				$	84,988				$	33,197

(1)Unsecured commercial loan balances were approximately $22.0 million, $33.1 million, $28.5 million and $9.0 million at December 31, 2007,  2006, 2005, and 2004, respectively.

(2)Unsecured consumer loan balances were approximately $5.9 million, $2.7 million, $4.2 million and $33,000 at December 31, 2007, 2006, 2005, and  2004, respectively.

As of December 31, 2007, substantially all of the Company’s loan customers are located in Southern California.

There were no impaired or nonaccrual loans at December 31, 2007 and 2006.

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The tables below reflect the maturity distribution for the loans (except for the Consumer and Other loans) in our loan portfolio at December 31, 2007:

	December 31, 2007
			Greater than one year
	One Year or		through		Greater than
(dollars in thousands)	Less		five years		five years		Total
Commercial Loans
Floating rate	$	35,415	$	14,357	$	—	$	49,772
Fixed rate	20,831		17,258		7,756		45,845
Real Estate Loans
Floating rate	6,085		5,605		15,849		27,539
Fixed rate	9,231		19,026		13,445		41,702
	$	71,562	$	56,246	$	37,050	$	164,858

Allowance for Loan Losses

The Allowance for Loan and Lease Losses (“ALLL”) must be maintained at an adequate level to absorb estimated future credit losses inherent in our loan portfolio and to ensure accurate reporting of financial information. Management has analyzed all classified credits; pools of loans; economic factors; trends in the loan portfolio; changes in policies, procedures, and underwriting criteria; and personnel involved in the loan approval process.

The Board of Directors reviews the adequacy of the allowance for loan losses on a quarterly basis. The allowance for loan losses is established through a provision for loan losses charged to earnings. The provisions reflect management’s evaluation of the adequacy of the allowance based upon estimates used from and comparisons to historical peer group loan loss data because we began operations in March 2004 and lack sufficient historical data from the performance of loans in our loan portfolio. However, credit quality is affected by many factors beyond our control, including local and national economies, and facts may exist which are not currently known to us that adversely affect the likelihood of repayment of various loans in the loan portfolio and realization of collateral upon default. Accordingly, no assurance can be given that we will not sustain loan losses materially in excess of the allowance for loan losses. In addition, the OCC, as a major part of their examination process, periodically reviews the allowance for loan losses and could require additional provisions to be made. The allowance is based on estimates, and actual losses may vary from the estimates. However, as the volume of the loan portfolio grows, additional provisions will be required to maintain the allowance at adequate levels. No assurance can be given that adverse future economic conditions will not lead to delinquent loans, increases in the provision for loan losses and/or charge-offs. Management believes that the allowance as of December 31, 2007 and the methodology utilized in deriving that level is adequate to absorb known and inherent risks in the loan portfolio.

The following is a summary of activity for the allowance for loan losses for the years ended December 31, 2007, 2006 and 2005 and for the period from March 1, 2004 (date operations commenced) to December 31, 2004.

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	December 31,
(dollars in thousands)	2007		2006		2005		2004
Beginning balance	$	1,668	$	1,164	$	335	$	—
Provision for loan losses	701		504		829		335
Charge off’s	—		—		—		—
Recoveries	—		—		—		—
Ending balance	$	2,369	$	1,668	$	1,164	$	335

The allowance for losses on undisbursed commitments to extend credit was $166,000 and $127,000 at December 31, 2007 and 2006, respectively.   The commitments are primarily related to commercial and home equity lines of credit and letters of credit which amounted to $67.5 million and $52.1 million at December 31, 2007 and 2006, respectively. The inherent risk associated with the loan is evaluated at the same time the credit is extended. However, the allowance held for the commitments is reported in other liabilities within the accompanying Consolidated Balance Sheets, and not as part of the allowance for loan losses in the above table.

Allocation of the Allowance for Loan Losses

	December 31,
	2007				2006				2005				2004
(dollars in thousands)	Balance of Allowance for Loan Losses		Percentage of Loans in Each Category		Balance of Allowance for Loan Losses		Percentage of Loans in Each Category		Balance of Allowance for Loan Losses		Percentage of Loans in Each Category		Balance of Allowance for Loan Losses		Percentage of Loans in Each Category
Commercial and real estate loans	$	2,263	95.6	%	$	1,539	97.6	%	$	942	94.2	%	$	219	99.5	%
Consumer and other adjustments	106		4.4	%	129		2.4	%	222		5.8	%	116		0.5	%
Total	$	2,369	100.0	%	$	1,668	100.0	%	$	1,164	100.0	%	$	335	100.0	%

Deferred Tax Asset

At December 31, 2007, the gross deferred tax asset was $2.3 million of which the majority is represented by a future tax benefit of $880,000 resulting from net operating losses incurred in previous years (“NOL”) and a future tax benefit of $896,000 resulting from the provision for loan losses timing difference.  No valuation allowance was considered necessary at December 31, 2007.  At December 31, 2006, the gross deferred tax asset was $3.0 million of which the majority was represented by a future tax benefit of $1.4 million as a result of the NOL. A 100% valuation allowance was applied against the deferred tax assets at December 31, 2006.

The reversal of the valuation allowance is due to management’s belief that it is more likely than not that the benefit of the deferred tax asset will be realized.  The Company has shown consistent and improving earnings in 2006 and 2007.  In addition, management believes

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the Company will continue to be profitable in 2008 and future years.  Therefore, management believes a valuation allowance is not needed at December 31, 2007.

Deposits

At December 31, 2007, total deposits were $161.2 million compared to $145.1 million at December 31, 2006, representing an increase of 11.1% or $16.1 million. The majority of the increase in deposits resulted from an increase in savings and money market deposits totaling $21.3 million during 2007.  The increase in savings and money market deposits was a result of the Company’s continued efforts in core deposit gathering and relationship banking.  The certificates of deposit less than $100,000 decreased $16.5 million from December 31, 2006 to December 31, 2007.  A significant portion of the decrease was a result of run-off’s of certificates of deposit accounts generated from a certificate of deposit campaign during the fourth quarter of 2006.

The following table reflects the summary of deposit categories by dollar and percentage at December 31, 2007 and 2006:

	December 31,
	2007				2006
			Percent of				Percent of
(dollars in thousands)	Amount		Total		Amount		Total
Non-interest-bearing demand deposits	$	32,708	20.3	%	$	29,929	20.6	%
Interest-bearing demand deposits	4,909		3.0	%	4,348		3.0	%
Savings and money market deposits	52,250		32.4	%	30,977		21.4	%
Certificates of deposit	71,326		44.3	%	79,833		55.0	%
	$	161,193	100.0	%	$	145,087	100.0	%

Liquidity and Asset/Liability Management

Liquidity, as it relates to banking, is the ability to meet loan commitments and to honor deposit withdrawals through either the sale or maturity of existing assets or the acquisition of additional funds through deposits or borrowing. The Company’s main sources of funds to provide liquidity are maturities of overnight federal funds sold, paydowns and maturities of investments, loan repayments, and increases in deposits.  The Company also maintains lines of credit with the Federal Home Loan Bank and other correspondent financial institutions.

The liquidity ratio (the sum of cash, federal funds sold and Available for Sale investments, excluding pledged amounts, divided by total assets) was 4.2% at December 31, 2007 and 16.8% at December 31, 2006.  The decrease in our liquidity ratio at December 31, 2007 compared to December 31, 2006 was primarily due to a decrease in our federal funds sold from $16.5 million to $1.5 million due to an increase in loan funding activities.  At December 31, 2007, the Company had a $4.0 million line of credit secured by investment securities and a $48.8 million line of credit secured by a blanket lien of eligible loans at the FHLB of  San Francisco.  The Company also had $30 million in federal fund lines of credit available with other correspondent banks in order to disburse loan commitments and to satisfy demands for deposit withdrawals. Each of these lines of credit is subject to conditions that the Company may not be

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able to meet at the time when additional liquidity is needed.  The Company had $2.0 million in borrowings outstanding with the FHLB of San Francisco at December 31, 2007.  The Company did not have any borrowings outstanding at December 31, 2006.

We believe the level of liquid assets is sufficient to meet current and anticipated funding needs.  In addition, our Asset/Liability Management Committee oversees our liquidity position by reviewing a monthly liquidity report.  Management is not aware of any trends, demands, commitments, events or uncertainties that will result or are reasonably likely to result in a material change in the Company’s liquidity.

Capital Resources

As of December 31, 2007, we are not subject to any material commitments for capital.  For capital adequacy, see Item 1. Business – “Capital Standards.”

At December 31, 2007, the Company had total stockholders’ equity of $58.6 million, which included $99,000 in common stock, $62.0 million in additional paid-in capital, $3.6 million accumulated deficit and $69,000 in accumulated other comprehensive income.

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to financial instruments with off-balance-sheet risk. These financial instruments include commitments to extend credit and letters of credit. To varying degrees, these instruments involve elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position.

	December 31,
(dollars in thousands)	2007		2006
Commitments to extend credit	$	63,137	$	47,459
Commitments to extend credit to directors and officers (undisbursed amount)	$	11,633	$	4,062
Standby/commercial letters of credit	$	4,243	$	4,607
Guarantees on outstanding credit card balances	$	208	$	23

We maintain an allowance for unfunded commitments, based on the level and quality of our undisbursed loan funds, which comprises the majority of our off-balance sheet risk.  As of December 31, 2007 and 2006, our allowance for unfunded commitments was $166,000 and $127,000, respectively, which represents 0.25% and 0.24% of the undisbursed loan funds for both periods, respectively.

For further information on commitments and contingencies, see Item 8.  Financial Statements and Supplementary Data; Note 5 – Related Party Transactions and Note 7 – Commitments and Contingencies.  Management is not aware of any other material off-balance sheet arrangements or commitments outside of the ordinary course of the Company’s business.

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Item 7A.	Quantitative and Qualitative Disclosure About Market Risk
	Interest Rate Risk Management

Our business plan is subject to interest rate risk, which is the impact that changes in interest rates would have on future earnings. The Board Asset/Liability Committee reviews interest rate risk, including interest rate sensitivity and the repricing characteristics of assets and liabilities. The principal objective of asset/liability management is to maximize net interest income within acceptable levels of risk established by policy. Interest rate risk is measured using financial modeling techniques, including stress tests, to measure the impact of changes in interest rates on future earnings. Net interest income is the primary source of earnings and is affected by interest rate movements. Changes in interest rates have a lesser impact the more that assets and liabilities reprice in approximately equivalent amounts within the same time intervals. Disproportionate balances in these repricing opportunities at any point in time constitute interest sensitivity gaps, which is the difference between interest sensitive assets and interest sensitive liabilities. The models’ static measurements are best used as early indicators of potential interest rate exposures and do not reflect the results of any projected activity.

An asset sensitive gap is an excess amount of interest sensitive assets over interest sensitive liabilities, whereas a liability sensitive gap is an excess of interest sensitive liabilities over interest sensitive assets. A mismatched gap position generally indicates the changes in income from interest-earning assets not being completely proportionate to changes in the cost of interest-bearing liabilities in a changing rate environment, resulting in net interest income volatility. Generally, if rate sensitive assets exceed rate sensitive liabilities, net interest income will be positively impacted during a rising interest rate environment and negatively impacted during a declining interest rate environment. On the other hand, if rate sensitive liabilities exceed rate sensitive assets, net interest income will be positively impacted during a declining interest rate environment and negatively impacted in an increasing interest rate environment. Although asset and liability products offered by depository institutions may respond differently to changes in the interest rate environment, the “gap” between assets and liabilities is only a general indicator of interest rate sensitivity and how volatile our net interest income might be affected by changing interest rates. Furthermore, the prepayment of loans and securities Available for Sale, and early withdrawals of certificates of deposit, may change the interest sensitivity.

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The following table sets forth the distribution of rate sensitive assets and liabilities at the date indicated:

	RATE SENSITIVITY
	December 31, 2007
(dollars in thousands)	Three Months Or Less			Over Three Through Twelve Months			Over One Year Through Five Years			Over Five Years			Total
Assets
Federal funds sold	$	1,470		$	—		$	—		$	—		$	1,470
Interest-bearing balances with other financial institutions	103			—			—			—			103
Investments, Available for Sale	—			6,400			1,427			28,689			36,516
Investments, Held to Maturity	100									5,207			5,307
Federal Reserve Bank and Federal Home Loan Bank Stock	—			—			—			2,670			2,670
Loans, net of deferred fees	101,583			12,686			34,797			23,167			172,233
Rate Sensitive Assets	$	103,256		$	19,086		$	36,224		$	59,733		$	218,299
Liabilities
Interest-bearing demand deposits	$	4,909		$	—		$	—		$	—		$	4,909
Savings and money market deposits	52,250			—			—			—			52,250
Certificates of deposit	62,661			8,657			8			—			71,326
Other borrowings	2,000			—			—			—			2,000
Rate Sensitive Liabilities	$	121,820		$	8,657		$	8		$	—		$	130,485
Interval Gaps:
Interest rate sensitivity gap	$	(18,564	)	$	10,429		$	36,216		$	59,733		$	87,814
Rate sensitive assets to rate sensitive liabilities	84.8		%	220.5		%	N/M			N/M			167.3		%
Cumulative Gaps:
Cumulative interest rate sensitivity gap	$	(18,564	)	$	(8,135	)	$	28,081		$	87,814		$	87,814
Rate sensitive assets to rate sensitive liabilities	84.8		%	93.8		%	121.5		%	167.3		%	167.3		%

The Company has established repricing policy limits for cumulative 1-year rate sensitive assets to rate sensitive liabilities ratio of between 80% - 120%. The assets and liabilities are classified by the earlier of the repricing or maturity date in accordance with the contractual terms of the assets.

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The market value of portfolio equity (“MVPE”) is measured as the difference between the market value of the Company’s assets and the market value of its liabilities, plus the market value of its off-balance-sheet financial instruments. This measure of interest rate risk complements simulation analysis because it is a market value, rather than a book value concept, and has long-term, rather than a short-term, earnings emphasis. The market valuation model uses discounted cash flows of assets, liabilities and off-balance-sheet financial instruments to estimate their market values. To measure the sensitivity of MVPE to changes in interest rates, the results from rising and falling interest rate scenarios are projected and compared to the base interest rate forecast scenario. The results of this analysis are used to compare volatility in the MVPE against the Company’s policy thresholds and limits.

Presented below, as of December 31, 2007 and 2006, is an analysis of the Company’s interest rate risk as measured by changes in market value of portfolio equity (“MVPE”). The Company was within its internal policy thresholds and limits at December 31, 2007 and 2006, respectively.

	2007					2006
(dollars in thousands)	$ Cumulative Change in Market Value			% Cumulative Change in Market Value		$ Cumulative Change in Market Value			% Cumulative Change in Market Value
Change in rates
+200 bp	$	(3,549	)	-6.04	%	$	(1,652	)	-3.05	%
+100 bp	$	(1,733	)	-2.95	%	$	(722	)	-1.33	%
0 bp	—			—	%	—			—	%
-100 bp	$	1,355		2.31	%	$	377		0.70	%
-200 bp	$	2,309		3.93	%	$	504		0.93	%

Item 8.Financial Statements and Supplementary Data

Financial statements are filed as a part of this report hereof beginning on page 56 and are incorporated herein by reference.

Item 9.Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

On July 11, 2007, the Audit Committee of the Board of Directors recommended and approved the decision to terminate Grant Thornton LLP as our independent registered public accountants.

Grant Thornton LLP’s reports on our financial statements for the years ended December 31, 2006 and 2005 did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles. Grant Thornton

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LLP’s report on management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting for the year ended December 31, 2006 did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles.

During the two most recent fiscal years and interim periods subsequent to December 31, 2006, there were no disagreements with Grant Thornton LLP, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. During the two most recent fiscal years and interim periods subsequent to December 31, 2006, there were no “reportable events” as such term is defined in Item 301(a)(1)(v) of Regulation S-K.

On July 11, 2007, the Audit Committee of the Board of Directors engaged the accounting firm of Perry-Smith LLP as independent registered public accountants for the fiscal year ended December 31, 2007. During the two most recent fiscal years, and the interim period since December 31, 2006, we did not consult with Perry-Smith LLP, on any issue, nor did Perry-Smith LLP, advise us on any application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or any matter that was either the subject of a “disagreement” or a “reportable event” (each as defined in Item 301(a)(1) of Regulation S-K).

Item 9A.Controls and Procedures

1) Evaluation of Disclosure Controls and Procedures

As of December 31, 2007, the Company established and evaluated, under the supervision and with the participation of our Chief Executive Officer, President and principal accounting officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15I under the Securities Exchange Act of 1934, as adopted by the OCC (the “Exchange Act”)). The Company is subject to the requirements of Section 404 of the Sarbanes Oxley Act of 2002. Accordingly, the Company had an independent test and assessment of the effectiveness of our internal control over financial reporting. The Chief Executive Officer, President and principal accounting officer concluded that our disclosure controls and procedures were effective as of December 31, 2007.

2) Management’s Report on Internal Control over Financial Reporting

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

As of December 31, 2007, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has determined

46

that the Company’s internal control over financial reporting as of December 31, 2007 is effective.

The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements. The Company’s internal control over financial reporting as of December 31, 2007 has been audited by Perry-Smith LLP, an independent registered public accounting firm, as stated in their report appearing at Item 15 (a) (1).

3) Remediation of Material Weaknesses in Internal Control

Not applicable.

4) Changes in Internal Controls

The Company established internal control over financial reporting as part of its’ organization and there were no changes to such internal control over the course of the year that would materially affect, or that would be reasonably likely to materially affect, its’ internal control over financial reporting.

Item 9B.Other Information

None.

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PART III

Item 10.Directors, Executive Officers and Corporate Governance

Information required by this item will be contained in our definitive proxy statement for our 2008 Annual Meeting of Shareholders (the “Proxy Statement”), to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2007. Such Information is incorporated herein by reference.

We have adopted a code of ethics that applies to our executive officers, and to all of our other officers, directors, employees and agents. Copies of the code of ethics are also available and will be provided upon request free of charge by contacting Margaret Tillman, Assistant Vice President, Investor Relations/Marketing, at 1875 Century Park East, suite 1400, Los Angeles, CA 90067.

Item 11.Executive Compensation

Information required by this item will be contained in our Proxy Statement for our 2008 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2007. Such information is incorporated herein by reference.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Securities Authorized for Issuance Under Equity Compensation Plans

The information required in response to this item is incorporated by reference from the information contained in the section captioned “Employment and Certain Other Agreement and Employee Benefit Plans” in our Proxy Statement for our 2008 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A with the SEC within 120 days of December 31, 2007.

Other Information Concerning Security Ownership of Certain Beneficial Owners and Management

The remainder of the information required by Item 12 will be set forth under the captions “Security Ownership of Certain Beneficial Owners” and “Election of Directors” in the Proxy Statement, and is incorporated herein by reference.

Item 13.Certain Relationships and Related Transactions, and Director Independence

The information required to be furnished pursuant to this item will be set forth under the caption “Transactions with Directors and Executive Officers” in the Proxy Statement, and is incorporated herein by reference.

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Item 14.Principal Accounting Fees and Services

The information required to be furnished pursuant to this item will be set forth under the caption “Relationship with Independent Accountants-Fees” in the Proxy Statement, and is incorporated herein by reference.

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PART IV

Item 15.Exhibits and Financial Statement Schedules

(a)	Documents filed as part of this Report.
(1)	The following documents are filed as part of this Annual Report on Form 10-K and are incorporated herein by reference to Item 8 hereof:
	Consolidated Balance Sheets as of December 31, 2007 and 2006.
	Consolidated Statements of Income for the Years Ended December 31, 2007, 2006, and 2005.
	Consolidated Statements of Changes in Stockholders’ Equity and Other Comprehensive Income for the Years Ended December 31, 2007, 2006, and 2005.
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005.
	Notes to Consolidated Financial Statements.
	Independent Registered Public Accounting Firms’ Reports.
(2)	All schedules for which provision is made in the applicable accounting regulation of the SEC are omitted because they are not applicable or the required information is included in the Consolidated Financial Statements or notes thereto.
(3)(a)	The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are listed in the Index to Exhibits to this Annual Report on Form 10-K.

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SIGNATURES

In accordance with section 13 or 15(d) of the Securities Exchange Act, as adopted by the Comptroller, the registrant caused this report to be signed on its behalf by the undersigned, thereunto authorized, on the 17^th day of March, 2008^.

1ST CENTURY BANCSHARES, INC.
By:	/s/ Alan I. Rothenberg.
	Alan I. Rothenberg
	Chairman and Chief Executive Officer
By:	/s/ Jason P. DiNapoli.
	Jason P. DiNapoli
	President and Chief Operating Officer

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

Signature	Title	Date
/s/ William S. Anderson.	Director	March 17, 2008
William S. Anderson
/s/ Christian K. Bement.	Director	March 17, 2008
Christian K. Bement
/s/ Leslie E. Bider.	Director	March 17, 2008
Leslie E. Bider
/s/ Dave Brooks.	Director	March 17, 2008
Dave Brooks
/s/ Joseph J. Digange.	Director	March 17, 2008
Joseph J. Digange
/s/ Jason P. DiNapoli.	President and Chief Operating
Jason P. DiNapoli	Officer, Director (Principal Executive Officer)	March 17, 2008
/s/ Marshall S. Geller.	Director	March 17, 2008
Marshall S. Geller
/s/ Dan T. Kawamoto.	Executive Vice President and
Dan T. Kawamoto	Chief Financial Officer (Principal Financial and	March 17, 2008
	Accounting Officer)
/s/ Joanne C. Kozberg.	Director	March 17, 2008
Joanne C. Kozberg
/s/ Alan D. Levy.	Director	March 17, 2008
Alan D. Levy
/s/ Robert A. Moore.	Director	March 17, 2008
Robert A. Moore
/s/ Barry D. Pressman.	Director	March 17, 2008
Barry D. Pressman, M.D.

52

/s/ Alan I. Rothenberg.	Chairman of the Board and
Alan I. Rothenberg	Chief Executive Officer (Principal Executive Officer)	March 17, 2008
/s/ Lewis N. Wolff.	Director	March 17, 2008
Lewis N. Wolff
/s/ Richard S. Ziman.	Director	March 17, 2008
Richard S. Ziman

53

Exhibit Index

Exhibit #	Document
3.1.	Certificate of Incorporation of 1st Century Bancshares, Inc. (1)
3.2.	Bylaws of 1st Century Bancshares, Inc. (2)
4.1.	Form of Common Stock certificate. (3)
10.1.	Employment Agreement between Donn Jakosky and 1st Century Bank, N.A., dated March 5, 2007.
10.2.	Lease by and between Scriba Enterprises, Inc., as landlord, and 1st Century Bank, N.A., as tenant, dated February 27, 2006.
10.3.	Lease Amendment #1 by and between 1875/1925 Century Park East Company and 1st Century Bank, N.A., dated June 9, 2006.
10.4.	Lease Amendment #2 by and between 1875/1925 Century Park East Company and 1st Century Bank, N.A., dated October 9, 2007.
10.5.	Separation Agreement by and between 1st Century Bank, N.A. and Angelina Bingham, dated May 23, 2006.
10.6.	Equity Incentive Plan. (4)
10.7.	Equity Incentive Plan Form of Stock Option Grant Agreement. (5)
10.8.	Form of Resale Restriction Agreement.
10.9.	Form of Restricted Stock Grant Agreement. (6)
10.10.	Director and Employee Stock Option Plan. (7)
10.11.	Director and Employee Stock Option Agreement. (8)
10.12.	Founder Stock Option Plan.
10.13.	Founder Stock Option Agreement.
10.14.	Option Anti-Dilution Agreement of Richard S. Cupp, dated May 11, 2005.
10.15.	Option Anti-Dilution Agreement of Alan I. Rothenberg, dated May 11, 2005.
10.16.	Consulting Arrangement between Richard S. Cupp and 1st Century Bank, N.A.
10.17.	Employment Agreement between Richard S. Cupp and 1st Century Bank, N.A.
10.18.	Consulting Agreement between Alan I. Rothenberg and 1st Century Bank, N.A.
10.19	Employment Agreement between Dan T. Kawamoto and 1st Century Bank, N.A., dated June 1, 2007.

54

14.	Code of Ethics.
21.	Subsidiary of the Registrant (9)
23.1	Consent of Perry-Smith LLP.
23.2	Consent of Grant Thornton LLP.
31.1.	CEO Certification required under Section 302 of the Sarbanes–Oxley Act of 2002.
31.2.	CFO Certification required under Section 302 of the Sarbanes–Oxley Act of 2002.
32.	CEO and CFO’s Certification required under Section 906 of the Sarbanes–Oxley Act of 2002.

(1)	Previously filed as Exhibit 4.1 to the Company’s Form S-8 filed with the SEC on December 21, 2007, and incorporated herein by reference.
(2)	Previously filed as Exhibit 4.2 to the Company’s Form S-8 filed with the SEC on December 21, 2007, and incorporated herein by reference.
(3)	Previously filed as Exhibit 4.1 to the Company’s Form 8-A, filed with the SEC on January 31, 2008, and incorporated herein by reference.
(4)	Previously filed as Exhibit 4.3 to the Company’s Form S-8 filed with the SEC on December 21, 2007, and incorporated herein by reference.
(5)	Previously filed as Exhibit 4.4 to the Company’s Form S-8 filed with the SEC on December 21, 2007, and incorporated herein by reference.
(6)	Previously filed as Exhibit 4.5 to the Company’s Form S-8 filed with the SEC on December 21, 2007, and incorporated herein by reference.
(7)	Previously filed as Exhibit 4.3 to the Company’s Form S-8 filed with the SEC on December 21, 2007, and incorporated herein by reference.
(8)	Previously filed as Exhibit 4.4 to the Company’s Form S-8 filed with the SEC on December 21, 2007, and incorporated herein by reference.
(9)	Previously filed as Exhibit 21 to the Company’s Form 8-A filed with the SEC on January 30, 2008, and incorporated herein by reference.

55

Financial Statements and Supplementary Data

Index to Financial Statements

1^st Century Bancshares, Inc.

	Page
Consolidated Balance Sheets as of December 31, 2007 and 2006	57
Consolidated Statements of Income for the years ended December 31, 2007, 2006, and 2005	58
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the years ended December 31, 2007, 2006, and 2005	59
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006, and 2005	60
Notes to Consolidated Financial Statements	61
Report of Independent Registered Public Accounting Firm for 2007	87
Report of Independent Registered Public Accounting Firm	89

56

1^st Century Bancshares, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)

	December 31, 2007			December 31, 2006
ASSETS
Cash and due from banks	$	3,375		$	4,687
Federal funds sold	1,470			16,505
Total cash and cash equivalents	4,845			21,192
Interest-earning deposits at other financial institutions	103			123
Investments – Available for Sale (“AFS”), at estimated fair value	36,516			42,406
Investments – Held to Maturity (“HTM”), at amortized cost	5,307			6,270
Loans, net of allowance for loan losses of $2,369 and $1,668 as of December 31, 2007 and 2006, respectively	169,864			126,312
Premises and equipment, net	937			709
Deferred tax assets	2,325			—
Accrued interest and other assets	3,958			3,740
Total Assets	$	223,855		$	200,752
LIABILITIES AND STOCKHOLDERS’ EQUITY
Non-interest-bearing demand deposits	$	32,708		$	29,929
Interest-bearing deposits:
Interest-bearing checking	4,909			4,348
Savings and money market	52,250			30,977
Certificates of deposit less than $100,000	1,731			18,204
Certificates of deposit of $100,000 or greater	69,595			61,629
Total Deposits	161,193			145,087
Other borrowings	2,000			—
Accrued interest and other liabilities	2,050			1,556
Total Liabilities	165,243			146,643
Commitments and contingencies (note 7)
Stockholders’ Equity:
Common stock, $0.01 par value – 50,000,000 shares authorized, 9,913,884 and 9,783,722 issued and outstanding at December 31, 2007 and 2006, respectively	99			98
Additional paid-in capital	62,021			61,108
Accumulated deficit	(3,577		)	(6,489		)
Accumulated other comprehensive income (loss)	69			(608		)
Total Stockholders’ Equity	58,612			54,109
Total Liabilities and Stockholders’ Equity	$	223,855		$	200,752

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

57

1^st Century Bancshares, Inc.

Consolidated Statements of Income

Years ended December 31,

(in thousands, except per share data)

	2007		2006		2005
Interest income on:
Loans	$	11,144	$	8,273	$	3,578
Investments	1,980		2,460		1,435
Other	1,580		1,019		920
Total interest income	14,704		11,752		5,933
Interest expense on:
Deposits	4,934		2,983		1,037
Borrowings	—		49		2
Total interest expense	4,934		3,032		1,039
Net interest income	9,770		8,720		4,894
Provision for loan losses	701		504		829
Net interest income after provision for loan losses	9,069		8,216		4,065
Non-interest income	614		209		99
Non-interest expenses:
Compensation and benefits	4,968		4,594		3,553
Occupancy	783		988		670
Professional fees	1,023		1,222		685
Marketing	251		313		375
Technology	526		283		189
Other operating expenses	1,340		880		910
Total non-interest expenses	8,891		8,280		6,382
Income (loss) before income taxes	792		145		(2,218		)
Income tax benefit	2,120		—		—
Net income (loss)	$	2,912	$	145	$	(2,218	)
Basic earnings (loss) per share	$	0.30	$	0.01	$	(0.31	)
Diluted earnings (loss) per share	$	0.28	$	0.01	$	(0.31	)

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

58

1^st Century Bancshares, Inc.

Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income

Years ended December 31, 2007, 2006, and 2005

(in thousands, except share data)

	Outstanding Shares	Amount		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance at December 31, 2004	5,280,000	$	53	$	26,347		$	(4,624	)	$	(213	)	$	21,563
Exercise of stock options	37,000	—		193			—			—			193
Proceeds from 2nd offering	4,399,613	44		35,153			—			—			35,197
Cost associated with 2nd offering	—	—		(1,183		)	—			—			(1,183		)
Transfer back for 2-for-1 stock split	—	—		(208		)	208			—			—
Amortization of restricted stock	—	—		157			—			—			157
Estimated compensation expense from the acceleration of vesting of stock options	—	—		29			—			—			29
Comprehensive loss:
Net loss	—	—		—			(2,218		)	—			(2,218		)
Net unrealized loss on investments Available for Sale, net of tax effect	—	—		—			—			(622		)	(622		)
Total comprehensive loss	—	—		—			(2,218		)	(622		)	(2,840		)
Balance at December 31, 2005	9,716,613	$	97	$	60,488		$	(6,634	)	$	(835	)	$	53,116
Exercise of stock options	43,109	1		244			—			—			245
Restricted stock issued	24,000	—		—			—			—			—
Forfeiture of restricted stock	—	—		(22		)	—			—			(22		)
Amortization of restricted stock	—	—		202			—			—			202
Estimated compensation expense from the acceleration of vesting of stock options	—	—		196			—			—			196
Comprehensive income:
Net income	—	—		—			145			—			145
Net unrealized gain on investments Available for Sale, net of tax effect	—	—		—			—			227			227
Total comprehensive income	—	—		—			145			227			372
Balance at December 31, 2006	9,783,722	$	98	$	61,108		$	(6,489	)	$	(608	)	$	54,109
Restricted stock issued	15,347	—		—			—			—			—
Forfeiture of restricted stock	—	—		(29		)	—			—			(29		)
Net issuance of exercises of stock options, including tax benefit	114,815	1		149			—			—			150
Amortization of restricted stock	—	—		766			—			—			766
Estimated compensation expense from the acceleration of vesting of stock options	—	—		27			—			—			27
Comprehensive income:
Net income	—	—		—			2,912			—			2,912
Net unrealized gain on investments Available for Sale, net of tax effect	—	—		—			—			677			677
Total comprehensive income	—	—		—			2,912			677			3,589
Balance at December 31, 2007	9,913,884	$	99	$	62,021		$	(3,577	)	$	69		$	58,612

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

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1^st Century Bancshares, Inc.

Consolidated Statements of Cash Flows

Years ended December 31,

(in thousands)

	2007			2006			2005
Cash flows from operating activities:
Net income (loss)	$	2,912		$	145		$	(2,218	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	231			259			237
Provision for loan losses	701			504			829
Amortization of deferred loan fees, net of costs	(171		)	(340		)	(96		)
Non-cash stock compensation	766			376			186
Net amortization (accretion) of premiums and discounts from investment securities AFS	4			(13		)	28
Net accretion of discounts from investment securities HTM	(11		)	(10		)	(4		)
Increase in accrued interest receivable and other assets	(2,461		)	(188		)	(432		)
Increase in accrued interest payable and other liabilities	494			127			860
Net cash provided by (used in) operating activities	2,465			860			(610		)
Cash flows from investing activities:
Net change in interest-earning deposits at other financial institutions	20			4,497			8,473
Activity in securities AFS:
Purchases	(11,324		)	(9,139		)	(33,475		)
Maturities and principal reductions	12,935			12,546			6,657
Proceeds from the sale of securities	4,999			—			—
Activity in investment securities HTM:
Purchases	(197		)	(99		)	(4,873		)
Proceeds from maturities and principal reductions	1,170			1,071			583
Loan originations, net of principal collections	(44,081		)	(41,488		)	(52,524		)
Purchase of premises and equipment	(459		)	(101		)	(90		)
Purchase of Federal Reserve Bank stock and Federal Home Loan Bank stock	(152		)	(447		)	(1,256		)
Net cash used in investing activities	(37,089		)	(33,160		)	(76,505		)
Cash flows from financing activities:
Net increase in deposits	16,105			37,998			43,074
Net proceeds from the issuance of common stock	—			—			34,014
Proceeds from FHLB of San Francisco Borrowings	2,000			—			—
Exercise of stock options	172			245			193
Net cash provided by financing activities	18,277			38,243			77,281
(Decrease) Increase in cash and cash equivalents	(16,347		)	5,943			166
Cash and cash equivalents, beginning of year	21,192			15,249			15,083
Cash and cash equivalents, end of year	$	4,845		$	21,192		$	15,249
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	4,912		$	2,824		$	954
Income Taxes	$	1		$	—		$	—
Net (decrease) increase in unrealized loss on investments AFS	$	(725	)	$	227		$	622
Non-cash issuance of stock	$	659		$	—		$	—

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

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1^st Century Bancshares, Inc.

Notes To Consolidated Financial Statements

(1)Summary of Significant Accounting Policies

Nature of Operation

In December 2007, 1^st Century Bancshares, Inc. (the “Company” or “Bancshares”) commenced operations as a bank holding company by acquiring all of the outstanding shares of 1^st Century Bank, National Association (the “Bank”) in a one bank holding company reorganization. The reorganization and combination of Bancshares with the Bank was effected in a manner similar to a pooling of interests through the combination of equity interests under common control and, as such, the consolidated financial statements reflect the common stock of Bancshares as if such shares had been outstanding for all periods presented. The new corporate structure gives Bancshares and the Bank greater flexibility in terms of operations, expansion, and diversification. Bancshares was incorporated in the state of Delaware. The Bank commenced operations on March 1, 2004 in the State of California operating under the laws of a National Association (“N.A.”) regulated by the Office of the Comptroller of the Currency (“OCC”). The Bank is a commercial bank that focuses on closely held and family owned businesses and their employees, professional service firms, real estate professionals and investors, the legal, accounting and medical professions, and small and medium-sized businesses and individuals in Los Angeles County. The Bank provides a wide range of banking services to meet the financial needs of the local residential community, with an orientation primarily directed toward owners and employees of the business client base. The Bank is subject to both the regulations and periodic examinations by the OCC, which is the federal regulatory agency. Bancshares and the Bank are collectively referred to herein as “the Company.”

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiary bank. All inter- company accounts and transactions have been eliminated.

Certain items in the 2006 and 2005 financial statements have been reclassified to conform to the 2007 presentation.

The Company’s accounting and reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. A summary of our significant accounting and reporting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:

Use of Estimates

Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates used by management in preparation of its consolidated financial statements include the allowance for loan losses and the valuation of deferred tax assets. It is at least reasonably possible that a material change in this estimate may occur in the near term and cause actual results to differ materially.

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Cash and Cash Equivalents

For the purpose of the cash flow statement, cash and cash equivalents include cash and due from banks and federal funds sold. In general, federal funds are sold for one-day and returned the next business day. As of December 31, 2007 and 2006 the Company maintained required reserves with the Federal Reserve Bank of San Francisco of approximately $1.2 million and $435,000, respectively, which are included in cash and cash equivalents in the accompanying Consolidated Balance Sheets.

Interest-earning Deposits at Other Financial Institutions

Interest–earning deposits at other financial institutions mature within one year and are carried at cost.

Investment Securities

In accordance with Statement of Financial Accounting Standards No. 115 (“SFAS 115”), Accounting for Certain Investments in Debt and Equity Securities, securities are classified in three categories. Debt securities that management has a positive intent and ability to hold to maturity are classified as “Held to Maturity” or “HTM” and are recorded at amortized cost. Debt and equity securities bought and held principally for the purpose of selling in the near term are classified as “Trading” securities and are measured at fair value, with unrealized gains and losses included in earnings. Debt and equity securities not classified as “Held to Maturity” or “Trading” with readily determinable fair values are classified as “Available for Sale” or “AFS” and are recorded at fair value, with unrealized gains/losses excluded from earnings and reported in other comprehensive income. The Company uses estimates for the fair values from third parties.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of investment securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial conditions and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Federal Reserve Bank Stock and Federal Home Loan Bank Stock

Federal Reserve Bank (“FRB”) stock and Federal Home Loan Bank (“FHLB”) stock are carried at cost and are considered restricted equity securities and included in “Accrued interest and other assets” on the Consolidated Balance Sheets.

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Loans

Loans, net are stated at the unpaid principal balances less the allowance for loan losses and unamortized deferred fees and costs. Loan origination fees and related direct costs are deferred and accreted to interest income as an adjustment to yield over the respective maturities of the loans using the effective interest method.

Interest on loans is accrued as earned on a daily basis, except where reasonable doubt exists as to the collection of interest, in which case the accrual of interest is discontinued and the loan is placed on non-accrual status.

Loans are placed on non-accrual at the time a loan is 90 days delinquent, or the loan is charged-off at an earlier date if the loan is determined to be non collectible. Interest on non-accrual loans is accounted for on a cash-basis or cost-recovery method, until qualifying for return to accrual status. In order for a loan to return to accrual status, all principal and interest amounts owed must be brought current and future payments must be reasonably assured. At December 31, 2007 and 2006, the Company did not have any loans on non-accrual status.

The Company also evaluates loans for impairment, when principal and interest is not expected to be collected in accordance with the contractual terms of the loan agreement. The Company analyzes loans for impairment on a loan by loan basis, using either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. Loans that experience insignificant payment delays or payment shortfalls are generally not considered in the impairment evaluation. At December 31, 2007 and 2006, the Company did not have any impaired loans.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses charged to operations. Loan losses are charged against the allowance when management believes that repayment is uncollectible. Subsequent repayments or recoveries, if any, are credited to the allowance. The provisions reflect management’s evaluation of the adequacy of the allowance based upon estimates used from historical peer group loan loss data because the Company began operations in March 2004 and lacks historical data from the performance of loans in the loan portfolio and the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. Management carefully monitors changing economic conditions, the concentrations of loan categories and collateral, the financial condition of the borrowers, the history of the loan portfolio, and historical peer group loan loss data to determine the adequacy of the allowance for loan losses. The allowance is based on estimates, and actual losses may vary from the estimates. No assurance can be given that adverse future economic conditions will not lead to delinquent loans, increases in the provision for loan losses and/or charge-offs. Management believes that the allowance as of December 31, 2007 and 2006 is adequate to absorb known and inherent risks in the loan portfolio.

Furniture, Fixtures and Equipment, net

Leasehold improvements and furniture, fixtures and equipment are carried at cost, less depreciation and amortization. Furniture, fixtures and equipment are depreciated using the

63

straight-line method over the estimated useful life of the asset (three to five years). Leasehold improvements are depreciated using the straight-line method over the terms of the related leases or the estimated lives of the improvements, whichever is shorter.

Advertising Costs

Advertising costs are expensed as incurred.

Income taxes

The Company files consolidated federal and combined state income tax returns. Income tax expense or benefit is the total of the current year income tax payable or refundable and the change in the deferred tax assets and liabilities (excluding deferred tax assets and liabilities related to components of other comprehensive income). Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates.

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in the rates and laws. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized.

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return. FIN 48 was effective beginning in the first quarter of fiscal year 2007. The adoption of FIN 48, effective January 1, 2007, did not have a material impact on the Company’s financial position or results of operations.

Other Comprehensive Income (Loss)

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. However, certain changes in assets and liabilities, such as unrealized gains and losses on Available for Sale securities, are reported as a separate component of the equity section of the Consolidated Balance Sheets and along with net income, are components of comprehensive income (loss).

Accumulated other comprehensive income (loss) consists of net unrealized gains and losses on securities Available for Sale at December 31, 2007 and 2006.

Earnings (Loss) per Share

The Company reports both basic and diluted earnings per share. Basic earnings per share is determined by dividing net income or loss by the average number of shares of common stock outstanding, while diluted earnings per share is determined by dividing net income by the

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average number of shares of common stock outstanding adjusted for the dilutive effect of common stock equivalents. Potential dilutive common shares related to outstanding stock options and restricted stock are determined using the treasury stock method.

	Years ended December 31,
(dollars in thousands)	2007		2006		2005
Net income (loss)	$	2,912	$	145	$	(2,218	)
Average number of common shares outstanding	9,865,471		9,746,435		7,124,871
Effect of dilutive options	202,524		703,483		—
Effect of dilution of restricted stock	218,412		58,194		—
Average number of common shares outstanding used to calculate diluted earnings per common share	10,286,407		10,508,112		7,124,871

There were no anti-dilutive shares excluded from the weighted average shares outstanding calculation during 2007 and 2006.

Common shares, per share data and stock option information in the accompanying consolidated financial statements and footnotes reflect the retroactive effect of the 2-for-1 stock split in the form of a stock dividend effective on February 28, 2005, for stockholders of record at the close of business on February 15, 2005.

Fair Value of Financial Instruments

Estimated fair value amounts have been determined using available market information and appropriate valuation methods. Considerable judgment is required to interpret market data and develop the estimates of fair value. Accordingly, the estimates of fair value in the financial statements are not necessarily indicative of the amounts the Company would receive in a current market exchange.

Stock-Based Compensation

Prior to 2006, the Company accounted for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees (“APB No. 25”).” No compensation expense was recognized in the financial statements for stock option arrangements, as the Company’s stock option plans provide for the issuance of options at a price of no less than the fair market value at the date of the grant. Prior to 2006, the Company also adopted the disclosure provisions of SFAS No. 148, Accounting for Stock Based Compensation – Transition and Disclosure on Amendment of SFAS No. 123 (“SFAS No. 148”). SFAS No. 148 requires pro-forma disclosures of the Company’s net income and net income per share as if the fair value based method of accounting for stock based awards had been applied. Under the fair value based method, compensation cost is recorded based on the value of the award at the grant date and is recognized over the service period. The Company issues new shares of common stock upon the exercises of stock options or the granting of restricted stock awards.

The following table illustrates the effect on the net loss from Company operations and net loss per share from Company operations if the Company had applied the fair value recognition provisions of SFAS No. 148 to stock-based employee compensation for the year ended December 31, 2005:

65

(dollars in thousands, except per share amounts)	2005
Net (loss) from Company operations:
As reported	$(2,218	)
Total stock-based compensation expense determined under the fair value based method for all awards, net of related tax effects	(4,937	)
Pro forma net (loss) from Company operations:	$(7,155	)
Basic and diluted loss per share from Company operations as reported:	$(.31	)
Basic and diluted loss per share from Company operations pro forma:	$(1.00	)

The fair value of the stock options is estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions for 2005: dividend yield of 0%; expected volatility of 44%; risk free interest rate of 3.53% to 4.38%; and an expected option life of 7 years.

On October 20, 2005, the Board approved the acceleration of vesting for all of the then outstanding options.  As a result of the vesting acceleration under APB No. 25, 1.5 million options became exercisable immediately. However, as a condition of the acceleration, to avoid any unintended personal benefits to the Company’s directors and executive officers and provide an incentive for continued contributions to the long-term operation of the Company, the Company also imposed restrictions on the sale of the shares underlying the accelerated options held by directors and executive officers. These restrictions prevent the sale of any stock obtained through the exercise of the accelerated options prior to the lapse of the specified restriction periods that are intended to be equivalent to the original vesting schedules. Approximately 1.3 million options of the 1.5 million options accelerated are subject to restrictions on resale of any stock obtained through the exercise of the options. Expenses recognized per the Financial Accounting Standards Board (“FASB”) Interpretation No. 44 Accounting for Certain Transactions involving Stock Compensation were approximately $27,000, $196,000, and $29,000 for the years ended December, 2007, 2006, and 2005, respectively. Future non-cash stock compensation related to the acceleration of the vesting may fluctuate as a result of changes in management’s estimate due to unforeseen changes in the employment status of option holders.

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised) (“SFAS No. 123R”), Share-Based Payment. The Company elected to use the modified prospective transition method as permitted by SFAS No. 123R and therefore has not restated the financial results for prior periods. No options have been granted since the adoption of SFAS No. 123R.

The Company granted several restricted stock awards to directors, employees, and a vendor under the Equity Incentive Plan. The restricted stock awards, accounted for under SFAS No. 123R, are considered fixed awards as the number of shares and fair value is known at the date of grant and the value is amortized over the vesting and/or service period.

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Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”).  This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements.  The Company will adopt the provisions of SFAS No. 157 in the first quarter of 2008.  The Company does not expect the adoption of the provisions of SFAS No. 157 to have a material effect on the Company’s financial condition and results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115 (“SFAS No. 159”).  This statement permits entities to choose to measure many financial instruments and certain other items at fair value.  The Company adopted SFAS No. 159 on January 1, 2008 and decided not to elect the fair value option for any financial assets or liabilities at this time.

In December 2007, the FASB revised SFAS No. 141, Business Combination (“SFAS No. 141R”).  SFAS No. 141R improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS No. 141R establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date.  Management is currently evaluating the impact of SFAS No. 141R on the Company.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS No. 160”).  SFAS No. 160 improves the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards.  SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (i.e., January 1, 2009 for entities with calendar year-ends).  Earlier adoption is prohibited.  Management is currently evaluating the impact of SFAS No. 160 on the Company.

(2)Interest-Earning Deposits at Other Financial Institutions

The Company had interest-earning deposits at other financial institutions of $103,000 with a weighted-average yield of 4.59% and $123,000 with a weighted average yield of 5.25% at December 31, 2007 and 2006, respectively.

(3)Investments

The following is a summary of the investments categorized as Available for Sale and Held to Maturity at December 31, 2007 and 2006:

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	December 31, 2007
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(dollars in thousands)	Cost		Gains		Losses			Value
Investments – Available for Sale
Gov’t and Federal Agency Securities	$	3,501	$	16	$	—		$	3,517
Mortgage-backed securities	26,845		110		(89		)	26,866
Collateralized mortgage obligations	6,053		80		—			6,133
	$	36,399	$	206	$	(89	)	$	36,516

	December 31, 2007
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(dollars in thousands)	Cost		Gains		Losses			Value
Investments-Held to Maturity
Gov’t and Federal Agency Securities	$	100	$	—	$	—		$	100
Mortgage-backed securities	1,211		—		(15		)	1,196
Collateralized mortgage obligations	3,996		24		(4		)	4,016
	$	5,307	$	24	$	(19	)	$	5,312

	December 31, 2006
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(dollars in thousands)	Cost		Gains		Losses			Value
Investments – Available for Sale
Gov’t and Federal Agency Securities	$	7,001	$	—	$	(58	)	$	6,943
Mortgage-backed securities	31,679		10		(570		)	31,119
Collateralized mortgage obligations	4,334		12		(2		)	4,344
	$	43,014	$	22	$	(630	)	$	42,406

	December 31, 2006
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(dollars in thousands)	Cost		Gains		Losses			Value
Investments-Held to Maturity
Gov’t and Federal Agency Securities	$	100	$	—	$	—		$	100
Mortgage-backed securities	1,421		—		(43		)	1,378
Collateralized mortgage obligations	4,749		20		(19		)	4,750
	$	6,270	$	20	$	(62	)	$	6,228

The Company did not have investment securities categorized as “Trading” at December 31, 2007 and 2006.  Net unrealized gains on investment securities Available for Sale totaling $117,000 were recorded, net of tax of $48,000 as accumulated other comprehensive income within stockholders’ equity at December 31, 2007.  Net unrealized losses on investment securities Available for Sale totaling $608,000 were recorded as accumulated other comprehensive loss within stockholders’ equity at December 31, 2006.

At December 31, 2007, the carrying amount of securities pledged to the FHLB of San Francisco, to secure a borrowing facility, was $4.3 million.  The Company had $2.0 million in outstanding borrowings at the rate of 3.75% with the FHLB of San Francisco at December 31,

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2007.  At December 31, 2006, the carrying amount of securities pledged to the FHLB of San Francisco, to secure a borrowing facility, was $14.4 million.  The Company did not have any borrowings outstanding at December 31, 2006.

Additionally, at December 31, 2007, the carrying amount of securities pledged to the State of California Treasurer’s Office to secure certificates of deposits was $37.5 million.  Of the $37.5 million in pledged securities, $35.8 million was designated Available for Sale and $1.7 million was designated Held to Maturity.  At December 31, 2006, the carrying amount of securities pledged to the State of California Treasurer’s Office to secure deposits received from them was $34.2 million.  Of the $34.2 million pledged securities, $32.2 million was designated Available for Sale and $2.0 million was designated Held to Maturity.  At December 31, 2007 and 2006, deposits from the State of California were $32.0 million and $30.0 million, respectively.

The fair value of AFS securities, the amortized cost for HTM securities, and the weighted average yield of investment securities by contractual maturity at December 31, 2007 are as follows:

(dollars in thousands)

Available for Sale	1Year or Less		Weighted Average Yield		After 1 Through 5 Years		Weighted Average Yield		After 5 Through 10 Years		Weighted Average Yield		After 10 Years		Weighted Average Yield		Total		Weighted Average Yield
US Government Agency	$	3,517	5.21	%	$	—	—	%	$	—	—	%	$	—	—	%	$	3,517	5.21	%
Mortgage-backed securities	2,883		3.06		1,427		4.31		6,408		4.56		16,148		4.96		26,866		4.63
Collateralized Mortgage Obligations	—		—		—		—		—		—		6,133		5.37		6,133		5.37
Total	$	6,400	4.24	%	$	1,427	4.31	%	$	6,408	4.56	%	$	22,281	5.07	%	$	36,516	4.81	%

Held to Maturity	1Year or Less		Weighted Average Yield		After 1 Through 5 Years		Weighted Average Yield		After 5 Through 10 Years		Weighted Average Yield		After 10 Years		Weighted Average Yield		Total		Weighted Average Yield
US Government Agency	$	100	4.93	%	$	—	—	%	$	—	—	%	$	—	—	%	$	100	4.93	%
Mortgage-backed securities	—		—		—		—		—		—		1,211		4.59		1,211		4.59
Collateralized Mortgage Obligations	—		—		—		—		—		—		3,996		5.11		3,996		5.11
Total	$	100	4.93	%	$	—	—	%	$	—	—	%	$	5,207	5.07	%	$	5,307	4.99	%

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Information pertaining to securities with gross unrealized losses at December 31, 2007, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less than Twelve Months				Twelve Months or More
(dollars in thousands)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Investments-Available for Sale
U.S. Gov’t and Federal Agency Securities	$	—	$	—	$	—	$	—
Mortgage-backed Securities	—		—		89		12,380
Collateralized Mortgage Obligations	—		—		—		—
Total Securities Available for Sale	$	—	$	—	$	89	$	12,380
Investments-Held to Maturity
U.S. Gov’t and Federal Agency Securities	$	—	$	—	$	—	$	—
Mortgage-backed Securities	15		1,196		—		—
Collateralized Mortgage Obligations	4		473		—		—
Total Securities Held to Maturity	$	19	$	1,669	$	—	$	—

Information pertaining to securities with gross unrealized losses at December 31, 2006, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less than Twelve Months				Twelve Months or More
(dollars in thousands)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Investments-Available for Sale
U.S. Gov’t and Federal Agency Securities	$	1	$	1,999	$	57	$	4,944
Mortgage-backed Securities	42		5,593		528		24,607
Collateralized Mortgage Obligations	2		893		—		—
Total Securities Available for Sale	$	45	$	8,485	$	585	$	29,551
Investments-Held to Maturity
U.S. Gov’t and Federal Agency Securities	$	—	$	100	$	—	$	—
Mortgage-backed Securities	—		—		43		1,378
Collateralized Mortgage Obligations	4		2,417		15		591
Total Securities Held to Maturity	$	4	$	2,517	$	58	$	1,969

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial conditions and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

As of December 31, 2007, the market value of securities which were in an unrealized loss position and which have been in a continuous loss position for 12 months or more totaled $12.4 million, with unrealized losses of $89,000.  For investments in an unrealized loss position at December 31, 2007, the Company has the intent and ability to hold these investments until the full recovery of their carrying value.  All individual securities that have been in a continuous loss

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position for 12 months or longer at December 31, 2007 had investment grade ratings upon purchase.  The issuers of these securities have not, to the Company’s knowledge, established any cause for default on these securities and the various rating agencies have reaffirmed these securities’ investment grade status at December 31, 2007.  Therefore, none of the securities are considered other-than-temporarily impaired at December 31, 2007.

(4)Loans

As of December 31, 2007 and 2006, gross loans outstanding totaled $172.4 million and $128.1 million, respectively, within the following loan categories:

	December 31,
	2007					2006
	Amount			Percent		Amount			Percent
(dollars in thousands)	Outstanding			of Total		Outstanding			of Total
Commercial loans(1)	$	95,617		55.5	%	$	92,849		72.4	%
Real estate – residential mortgage	3,551			2.0	%	4,728			3.7	%
Real estate – commercial mortgage	42,394			24.6	%	20,710			16.2	%
Real estate – land and construction	13,446			7.8	%	—			—	%
Home equity	9,850			5.7	%	6,797			5.3	%
Consumer and Other (2)	7,506			4.4	%	3,051			2.4	%
Loans, gross	172,364			100.0	%	128,135			100.0	%
Less - net unearned fee income	(131		)			(155		)
Less - allowance for loan losses	(2,369		)			(1,668		)
Loans, net	$	169,864				$	126,312

(1)Unsecured commercial loan balances were approximately $22.0 million and $33.1 million at December 31, 2007 and 2006, respectively.

(2)Unsecured consumer loan balances were approximately $5.9 million and $2.7 million at December 31, 2007 and 2006, respectively.

As of December 31, 2007, substantially all of the Company’s loan customers are located in Southern California.

There were no impaired or nonaccrual loans at December 31, 2007 and 2006.

The following is a summary of activity for the allowance for loan losses for the years ended December 31, 2007, 2006, and 2005:

	December 31,
(dollars in thousands)	2007		2006		2005
Beginning balance	$	1,668	$	1,164	$	335
Provision for loan losses	701		504		829
Charge off’s	—		—		—
Recoveries	—		—		—
Ending balance	$	2,369	$	1,668	$	1,164

An allowance for losses on undisbursed commitments to extend credit of $166,000 and $127,000 at December 31, 2007 and 2006, respectively, is primarily related to commercial and home equity lines of credit and letters of credit which amounted to $67.5 million and $52.1 million at December 31, 2007 and 2006, respectively. The inherent risk associated with the loan is evaluated at the same time the credit is extended. However, the allowance held for undisbursed

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commitments are reported in “Accrued interest and other liabilities” within the accompanying Consolidated Balance Sheets, and not as part of the allowance for loan losses in the above table.

(5)Related Party Transactions

In the normal course of business, the Company may make loans to officers and directors as well as loans to companies and individuals affiliated with or guaranteed by officers and directors of the Company. Such loans are made in the ordinary course of business at rates and terms no more favorable than to those offered to other customers with similar credit standings not affiliated with the Company. Gross loan commitments for officers and directors of the Company at December 31, 2007 and 2006 were $21.3 million and $15.3 million, respectively. The outstanding balances for these loans were $9.7 million and $11.3 million at December 31, 2007 and 2006, respectively.

The following is a summary of related party loan activity for the years ended December 31, 2007 and 2006:

	December 31,
(dollars in thousands)	2007			2006
Beginning Balance	$	11,258		$	9,054
Credits granted	861			3,462
Repayments	(2,411		)	(1,258		)
Ending Balance	$	9,708		$	11,258

Deposits by officers and directors of the Company at December 31, 2007 and 2006 amounted to approximately $7.2 million and $9.9 million, respectively.

(6)Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation and amortization. The depreciation and amortization are computed on a straight line basis over the lesser of the lease term, or the estimated useful lives of the assets, generally three to ten years.

Premises and equipment at December 31, 2007 and 2006 are comprised of the following:

	December 31,
(dollars in thousands)	2007			2006
Leasehold improvements	$	503		$	478
Furniture & equipment	814			912
Software	202			—
Construction in progress	330			—
Total	1,849			1,390
Accumulated depreciation	(912		)	(681		)
Premises and equipment, net	$	937		$	709

Depreciation and amortization for the years ended December 31, 2007, 2006, and 2005 amounted to $231,000, $259,000, and $237,000, respectively.

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(7)Commitment and Contingencies

Commitments to Extend Credits

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve various levels and elements of credit and interest rate risk in excess of the amount recognized in the accompanying financial statements. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company had $63.1 million and $47.5 million in commitments to extend credit to customers and $4.2 million and $4.6 million in standby/commercial letters of credit at December 31, 2007 and 2006, respectively.  The Company also guarantees the outstanding balance on credit cards offered at the Company, but underwritten by another financial institution.  The outstanding balances on these credit cards were $207,000 and $23,000 as of December 31, 2007 and 2006, respectively.

Lease Commitments

The Company leases office premises under two operating leases that will expire in June 2014 and November 2017, respectively. Rental expense was $435,000, $652,000, and $376,000 for the years ended December 31, 2007, 2006, and 2005, respectively.

The projected minimum rental payments under the term of the lease at December 31, 2007 are as follows:

Years ending December 31
2008	$	570,000
2009	583,000
2010	597,000
2011	603,000
2012	632,000
Thereafter	1,344,000
	$	4,329,000

In October 2007, the Company entered into a ten-year lease for additional ground floor office space at its headquarters location effective December 1, 2007.  This location is the Company’s Private Banking Center and was opened in January 2008.

In April 2006, the Company opened a loan production office in the South Bay area of Los Angeles County.  In December 2006, a decision was made to abandon the lease due to insufficient business generated.  In December 2006, the Company expensed approximately $174,000 in connection with the lease abandonment and included this in occupancy expenses.

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Litigation

The Company from time to time is party to lawsuits, which arise out of the normal course of business. At December 31, 2007 and 2006, the Company did not have any litigation that management believes will have a material impact on the Consolidated Balance Sheets or Consolidated Statements of Income.

Restricted Stock

The following table sets forth the Company’s future restricted stock expense, assuming no forfeitures.  The amounts shown below include restricted stock granted in October 2005, May 2006, as well as, January, May, June, and November 2007.

Years ending December 31,
2008	$	775,000
2009	533,000
2010	183,000
2011	11,000
	$	1,502,000

(8)Deposits

The following table reflects the summary of deposit categories by dollar and percentage at December 31, 2007 and 2006:

	December 31, 2007				December 31, 2006
			Percent of				Percent of
(dollars in thousands)	Amount		Total		Amount		Total
Non-interest bearing demand deposits	$	32,708	20.3	%	$	29,929	20.6	%
Interest bearing demand deposits	4,909		3.0	%	4,348		3.0	%
Savings and money market demand deposits	52,250		32.4	%	30,977		21.4	%
Certificates of deposit	71,326		44.3	%	79,833		55.0	%
	$	161,193	100.0	%	$	145,087	100.0	%

The aggregate amount of certificates of deposits of $100,000 or more at December 31, 2007 and 2006 was $69.6 million and $61.6 million respectively.  At December 31, 2007, the Company had four deposit accounts with the State of California Treasurer’s Office for a total of $32.0 million that represented 19.9% of total deposits. The State of California Treasurer’s Office deposits are scheduled to mature as follows:  $10 million on January 10, 2008; $6 million on March 5, 2008; $10 million on March 13, 2008; and $6 million on March 21, 2008.  The Company renewed the $10 million matured on January 10, 2008 and the next maturity date is on April 10, 2008.  The Company intends to renew these deposits at maturity.

At December 31, 2007, the maturity distribution of certificates of deposit of $100,000 or more, including State of California Treasurer’s Office deposits, was as follows: $65.0 million maturing in six months or less and $4.6 million maturing in six months to one year.

The table below sets forth the range of interest rates, amount and remaining maturities of our certificates of deposit at December 31, 2007.

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			Greater than
			Six months
	Six months		through		Greater than
(dollars in thousands)	and less		one year		one year
0.00% to 2.99%	$	6,245	$	—	$	—
3.00% to 3.99%	32,859		3,551		7
4.00% to 4.99%	21,058		220		—
5.00% to 5.99%	6,332		1,054		—
Total	$	66,494	$	4,825	$	7

(9)Other Borrowings

At December 31, 2007, the Company had a $4.0 million line of credit secured by investment securities and a $48.8 million line of credit secured by a blanket lien of eligible loans at the FHLB of San Francisco.  The Company also had $30.0 million in federal fund lines of credit available with other correspondent banks in order to disburse loan commitments and to satisfy demands for deposit withdrawals. Each of these lines of credit is subject to conditions that the Company may not be able to meet at the time when additional liquidity is needed.  The Company had $2.0 million in outstanding overnight borrowings at a rate of 3.75% with the FHLB of San Francisco at December 31, 2007.  The Company did not have any borrowings outstanding at December 31, 2006.

(10)Non-interest Income

The following table summarizes the information regarding non-interest income for the years ended December 31, 2007, 2006, and 2005.

(dollars in thousands)	2007		2006		2005
Loan arrangement fees	$	219	$	—	$	—
Loan syndication fees	196		1		—
Service charges and other operating income	199		208		99
Total non-interest income	$	614	$	209	$	99

Loan arrangement fees are related to a college loan funding program the Company established with a student loan provider in mid 2007.  The Company initially funds student loans originated by the student loan provider in exchange for non-interest income.  All loans are purchased by the student loan provider immediately after funding.  All purchase commitments are supported by a collateralized certificate of deposit.

The loan syndication fees are related to loans in which the Company provided syndication services for other financial institutions.  A syndicated loan is a loan in which the Company sources, arranges, and manages a multi-bank facility.

Service charges and other operating income includes service charges and fees on deposit accounts, as well as other operating income which mainly consists of outgoing funds transfer

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wire fees.

(11)Other Operating Expenses

The following table summarizes the information regarding other operating expenses for the years ended December 31, 2007, 2006, and 2005.

(dollars in thousands)	2007		2006			2005
Provision for off-balance sheet commitments	$	39	$	(66	)	$	145
Loan expense	87		55			91
Insurance	67		81			71
Stationery and supplies	78		52			32
Telephone	71		75			54
Customer parking	41		56			42
Correspondent bank fees	19		20			42
Employee training	33		77			44
Regulatory assessments	177		75			52
Board of directors fees/non-cash stock expenses	151		90			129
Other expenses	577		365			208
Total other operating expenses	$	1,340	$	880		$	910

(12)Income Taxes

The income tax benefit consists of the following for the years ended December 31, 2007, 2006 and 2005.

	2007			2006			2005
Current:
Federal	$	—		$	—		$	—
State	—			—			—
Deferred:
Federal	322			49			(754		)
State	103			10			(155		)
Change in valuation allowance	(2,545		)	(59		)	909
Income tax benefit	$	(2,120	)	$	—		$	—

A reconciliation of the amounts computed by applying the federal statutory rate of 34% for 2007, 2006, and 2005 to the income (loss) before income tax provision and the effective tax rate are as follows:

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	2007					2006					2005
(dollars in thousands)	Amount			Percent of Pretax		Amount			Percent of Pretax		Amount			Percent of Pretax
Federal income tax provision (benefit) at statutory rate	$	269		34	%	$	49		34	%	$	(754	)	34	%
Changes due to:
State franchise tax, net of federal income tax	86			11	%	10			7	%	(155		)	7	%
Effect of meals & entertainment	43			5	%	—			—		—			—
Valuation allowance	(2,545		)	(322	)%	(59		)	(41	)%	909			(41	)%
Other, net	27			4	%	—			—		—			—
Total income tax benefit	$	(2,120	)	(268	)%	$	—		0	%	$	—		0	%

The major components of the net deferred tax assets at December 31, 2007 and 2006 are as follows:

(dollars in thousands)	2007		2006
Deferred tax assets:
Net operating losses	$	880	$	1,445
Pre-opening expenses	153		284
Equity compensation	307		—
Accrual to cash adjustment	—		85
Provision for loan losses	896		684
Unrealized loss on AFS securities	—		249
Other	137		245
Total deferred tax assets	2,373		2,992
Deferred tax liabilities:
Net unrealized gains on investment securities	48		—
Total deferred tax liabilities	48		—
Valuation allowance	—		(2,992		)
Net deferred tax assets	$	2,325	$	—

At December 31, 2007, the Company believes it is more likely than not that it will realize the deferred tax assets in future periods based upon the 2006 and 2007 historical profits; therefore, no valuation allowance has been provided. No uncertain tax positions were identified as of December 31, 2007 in accordance with FIN 48.  The Company had no tax reserve for uncertain tax positions at December 31, 2007.  The Company does not anticipate providing a reserve for uncertain tax positions in the next twelve months.  In accordance with FIN 48, the Company has elected to record interest accrued and penalties related to unrecognized tax benefits in tax expense.  At December 31, 2007, the Company did not have an accrual for interest and/or penalties associated with uncertain tax positions.

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During 2007, the Company utilized $1.0 million of net operating loss carryforwards.  As of December 31, 2007, the Company had net operating loss carryforwards of approximately $2.1 million.  For federal tax purposes, the carryforwards expire beginning in 2024, and for California tax purposes, the carryforwards expire beginning in 2014.

The Company files income tax returns in the U.S. federal and California jurisdictions.  With few exceptions, the Company is not subject to U.S. federal, state, local, or non-U.S. income tax examinations by tax authorities for years before 2004.

(13)Regulatory Matters

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

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulation) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes that as of December 31, 2007 and 2006, the Company and the Bank met all capital adequacy requirements to which they are subject.

At December 31, 2007, the most recent notification from the OCC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Company must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios. There are no conditions or events since the notification that management believes have changed the Bank’s category.

As of December 31, 2007, the actual capital ratios for the Company and the Bank were the same.  The Company’s and the Bank’s actual capital ratios as of December 31, 2007 and 2006 are presented in the table below:

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									For the Bank To be
									Well Capitalized
					For Capital				Under Prompt
	Actual				Adequacy Purposes				Corrective Measures
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2007:
Total Risk-Based Capital Ratio	$	59,877	30.07	%	$	15,931	8.00	%	$	19,914	10.00	%
Tier I Risk-Based Capital Ratio	$	57,387	28.82	%	$	7,966	4.00	%	$	11,949	6.00	%
Tier I Leverage Ratio	$	57,387	24.32	%	$	9,440	4.00	%	$	11,800	5.00	%
December 31, 2006
Total Risk-Based Capital Ratio	$	56,511	37.18	%	$	12,159	8.00	%	$	15,199	10.00	%
Tier I Risk-Based Capital Ratio	$	54,716	36.00	%	$	6,080	4.00	%	$	9,120	6.00	%
Tier I Leverage Ratio	$	54,716	28.08	%	$	7,793	4.00	%	$	9,741	5.00	%

Dividends

In the ordinary course of business, Bancshares is dependent upon dividends from the Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years.  Currently, the Bank is prohibited from paying dividends to Bancshares until such time as the accumulated deficit is eliminated.

To date, Bancshares has not paid any cash dividends.  Payment of stock or cash dividends in the future will depend upon earnings and financial condition and other factors deemed relevant by our Board of Directors, as well as our legal ability to pay dividends.  Accordingly, no assurance can be given that any cash dividends will be declared in the foreseeable future.

(14)Employee Benefit Plan

The Company has a 401(k) plan for all employees and permits voluntary contributions of their salary on a pre-tax basis, subject to statutory and Internal Revenue Service guidelines. The contributions to the 401(k) plan are invested at the directions of the participant. The Company matches 100% of the employee’s contribution up to the first 3% of the employee’s salary and 50% of the employee’s contribution up to the next 2% of the employee’s salary. The Company’s expense relating to the contributions made to the 401(k) plan for the benefit of its employee’s for the years ended December 31, 2007, 2006, and 2005 were $96,000,  $104,000, and $80,000, respectively.

(15)Stock Based Compensation

Prior to 2006, the Company accounted for share-based compensation to employees under the intrinsic value method in Accounting Principles Board (“APB”) Opinion No. 25 (“APB No. 25”), Accounting for Stock Issued to Employees.  On October 20, 2005, the Board approved the acceleration of vesting for all of the then outstanding options. Expenses recognized per the Financial Accounting Standards Board (“FASB”) Interpretation No. 44 Accounting for Certain Transactions involving Stock Compensation were approximately $27,000, $196,000, and

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$29,000 for the years ended December 31, 2007, 2006 and 2005, respectively.  Future non-cash stock compensation related to the acceleration of the vesting may fluctuate as a result of changes in management’s estimate due to unforeseen changes in the employment status of option holders.

On January 1, 2006, the Company began recognizing compensation expense for stock options in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised) (“SFAS No. 123R”), Share-Based Payment.  The Company elected to use the modified prospective transition method as permitted by SFAS No. 123R and therefore has not restated the financial results for prior periods.  No options have been granted since the adoption of SFAS No. 123R.

The Company granted several restricted stock awards to directors and employees under the Equity Incentive Plan.  On October 20, 2005, the Company granted 24,000 restricted stock awards to the directors with a vesting period of three months and 31,000 restricted stock awards to certain employees with a cliff vesting period of three years. On May 1, 2006, the Company granted 26,500 restricted stock awards to the directors and 50,000 restricted stock awards to employees with a cliff vesting period of three years.  On January 25, 2007, the Company granted 40,000 restricted stock awards to certain employees with various cliff vesting periods: 5,000 awards vesting on the grant date, 5,000 awards with a cliff vesting period of eight months, 10,000 awards with a cliff vesting period of twenty-one months, 10,000 awards with a cliff vesting period of thirty-two months, and 10,000 awards with a cliff vesting period of three years. Also, in January 2007, the Board granted 5,347 restricted stock awards to consultants, which immediately vested.  On May 1, 2007, the Company granted 127,500 restricted stock awards to certain employees with cliff vesting period of three years.  On June 1, 2007, the Board granted 50,000 restricted stock awards to one employee with graded vesting over four years.  On November 1, 2007 the Company granted 24,000 restricted stock awards to the directors with a cliff vesting period of three years and 1,500 restricted stock awards to one employee with a cliff vesting period of three years.  The restricted stock awards, accounted for under SFAS No. 123R, are considered fixed awards as the number of shares and fair value is known at the date of grant and the value is amortized over the vesting and/or service period.

Non-cash stock compensation expense recognized in the income statement related to the restricted stock awards was $766,000 in 2007, $376,000 in 2006, and $186,000 in 2005.

Non-vested Shares of Restricted Stock

Under the Equity Incentive Plan

	Years ended December 31,
	2007				2006				2005
Restricted Shares	Number of Shares		Weighted Avg Fair Value at Grant Date		Number of Shares		Weighted Avg Fair Value at Grant Date		Number of Shares	Weighted Avg Fair Value at Grant Date
Beginning Balance	83,000		$	8.49	55,000		$	6.85	—	$	—
Granted	248,347		7.37		76,500		9.33		55,000	6.85
Vested	(15,347	)	8.47		(24,000	)	6.85		—	—
Forfeited	(14,250	)	8.00		(24,500	)	9.03		—	—
End of period	301,750		$	7.59	83,000		$	8.49	55,000	$	6.85

The intrinsic value of restricted stock vested during the years ended December 31, 2007, 2006, and 2005 was $0, $64,000, and $0, respectively.

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The following table represents the status of all optioned shares and exercise price for 2004 Founder Stock Option Plan for the years ended December 31, 2007, 2006, and 2005.

	2007					2006					2005
2004 Founder Stock Option Plan	Number of Options		Weighted Avg Exercise Price			Number of Options		Weighted Avg Exercise Price			Number of Options		Weighted Avg Exercise Price
Beginning Balance	135,700		$	5.00		138,700		$	5.00		141,700		$	5.00
Granted	—		$		—	—		$		—	—		$		—
Exercised	(2,000	)	$	5.00		(3,000	)	$	5.00		(3,000	)	$	5.00
Cancelled	—		$		—	—		$		—	—		$		—
Ending Balance	133,700		$	5.00		135,700		$	5.00		138,700		$	5.00

The remaining contractual life of the 2004 Founder Stock Options outstanding was 6.16 and 7.07 years at December 31, 2007 and 2006, respectively. All options under the 2004 Founder Stock Option Plan were exercisable at December 31, 2007, 2006, and 2005.

The following table represents the status of all optioned shares and exercise price for the Director and Employee Stock Option Plan for the years ended December 31, 2007, 2006, and 2005.

	2007					2006					2005
Director and Employee Stock Option Plan	Number of Options		Weighted Avg Exercise Price			Number of Options		Weighted Avg Exercise Price			Number of Options		Weighted Avg Exercise Price
Beginning Balance	1,904,554		$	6.08		1,990,654		$	6.09		1,331,600		$	5.05
Granted	—		$		—	—		$		—	731,554		$	7.90
Exercised	(112,815	)	$	5.05		(40,109	)	$	5.74		(34,000	)	$	5.22
Cancelled	(636,066	)	$	6.47		(45,991	)	$	7.03		(38,500	)	$	5.24
Ending Balance	1,155,673		$	5.96		1,904,554		$	6.08		1,990,654		$	6.09

The remaining contractual life of the Director and Employee Stock Options outstanding was 6.47 and 7.39 years at December 31, 2007 and 2006, respectively. All options under the Directors and Employee Stock Option Plan were exercisable at December 31, 2007, 2006, and 2005.

The aggregate intrinsic value of all options outstanding and exercisable at December 31, 2007 was $1.2 million.  The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last day of the period, which was $6.00 on December 31, 2007, and the exercise prices multiplied by the number of options outstanding.  The total intrinsic value of options exercised was approximately $238,000, $146,000 and $107,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

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The following table details the amount of shares authorized and available under all stock plans as of December 31, 2007.

Share Reserve (1)	Less Shares Previously Exercised/Vested	Less Shares Outstanding	Total Shares Available for Future Issuance
2,784,000	234,271	1,591,123	958,606

(1) Adjusted for stock split

(16)Estimated Fair Value Information

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many cases, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Estimated fair value amounts have been determined by using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. SFAS No. 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment. Accordingly, the estimates presented are not necessarily indicative of the amounts the Company could realize in a current market exchange.

The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the value are explained below.

Cash and cash equivalents

The carrying amounts are considered to be their estimated fair value because of the short-term maturity of these instruments which includes federal funds sold.

Interest-earning deposits at other financial institutions

The carrying amounts of interest-earning deposits maturing within ninety days approximate their fair values. Fair values of other interest-earning deposits are estimated using discounted cash flow analysis based on current rates of similar types of deposits.

Investment Securities

For investment securities, the estimated fair values are based on quoted market prices obtained from independent pricing sources.

FRB and FHLB Stock

FRB and FHLB stock is included in “Accrued interest and other assets” on the Consolidated Balance Sheets.  For FRB and FHLB stock, the carrying amount is equal to the estimated fair value as the stock may be sold back to FRB or FHLB at the carrying value.

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Loans, net

The fair value for loans with variable interest rates is the carrying amount. The fair value of fixed rate loans is derived by calculating the discounted value of future cash flows expected to be received by the various homogeneous categories of loans. All loans have been adjusted to reflect changes in credit risk.

Off-balance sheet credit-related instruments

The fair value of commitments, which include standby letters of credit and commercial letters of credit, are based upon fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The related fees are not considered material to the financial statements as a whole and the fair market value of the off-balance sheet credit-related instruments cannot be readily determined.

Deposits

The estimated fair value approximates carrying value for demand deposits. The estimated fair value of interest-bearing checking, savings, and money market deposits is estimated by discounting future cash flows using the interest rates currently offered for deposits of similar products.

The estimated fair value for the certificates of deposit accounts are considered to be equivalent to the carrying amount due to the fact that the stated maturities are all within one year of December 31, 2007.

Other Borrowings

At December 31, 2007, other borrowings consisted of an overnight FHLB of San Francisco advance.  The fair value of the overnight FHLB of San Francisco advance was considered to be equivalent to the carrying amount due to the short-term maturity.

Accrued Interest

The estimated fair value for both accrued interest receivable and accrued interest payable are considered to be equivalent to the carrying amounts.

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Summary

The estimated fair value and carrying amounts of the financial instruments at December 31, 2007 and 2006 are as follows:

	2007				2006
	Carrying		Estimated		Carrying		Estimated
(dollars in thousands)	Amount		Fair Value		Amount		Fair Value
Assets
Cash and cash equivalents	$	4,845	$	4,845	$	21,192	$	21,192
Interest-earning deposits at other financial institutions	103		103		123		123
Investment securities	41,823		41,828		48,676		48,634
Federal Reserve Bank stock	1,688		1,688		1,649		1,649
Federal Home Loan Bank stock	982		982		868		868
Loans, net	169,864		170,021		126,312		127,263
Accrued interest receivable	954		954		908		908
Liabilities
Noninterest bearing deposits	$	32,708	$	32,708	$	29,929	$	24,379
Interest-bearing deposits	128,485		128,483		115,158		114,124
Other borrowings	2,000		2,000		—		—
Accrued interest payable	317		317		295		295

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(17)Parent Company only Condensed Financial Information

Bancshares commenced operations in December 2007.  As a result, comparative financial information is not available.  The information below is presented as of December 31, 2007 and the year then ended.

Condensed Balance Sheet

(dollars in thousands)	December 31, 2007
Assets
Investment in Subsidiary Bank	$	58,612
Total Assets	$		58,612
Liabilities and Stockholders’ Equity
Common stock	$		99
Additional paid-in capital	62,021
Accumulated deficit	(3,577			)
Accumulated other comprehensive income	69
Total Stockholders’ Equity	$		58,612
Total Liabilities and Stockholders’ Equity	$		58,612

Condensed Statement of Income

	For the
	Year ended
(dollars in thousands)	December 31, 2007
Interest income	$	—
Interest expense	—
Net interest income	—
Dividends received from subsidiary bank	—
Less other expenses	—
Income before taxes	—
Income tax expense	—
Income before equity in undistributed income of subsidiary bank	—
Equity in undistributed income of subsidiary bank	2,912
Net income	$	2,912

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Condensed Statement of Cash Flows

(dollars in thousands)	For the Year Ended December 31, 2007
Cash flows from operating activities:
Net Income	$	2,912
Adjustments to reconcile net income to net cash provided by (used in) operations:	—
Amortization of restricted stock award	—
Equity in undistributed net income of subsidiary bank	(2,912		)
Net change in other assets and liabilities	—
Net cash provided by (used in) operating activities	—
Cash flows from financing activities:
Net proceeds from the issuance of common stock	—
Equity investment in subsidiary bank	—
Net cash provided by (used in) financing activities	—
Net change in cash and cash equivalents	—
Cash and cash equivalents, beginning of year	—
Cash and cash equivalents, end of year	$	—

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and

Stockholders of 1^st Century Bancshares, Inc.

We have audited the accompanying consolidated balance sheet of 1^st Century Bancshares, Inc. as of December 31, 2007, and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income, and cash flows for the year then ended.  We also have audited 1^st Century Bancshares, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  1^st Century Bancshares, Inc.’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audit of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of 1^st Century Bancshares, Inc. as of December 31, 2007, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, 1^st Century Bancshares, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the COSO.

/s/ Perry-Smith LLP

Sacramento, California

March 3, 2008

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and

Stockholders of 1^st Century Bank. N.A.

We have audited the accompanying statements of financial condition of 1st Century Bank, N.A. (the “Bank”) as of December 31, 2006, and the related statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2006.  These financial statements are the responsibility of the Bank’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 1^st Century Bank, N.A. as of December 31, 2006, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the financial statements, the Bank adopted Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payments.

/s/ Grant Thornton LLP

Woodland Hills , California

March 13, 2007

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EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of this 5^th day of March, 2007 (the “Effective Date”), by and between 1st Century Bank, National Association, Los Angeles, California (the “Bank”), on one hand, and Donn B. Jakosky (the “Executive”), on the other hand.

WHEREAS, the parties hereto wish to enter into an employment agreement to employ Executive as the Executive Vice President and Chief Credit Officer of the Bank and to set forth certain additional agreements between Executive and the Bank.

NOW, THEREFORE, in consideration of the mutual covenants and representations contained herein, the parties hereto agree as follows:

1.          At Will Employment.  Executive’s employment with the Bank will be “at-will.” This means that either Executive or the Bank may terminate the employment relationship at any time, with or without Cause (defined below), or with or without notice.  Executive understands and agrees that neither Executive’s job performance nor promotions, commendations, bonuses or the like from the Bank give rise to or in any way serve as the basis for modification, amendment, or extension, by implication or otherwise, of Executive’s employment with the Bank.  The period of time between the Effective Date and the termination of Executive’s employment hereunder shall be referred to herein as the “Employment Period.”

2.          Position; Authority and Duties.

(a)        Positions and Reporting.  Executive shall serve as Executive Vice President and Chief Credit Officer of the Bank.  During the Employment Period, Executive shall report directly to the President or the Chief Executive Officer of the Bank, as directed by the Board of Directors of the Bank (the “Board”).

(b)        Authority and Duties.  Executive shall exercise such authority, perform such executive duties and functions and discharge such responsibilities as are reasonably associated with Executive’s position as Executive Vice President and Chief Credit Officer consistent with this Agreement and the bylaws of the Bank.  Executive’s job duties will primarily involve overseeing and managing the Bank’s loan portfolio, credit policies and procedures, and loan grading, and communicating with the bank regulators and internal examiners.

3.          Compensation and Benefits.

(a)        Salary.  During the Employment Period, the Bank shall pay to Executive, as compensation for the performance of his duties and obligations under this Agreement, a base salary at the rate of $15,000 per month, payable in arrears semi-monthly in accordance with the normal payroll practices of the Bank (the “Base Salary”). Such Base Salary shall be subject to review initially within sixty (60) days after calendar year 2006, and thereafter within sixty (60) days after each calendar year during the Employment Period, for possible increases by the Board based on factors including, but not limited to, market conditions and performance of Executive

and the Bank, in its sole discretion, but shall in no event be decreased from the levels set forth above or from its then-existing level during the Employment Period.

(b)             Bonus.

(i)           Guaranteed Bonus.  On or before March 31, 2007, Executive shall receive the following as a guaranteed bonus, whether or not he is employed by the Bank on such date (the “Guaranteed Bonus”), unless Executive’s employment shall have been terminated prior to such date for Cause or unless Executive shall have resigned from the Bank prior to such date without Good Reason:

(A)         A cash bonus of $75,000; and

(B)         A restricted stock award of 10,000 shares (in addition to the 30,000 shares awarded pursuant to Section 3(f) below), which shall vest in increments of one-third on each anniversary of the March 31, 2007 grant date.

(ii)          Annual Bonus.  After payment of the Guaranteed Bonus, Executive shall be entitled to receive annual bonus amounts in the form of cash and/or restricted stock awards based upon the satisfaction of performance criteria (the “Performance Goals”) that will be established at the beginning of each calendar year by and at the discretion of the individual to whom Executive reports (pursuant to Section 2(a) hereof), in consultation with Executive and subject to the approval of the Board.  The relative amounts of cash and restricted stock awards with which any annual bonus is payable shall be determined by the Board. It is anticipated that increased levels of achievement of the agreed upon Performance Goals will correlate to increased levels of annual bonus. Performance Goals will include goals consistent with the Bank’s business plan for the year, as established by the Bank’s management and subject to the review and approval of the Board. The final determinations as to the actual corporate and individual performance against the Performance Goals shall be made by the Board in its sole good faith discretion. The Guaranteed Bonus and any bonus payable thereafter shall be paid or granted, as appropriate, in one lump sum to Executive at such time as other executive bonuses are paid.  The Board retains the discretion, but shall have no obligation, to determine whether a pro-rata bonus is appropriate if Executive is terminated or leaves the employ of the Bank prior to the annual determination of bonuses.

(c)           Other Benefits.  During the Employment Period, Executive shall receive such life insurance, disability insurance and health, dental and vision and other insurance benefits, holiday, paid time off (“PTO”) benefits, 401(k) plan participation, and other benefits which the Bank extends, as a matter of policy, to all of its executive employees, except as otherwise provided herein, and shall be entitled to participate in all deferred compensation and other incentive plans of the Bank, on the same basis as other like employees of the Bank.  Without limiting the generality of the foregoing, Executive shall be entitled to twenty-three (23) days of PTO per year during the Employment Period, which shall be scheduled in Executive’s discretion, subject to and taking into account applicable banking laws and regulations and business needs.  Unused PTO may be accrued up to a maximum of six (6) weeks of unused PTO, at which time Executive shall cease to accrue unused PTO until used.

(d)           Business Expenses.  During the Employment Period, the Bank shall promptly reimburse Executive for all documented reasonable business expenses incurred by Executive in the performance of his duties under this Agreement, in accordance with the Bank’s employee manual or policies adopted by the Board from time to time.

(e)            Car Allowance.  The Bank shall provide Executive with an automobile allowance of $500.00 per month during the Employment Period (the “Car Allowance”).

(f)            Restricted Stock Award.

(i)           The Bank agrees to grant to Executive a total of 30,000 shares of restricted stock, pursuant to a Notice of Grant and Restricted Stock Agreement (the “Award Agreement”), under and subject to the terms and conditions of the 1st Century Bank, N.A. Amended 2005 Equity Incentive Plan.  Of the 30,000 shares of restricted stock, 5,000 shares are vested as of December 31, 2006. An additional 5,000 shares will vest on September 18, 2007, 10,000 shares will vest on September 18, 2008, and 10,000 shares will vest on September 18, 2009.  The vesting of the last 25,000 shares of the 30,000 shares referred to herein is subject to Executive’s continued employment with the Bank on the relevant vesting dates, unless Executive is terminated without Cause (as defined in Section 4(a) of this Agreement) or Executive terminates his employment for Good Reason (as defined in Section 4(b) of this Agreement) pursuant to Section 5(a) hereof.

(ii)          In the event of any termination of employment for any reason, Executive hereby grants to Bank the right and option, for a period of thirty (30) days after the effective date of such termination, to purchase any Shares owned by him on the effective date of such termination that have been released from or are not otherwise subject to any restriction on resales under the Plan at a price equal to 95% of the volume weighted average closing price of the Bank’s common stock for the twenty (20) trading days immediately prior to the effective date of termination of employment as reported on any quotation service or exchange on which the Bank’s common stock is then quoted or traded.  For purposes of this subparagraph (h) terms not otherwise defined shall have the meanings ascribed to them in the Plan.

4.             Termination of Employment.

(a)          Termination for Cause.  The Board may terminate Executive’s employment hereunder for Cause or without Cause.  For purposes of this Agreement termination for “Cause” shall mean termination because (i) Executive: (A) committed a significant act of dishonesty, deceit or breach of fiduciary duty in the performance of his duties as an employee of the Bank; (B) grossly neglected or willfully failed in any way to perform substantially the duties of such employment after a written demand for performance is given to Executive by the Board, which demand specifically identifies the manner in which such Board believes Executive has failed to perform his duties; (C) has committed a material breach of any provision of this Agreement; (D) willfully acted or failed to act in any other way that materially and adversely affects the Bank; (E) is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) or (g)(1)); or (ii) the Bank has received a final cease-and-desist order that requires in substance that the Bank retain a qualified chief credit

officer acceptable to bank regulators with the experience, skill and other qualifications required to ensure compliance with such order and the bank regulators have determined that Executive does not meet these qualifications.

Termination under this Paragraph shall not prejudice any remedy that the Bank may have at law, in equity, or under this Agreement.

(b)          Termination for Good Reason.  Executive shall have the right at any time to terminate his employment with the Bank for any reason.  For purposes of this Agreement, and subject to the Bank’s opportunity to cure as provided in Section 4(c) hereof, Executive shall have “Good Reason” to terminate his employment hereunder if such termination shall be the result of:

(i)            a material diminution during the Employment Period in Executive’s title, duties or responsibilities as set forth in Section 2 hereof, unless such events follow any of the circumstances described in Section 4(a) regarding termination for Cause;

(ii)           a material breach by the Bank of the compensation and benefits provisions set forth in Section 3 hereof;

(iii)          a material breach by the Bank of any material terms of this Agreement; or

(iv)         the relocation of Executive’s principal place of employment to any location more than 50 miles from the Bank’s headquarters at the Effective Date.

(c)           Notice and Opportunity to Cure.  Notwithstanding the foregoing, it shall be a condition precedent to the Bank’s right to terminate Executive’s employment for Cause, and Executive’s right to terminate his employment for Good Reason that (1) the party seeking the termination shall first have given the other party written notice stating with specificity the reason for the termination (“breach”) and (2) if such breach is susceptible of cure or remedy, a period of thirty (30) days from and after the giving of such notice to cure the breach.  With respect to terminations because of a willful violation of any law, rule or regulation or issuance of a final cease-and-desist order, or because of Executive’s personal dishonesty or breach of fiduciary duty involving personal profit, the Bank will not be required to provide a cure period.

(d)           Termination Upon Death or Permanent Disability.  The Employment Period shall automatically be terminated by the death of Executive. The Employment Period may be terminated by the Bank if Executive shall be subject to a “permanent disability” as such term is defined in the disability insurance provided by the Bank, or if such insurance is not provided by the Bank, the term shall mean that Executive has been unable to perform his duties under this Agreement for a period of at least ninety (90) consecutive days or one-hundred twenty (120) days in any one-hundred eighty (180) day period, and it is not reasonable to believe that he would ever be able to resume his duties on a full time basis.

(e)           Termination Due to a Significant Change.  In the event this Agreement or Executive’s employment is terminated without Cause by the Bank or for Good Reason by Executive within twelve (12) months after the occurrence of a Significant Change (as defined below), Executive shall be entitled to the separation pay as described in Paragraph 5(a) below.

(f)            Definition of Significant Change.  A “Significant Change” shall be deemed to have taken place if:

(i)           there shall be consummated any consolidation or merger of the Bank, whether or not the Bank is the continuing or surviving corporation, or pursuant to which a majority of the shares of the Bank’s capital stock or a majority of the shares of the capital stock of a target company acquired by the Bank (a “Target Company”) are converted into cash, securities or other property, or any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Bank to another entity or the acquisition by the Bank of all or substantially all of the assets of a Target Company, it being agreed that a Significant Change shall not be deemed to have occurred in the event the Bank forms a holding company as a result of which the holders of the Bank’s outstanding capital securities immediately prior to the transaction hold, in approximately the same relative proportions as they held prior to the transaction, substantially all of the outstanding capital securities of a holding company owning all of the Bank’s outstanding capital securities after the completion of the transaction; or

(ii)          any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) shall, after the date hereof, become the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of securities of the Bank representing 40% or more of the voting power of all of the then outstanding securities of the Bank having the right under ordinary circumstances to vote in an election of the Board (including, without limitation, any securities of the Bank that any such person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed beneficially owned by such person); or

(iii)         individuals who as of the Effective Date constitute the entire Board and any new directors whose election by the Bank’s shareholders, or whose nomination for election by the Board, shall have been approved by a vote of at least a majority of the directors then in office who either were directors at the date hereof or whose election or nomination for election shall have been so approved shall cease for any reason to constitute a majority of the members of the Board.

5.             Consequences of Termination.  The following are the separation pay and benefits to which Executive is entitled upon termination of employment in all positions with the Bank, and such payments and benefits shall be the exclusive payments and benefits to which Executive is entitled upon such termination.  Except in the case of termination of employment by the Bank with Cause, or due to death, the post-termination payments and benefits shall only be provided if Executive first enters into a form of release agreement reasonably satisfactory to the Bank releasing the Bank from any and all claims, known and unknown, related to Executive’s employment with the Bank or any other claims the Executive may have against the Bank.

(a)          Termination Without Cause or for Good Reason. In the event the Bank terminates Executive’s employment hereunder without Cause (other than upon death or permanent disability) or Executive terminates his employment for Good Reason, Executive shall become immediately vested in any of the remaining 30,000 shares of restricted stock granted to

him under the Award Agreement.  In addition, in the event of termination of Executive’s employment hereunder (1) by the Bank without Cause (other than upon death or permanent disability), (2) by Executive for Good Reason, or (3) a termination by the Bank without Cause or Executive for Good Reason within twelve (12) months following a Significant Change, Executive shall be entitled to the following separation pay and benefits:

(i)            Separation Pay – a lump sum amount equal to six (6) months of Executive’s annual Base Salary.  However, in the event Executive’s employment is terminated  by the Bank without Cause or Executive terminates his employment for Good Reason within twelve (12) months following a Significant Change, Executive shall be entitled to receive one (1) time the highest amount of the Base Salary, the Car Allowance, and any bonus to which Executive is entitled pursuant to Section 3(b) hereof (collectively, the “Cash Compensation”) paid to Executive by the Bank within the three (3) years preceding the Significant Change.  The amount of the Cash Compensation shall be annualized in the event a Significant Change occurs prior to September 18, 2007;

(ii)           Benefits Continuation – continuation for six (6) months (the “Separation Period”) of coverage under the group medical care, disability and life insurance benefit plans or arrangements in which Executive is participating at the time of termination, with the Bank continuing to pay its share of premiums and associated costs as if Executive continued in the employ of the Bank; provided, however, that the Bank’s obligation to provide such coverages shall be terminated if Executive obtains comparable substitute coverage from another employer at any time during the Separation Period.  Executive agrees to advise the Bank immediately if such comparable substitute coverage is obtained from another employer.  Executive shall be entitled, at the expiration of the Separation Period, to elect continued coverage under the Bank’s medical benefit plans pursuant to the terms of COBRA.

(b)           Termination Upon Disability.  In the event of termination of Executive’s employment hereunder by the Bank on account of permanent disability, Executive shall be entitled to the following separation pay and benefits.

(i)           Separation pay – Separation payments in the form of continuation of Executive’s Base Salary as in effect immediately prior to such termination for a period of six (6) months paid in equal installments on the Bank’s regularly schedule payroll dates following the first date of disability; and

(ii)          Benefits Continuation – the same benefits as provided in Section 5(a)(ii) above, to be provided during the Employment Period while Executive is suffering from a permanent disability and for a period of six (6) months following the effective date of termination of employment by reason of permanent disability.

(c)           Termination Upon Death.  In the event of termination of Executive’s employment hereunder on account of Executive’s death, the Bank shall pay to Executive’s beneficiary or beneficiaries or his estate, as the case may be, the accrued Base Salary and accrued and unused PTO earned through the date of death.  Such payment shall be made no later than sixty (60) days after the date of death. In addition, Executive’s beneficiary(ies) or his estate shall be entitled to the payment of benefits pursuant to any life insurance policy of Executive, as

provided for in Section 3(c) above. Executive’s beneficiary or estate shall not be required to remit to the Bank any payments received pursuant to any life insurance policy purchased pursuant to Section 3(c) above.

(d)           Accrued Rights.  Notwithstanding the foregoing provisions of this Section 5, in the event of termination of Executive’s employment hereunder for any reason, Executive shall be entitled to (i) payment of any unpaid portion of his Base Salary through the effective date of termination,  (ii) payment of any unreimbursed reasonable business expenses incurred pursuant to Section 3(d) above, and (iii) payment of any accrued but unpaid benefits solely in accordance with the terms of any employee benefit plan or program of the Bank (except for the Guaranteed Bonus, remuneration under any other bonus plan is not guaranteed).

(e)           Termination for Cause.  In the event the employment of Executive is terminated by the Bank for Cause, the Bank shall provide Executive only salary and PTO earned and unreimbursed business expenses incurred through the date of termination.  No separation payment or benefit shall be provided in such instance.

(f)            Nonassignability.  Neither Executive nor any other person or entity shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of the rights or benefits of Executive under this Section 5.  The terms of this Section 5(f) shall not affect the interpretation of any provision of this Agreement.

(g)           Regulatory Restrictions.  The parties understand and agree that at the time any payment would otherwise be made or benefit provided under Sections 5 or 18, depending on the facts and circumstances existing at such time, the satisfaction of such obligations by the Bank may be deemed by a regulatory authority to be illegal, an unsafe and unsound practice, or for some other reason not properly due or payable by the Bank.  Among other things, the regulations at 12 C.F.R. Part 30, Appendix A and at 12 C.F.R. Part 359 promulgated pursuant to Sections 18(k) and 39(a) of the Federal Deposit Insurance Act, respectively, or similar regulations or regulatory action following similar principles may apply at such time. The parties understand, acknowledge and agree that, notwithstanding any other provision of this Agreement, the Bank shall not be obligated to make any payment or provide any benefit, and any such obligation of the Bank to do so under Sections 5 or 18 shall be extinguished if an appropriate regulatory authority disapproves or does not acquiesce, if required, and the regulatory authority’s disapproval or non-acquiescence is documented in a writing from the regulatory authority, a copy of which is actually provided by the regulatory authority or the Bank to Executive.

(h)           Conditions to Separation Benefits.  The Bank shall have the right to seek repayment of the separation payments and benefits or to terminate payments or benefits provided by this Section 5 in the event that Executive fails to honor, in accordance with their terms, the provisions of Sections 6 or 9 hereof.

(i)            Suspension and Removal Orders.  If Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) and (g)(1)) or successor provisions, the Bank’s obligations under this

Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank may in its discretion:  (i) pay Executive all or part of the compensation withheld while its obligations under this Agreement were suspended; and (ii) reinstate (in whole or in part) any of its obligations which were suspended.  If Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) or (g)(1)), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.

(j)            Termination by Default.  If the Bank is in default (as defined in Section 3(x)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(x)(1)), all obligations under this Agreement shall terminate as of the date of default, but vested rights of the parties shall not be affected.

(k)           Supervisory Assistance or Merger.  All obligations under this Agreement shall be terminated, except to the extent that it is determined that continuation of the Agreement is necessary for the continued operation of the Bank:  (i) by the Comptroller of the Currency (the “Comptroller”) or his or her designee, at the time that the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 11 of the Federal Deposit Insurance Act (12 U.S.C. Section 1821); or (ii) by the Comptroller or his or her designee, at the time that the Comptroller or his or her designee approves a supervisory merger to resolve problems related to the operation of the Bank or when the Bank is in an unsafe or unsound condition.  All rights of the parties that have already vested, however, shall not be affected by such action.

6.             Confidentiality.  Executive agrees that he will not at any time during the Employment Period or at any time thereafter for any reason, in any fashion, form or manner, either directly or indirectly, divulge, disclose or communicate to any person, firm, corporation or other business entity, in any manner whatsoever, any confidential information or trade secrets concerning the business of the Bank, including, without limiting the generality of the foregoing, the techniques, methods or systems of its operation or management, any information regarding its financial matters, or any other material information concerning the business of the Bank (including customer lists), any of its customers, governmental relations, customer contacts, underwriting methodology, loan program configuration and qualification strategies, marketing strategies and proposals, its manner of operation, its plans or other material data, or any other information concerning the business of the Bank, its subsidiaries or affiliates, and the Bank’s good will (the “Business”).  The provisions of this Section 6 shall not apply to (i) information disclosed in the performance of Executive’s duties to the Bank based on his good faith belief that such a disclosure is in the best interests of Bank; (ii) information that is, at the time of the disclosure, public knowledge; (iii) information disseminated by the Bank to third parties in the ordinary course of business; (iv) information lawfully received by Executive from a third party who, based upon inquiry by Executive, is not bound by a confidential relationship to the Bank or otherwise improperly received the information; or (v) information disclosed under a requirement of law or as directed by applicable legal authority having jurisdiction over Executive.

Executive agrees that all manuals, documents, files, reports, studies or other materials used and/or developed by Executive for the Bank during the Term of this Agreement are solely the property of the Bank, and that Executive has no right, title or interest therein.  Upon termination of Executive’s employment, Executive or Executive’s representative shall promptly deliver possession of all such materials (including any copies thereof) to the Bank.

7.             Keyman Life Insurance. The Bank shall have the right to obtain and hold a “keyman” life insurance policy on the life of Executive with the Bank as beneficiary of the policy. Executive agrees to provide any information required for the issuance of such policy and submit himself to any physical examination required for such policy.

8.             Unsecured General Creditor.  Neither Executive nor any other person or entity shall have any legal right or equitable rights, interests or claims in or to any property or assets of the Bank under the provisions of this Agreement.  No assets of the Bank shall be held under any trust for the benefit of Executive or any other person or entity or held in any way as security for the fulfilling of the obligations of the Bank under this Agreement. All of the Bank’s assets shall be and remain the general, unpledged, unrestricted assets of the Bank. The Bank’s obligations under this Agreement are unfunded and unsecured promises, and to the extent such promises involve the payment of money, they are promises to pay money in the future.  Executive and any person or entity claiming through him shall be unsecured general creditors with respect to any rights or benefits hereunder.

9.             Business Protection Covenants.

(a)          Covenant Not to Compete.  Executive agrees that he will not, during the Employment Period, voluntarily or involuntarily, directly or indirectly, (i) engage in any banking or financial products or service business, loan origination or deposit-taking business or any other business competitive with that of the Bank, its subsidiaries or affiliates (“Competitive Business”), (ii) directly or indirectly own any interest in (other than less than 3% of any publicly traded company or mutual fund), manage, operate, control, be employed by, or provide management or consulting services in any capacity to any firm, corporation, or other entity (other than the Bank or its subsidiaries or affiliates) engaged in any Competitive Business, or (iii) directly or indirectly solicit or otherwise intentionally cause any employee, officer, or member of the Board or any of its subsidiaries or affiliates to engage in any action prohibited under (i) or (ii) of this Section 9(a).

(b)          Inducing Employees To Leave The Bank; Employment of Employees.  Any attempt on the part of Executive to induce others to leave the Bank’s employ, or the employ of any of its subsidiaries or affiliates, or any effort by Executive to interfere with the Bank’s relationship with its other employees would be harmful and damaging to the Bank.  Executive agrees that during the Employment Period and for a period of twelve (12) months thereafter, Executive will not in any way, directly or indirectly:  (i) induce or attempt to induce any employee of the Bank or any of its subsidiaries of affiliates to quit employment with the Bank or the relevant subsidiary or affiliate; (ii) otherwise interfere with or disrupt the relationships between the Bank and its subsidiaries and affiliates and their respective employees; (iii) solicit, entice, or hire away any employee of the Bank or any of its subsidiaries or affiliates; or (iv) hire or engage any employee of the Bank or any subsidiary or affiliate, or any former employee of the

Bank or any subsidiary or affiliate whose employment with the Bank or the relevant subsidiary or affiliate ceased less than one (1) year before the date of such hiring or engagement.

(c)           Nonsolicitation of Business.  For a period of twelve (12) months from the date of termination of employment, Executive will not utilize the confidential proprietary or trade secret information to divert or attempt to divert from the Bank or any of its subsidiaries or affiliates, any business the Bank or a subsidiary or affiliate had enjoyed or solicited from its customers, borrowers, depositors or investors during the twelve (12) months prior to termination of his employment.

(d)           Bank’s Ownership of Intellectual Property.  To the extent that Executive has intellectual property rights of any kind in any pre-existing works which are subsequently incorporated in any work or work product produced in rendering services to the Bank, Executive hereby grants Bank a royalty-free, irrevocable, world-wide, perpetual non-exclusive license (with the right to sublicense), to make, have made, copy, modify, use, sell, license, disclose, publish or otherwise disseminate or transfer such subject matter.  Similarly, Executive agrees that all inventions, discoveries, improvements, trade secrets, original works of authorship, developments, formulae, techniques, processes, and know-how, whether or not patentable, and whether or not reduced to practice, that are conceived, developed or reduced to practice during Executive’s employment with the Bank, either alone or jointly with others, if on the Bank’s time, using the Bank’s facilities, or relating to the Bank shall be owned exclusively by the Bank, and Executive hereby assigns to the Bank all of Executive’s right, title and interest throughout the world in all such intellectual property.  Executive agrees that the Bank shall be the sole owner of all domestic and foreign patents or other rights pertaining thereto, and further agrees to execute all documents that the Bank reasonably determines to be necessary or convenient for use in applying for, prosecuting, perfecting, or enforcing patents or other intellectual property rights, including the execution of any assignments, patent applications, or other documents that the Bank may reasonably request.  This provision is intended to apply to the extent permitted by applicable law and is expressly limited by Section 2870 of the California Labor Code, which is set forth in its entirety in Exhibit A to this Agreement.  By signing this Agreement, Executive acknowledges that this paragraph shall constitute written notice of the provisions of Section 2870.

(e)           Bank’s Ownership of Copyrights.  Executive agrees that all original works of authorship not otherwise within the scope of Paragraph (d) above that are conceived or developed during Executive’s employment with the Bank, either alone or jointly with others, if on the Bank’s time, using Bank facilities, or relating to the Bank, are “works for hire” to the greatest extent permitted by law and shall be owned exclusively by the Bank, and Executive hereby assigns to the Bank all of Executive’s right, title, and interest in all such original works of authorship.  Executive agrees that the Bank shall be the sole owner of all rights pertaining thereto, and further agrees to execute all documents that the Bank reasonably determines to be necessary or convenient for establishing in the Bank’s name the copyright to any such original works of authorship.

10.          No Breach of Prior Agreement.  Executive represents that his performance of all the terms of this Agreement and his duties as an executive of the Bank will not breach any agreement with any former employer or other party.  Executive represents that he will not bring

with him to the Bank or use in the performance of his duties for the Bank any documents or materials of a former employer that are not generally available to the public or have not been legally transferred to the Bank.

11.           Resignations.  Executive agrees that upon termination of employment, for any reason, he will submit his resignations from all offices and directorships with the Bank and all of its subsidiaries.

12.           Other Agreements.  The parties further agree that to the extent of any inconsistency between this Agreement and any employee manual or policy of the Bank, that the terms of this Agreement shall supersede the terms of such employee manual or policy.

13.           Notice.  For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be personally delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, or sent by facsimile, provided that the facsimile cover sheet contains a notation of the date and time of transmission, and shall be deemed received:  (i) if personally delivered, upon the date of delivery to the address of the person to receive such notice, (ii) if mailed in accordance with the provisions of this Section 13, two (2) business days after the date placed in the United States mail, (iii) if mailed other than in accordance with the provisions of this Section 13 or mailed from outside the United States, upon the date of delivery to the address of the person to receive such notice, or (iv) if given by facsimile, when sent.  Notices shall be addressed as follows:

If to the Bank:

1st Century Bank, National Association
1875 Century Park East
Suite 1400
Los Angeles, CA  90067
Attn:  Chairman of the Board

With a copy to:

Manatt, Phelps & Phillips, LLP
11355 West Olympic Avenue
Los Angeles, CA 90064
Attn: Gordon M. Bava, Esq.

If to Executive, to:

Donn B. Jakosky
5764 Green Meadow Drive           
Agoura Hills, CA 91301

or to such other respective addresses as the parties hereto shall designate to the other by like notice, provided that notice of a change of address shall be effective only upon receipt thereof.

14.           Arbitration.  Any dispute or controversy arising under or in connection with this Agreement, the inception or termination of Executive’s employment, or any alleged discrimination or tort claim related to such employment, including issues raised regarding the Agreement’s formation, interpretation or breach, shall be settled exclusively by binding arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (“AAA”). Without limiting the foregoing, the following potential claims by Executive would be subject to arbitration under the Arbitration Agreement:  claims for wages or other compensation due; claims for breach of any contract or covenant (express or implied) under which Executive believes he would be entitled to compensation or benefits; tort claims related to such employment; claims for discrimination and harassment (including, but not limited to, race, sex, religion, national origin, age, marital status or medical condition, disability, sexual orientation, or any other characteristic protected by federal, state or local law); claims for benefits (except where an employee benefit or pension plan specifies that its claims procedure shall culminate in an arbitration or other procedure different from this one); and claims for violation of any public policy, federal, state or other governmental law, statute, regulation or ordinance.  The arbitration will be conducted in Los Angeles County.  The arbitration shall provide for written discovery and depositions adequate to give the parties access to documents and witnesses that are essential to the dispute.  The arbitrator shall have no authority to add to or to modify this Agreement, shall apply all applicable law, and shall have no lesser and no greater remedial authority than would a court of law resolving the same claim or controversy.  The arbitrator shall issue a written decision that includes the essential findings and conclusions upon which the decision is based, which shall be signed and dated.  Executive and the Bank shall each bear his or its own costs and attorneys’ fees incurred in conducting the arbitration and, except in such disputes where Executive asserts a claim otherwise under a state or federal statute prohibiting discrimination in employment (a “Statutory Claim”), or unless required otherwise by applicable law, shall split equally the fees and administrative costs charged by the arbitrator and AAA.  For such disputes that do not involve Statutory Claims, if the Executive is determined to be the prevailing party, the arbitrator shall have the discretion to order the Bank to reimburse the Executive for his portion of the arbitrator’s fees and administrative costs of AAA charged to the parties as a result of the arbitration, but not his attorneys’ fees or other costs.  In disputes where Executive asserts a Statutory Claim against the Bank or where otherwise required by law, Executive shall be required to pay only the AAA filing fee to the extent such filing fee does not exceed the fee to file a complaint in state or federal court.  The Bank shall pay the balance of the arbitrator’s fees and administrative costs.  Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

15.           Waiver of Breach.  Any waiver of any breach of this Agreement shall not be construed to be a continuing waiver or consent to any subsequent breach on the part either of Executive or of the Bank.  No delay or omission in the exercise of any power, remedy, or right herein provided or otherwise available to any party shall impair or affect the right of such party thereafter to exercise the same.  Any extension of time or other indulgence granted to a party hereunder shall not otherwise alter or affect any power, remedy or right of any other party, or the obligations of the party to whom such extension or indulgence is granted except as specifically waived.

16.           Non-Assignment; Successors.  Neither party hereto may assign his or its rights or delegate his or its duties under this Agreement without the prior written consent of the other

party; provided, however, that: (i) this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Bank upon any sale of all or substantially all of the Bank’s assets, or upon any merger, consolidation or reorganization of the Bank with or into any other corporation, all as though such successors and assigns of the Bank and their respective successors and assigns were the Bank; and (ii) this Agreement shall inure to the benefit of and be binding upon the heirs, assigns or designees of Executive to the extent of any payments due to them hereunder.  As used in this Agreement, the term “Bank” shall be deemed to refer to any such successor or assign of the Bank referred to in the preceding sentence.

17.           Withholding of Taxes. All payments required to be made by the Bank to Executive under this Agreement shall be subject to the withholding and deduction of such amounts, if any, relating to tax, and other payroll deductions as the Bank may reasonably determine it should withhold and/or deduct pursuant to any applicable law or regulation (including, but not limited to, Executive’s portion of social security payments and income tax withholding) now in effect or which may become effective any time during the term of this Agreement.

18.           Excise Tax Provision.  Notwithstanding anything elsewhere in this Agreement to the contrary, if any of the payments or benefits provided for in this Agreement, together with any other payments or benefits which Executive has the right to receive from the Bank (or its affiliated companies), would constitute a “parachute payment” as defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”) or any successor provision, the parties agree that the payments or benefits provided to Executive pursuant to this Agreement shall be reduced (in each case, in such manner as Executive in his sole discretion shall determine) so that the present value of the total amount received by Executive that would constitute a “parachute payment” will be $1.00 less than three (3) times Executive’s base amount (as defined in Section 280G of the Code) and so that no portion of the payment or benefits received by Executive would be subject to the excise tax imposed by Section 4999 of the Code.

19.           Indemnification.  To the fullest extent permitted by law, regulation, and the Bank’s Articles of Incorporation and Bylaws, the Bank shall pay as and when incurred all expenses, including legal and attorney costs, incurred by, or shall satisfy as and when entered or levied a judgment or fine rendered or levied against, Executive in an action brought by a third party against Executive (whether or not the Bank is joined as a party defendant) to impose a liability or penalty on Executive for an act alleged to have been committed by Executive while an officer of the Bank, provided that Executive was acting in good faith, within what Executive reasonably believed to be the scope of Executive’s employment or authority and for a purpose which Executive reasonably believed to be in the best interests of the Bank or the Bank’s shareholders, and in the case of a criminal proceeding, that Executive had no reasonable cause to believe that Executive’s conduct was unlawful.  Payments authorized hereunder include amounts paid and expenses incurred in settling any such action or threatened action.  All rights hereunder are limited by any applicable state or Federal laws.

20.           Severability.  To the extent any provision of this Agreement or portion thereof shall be invalid or unenforceable, it shall be considered deleted therefrom (but only for so long as such provision or portion thereof shall be invalid or unenforceable) and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect to

the fullest extent permitted by law if enforcement would not frustrate the overall intent of the parties (as such intent is manifested by all provisions of the Agreement including such invalid, void, or otherwise unenforceable portion).

21.           Payment.  All amounts payable by the Bank to Executive under this Agreement shall be paid promptly on the dates required for such payment in this Agreement without notice or demand.

22.           Authority.  Each of the parties hereto hereby represents that each has taken all actions necessary in order to execute and deliver this Agreement.

23.           Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

24.           Governing Law.  This Agreement shall be construed, interpreted and enforced in accordance with the National Bank Act and the laws of the State of California, without giving effect to the choice of law principles thereof.

25.           Entire Agreement.  This Agreement and written agreements, if any, entered into concurrently herewith constitute the entire agreement by the Bank and Executive with respect to the subject matter hereof and merges and supersedes any and all prior discussions, negotiations, agreements or understandings between Executive and the Bank with respect to the subject matter hereof, whether written or oral.  This Agreement may be amended or modified only by a written instrument executed by Executive and the Bank. With regard to such amendments, alterations, or modifications, facsimile signatures shall be effective as original signatures.  Any amendment, alteration, or modification requiring the signature of more than one party may be signed in counterparts.

26.           Further Actions.  Each party agrees to perform any further acts and execute and deliver any further documents reasonably necessary to carry out the provisions of this Agreement.

27.           Time of Essence.  Time is of the essence of each and every term, condition, obligation and provision hereof.

28.           No Third Party Beneficiaries.  This Agreement and each and every provision hereof is for the exclusive benefit of the parties and not for the benefit of any third party.

29.           Headings.  The headings in this Agreement are inserted only as a matter of convenience, and in no way define, limit, or extend or interpret the scope of this Agreement or of any particular provision hereof.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

1ST CENTURY BANK, NATIONAL ASSOCIATION
By:	/s/ Alan I. Rothenberg
	Alan I. Rothenberg
	Chairman of the Board
EXECUTIVE:
/s/ Donn B. Jakosky
Donn B. Jakosky

EX-10.2

Exhibit 10.2

STANDARD MULTI-TENANT OFFICE LEASE - GROSS

AIR COMMERCIAL REAL ESTATE ASSOCIATION

1.Basic Provisions (“Basic Provisions”).

1.1Parties: This Lease (“Lease”), dated for reference purposes only February 27, 2006, is made by and between Scriba Enterprises, Inc., a California corporation (“Lessor”) and 1st Century Bank, National Association (“Lessee”), (collectively the “Parties”, or individually a “Party”).

1.2(a)Premises: That certain portion of the Project (as defined below), known as Suite Numbers(s) 225, second (2nd) floor(s), consisting of approximately 3,111 rentable square feet (“Premises”). The Premises are located at: 1025 West 190th Street, in the City of Los Angeles (Gardena Post Office), County of Los Angeles, State of California, with zip code 90248. In addition to Lessee’s rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights to the roof, the exterior walls, the area above the dropped ceilings, or the utility raceways of the building containing the Premises (“Building”) or to any other buildings in the Project. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the “Project.” The Project consists of approximately 68,326 rentable square feet. (See also Paragraph 2)

1.2(b)Parking: eleven (11) unreserved and zero (0) reserved vehicle parking spaces for Lessee and Lessee’s visitors at a monthly cost of $0.00 (free) per unreserved. (See Paragraph 2.6) All “Project” parking is surface parking in common with all the Lessees in the building and is accessible twenty-four (24) hours per day, seven (7) days per week. (See Addendum Paragraph 52.)

1.3Term: Five (5) years and zero (0) months (“Original Term”) commencing April 1, 2006 (“Commencement Date”) and ending March 31, 2011 (“Expiration Date”). (See also Paragraph 3)

1.4Early Possession: March 15, 2006 (“Early Possession Date”). (See also Paragraphs 3.2 and 3.3)

1.5Base Rent: $5,755.00 per month (“Base Rent)”, payable on the first (1st) day of each month commencing on the commencement date. (See also Paragraph 4)

o If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

1.6Lessee’s Share of Operating Expense Increase: Four and fifty-five hundredths percent (4.55%) (“Lessee’s Share”). Lessee’s Share has been calculated by dividing the approximate rentable square footage of the Premises by the total approximate square footage of the rentable space contained in the Project and shall not be subject to revision except in connection with an actual change in the size of the Premises or a change in the space available for lease in the Project.

1.7Base Rent and Other Monies Paid Upon Execution:

(a)Base Rent: $5,755.00 for the period April 1, 2006 - April 30, 2006.

(b)Security Deposit: $6,377.00 (“Security Deposit”). (See also Paragraph 5)

(c)Parking: $0.00 for the period initial sixty (60) month Lease term.

(d)Other: $0.00 for NA.

(e)Total Due Upon Execution of this Lease: $12,132.00.

1.8Agreed Use: General office use and operation of a bank, including services associated with banking, such as but not limited to transactions with customers. (See also Paragraph 6)

1.9Base Year; Insuring Party. The Base Year is 2006 (01-01-06 to 12-31-06). Lessor is the “Insuring Party”. (See also Paragraphs 4.2 and 8)

1.10Real Estate Brokers: (See also Paragraph 15)

(a)Representation: The following real estate brokers ( the “Brokers”) and brokerage relationships exist in this transaction (check applicable boxes):

o NAI Capital, Inc. represents Lessor exclusively (“Lessor’s Broker”);

o Trammell Crow Company represents Lessee exclusively (“Lessee’s Broker”); or

o represents both Lessor and Lessee (“Dual Agency”).

(b)Payment to Brokers: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Brokers the brokerage fee agreed to in a separate written agreement - the Standard Owner-Agency Agreement for Sale or Lease of Real Property dated April 11, 2005 by and between Scriba Enterprises, Inc. and NAI Capital, Inc.

1.12Business Hours for the Building: 7:30 a.m. to 6:00 p.m., Mondays through Fridays (except Building Holidays) “Building Holidays” shall mean the dates of observation of New

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Year’s Day, President’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day, and any other nationally recognized holiday. Building and Elevator hours are subject to change at the Lessor’s discretion. Lessee shall have access to the building twenty-four (24) hours per day, seven (7) days per week via card key. Card key access is available to Lessee before and after building standard hours. Only Lessees located on the upper floors will have after hours access via their building access card key and only to the specific floor where the Lessee’s suite is located.

1.13Lessor Supplied Services. Notwithstanding the provisions of Paragraph 11.1, Lessor is NOT obligated to provide the following:

o Janitorial services

o Electricity

o Other (specify):

1.14Attachments. Attached hereto are the following, all of which constitute a part of this Lease:

x an Addendum consisting of Paragraphs 51 through 63;

o  a plot plan depicting the Premises;

x a current set of the Rules and Regulations;

x a Work Letter;

o  a janitorial schedule;

x other (specify): a floor plan for suite 225.

2.Premises.

2.1Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. Note: Lessee is advised to verify the actual size prior to executing this Lease.

2.2Condition. Lessor shall deliver the Premises to Lessee in a clean condition on the Commencement Date or the Early Possession Date, whichever first occurs (“Start Date”), and warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (“HVAC”), and all other items which the Lessor is obligated to construct pursuant to the Work Letter attached hereto, if any, other than those constructed by Lessee, shall be in good operating condition on said date, that the structural elements of the roof, bearing walls and foundation of the Unit shall be free of material defects, and that the Premises do not contain hazardous levels of any mold or fungi defined as toxic under applicable state or federal law.

2.3Compliance. Lessor warrants to the best of its knowledge that the improvements comprising the Premises and the Common Areas comply with the building codes that were in effect at the time that each such improvement, or portion thereof, was constructed, and also with all applicable laws, covenants or restrictions of record, regulations, and ordinances (“Applicable Requirements”) in effect on the Start Date. Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 50), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the zoning and other Applicable Requirements are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Premises, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Premises (“Capital Expenditure”), Lessor and Lessee shall allocate the cost of such work as follows:

(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months’ Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to 6 months’ Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the cost of such Capital Expenditure as follows: Lessor shall advance the funds necessary for such Capital Expenditure but Lessee shall be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying Lessee’s share of the cost of such Capital Expenditure (the percentage specified in Paragraph 1.6 by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month). Lessee shall pay interest on the unamortized balance of Lessee’s share at a rate that is commercially reasonable in the judgment of Lessor’s accountants. Lessee may, however, prepay its obligation at any time. Provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor’s termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor’s share of such costs have been fully paid. If Lessee is unable to finance Lessor’s share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to nonvoluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not have any right to terminate this Lease.

2.4Acknowledgements. Lessee acknowledges that: (a) Lessee has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements), and their suitability for Lessee’s intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee’s ability to honor the Lease or suitability to

occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

2.5Lessee as Prior Owner/Occupant. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date, Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.

2.6Vehicle Parking. So long as Lessee is not in default, and subject to the Rules and Regulations attached hereto, and as established by Lessor from time to time, Lessee shall be entitled to rent and use the number of parking spaces specified in Paragraph 1.2(b) at the rental rate applicable from time to time for monthly parking as set by Lessor and/or its licensee.

(a) If Lessee commits, permits or allows any of the prohibited activities described in the Lease or the rules then in effect, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

(b) With the exception of the initial Lease term, the  monthly rent per parking space specified in Paragraph 1.2(b) is subject to change upon 30 days prior written notice to Lessee. The rent for the parking is payable one month in advance prior to the first day of each calendar month.

2.7Common Areas - Definition. The term “Common Areas” is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project and interior utility raceways and installations within the Premises that are provided and designated by the Lessor

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from time to time for the general nonexclusive use of Lessor, Lessee and other tenants of the Project and their respective employees, suppliers, shippers, customers, contractors and invitees, including, but not limited to, common entrances, lobbies, corridors, stairwells, public restrooms, elevators, parking areas, loading and unloading areas, trash areas, roadways, walkways, driveways and landscaped areas.

2.8Common Areas - Lessee’s Rights. Lessor grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the nonexclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Project. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor’s designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

2.9Common Areas - Rules and Regulations. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to adopt, modify, amend and enforce reasonable rules and regulations (“Rules and Regulations”) for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Project and their invitees. The Lessee agrees to abide by and conform to all such Rules and Regulations, and shall use its best efforts to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the noncompliance with said Rules and Regulations by other tenants of the Project.

2.10Common Areas - Changes. Lessor shall have the right, in Lessor’s sole discretion, from time to time:

(a)To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of the lobbies, windows, stairways, air shafts, elevators, escalators, restrooms, driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways;

(b)To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available;

(c)To designate other land outside the boundaries of the Project to be a part of the Common Areas;

(d)To add additional buildings and improvements to the Common Areas;

(e)To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project, or any portion thereof; and

(f)To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Project as Lessor may, in the exercise of sound business judgment, deem to be appropriate.

3.Term.

3.1Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

3.2Early Possession. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Lessee’s Share of the Operating Expense Increase) shall be in effect during such period. Any such early possession shall not affect the Expiration Date. The early possession period shall not exceed fifteen (15) calendar days.

3.3Delay In Possession. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession by such date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession is not delivered within 60 days after the Commencement Date, as the same may be extended under the terms of any Work Letter executed by Parties, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period, Lessee’s right to cancel shall terminate. If possession of the Premises is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

3.4Lessee Compliance. Lessor shall not be required to deliver possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

4.Rent.

4.1.Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent (“Rent”).

4.2Operating Expense Increase. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee’s Share of the amount by which all Operating Expenses for each Comparison Year exceeds the amount of all Operating Expenses for the Base Year, such excess being hereinafter referred to as the “Operating Expense Increase”, in accordance with the following provisions:

(a)“Base Year” is as specified in Paragraph 1.9.

(b)“Comparison Year” is defined as each calendar year during the term of this Lease subsequent to the Base Year; provided, however, Lessee shall have no obligation to pay a share of the Operating Expense Increase applicable to the first 12 months of the Lease Term (other than such as are mandated by a governmental authority, as to which government mandated expenses Lessee shall pay Lessee’s Share, notwithstanding they occur during the first twelve (12) months). Lessee’s Share of the Operating Expense Increase for the first and last Comparison Years of the Lease Term shall be prorated according to that portion of such Comparison Year as to which Lessee is responsible for a share of such increase.

(c)“Operating Expenses” include all costs incurred by Lessor relating to the ownership and operation of the Project, calculated as if the Project was at least 95% occupied, including, but not limited to, the following:

(i)The operation, repair, and maintenance in neat, clean, safe, good order and condition, but not the replacement (see subparagraph (g)), of the following:

(aa)The Common Areas, including their surfaces, coverings, decorative items, carpets, drapes and window coverings, and including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, stairways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities, building exteriors and roofs, fences and gates;

(bb)All heating, air conditioning, plumbing, electrical systems, life safety equipment,

communication systems and other equipment used in common by, or for the benefit of, lessees or occupants of the Project, including elevators and escalators, tenant directories, fire detection systems including sprinkler system maintenance and repair.

(ii)Trash disposal, janitorial and security services, pest control services, and the costs of any environmental inspections;

(iii)Any other service to be provided by Lessor that is elsewhere in this Lease stated to be an “Operating Expense”;

(iv)The cost of the premiums for the insurance policies maintained by Lessor pursuant to paragraph 8 and any deductible portion of an insured loss concerning the Building or the Common Areas;

(v)The amount of the Real Property Taxes payable by Lessor pursuant to paragraph 10;

(vi)The cost of water, sewer, gas, electricity, and other publicly mandated services not separately metered;

(vii)Labor, salaries, and applicable fringe benefits and costs, materials, supplies and tools, used in maintaining and/or cleaning the Project and accounting and management fees attributable to the operation of the Project;

(viii)The cost of any capital improvement to the Building or the Project not covered under the provisions of Paragraph 2.3 provided; however, that Lessor shall allocate the cost of any such capital improvement over a 12 year period and Lessee shall not be required to pay more than Lessee’s Share of 1/144th of the cost of such Capital Expenditure in any given month;

(ix)Replacement of equipment or improvements that have a useful life for accounting purposes of 5 years or less.

(d)Any item of Operating Expense that is specifically attributable to the Premises, the Building or to any other building in the Project or to the operation, repair and maintenance thereof, shall be allocated entirely to such Premises, Building, or other building. However, any such item that is not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Project.

(e)The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(c) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Project already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them.

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(f)Lessee’s Share of Operating Expense Increase is payable monthly on the same day as the Base Rent is due hereunder. The amount of such payments shall be based on Lessor’s estimate of the Operating Expense Expenses. Within 60 days after written request (but not more than once each year) Lessor shall deliver to Lessee a reasonably detailed statement showing Lessee’s Share of the actual Common Area Operating Expenses incurred during the preceding year.a reasonably detailed statement showing Lessee’s Share of the actual Operating Expense Increase incurred during such year. If Lessee’s payments during such Year exceed Lessee’s Share, Lessee shall credit the amount of such over-payment against Lessee’s future payments. If Lessee’s payments during such Year were less than Lessee’s Share, Lessee shall pay to Lessor the amount of the deficiency within 10 days after delivery by Lessor to Lessee of said statement. Lessor and Lessee shall forthwith adjust between them by cash payment any balance determined to exist with respect to that portion of the last Comparison Year for which Lessee is responsible as to Operating Expense Increases, notwithstanding that the Lease term may have terminated before the end of such Comparison Year.

(g)Operating Expenses shall not include the costs of replacement for equipment or capital components such as the roof, foundations, exterior walls or a Common Area capital improvement, such as the parking lot paving, elevators, fences that have a useful life for accounting purposes of 5 years or more unless it is of the type described in paragraph 4.2(c) (viii), in which case their cost shall be included as above provided.

(h)Operating Expenses shall not include any expenses paid by any tenant directly to third parties, or as to which Lessor is otherwise reimbursed by any third party, other tenant, or by insurance proceeds.

4.3Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States on or before the day on which it is due, without offset or deduction (except as specifically permitted in this Lease). All monetary amounts shall be rounded to the nearest whole dollar. In the event that any invoice prepared by Lessor is inaccurate such inaccuracy shall not constitute a waiver and Lessee shall be obligated to pay the amount set forth in this Lease. Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future Rent be paid by cashier’s check. Payments will be applied first to accrued late charges and attorney’s fees, second to accrued interest, then to Base Rent and Common Area Operating Expenses, and any remaining amount to any other outstanding charges or costs.

5.Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor, deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor’s reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

6.Use.

6.1Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Other than guide, signal and seeing eye dogs, Lessee shall not keep or allow in the Premises any pets, animals, birds, fish, or reptiles. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements of the Building, will not adversely affect the mechanical, electrical, HVAC, and other systems of the Building, and/or will not affect the exterior appearance of the Building. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change in the Agreed Use.

6.2Hazardous Substances.

(a) Reportable Uses Require Consent. The term “Hazardous Substance” as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, byproducts or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements. “Reportable Use” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use such as ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has

concerning the presence of such Hazardous Substance.

(c) Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.

(d) Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from areas outside of the Project not caused or contributed to by Lessee). Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

(e) Lessor Indemnification. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which result from Hazardous Substances which existed on the Premises prior to Lessee’s occupancy or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor’s obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

(f) Investigations and Remediations. Lessor shall retain the responsibility and pay for any investigations or remediation measures

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required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to Lessee’s occupancy, unless such remediation measure is required as a result of Lessee’s use (including “Alterations”, as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities.

(g) Lessor Termination Option. If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor’s rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee’s commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor’s notice of termination.

6.3Lessee’s Compliance with Applicable Requirements. Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants which relate in any manner to the Premises, without regard to whether said requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor’s written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee’s compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements. Likewise, Lessee shall immediately give written notice to Lessor of: (i) any water damage to the Premises and any suspected seepage, pooling, dampness or other condition conducive to the production of mold; or (ii) any mustiness or other odors that might indicate the presence of mold in the Premises.

6.4Inspection; Compliance. Lessor and Lessor’s “Lender” (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times, after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance Condition (see paragraph 9.1e) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination. In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of written request therefor.

7.Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.

7.1Lessee’s Obligations. Notwithstanding Lessor’s obligation to keep the Premises in good condition and repair, Lessee shall be responsible for payment of the cost thereof to Lessor as additional rent for that portion of the cost of any maintenance and repair of the Premises, or any equipment (wherever located) that serves only Lessee or the Premises, to the extent such cost is attributable to causes beyond normal wear and tear. Lessee shall be responsible for the cost of painting, repairing or replacing wall coverings, and to repair or replace any improvements with the Premises. Lessor may, at its option, upon reasonable notice, elect to have Lessee perform any particular such maintenance or repairs the cost of which is otherwise Lessee’s responsibility hereunder.

7.2Lessor’s Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 4.2 (Operating Expenses), 6 (Use), 7.1 (Lessee’s Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler system, fire alarm and/or smoke detection systems, fire hydrants, and the Common Areas. Lessee expressly waives the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.

7.3Utility Installations; Trade Fixtures; Alterations.

(a) Definitions. The term “Utility Installations” refers to all floor and window coverings, air lines, vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, and plumbing in or on the Premises. The term “Trade Fixtures” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises. The term “Alterations” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. “Lessee Owned Alterations and/or Utility Installations” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

(b) Consent. Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof, ceilings, floors or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed $2000. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee’s: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with asbuilt plans and specifications. For work which costs an amount in excess of one month’s Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee’s posting an additional Security Deposit with Lessor.

(c) Liens; Bonds. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or

demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor’s attorneys’ fees and costs.

7.4Ownership; Removal; Surrender; and Restoration.

(a) Ownership. Subject to Lessor’s right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

(b) Removal. By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

(c) Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall also completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises) even

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if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

8.Insurance; Indemnity.

8.1Insurance Premiums. The cost of the premiums for the insurance policies maintained by Lessor pursuant to paragraph 8 are included as Operating Expenses (see paragraph 4.2 (c)(iv)). Said costs shall include increases in the premiums resulting from additional coverage related to requirements of the holder of a mortgage or deed of trust covering the Premises, Building and/or Project, increased valuation of the Premises, Building and/or Project, and/or a general premium rate increase. Said costs shall not, however, include any premium increases resulting from the nature of the occupancy of any other tenant of the Building. If the Project was not insured for the entirety of the Base Year, then the base premium shall be the lowest annual premium reasonably obtainable for the required insurance as of the Start Date, assuming the most nominal use possible of the Building and/or Project. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $2,000,000 procured under Paragraph 8.2(b).

8.2Liability Insurance.

(a) Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000. Lessee shall add Lessor as an additional insured by means of an endorsement at least as broad as the Insurance Service Organization’s “Additional Insured-Managers or Lessors of Premises” Endorsement and coverage shall also be extended to include damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “insured contract” for the performance of Lessee’s indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. Lessee shall provide an endorsement on its liability policy(ies) which provides that its insurance shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

(b) Carried by Lessor. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.

8.3Property Insurance - Building, Improvements and Rental Value.

(a) Building and Improvements. Lessor shall obtain and keep in force a policy or policies of insurance in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Building and/or Project. The amount of such insurance shall be equal to the full insurable replacement cost of the Building and/or Project, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal property shall be insured by Lessee under Paragraph 8.4. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence.

(b) Rental Value. Lessor shall also obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days (“Rental Value insurance”). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period.

(c) Adjacent Premises. Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Project if said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

(d) Lessee’s Improvements. Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease.

8.4Lessee’s Property; Business Interruption Insurance.

(a) Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.

(b) Business Interruption. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

(c) No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

8.5Insurance Policies. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least A-, VI, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 10 days prior written notice to Lessor. Lessee shall, at least 30 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of

insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

8.7Indemnity. Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.

8.8Exemption of Lessor and its Agents from Liability. Notwithstanding the negligence or breach of this Lease by Lessor or its agents, neither Lessor nor its agents shall be liable under any circumstances for: (i) injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, indoor air quality, the presence of mold or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places, (ii) any damages arising from any act or neglect of any other tenant of Lessor or from the failure of Lessor or its agents to enforce the provisions of any other lease in the Project, or (iii) injury to Lessee’s business or for any loss of income or profit therefrom. Instead, it is intended that Lessee’s sole recourse in the event of such damages or injury be to file a claim on the insurance policy(ies) that Lessee is required to maintain pursuant to the provisions of paragraph 8.

8.9Failure to Provide Insurance. Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any

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requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater. The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/costs that Lessor will incur by reason of Lessee’s failure to maintain the required insurance. Such increase in Base Rent shall in no event constitute a waiver of Lessee’s Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

9.Damage or Destruction.

9.1Definitions.

(a) “Premises Partial Damage” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 3 months or less from the date of the damage or destruction, and the cost thereof does not exceed a sum equal to 6 month’s Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(b) “Premises Total Destruction” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 3 months or less from the date of the damage or destruction and/or the cost thereof exceeds a sum equal to 6 month’s Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(c) “Insured Loss” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

(d) “Replacement Cost” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e) “Hazardous Substance Condition” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises which requires repair, remediation, or restoration.

9.2Partial Damage - Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $5,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

9.3Partial Damage - Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

9.4Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s damages from Lessee, except as provided in Paragraph 8.6.

9.5Damage Near End of Term. If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.

9.6Abatement of Rent; Lessee’s Remedies.

(a) Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

(b) Remedies. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect.

“Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

9.7Termination; Advance Payments. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

9.8Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

10.Real Property Taxes.

10.1Definitions. As used herein, the term “Real Property Taxes” shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Project, Lessor’s right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Project address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Project is located. “Real Property Taxes” shall also include any tax, fee, levy, assessment or charge, or any increase therein: (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Project, (ii) a change in the improvements thereon, and/or (iii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.

10.2Payment of Taxes. Except as otherwise provided in Paragraph 10.3, Lessor shall pay the Real Property Taxes applicable to the Project, and said payments shall be included in the calculation of Operating Expenses in accordance with the provisions of Paragraph 4.2.

10.3Additional Improvements. Operating Expenses shall not include Real Property Taxes specified in the tax assessor’s records and

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work sheets as being caused by additional improvements placed upon the Project by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at the time Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee’s request or by reason of any alterations or improvements to the Premises made by Lessor subsequent to the execution of this Lease by the Parties.

10.4Joint Assessment. If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available. Lessor’s reasonable determination thereof, in good faith, shall be conclusive.

10.5Personal Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee’s said property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s property.

11.Utilities and Services.

11.1Services Provided by Lessor. Lessor shall provide heating, ventilation, air conditioning, reasonable amounts of electricity for normal lighting and office machines, water for reasonable and normal drinking and lavatory use in connection with an office, and replacement light bulbs and/or fluorescent tubes and ballasts for standard overhead fixtures. Lessor shall also provide janitorial services only to the Premises and Common Areas 5 times per week, excluding Building Holidays, or pursuant to the attached janitorial schedule, if any. Lessor shall not, however, be required to provide janitorial services to kitchens or storage areas included within the Premises.

11.2Services Exclusive to Lessee. Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities and services specially or exclusively supplied and/or metered exclusively to the Premises or to Lessee, together with any taxes thereon. If a service is deleted by Paragraph 1.13 and such service is not separately metered to the Premises, Lessee shall pay at Lessor’s option, either Lessee’s Share or a reasonable proportion to be determined by Lessor of all charges for such jointly metered service.

11.3Hours of Service. Said services and utilities shall be provided during times set forth in Paragraph 1.12. Utilities and services required at other times shall be subject to advance request and reimbursement by Lessee to Lessor of the cost thereof.

11.4Excess Usage by Lessee. Lessee shall not make connection to the utilities except by or through existing outlets and shall not install or use machinery or equipment in or about the Premises that uses excess water, lighting or power, or suffer or permit any act that causes extra burden upon the utilities or services, including but not limited to security and trash services, over standard office usage for the Project. Lessor shall require Lessee to reimburse Lessor for any excess expenses or costs that may arise out of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion, install at Lessee’s expense supplemental equipment and/or separate metering applicable to Lessee’s excess usage or loading.

11.5Interruptions. There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

12.Assignment and Subletting.

12.1Lessor’s Consent Required.

(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment”) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent.

(b) Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.

(c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buyout or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee’s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. “Net Worth of Lessee” shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

(d) An assignment or subletting without consent shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

(e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

(f) Lessor may reasonably withhold consent to a proposed assignment or subletting if Lessee is in Default at the time consent is requested.

(g) Notwithstanding the foregoing, allowing a diminimus portion of the Premises, i e. 20 square feet or less, to be used by a third party vendor in connection with the installation of a vending machine or payphone shall not constitute a subletting.

12.2Terms and Conditions Applicable to Assignment and Subletting.

(a) Regardless of Lessor’s consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b) Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

(c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee,

including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor’s considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (See also Paragraph 36)

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment, entering into such sublease, or entering into possession of the Premises or any portion thereof, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

(g) Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)

12.3Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor exceeds Lessee’s then outstanding obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall

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undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent.

(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

(f) Lessee and Lessor shall share any profits from a sublease or assignment fifty-fifty (50:50). Profits shall be defined as base rent and additional rent received by sublessor/assignor over and above the base rental rate at the time of the full execution of the sublease/assignment agreement.

13.Default; Breach; Remedies.

13.1Default; Breach. A “Default” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A “Breach” is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.

(c) The commission of waste, act or acts constituting public or private nuisance, and/or an illegal activity on the Premises by Lessee, where such actions continue for a period of 3 business days following written notice to Lessee.

(d) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 41, (viii) material data safety sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

(e) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

(f) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. § 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(g) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

(h) If the performance of Lessee’s obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

13.2Remedies. If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee’s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

(a) Terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

(b) Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the

Premises are located. The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.

13.3Inducement Recapture. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee’s entering into this Lease, all of which concessions are hereinafter referred to as “Inducement Provisions”, shall be deemed conditioned upon Lessee’s full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

13.4Late Charges. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s option, become due and payable quarterly in advance.

13.5Interest. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled

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payments (such as Base Rent) or within 30 days following the date on which it was due for nonscheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to nonscheduled payments. The interest
(“Interest”) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

13.6Breach by Lessor.

(a) Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

(b) Performance by Lessee on Behalf of Lessor. In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that such offset shall not exceed an amount equal to the greater of one month’s Base Rent or the Security Deposit, reserving Lessee’s right to seek reimbursement from Lessor for any such expense in excess of such offset. Lessee shall document the cost of said cure and supply said documentation to Lessor.

14.Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “Condemnation”), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the rentable floor area of the Premises, or more than 25% of Lessee’s Reserved Parking Spaces, if any, are taken by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

15.Brokerage Fees. Lessor shall pay to the brokers the brokerage fee agreed to in a separate written agreement - the Standard Owner-Agency Agreement dated April 11, 2005 by and between Scriba Enterprises, Inc. and NAI Capital, Inc.

15.1Additional Commission. In addition to the payments owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee acquires from Lessor any rights to the Premises or other premises owned by Lessor and located within the Project, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease.

15.2         Assumption of Obligations. Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay any amounts to Lessee’s Broker when due, Lessee’s Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor’s Broker for the limited purpose of collecting any brokerage fee owed.

15.3Representations and Indemnities of Broker Relationships. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto.

16.Estoppel Certificates.

(a) Each Party (as “Responding Party”) shall within 10 days after written notice from the other Party (the “Requesting Party”) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current “Estoppel Certificate” form published by the AIRCommercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance, and (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

17.Definition of Lessor. The term “Lessor” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease. In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

18.Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19.Days. Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days.

20.Limitation on Liability. The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor or its partners, members, directors, officers or shareholders, and Lessee shall look to the Project, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

21.Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22.No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys’ fees) of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

23.Notices.

23.1Notice Requirements. All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter

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designate in writing.

23.2Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 72 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24.Waivers. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

25.Disclosures Regarding The Nature of a Real Estate Agency Relationship.

(a) When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

(i) Lessor’s Agent. A Lessor’s agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessor’s agent or subagent has the following affirmative obligations: To the Lessor: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor: a. Diligent exercise of reasonable skills and care in performance of the agent’s duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(ii) Lessee’s Agent. An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the Lessor’s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor: a. Diligent exercise of reasonable skills and care in performance of the agent’s duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(iii) Agent Representing Both Lessor and Lessee. A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: a. A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lesser or the Lessee. b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advise is desired, consult a competent professional.

(b) Brokers have no responsibility with respect to any default or breach hereof by either Party. The Parties agree that no lawsuit or other legal proceeding involving any breach of duty, error or omission relating to this Lease may be brought against Broker more than one year after the Start Date and that the liability (including court costs and attorneys’ fees), of any Broker with respect to any such lawsuit and/or legal proceeding shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

(c) Buyer and Seller agree to identify to Brokers as “Confidential” any communication or information given Brokers that is considered by such Party to be confidential.

26.No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

27.Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28.Covenants and Conditions; Construction of Agreement. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29.Binding Effect; Choice of Law. This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

30.Subordination; Attornment; Non-Disturbance.

30.1Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “Security Device”), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “Lender”) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

30.2Attornment. In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of the new owner, this Lease will automatically become a new lease between Lessee and such new owner, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor’s obligations, except that such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month’s rent, or (d) be liable for the return of any security deposit paid to any prior lessor.

30.3Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “ Non-Disturbance Agreement ”) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

30.4Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31.Attorneys’ Fees. If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, “Prevailing Party” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense.

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The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred. In addition, Lessor shall be entitled to attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

32.Lessor’s Access; Showing Premises; Repairs. Lessor and Lessor’s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect on Lessee’s use of the Premises. All such activities shall be without abatement of rent or liability to Lessee.

33.Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34.Signs. Lessor may place on the Premises ordinary “For Sale” signs at any time and ordinary “For Lease” signs during the last 6 months of the term hereof.

35.Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor’s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest.

36.Consents. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor’s actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor’s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

37.Guarantor.

37.1Execution. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real Estate Association.

37.2Default. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor’s behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

38.Quiet Possession. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39.Options. If Lessee is granted an Option, as defined below, then the following provisions shall apply.

39.1Definition. “Option” shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

39.2Options Personal To Original Lessee. Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

39.3Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

39.4Effect of Default on Options.

(a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.

40.Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. In the event, however, that Lessor should elect to provide security services, then the cost thereof shall be an Operating Expense.

41.Reservations.

(a) Lessor reserves the right: (i) to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, (ii) to cause the recordation of parcel maps and restrictions, (iii) to create and/or install new utility raceways, so long as such easements, rights, dedications, maps, restrictions, and utility raceways do not unreasonably interfere with the use of the Premises by Lessee. Lessor may also: change the name, address or title of the Building or Project upon at least 90 days prior written notice; provide and install, at Lessee’s expense, Building standard graphics on the door of the Premises and such portions of the Common Areas as Lessor shall reasonably deem appropriate; grant to any lessee the exclusive right to conduct any business as long as such exclusive right does not conflict with any rights expressly given herein; and to place such signs, notices or displays as Lessor reasonably deems necessary or advisable upon the roof, exterior of the Building or the Project or on pole signs in the Common Areas. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate such rights. The obstruction of Lessee’s view, air, or light by any structure erected in the vicinity of the Building, whether by Lessor or third parties, shall in no way affect this Lease or impose any liability upon Lessor.

(b) Lessor also reserves the right to move Lessee to other space of comparable size in the Building or Project. Lessor must provide at least 45 days prior written notice of such move, and the new space must contain improvements of comparable quality to those contained within the Premises. Lessor shall pay the reasonable out of pocket costs that Lessee incurs with regard to such relocation, including the expenses of moving and necessary stationary revision costs. In no event, however, shall Lessor be required to pay an amount in excess of two months Base Rent. Lessee may not be relocated more than once during the term of this Lease.

(c) Lessee shall not: (i) use a representation (photographic or otherwise) of the Building or Project or their name(s) in connection with Lessee’s business; or (ii) suffer or permit anyone, except in emergency, to go upon the roof of the Building.

42.Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. A Party who does not initiate suit for the recovery of sums paid “under protest” within 6 months shall be deemed to have waived its right to protest such payment.

43.Authority; Multiple Parties; Execution

(a) If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each Party shall, within 30 days after request, deliver to the other Party satisfactory evidence of such authority.

(b) If this Lease is executed by more than one person or entity as “Lessee”, each such person or entity shall be jointly and severally liable hereunder. It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

(c) This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

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44.Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

45.Offer. Preparation of this Lease by either party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

46.Amendments. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee’s obligations hereunder, Lessee agrees to make such reasonable nonmonetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

47.Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

48.Mediation and Arbitration of Disputes. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease o is o is not attached to this Lease.

49.Americans with Disabilities Act. Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee’s specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1.          SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2.          RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING AND SIZE OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

Executed at:

Los Angeles, California

Executed at:

Los Angeles, California

On:

By LESSOR:

By LESSEE:

Scriba Enterprises, Inc., a California corporation

1st Century Bank, National Association

By:

/s/ Ralph Scriba

By:

/s/ Richard S. Cupp

Name Printed:

Ralph Scriba

Name Printed:

Richard S. Cupp

Title:

President

Title:

President & Chief Executive Officer

By:

By:

/s/ Jeffrey M. Watson

Name Printed:

Name Printed:

Jeffrey M. Watson

Title:

Title:

EVP/COO

Address:

35 Malaga Cove Plaza

Address:

1875 Century Park East, Suite 1400

Palos Verdes Estates, CA 90274

Los Angeles, CA 90067

Telephone:

(310) 373-9889

Telephone:

(310) 270-9500

Facsimile:

(310) 373-8036

Facsimile:

(310) 270-9520

LESSOR’S BROKER:

LESSEE’S BROKER:

NAI Capital, Inc.

Trammell Crow Company

Attn:

Bob Morris, SIOR

Attn:

Steve Soloman

Randy Matusoff, CCIM, SIOR

Address:

2041 Rosecrans Avenue, Suite 300

Address:

970 West 190th Street, Suite 100

El Segundo, CA 90245

Torrance, CA 90502

Telephone:

(310) 765-2600

Telephone:

(310) 532-9080

Facsimile:

(310) 765-2651

Facsimile:

(310) 327-6259

PAGE 13 OF 13

ADDENDUM SUMMARY

STANDARD MULTI-TENANT OFFICE LEASE - GROSS

			Dated:	February 27, 2006
By and Between (Lessor)		Scriba Enterprises, Inc., a California corporation
(Lessee)		1st Century Bank, National Association
Address of Premises:	1025 West 190th Street, Suite 225
	Gardena, CA 90248

50.      OPTION TO EXTEND

51.      RENT ADJUSTMENTS

52.      PARKING

53.      RENTAL ABATEMENT

54.      TENANT IMPROVEMENT ALLOWANCE

55.      DIRECTORY BOARD

56.      SUITE IDENTITY

57.      MONUMENT SIGNAGE

58.      HEATING, VENTILATING, AND AIR CONDITIONING

59.      PROPERTY MANAGEMENT

60.      L ESSEE NOTICES

61.      RIGHT TO TERMINATE

62.      CONFIDENTIALITY

63.      INDEMNIFICATION FOR LEASE PREPARATION

PAGE 1 OF 1

OPTION TO EXTEND

STANDARD LEASE ADDENDUM

Dated			February 27, 2006
By and Between (Lessor)		Scriba Enterprises, Inc., a California corporation
By and Between (Lessee)		1st Century Bank, National Association
Address of Premises:	1025 West 190th Street, Suite 225
	Gardena, CA 90248

Paragraph 50             

A.    OPTION(S) TO EXTEND:

Lessor hereby grants to Lessee the option to extend the term of this Lease for one (1) additional three (3) year period(s) commencing when the prior term expires upon each and all of the following terms and conditions:

(i)  In order to exercise an option to extend, Lessee must give written notice of such election to Lessor and Lessor must receive the same at least nine (9) but not more than twelve (12) months prior to the date that the option period would commence, time being of the essence. If proper notification of the exercise of an option is not given and/or received, such option shall automatically expire.

(ii)  The provisions of paragraph 39, including those relating to Lessee’s Default set forth in paragraph 39.4 of this Lease, are conditions of this Option.

(iii)  Except for the provisions of this Lease granting an option or options to extend the term, all of the terms and conditions of this Lease except where specifically modified by this option shall apply.

(iv)  This Option is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and without the intention of thereafter assigning or subletting.

(v)  The monthly rent for each month of the option period shall be calculated as follows, using the method(s) indicated below:

(Check Method(s) to be Used and Fill in Appropriately)

þ    II.    Market Rental Value Adjustment(s) (MRV)

a.      On the beginning of the first (1st) month after completion of the initial sixty (60) month Lease term the Base Rent shall be adjusted to the “Market Rental Value” of the property as follows: for comparable office space in the 190th Street Corridor area.

2) Notwithstanding the foregoing, the new MRV shall not be less than a three percent (3%) increase over the total the rent payable for the month immediately preceding the rent adjustment which is the last month of the initial sixty (60) month Lease term.

b.     Upon the establishment of each New Market Rental Value:

1) the new MRV will become the new “Base Rent” for the purpose of calculating any further Adjustments, and

2) the first month of each Market Rental Value term shall become the new “Base Month” for the purpose of calculating any further Adjustments.

RENT ADJUSTMENT(S)

STANDARD LEASE ADDENDUM

Dated				February 27, 2006
By and Between	(Lessor)		Scriba Enterprises, Inc., a California corporation
	(Lessee)		1st Century Bank, National Association
Address of Premises:		1025 West 190th Street, Suite 225
		Gardena, CA 90248

Paragraph 51          

A.RENT ADJUSTMENTS:

The monthly rent for each month of the adjustment period(s) specified below shall be increased using the method(s) indicated below: (Check Method(s) to be Used and Fill in Appropriately)

þ    III.   Fixed Rental Adjustment(s) (FRA)

The Base Rent shall be increased to the following amounts on the dates set forth below:

On (Fill in FRA Adjustment Date(s)):		The New Base Rent shall be:
	Beginning month thirteen (13)
	of the initial Lease term	$5,910.00 per month
	Beginning month twenty-five
	(25) of the initial Lease term	$6,066.00 per month
	Beginning month thirty-seven
	(37) of the initial Lease term	$6,222.00 per month
	Beginning month forty-nine
	(49) of the initial Lease term	$6,377.00 per month

B.NOTICE:

Unless specified otherwise herein, notice of any such adjustments, other than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the Lease.

C.BROKER’S FEE:

The Brokers shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the Lease.

ADDENDUM

TO STANDARD MULTI-TENANT OFFICE LEASE - GROSS

Date:	February 27, 2006
By and Between (Lessor)			Scriba Enterprises, Inc., a California corporation
(Lessee)			1st Century Bank, National Association
Address of Premises:		1025 West 190th Street, Suite 225
		Gardena, CA 90248

THIS ADDENDUM TO STANDARD MULTI-TENANT OFFICE LEASE-GROSS (“Addendum”) modifies that certain Standard Multi-Tenant Office Lease-Gross dated February 27, 2006 (“Lease”) by and between Lessor and Lessee. In the event of any conflict or inconsistency between the terms of this Addendum and the terms of the Lease, this Addendum shall control.

52.PARKING:

Lessee hereby acknowledges that the eleven (11) unreserved parking space as set forth in Section 1.2 (b) are to accommodate both Lessee’s employees and its visitors and invitees. In the event that Lessor, in its reasonable discretion, determines that Lessee’s visitors and invitees exceed this allotment, then Lessor may at its option designate certain parking spaces as “ Bank Visitors Only” whereby Lessee shall instruct its visitors and invitees to park only in these designated spaces. Any reserved parking spaces for Lessee’s visitors and invitees shall be deducted from Lessee’s allotment of eleven (11) total parking spaces as set forth in Section 1.2 (b).

53.RENTAL ABATEMENT:

Months two (2), three (3) and four (4) of the initial sixty (60) month Lease term shall be one hundred percent (100%) abated (free).

Months five (5), six (6), seven (7) and eight (8) of the initial sixty (60) month Lease term shall be fifty percent (50%) abated (one-half (1/2) rent - $2,955.00).

54.TENANT IMPROVEMENT ALLOWANCE:

The Lessor will provide a not to exceed tenant improvement allowance of Twenty-two Thousand Dollars ($22,000.00) per the 12-08-05 plan as provided by BOLE Planning & Design and attached hereto as STANDARD OFFICE LEASE FLOORPLAN.  Lessee shall have the right to use said allowance for the reimbursement of the cost of construction, demolition, architectural fees, and mechanical and electrical engineering costs. Said cash allowance shall be paid by Lessor to Lessee thirty (30) days after completion of tenant improvement work. The Lessee shall have the right to use licensed and bonded contractors of its choice, subject to Lessor’s approval, which shall not be withheld or delayed.

55.DIRECTORY BOARD:

Lessor, at Lessor’s sole cost and expense, shall furnish up to three (3) one (1) line/building standard directory strips on the directory in the lobby of the building.

56.SUITE IDENTITY:

Lessor, at Lessor’s sole cost and expense, shall install building standard suite identity signage outside Lessee’s entry door consistent and compatible with the building’s design, signage, graphics program and city codes.

57.MONUMENT SIGNAGE:

The Lessee, at the Lessee’s sole cost and expense, shall be entitled to install prominent and appropriate signage on the existing lighted monument sign on 190th Street. The exact location, size, material, coloring, lettering, and lighting shall be mutually agreed upon by the Lessor and the Lessee and shall be consistent and compatible with the building’s design, signage, graphics program and city codes. Lessor will not charge Lessee a monthly fee/rent for the sign space on the monument.

58.HEATING, VENTILATING, AND AIR CONDITIONING:

The Lessor, at the Lessor’s expense, shall furnish heating, ventilating, and air conditioning Monday through Friday 7:30 am to 6:00 pm and hours are subject to change at the Lessor’s discretion. Current HVAC costs are Sixty Dollars ($60.00)  per hour and subject to change due to increased utility costs and at Lessor’s discretion.

59.PROPERTY MANAGEMENT:

The property manager is located at 35 Malaga Cove Plaza, Palos Verdes Estates, California 90274. Mail all correspondence and rent checks to: Scriba Enterprises, Inc.

60.LESSEE NOTICES:

The Lessee requests all notices and invoices be sent to 1st Century Bank located at 1875 Century Park East, Suite 1400, Los Angeles , California 90067 ATTN: Jeff Watson.

61.RIGHT TO TERMINATE:

Lessee shall have a one (1) time right to cancel said Lease after the first thirty-six (36) months of occupancy of the initial Lease term by giving Lessor one hundred eighty (180) days prior written notice of its intention to terminate. Lessee shall pay Lessor upon vacating the premises a Lease Termination Fee equal to two (2) months rent at the time of cancellation, unamortized tenant improvement costs, and unamortized Leasing Commissions.

62.CONFIDENTIALITY:

This lease is confidential and is intended only for the benefit of 1st Century Bank, NA. Terms and conditions of this lease are not to be discussed or relayed to those not directly associated with this project, including building tenants, owners, agents, or representatives of competing buildings and/or projects.

63.INDEMNIFICATION FOR LEASE PREPARATION:

NAI Capital, Inc. has prepared this Standard Multi-Tenant Office Lease - Gross, Addendum, and all attachments at the request of Lessor and Lessee. Lessor and Lessee agree to indemnify and hold harmless NAI Capital, Inc. and its respective agents and employees for any liability or loss, including without limitation, reasonable attorney fees and costs that may be occasioned, as a result of completing these documents. Lessor and Lessee acknowledge NAI Capital, Inc. has advised them to have their legal counsels review this Standard Multi-Tenant Office Lease - Gross, Addendum, and all attachments.

Lessor Initials:         s/s RS               Lessee Initials:         /s/ JW

The parties hereto have executed this Addendum at the place and on the dates specified above their respective signatures.

By LESSOR:

By LESSEE:

Scriba Enterprises, Inc. a California corporation

1st Century Bank, National Association

Executed at:

Los Angeles, California

Executed at:

Los Angeles, California

On:

On:

By:

/s/ Ralph Scriba

By:

/s/ Richard S. Cupp

Name Printed:

Ralph Scriba

Name Printed:

Richard S. Cupp

Title:

President

Title:

President & Chief Executive Officer

By:

/s/ Jeffrey M Watson

Name Printed:

Jeffrey M. Watson

Title:

EVP/COO

Address:

35 Malaga Cove Plaza

Address:

1875 Century Park East, Suite 1400

Palos Verdes Estates, CA90274

Los Angeles, CA 90067

Telephone:

(310)

373-9889

Telephone:

(310)

270-9500

Facsimile:

(310)

373-8036

Facsimile:

(310)

270-9520

PAGE 1 OF 1

RULES AND REGULATIONS FOR

STANDARD OFFICE LEASE

Dated:	February 27, 2006
By and Between		Scriba Enterprises, Inc., a California corporation (Lessor) and 1st Century
		Bank, National Association (Lessee)

GENERAL RULES

1.     Lessee shall not suffer or permit the obstruction of any Common Areas, including driveways, walkways and stairways.

2.     Lessor reserves the right to refuse access to any persons Lessor in good faith judges to be a threat to the safety and reputation of the Project and its occupants.

3.     Lessee shall not make or permit any noise or odors that annoy or interfere with other lessees or persons having business within the Project.

4.     Lessee shall not keep animals or birds within the Project, and shall not bring bicycles, motorcycles or other vehicles into areas not designated as authorized for same.

5.     Lessee shall not make, suffer or permit litter except in appropriate receptacles for that purpose.

6.     Lessee shall not alter any lock or install new or additional locks or bolts.

7.     Lessee shall be responsible for the inappropriate use of any toilet rooms, plumbing or other utilities. No foreign substances of any kind are to be inserted therein.

8.     Lessee shall not deface the walls, partitions or other surfaces of the Premises or Project.

9.     Lessee shall not suffer or permit anything in or around the Premises or Building that causes excessive vibration or floor loading in any part of the Project.

10.   Furniture, significant freight and equipment shall be moved into or out of the building only with the Lessor’s knowledge and consent, and subject to such reasonable limitations, techniques and timing, as may be designated by Lessor. Lessee shall be responsible for any damage to the Office Building Project arising from any such activity.

11.   Lessee shall not employ any service or contractor for services or work to be performed in the Building, except as approved by Lessor.

12.   Lessor reserves the right to close and lock the Building on Saturdays, Sundays and Building Holidays. , and on other days, between the hours of P.M. and A.M. of the following day. If Lessee uses the Premises during such periods, Lessee shall be responsible for securely locking any doors it may have opened for entry.

13.   Lessee shall return all keys at the termination of its tenancy and shall be responsible for the cost of replacing any keys that are lost.

14.   No window coverings, shades or awnings shall be installed or used by Lessee.

15.   No Lessee, employee or invitee shall go upon the roof of the Building.

16.   Lessee shall not suffer or permit smoking or carrying of lighted cigars or cigarettes in areas reasonably designated by Lessor or by applicable governmental agencies as non-smoking areas.

17.   Lessee shall not use any method of heating or air conditioning other than as provided by Lessor.

18.   Lessee shall not install, maintain or operate any vending machines upon the Premises without Lessor’s written consent.

19.   The Premises shall not be used for lodging or manufacturing, cooking or food preparation with the exception of reasonable microwave oven use by Lessee’s employees .

20.   Lessee shall comply with all safety, fire protection and evacuation regulations established by Lessor or any applicable governmental agency.

21.   Lessor reserves the right to waive any one of these rules or regulations, and/or as to any particular Lessee, and any such waiver shall not constitute a waiver of any other rule or regulation or any subsequent application thereof to such Lessee.

22.   Lessee assumes all risks from theft or vandalism and agrees to keep its Premises locked as may be required.

23.   Lessor reserves the right to make such other reasonable rules and regulations as it may from time to time deem necessary for the appropriate operation and safety of the Project and its occupants. Lessee agrees to abide by these and such rules and regulations.

PARKING RULES

1.     Parking areas shall be used only for parking by vehicles no longer than full size, passenger automobiles herein called “Permitted Size Vehicles.” Vehicles other than Permitted Size Vehicles are herein referred to as “Oversized Vehicles.”

2.     Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee’s employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities.

3.     Parking stickers or identification devices shall be the property of Lessor and be returned to Lessor by the holder thereof upon termination of the holder’s parking privileges. Lessee will pay such replacement charge as is reasonably established by Lessor for the loss of such devices.

4.     Lessor reserves the right to refuse the sale of monthly identification devices to any person or entity that willfully refuses to comply with the applicable rules, regulations, laws and/or agreements.

5.     Lessor reserves the right to relocate all or a part of parking spaces from floor to floor, within one floor, and/or to reasonably adjacent offsite location(s), and to reasonably allocate them between compact and standard size spaces, as long as the same complies with applicable laws, ordinances and regulations.

6.     Users of the parking area will obey all posted signs and park only in the areas designated for vehicle parking.

7.     Unless otherwise instructed, every person using the parking area is required to park and lock his own vehicle. Lessor will not be responsible for any damage to vehicles, injury to persons or loss of property, all of which risks are assumed by the party using the parking area.

8.     Validation, if established, will be permissible only by such method or methods as Lessor and/or its licensee may establish at rates generally applicable to visitor parking.

9.     The maintenance, washing, waxing or cleaning of vehicles in the parking structure or Common Areas is prohibited.

10.   Lessee shall be responsible for seeing that all of its employees, agents and invitees comply with the applicable parking rules, regulations, laws and agreements.

11.   Lessor reserves the right to modify these rules and/or adopt such other reasonable and non-discriminatory rules and regulations as it may deem necessary for the proper operation of the parking area.

12.   Such parking use as is herein provided is intended merely as a license only and no bailment is intended or shall be created hereby.

PAGE 1 OF 1

STANDARD OFFICE LEASE FLOOR PLAN

[Floor plan]

EX-10.3

Exhibit 10.3

LEASE AMENDMENT #1

This Lease Amendment #1 (“Amendment”) dated , June 9, 2006 is by and between 1875/1925 CENTURY PARK EAST COMPANY, a California general partnership (“Landlord”), and 1^ST CENTURY BANK, N.A. (“Tenant”).

RECITALS

WHEREAS, 1875/1925 CENTURY PARK EAST COMPANY, a California general partnership, as Landlord, and 1^ST CENTURY BANK, N.A., as Tenant, entered into that certain lease agreement dated November 5, 2003 (the “Lease”), wherein there was demised to Tenant by Landlord the Premises consisting of:  1) Premises A, known as Suite D, consisting of 3,626 rentable square feet (3,158 usable square feet) on the ground floor of the building situated at 1875 Century Park East, Los Angeles, California; and 2) Premises B, known as Suite 1400, consisting of 9,316 rentable square feet (8,108 usable square feet) on the 14^th floor of the building situated at 1875 Century Park East, Los Angeles, California for a term of approximately ten (10) years commencing June 2, 2004 and terminating June 30, 2014; and

WHEREAS, Landlord and Tenant desire to amend the Lease to provide for changes and modifications as mutually agreed upon effective June 1, 2006; and

NOW, THEREFORE, in consideration of the terms, covenants, conditions and agreements set forth in the Lease and in this Amendment, the parties hereto agree as follows:

1.That the Rentable Area of Premises B as set forth under Paragraphs A(1) and 1.4 of the Lease shall be increased by 3,142 rentable square feet (“Additional Premises”) shown crosshatched on the plan marked Exhibit “A-1” attached hereto and made a part hereof,

1

thereby increasing the total rentable area of Premises B from 9,316 rentable square feet to 12,458 rentable square feet.  The usable area of Premises B shall be increased by 2,735 usable square feet from 8,108 usable square feet to 10,843 usable square feet.

The Rentable Area of Premises A shall remain the same.

2.That the following Rental schedule shall be applicable during the Lease periods shown below and such figures shall be read in Paragraphs A(3), 3.1 and 3.2 of the Lease during the applicable Lease periods.

Lease Period	Annual Rental		Monthly Rental
June 1, 2006 – August 31, 2006	$	375,282.00	$	31,273.50
September 1, 2006 – December 31, 2006	$	455,312.40	$	37,942.70
January 1, 2007 – August 31, 2007	$	478,613.40	$	39,884.45
September 1, 2007 – August 31, 2008	$	481,629.72	$	40,135.81
September 1, 2008 – June 30, 2009	$	484,646.04	$	40,387.17
July 1, 2009 – August 31, 2009	$	500,180.04	$	41,681.67
September 1, 2009 – August 31, 2010	$	503,196.36	$	41,933.03
September 1, 2010 – August 31, 2011	$	506,589.72	$	42,215.81
September 1, 2011 – December 31, 2011	$	509,606.04	$	42,467.17
January 1, 2012 – August 31, 2012	$	532,907.04	$	44,408.92
September 1, 2012 – August 31, 2013	$	536,300.40	$	44,691.70
September 1, 2013 – June 30, 2014	$	540,070.80	$	45,005.90

3.That the Base Year as set forth in Paragraph A(5) of the Lease for the Additional Premises portion of Premises B only shall be the calendar year 2006.

4.That Lessee’s Proportionate Share of the excess Building Operating Costs as set forth under Paragraph A(4) of the Lease shall be increased by 0.36605% from 1.08516% to 1.45121%.

2

5.That the Security Deposit as set forth in Paragraphs A(6) and 5 of the Lease shall be increased by $10,054.40 from $34,951.50 to $44,005.90.

6.That reference to “Julien J. Studley” in Paragraph 37.5 of the Lease shall be deleted and “None” shall be inserted.

7.That Exhibit “A-1” of the Lease shall be deleted and Exhibit “A-1” attached hereto shall be added.

8.That Tenant accepts the Additional Premises in their “as is” condition, except Landlord shall provide Tenant with an allowance of $62,840.00 (“Allowance”) for Landlord-approved permanent Tenant Improvements to the Additional Premises.  All Tenant Improvements shall be made in accordance with Exhibit “C” and Paragraph 7 of the Lease.

9.That the number “39” as set forth in Paragraph A(10) and Exhibit “G” of the Lease shall be deleted and the number “48” shall be inserted.

10.That this Amendment shall be read with and construed with the aforesaid Lease and all of the terms, covenants, conditions, agreements and limitations set forth in the Lease except as specifically mentioned herein, shall remain and be in full force and effect.  In the event a conflict exists between the terms and conditions of this Amendment and the terms and conditions of the Lease, the terms and conditions of this Amendment shall control.

3

IN WITNESS WHEREOF the parties have executed this Amendment the day and year first above written.

“TENANT”

1^ST CENTURY BANK, N.A.

By:	/s/ Richard S. Cupp
Print Name:			Richard S. Cupp
Its:		President & CEO
By:
Print Name:
Its:

“LANDLORD”

1875/1925 CENTURY PARK EAST COMPANY,

a California general partnership

By:	WP Twin Towers, Inc.,
	a California corporation
	By:	/s/ Nadine Watt
		Nadine Watt, President

4

EXHIBIT “A-1”

Additional Premises Expansion Area

“Floorplan”

WATT PLAZA

1875 CENTURY PARK EAST

Suite 1400

1^st Century Bank, N.A.

 12,458 rentable square feet

(10,843 usable square feet)

5

WATT PLAZA

OFFICE SUBLEASE

1.PARTIES:

This Sublease is entered into as of the 1ST day of JUNE, 2006 by and between  1^ST CENTURY BANK, N.A, (“Sublessor”), and SPORTS BUSINESS VENTURES, (“Sublessee”), with reference to the following:

Sublessor as Lessee/Tenant, and 1875/1925 CENTURY PARK EAST COMPANY, a California general partnership, as Lessor/Landlord, entered into a Lease Agreement dated November 5, 2003. [The Lease Agreement was subsequently amended by Amendment #1 between Lessee/Tenant and Lessor/Landlord dated June 1, The Lease Agreement [Amendment #1] shall hereinafter, collectively, be known as the “Master Lease”,

2.PROVISIONS CONSTITUTING SUBLEASE:

This Sublease shall be of no force and effect unless and until the Lessor/Landlord under the Master Lease shall grant its consent in writing thereto and this Sublease is subject to all of the terms and conditions of the Master Lease except as specifically exempted herein and Sublessee shall assume and perform the obligations of Sublessor as Lessee/Tenant in said Master Lease to the extent said terms and conditions are applicable to the Premises subleased pursuant to this Sublease.  Sublessee shall not commit or permit to be committed on the subleased Premises any act or omission which shall violate any term or condition of the Master Lease.  In the event of the termination of Sublessor’s interest as Lessee/Tenant under the Master Lease for any reason, then

this Sublease shall terminate coincidentally therewith without any liability of Sublessor to Sublessee.  All of the terms and conditions contained in the Master Lease are incorporated herein except in paragraph 12 as terms and conditions of this Sublease (with each reference therein to Lessor/Landlord and Lessee/Tenant to be deemed to refer to Sublessor and Sublessee) and along with all of the following paragraphs set out in this Sublease, shall be the complete terms and conditions of this Sublease.  In cases of any conflicts between the terms of this Sublease and the terms of the Master Lease, the terms of the Master Lease shall prevail.

3.PREMISES:

Sublessor leases to Sublessee and Sublessee leases from Sublessor, but not by way of assignment, those certain Premises constituting a portion of the 14^th floor and containing approximately 3,142 square feet, designated as Suite 1460, in the building located at 1875 Century Park East, Los Angeles, California 90067 (“Premises”).  Sublessee agrees to accept the Premises in an “as is” condition and Sublessor shall not be required to perform any work in the Premises at its expense unless otherwise herein provided.

4.TERM:

4a.  The term of this Sublease shall be for a period commencing on JUNE 1, 2006, (“Commencement Date”), and will continue on a MONTH TO MONTH  basis.

4b.  Notwithstanding said Commencement Date, if for any reason Sublessor cannot deliver possession of the Premises to Sublessee on said date, Sublessor shall not be subject to

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any liability therefore, nor shall such failure affect the validity of this Sublease or the obligations of Sublessee hereunder or extend the term hereof, but in such case Sublessee shall not be obligated to pay rent until possession of the Premises is tendered to Sublessee; provided, however, that if Sublessor shall not have delivered possession of the Premises within ninety (90) days from said Commencement Date, Sublessee may, at Sublessee’s option, by notice in writing to Sublessor within ten (10) days thereafter, cancel this Sublease.  If this Sublease is cancelled as herein provided, Sublessor shall return any monies previously deposited by Sublessee and the parties shall be discharged from all obligations hereunder.

4c.  In the event that Sublessor shall permit Sublessee to occupy the Premises prior to the Commencement Date of the term, such occupancy shall be subject to all of the provisions of this Sublease.  Said early possession shall not advance the termination date of this Sublease.

5.RENT:

5a.  BASIC RENT:  Sublessee shall pay to Sublessor as basic rent for the Premises an equal monthly installment of TWO THOUSAND AND 00/100 DOLLARS ($2,000.00), in advance, on the first day of each month of the term hereof.

Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment.  Rent shall be payable without notice or demand and without any deduction, offset, or abatement in lawful money of the United States of America to Sublessor at the address stated herein or to such other person or at such other places as Sublessor may designate in writing.

5b.  RENT ADJUSTMENT: Sublessee shall pay to Sublessor as additional rent as negotiated on a mutually agreeable basis as requested by Sublessor.

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6.SECURITY DEPOSIT:

Sublessee shall deposit with Sublessor upon execution hereof the sum of ZERO DOLLARS ($0) as Security Deposit for Sublessee’s faithful performance of Sublessee’s obligations hereunder.  If Sublessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Sublease, Sublessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Sublessor may become obligated by reason of Sublessee’s default, or to compensate Sublessor for any loss or damage which Sublessor may suffer thereby.  If Sublessor so uses or applies all or any portion of said deposit, Sublessee shall within ten (10) days after written demand deposit cash with Sublessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Sublessee’s failure to do so shall be a breach of the Sublease, and Sublessor may at its option terminate this Sublease.  Sublessor shall not be required to keep said deposit separate from its general accounts. Within ten (10) days after the expiration of the term hereof, on condition Sublessee has vacated the Premises and has fully and faithfully performed every provision of this Sublease to be performed by it, the security deposit or any balance thereof shall be returned to Sublessee (or, at Sublessor’s option, to the last assignee, if any, of Sublessee’s interest hereunder) provided however that Sublessor may retain one-half of the security deposit until such time as any amount due from Sublessee in accordance with the rental adjustment provision of this Sublease  has been determined and paid in full.

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7.PARKING:

Sublessor hereby grants to Sublessee for its own use its ZERO (0) unassigned parking spaces in the Building of which the Premises form a part, which Sublessee may rent at parking rates as charged by the parking garage operator and subject to the parking agreement of the Master Lease.

8.USE:

The Premises shall be used and occupied only as executive offices for general purposes.

9.DEFAULT:

In the event of default by Sublessee of the payment of rents or in the performance of any other terms and conditions of this Sublease, Sublessor shall have, in addition to whatever other rights and remedies it may have at law or in equity, the same rights and remedies against Sublessee as the Lessor has against Sublessor as Lessee under the Master Lease.

10.ASSIGNMENT AND SUBLETTING:

Neither Sublessee nor Sublessor shall assign this Sublease or any interest therein or further sublet any portion of the Premises or any right or privilege appurtenant thereto without the prior written consent of Lessor/Landlord first had and obtained.

11.NOTICE:

Any notice required and permitted to be given hereunder must be in writing and may be given by personal delivery or by mail, and if given by mail shall be deemed sufficiently given if

9

sent by registered or certified mail addressed to Sublessee at the Premises or served upon Sublessee or its representative at the Premises, and Sublessor 1875 CENTURY PARK EAST, SUITE 1400, LOS ANGELES, CA 90067.  Either party may by written notice to the other specify a different address for notice purposes except that the Sublessor may in any event use the Premises as Sublessee’s address for notice purposes.

“SUBLESSEE”		Address:
1ST CENTURY BANK, N.A.		1875 CENTURY PARK EAST,
		SUITE 1400
By:	/S/ RICHARD S. CUPP	LOS ANGELES, CA 90067
Print Name: Richard S. Cupp
Its:   President & CEO
“SUBLESSOR”		Address:
SPORTS BUSINESS VENTURES		1875 CENTURY PARK EAST,
		SUITE 1400
By:	/S/ JEFF MARKS	LOS ANGELES, CA 90067
Its:   Managing Director

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EX-10.4

Exhibit 10.4

LEASE AMENDMENT #2

This Lease Amendment #2 (“Amendment”) dated October 9, 2007 is by and between 1875/1925 CENTURY PARK EAST COMPANY, a California general partnership (“Landlord”), and 1^ST CENTURY BANK, N.A. (“Tenant”).

RECITALS

WHEREAS, 1875/1925 CENTURY PARK EAST COMPANY, a California general partnership, as Landlord, and 1^ST CENTURY BANK, N.A., as Tenant, entered into that certain lease agreement dated November 5, 2003 (the “Lease”), wherein there was demised to Tenant by Landlord the Premises consisting of:  1) Premises A, known as Suite D, consisting of 3,629 rentable square feet (3,158 usable square feet) on the ground floor of the building situated at 1875 Century Park East, Los Angeles, California; and 2) Premises B, known as Suite 1400, consisting of 9,316 rentable square feet (8,108 usable square feet) on the 14^th floor of the building situated at 1875 Century Park East, Los Angeles, California for a term of approximately ten (10) years commencing June 2, 2004 and terminating June 30, 2014; and

WHEREAS, said Lease was subsequently amended by Lease Amendment #1 dated June 9, 2006, increasing Premises B to 12,458 rentable square feet (10,843 usable square feet); and

WHEREAS, Landlord and Tenant desire to further amend the Lease to provide for other changes and modifications as mutually agreed upon effective December 1, 2007; and

NOW, THEREFORE, in consideration of the terms, covenants, conditions and agreements set forth in the Lease as amended and in this Amendment, the parties hereto agree as follows:

1.That the Rentable Area of Premises A as set forth under Paragraphs A(1) and 1.4 of the Lease, as amended, shall be increased by 3,155 rentable square feet (“Expansion Premises”) commonly known as 1875 Century Park East, Suite B shown crosshatched on the plan marked Exhibit “A” attached hereto and made a part hereof, thereby increasing the total rentable area of Premises A from 3,629 rentable square feet to 6,784 rentable square feet.  The usable area of Premises A shall be increased by 2,746 usable square feet from 3,158 usable square feet to 5,904 usable square feet.

The Rentable Area of Premises B shall remain the same.

The total area of the combined Premises comprised of Premises A and Premises B shall be 19,242 rentable square feet (16,747 usable square feet).

2.That the Term as set forth in Paragraph A(2)(a) of the Lease, as amended, for the Expansion Premises only shall be ten (10) years commencing December 1, 2007 and terminating November 30, 2017.  Pursuant to the Lease, the Term for the remainder of the Premises shall terminate on June 30, 2014.

3.That the following Rental schedule shall be applicable during the Lease periods shown below and such figures shall be read in Paragraphs A(3), 3.1 and 3.2 of the Lease, as amended, during the applicable Lease periods.

Lease Period			Annual Rental		Monthly Rental
12/1/2007	-	8/31/2008	$	568,707.72	$	47,392.31
9/1/2008	-	11/30/2008	$	571,724.04	$	47,643.67
12/1/2008	-	6/30/2009	$	574,336.44	$	47,861.37
7/1/2009	-	8/31/2009	$	589,870.44	$	49,155.87
9/1/2009	-	11/30/2009	$	592,886.76	$	49,407.23
12/1/2009	-	8/31/2010	$	595,577.40	$	49,631.45
9/1/2010	-	11/30/2010	$	598,970.76	$	49,914.23
12/1/2010	-	8/31/2011	$	601,742.16	$	50,145.18

Lease Period			Annual Rental		Monthly Rental
9/1/2011	-	11/30/2011	$	604,758.48	$	50,396.54
12/1/2011	-	12/31/2011	$	607,613.04	$	50,634.42
1/1/2012	-	8/31/2012	$	630,914.04	$	52,576.17
9/1/2012	-	11/30/2012	$	634,307.40	$	52,858.95
12/1/2012	-	8/31/2013	$	637,247.64	$	53,103.97
9/1/2013	-	11/30/2013	$	641,018.04	$	53,418.17
12/1/2013	-	6/30/2014	$	644,046.48	$	53,670.54
7/1/2014	-	11/30/2014	$	103,975.68	$	8,664.64
12/1/2014	-	11/30/2015	$	107,094.96	$	8,924.58
12/1/2015	-	11/30/2016	$	110,307.84	$	9,192.32
12/1/2016	-	11/30/2017	$	113,617.08	$	9,468.09

4.That the Security Deposit as set forth in Paragraphs A(6) and 5 of the Lease, as amended, shall be increased by $9,664.64 from $44,005.90 to $53,670.54.

5.That Exhibit “A” of the Lease, as amended, shall be deleted and Exhibit “A” attached hereto shall be added.

6.That Tenant accepts the Expansion Premises in their “as is” condition, except Landlord shall provide Tenant with an allowance of $76,887.35 (“Allowance”) for Landlord-approved permanent Tenant Improvements to the Expansion Premises.  All Tenant Improvements shall be made in accordance with Exhibit “C” and Paragraph 7 of the Lease.

In addition to the Allowance granted above, Landlord shall pay fifty percent (50%) of the costs (but in no event shall Landlord pay more than $15,000.00) for Tenant to remove and/or relocate, as the case may be, the existing air conditioning package units and electrical transformer equipment from Premises A and any electrical engineering drawings related thereto.

Tenant shall have the option to apply any unused portion of the previous allowance provided to Tenant under Lease Amendment #1 ($62,840.00 total) to Landlord-approved permanent Tenant Improvements to the Expansion Premises.

7.That the number “48” as set forth in Paragraph A(10) and Exhibit “G” of the Lease, as amended, shall be deleted and the number “58” shall be inserted.

Prior to June 1, 2008, Tenant shall have the option to purchase, at the prevailing monthly rates for reserved parking, the two (2) reserved parking spaces in the parking structure located next to the two (2) spaces currently marked “Leasing Agent Only” from Tenant’s total allotment of 58 parking spaces.  If Tenant does not elect to purchase said spaces before June 1, 2008, Landlord shall have no obligation to rent said spaces to Tenant thereafter.

8.That the number of directory strips provided to Tenant in the Addendum to the Lease, as amended, shall be increased from 23 to 33.

9.That in addition to the signage set forth in the Addendum to the Lease, Tenant, at Tenant’s sole cost and expense, shall have the option to install Building-standard “eyebrow” signage on the exterior of the Expansion Premises in a location designated by Landlord.

10.That this Amendment shall be read with and construed with the aforesaid Lease, as amended, and all of the terms, covenants, conditions, agreements and limitations set forth in the Lease, as amended, except as specifically mentioned herein, shall remain and be in full force and effect.  In the event a conflict exists between the terms and conditions of this Amendment and the terms and conditions of the Lease, as amended, the terms and conditions of this Amendment shall control.

IN WITNESS WHEREOF the parties have executed this Amendment the day and year first above written.

“TENANT”

1ST CENTURY BANK, N.A.
By:	/s/ Jason DiNapoli.
Print Name:  Jason DiNapoli
Its:  President and COO
By:		/s/ Dan T. Kawamoto.
Print Name:  Dan T. Kawamoto
Its:  EVP - CFO

“LANDLORD”

1875/1925 CENTURY PARK EAST COMPANY,
a California general partnership
By:		WP Twin Towers, Inc.,
		a California corporation
	By:		/s/ Nadine Watt.
			Nadine Watt, President

EX-10.5

Exhibit 10.5

CONFIDENTIAL WAIVER AND RELEASE AGREEMENT

This Confidential Waiver and Release Agreement (the “Agreement”) is entered into by and between Angelina Bingham (“Employee”) and 1st Century Bank, National Association (the “Bank”).  The purpose of this Agreement is to resolve and compromise any and all disputes and controversies of any nature existing between Employee and the Bank, including, but not limited to, any claims arising out of Employee’s employment with, and separation from, the Bank.

1.     Separation of Employment. Employee’s employment with the Bank is being terminated without cause pursuant to Paragraph 5(a) of the Employment Agreement previously entered into between Employee and the Bank on January 9, 2006 (“the Employment Agreement”).    Employee’s last day of employment with the Bank shall be May 31, 2006.

2.     Separation Pay and Benefits Continuation.  The Bank agrees that, after receipt by the Bank of a duly executed original of this Agreement and on the first day following expiration of the Revocation Period set forth in Paragraph 7, below, the Bank shall pay to Employee severance pay in an amount equal to six months of Employee’s annual base salary or $87,500, as set forth in Paragraph 5(a)(i) of the Employment Agreement, less all applicable state and federal withholdings and less the amount of $2,739.42 reflecting vacation time taken by Employee for which no vacation accrual had been earned. The Bank shall also provide for continuation of Employee’s coverage under the group medical care, disability and life insurance benefit plans consistent with the terms set forth in Paragraph 5(a)(ii) of the Employment Agreement.  Employee’s rights regarding stock options shall be governed by the terms of her stock option grant agreement and the Bank’s applicable stock option plan, as modified by the acceleration of stock options effected by resolution of the Board of Directors on October 20, 2005 and the Resale Restriction Agreement dated October 20, 2005.

3.     Warranty. Employee acknowledges that she has received all monies and other benefits due her as a result of her employment with and separation from the Bank.

4.     Employee’s Release of Known and Unknown Claims.  In exchange for the agreements contained in this Agreement, Employee agrees unconditionally and forever to release and discharge the Bank, and any of their affiliated business entities, as well as all of their respective current and former owners, officers, directors, employees, representatives, attorneys, agents and assigns, from any and all claims, actions, causes of action, demands, rights, or damages of any kind or nature which Employee may now have, or ever have, whether known or unknown, including any claims, causes of action or demands of any nature arising out of or in any way relating to her employment with, or separation from the Bank on or before the date of the execution of this Agreement.

This release specifically includes, but is not limited to, any claims for fraud; breach of contract; breach of implied covenant of good faith and fair dealing; inducement of breach; interference with contract; wrongful or unlawful discharge or demotion; violation of

public policy; sexual or any other type of assault and battery; invasion of privacy; intentional or negligent infliction of emotional distress; intentional or negligent misrepresentation; conspiracy; failure to pay wages, benefits, vacation pay, severance pay, attorneys’ fees, or other compensation of any sort; discrimination or harassment on the basis of race, color, sex, gender, national origin, ancestry, religion, disability, handicap, medical condition, marital status, sexual orientation or any other protected category; any claim under Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act, the Age Discrimination in Employment Act of 1967, as amended by the Older Workers Benefits Protection Act of 1990, the Family Medical Leave Act, the California Family Rights Act, and the California Fair Employment and Housing Act, or Section 1981 of Title 42 of the United States Code; violation of COBRA; violation of any safety and health laws, statutes or regulations; violation of ERISA; violation of the Internal Revenue Code; or any other wrongful conduct, based upon events occurring prior to the date of execution of this Agreement.

Employee further agrees knowingly to waive the provisions and protections of Section 1542 of the California Civil Code, which reads:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

5.     Knowing and Voluntary.  Employee represents and agrees that she is entering into this Agreement knowingly and voluntarily. Employee affirms that no promise or inducement was made to cause her to enter into this Agreement, other than the severance pay promised to Employee in this Agreement.  Employee further confirms that she has not relied upon any other statement or representation by anyone other than what is in this Agreement as a basis for her agreement.

6.     Execution of Agreement. Employee expressly acknowledges that she has been provided twenty-one (21) days to consider this Agreement and that she was informed that she had the right to consult with counsel regarding this Agreement, and that she has had the opportunity to consult with counsel.  To the extent that Employee has taken fewer than twenty-one (21) days to consider this Agreement, Employee acknowledges that she had sufficient time to consider the Agreement and to consult with counsel and that she does not desire additional time.

7.     Revocation.  This Agreement is revocable by Employee for a period of seven calendar days following her execution of this Agreement.  The revocation must be in writing, must specifically revoke this Agreement, and must be received by the Bank’s President prior to the eighth calendar day following the execution of this Agreement.  This Agreement becomes effective, enforceable and irrevocable on the eighth calendar day following Employee’s execution of this Agreement.

8.     The Bank’s Release of Claims against Employee.  The Bank agrees unconditionally and forever to release and discharge Employee, as well as any of her

representatives and heirs, from any and all claims, actions, causes of action, demands, rights or damages of any kind or nature which the Bank may now have, or ever have, whether known or unknown, including any claims, causes of action or demands of any nature arising out of or in any way relating to Employee’s employment with, or separation from the Bank, and including a waiver of the provisions and protections of California Civil Code Section 1542, on or before the date of execution of this Agreement; provided, however, that the Bank reserves the right to rescind its release of Employee in the event Employee:  (a) is convicted for committing a fraud upon the Bank or its customers, or (b) becomes the subject of a formal enforcement order by any federal banking agency due to her actions or omissions while an officer of the Bank, to the extent of any resulting loss or damage to, or civil monetary penalty imposed upon, the Bank.

9.     References.  Employee agrees to refer any prospective employers seeking references to the Bank’s Executive Vice President and Chief Operating Officer.  Upon receiving such an inquiry from an prospective employer of Employee, the Executive Vice President and Chief Operating Officer shall respond by acknowledging Employee’s dates of employment with the Bank and title only and will take no action to disparage or interfere with potential employment opportunities of Employee.

10.   Non-Disparagement of Bank.  Employee agrees not to make any negative, disparaging, detrimental or derogatory comments to any third party about the Bank or any of its employees, officers or directors.

11.   Return of Property. Employee agrees to return to the Bank immediately all property of the Bank that Employee has in her custody or control.  By signing this Agreement, Employee hereby certifies that she will not retain possession of any of the Bank’s property.

12.   Confidentiality of Bank Information and Non-Solicitation.  Employee agrees to strictly comply with the Confidentiality and Business Protection Covenants contained in Paragraphs 6 and 9 of her Employment Agreement, and each of their subparts, which are considered material terms of this Agreement.

13.   Non-Disclosure of This Agreement.  Employee agrees that the terms of this Agreement shall remain confidential and that she will not disclose, disseminate and/or publicize, or cause or permit to be disclosed, disseminated and/or publicized any of the terms of this Agreement, directly or indirectly, specifically or generally, to any person, corporation, association or governmental agency or other entity except: (a) to the extent necessary to report income to appropriate taxing authorities; (b) in response to an order of a court of competent jurisdiction or subpoena issued under the authority thereof; or (c) in response to any subpoena issued by a state or federal government agency; provided, however, that notice of receipt of such judicial order, inquiry or subpoena shall immediately be communicated to the Bank’s President telephonically, and confirmed immediately thereafter in writing, so that the Bank will have the opportunity to intervene to assert what rights it may have to non-disclosure prior to Employee’s response to the order, inquiry or subpoena.  The non-disclosure obligations imposed by this Agreement are ongoing.  Any violation of the terms of this Paragraph will be considered a material breach.

14.   No Admission of Liability.  This Agreement does not constitute an admission of any kind by the Bank.

15.   Governing Law.  This Agreement shall be construed under the laws of the State of California, both procedural and substantive.

16.   Arbitration.  Any and all disputes or claims arising out of or in any way related to this Agreement, including without limitation, fraud in the inducement of this Agreement, or relating to the general validity or enforceability of this Agreement, as well as any claims arising out of Employee’s employment with or separation from employment with the Bank shall be submitted to final and binding arbitration before an arbitrator of the American Arbitration Association (“AAA”) or other mutually agreeable alternative dispute resolution company in Los Angeles County in accordance with the rules of that body governing employment disputes.  The prevailing party shall be entitled to reasonable costs and attorneys’ fees.  Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

17.   Waiver.  The failure to enforce any provision of this Agreement shall not be construed to be a waiver of such provision or to affect the validity of this Agreement or the right of any party to enforce this Agreement.

18.   Modification.  No amendments to this Agreement will be valid unless written and signed by Employee and an authorized representative of the Bank.

19.   Severability.  If any sentence, phrase, paragraph, subparagraph or portion of this Agreement is found to be illegal or unenforceable, such action shall not affect the validity or enforceability of the remaining sentences, phrases, paragraphs, subparagraphs or portions of this Agreement.

20.   Ambiguities.  Both parties have participated in the negotiation of this Agreement and, thus, it is understood and agreed that the general rule that ambiguities are to be construed against the drafter shall not apply to this Agreement.  In the event that any language of this Agreement is found to be ambiguous, each party shall have an opportunity to present evidence as to the actual intent of the parties with respect to any such ambiguous language.

21.   Entire Agreement/Integration. This Agreement, and the Employment Agreement, constitute the entire agreement between Employee and the Bank concerning the terms of Employee’s employment with and separation from the Bank and the compensation related thereto.  No covenants, agreements, representations, or warranties of any kind have been made to any party hereto.  All prior discussions and negotiations have been and are merged and integrated into, and are superseded by, this Agreement.

PLEASE READ CAREFULLY.  THIS AGREEMENT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.  THE UNDERSIGNED AGREE TO THE TERMS OF THIS AGREEMENT AND VOLUNTARILY ENTER INTO IT WITH THE INTENT TO BE BOUND THEREBY.

Dated: May 23, 2006	/s/ Angelina Bingham
	Angelina Bingham
Dated: May 23, 2006	1st Century Bank, National Association
	/s/ Richard S. Cupp
	By: Richard S. Cupp
	President and Chief Executive Officer

EX-10.8

Exhibit 10.8

Resale Restriction Agreement

October 20, 2005

1st Century Bank, N.A.
1875 Century Park East
Los Angeles, California  90067

Ladies and Gentlemen:

I am the holder of             options (“Stock Options”) to purchase the $5.00 par value common stock (“Common Stock”) of 1st Century Bank, National Association (the “Company”).  Of these options,            are vested (the “Vested Shares”) meaning I am free to exercise the Stock Options and purchase the Vested Shares, and              remain unvested (the “Subject Shares”), meaning that as of the date of this letter I do not have the right to exercise the Stock Options and purchase the Subject Shares.

Acceleration.

The Company has informed me that its Board of Directors will be considering a proposal whereby the vesting schedule of my Stock Options would be accelerated (the “Acceleration”).  If adopted the Acceleration would be effective as of October 20, 2005 (the “Acceleration Effective Date”).  The effect of the Acceleration would be that as of the Acceleration Effective Date I would be free to exercise all my Stock Options with respect to Vested Shares as well as Subject Shares.

Resale Restriction.

I understand and agree that the Stock Options were granted to me as an incentive for my continued involvement with the Company and contribution to the successful, long-term operation of the Company.  Further, I understand that the Acceleration will not result in any additional tax consequences.  Although the Acceleration will allow me to exercise my Stock Options immediately, I agree to the terms of the Resale Restriction described below (see Lapse of Resale Restriction) as a condition of the Acceleration.

I agree that (other than as set forth below), during the period beginning from the Acceleration Effective Date and continuing to and including October 20, 2009 (the “Restricted Period”) I will not sell, offer, agree to sell, contract to sell, hypothecate, pledge, grant any option to purchase, make any short sale or otherwise dispose of or hedge, directly or indirectly, any of the Subject Shares or any securities convertible into, exchangeable or exercisable for or derived from any Subject Shares (the “Resale Restriction”).

I understand and agree that the Resale Restriction precludes me from engaging in any hedging or other transaction or arrangement that is designed to, or which reasonably could be expected to, lead to or result in a sale, disposition or transfer, in whole or in part, of any of the economic consequences of ownership of the Subject Shares, whether any such transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise, even if such shares would be disposed of by someone other than me.  Such prohibited hedging or other

transactions would include, without limitation, any short sale or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any of the Subject Shares or with respect to any security that includes, relates to, or derives any significant part of its value from the Subject Shares.

Notwithstanding the foregoing, subject to any other restrictions to which the Stock Options or the Subject Shares may be subject, which will not be affected by this letter, the undersigned may transfer the Subject Shares (i) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth herein, (ii) to any trust for the direct or indirect benefit of me or my immediate family, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, or (iii) by will or intestacy to the my immediate family, provided that the transferee agrees to be bound in writing by the restrictions set forth herein.  For purposes of this Resale Restriction Agreement (this “Agreement”), “immediate family” shall mean spouse, domestic partner, lineal descendant, father, mother, brother or sister of the transferor.  I now have and, except as contemplated by clause (i), (ii), or (iii) above, for the duration of this Agreement will have, good and marketable title to the Stock Options and the Subject Shares, free and clear of all liens, encumbrances, and claims whatsoever.  I also agree and consent to the entry of stop transfer instructions with the Company and its transfer agent and registrar against the transfer of the Subject Shares, except in compliance with the foregoing restrictions.  In furtherance of the foregoing, the Company is hereby authorized to decline to make or authorize any transfer of securities if such transfer would constitute a violation or breach of this Agreement.

Lapse of Resale Restriction.

The Resale Restriction shall lapse on 25% of the total number of shares subject to the option agreement commencing on the one-year anniversary of the Acceleration Effective Date and thereafter, the remaining subject shares in equal monthly installments, at a rate of 1/36^th of the Subject Shares until fully vested.

All provisions of the Stock Option agreements and of the plan relevant to the Stock Options (marked below) shall continue in full force and are hereby incorporated into this Agreement by reference except that all references to the right to exercise the Stock Options with respect to the Subject Shares meaning the number of Subject Shares for which the Resale Restriction has lapsed.

x 2004 Director and Employee Stock Option Plan

x Amended and Restated 2005 Equity Incentive Plan

I understand that the Company and its Board of Directors is relying upon this Agreement in proceeding with the Acceleration.  I represent and warrant that I have full power and authority to enter into this Agreement.  I further understand and agree that this Agreement is irrevocable and agree that the provisions of this Agreement shall be binding also upon my successors, assigns, heirs and legal representatives.

I understand that, if the Board of Directors elects not to authorize the Acceleration, or the Acceleration does not occur for any other reason, each of the Company and I shall be released from all obligations under this Agreement.  Except as expressly set forth herein, nothing contained in this Agreement is intended to nor shall it be construed as any amendment or waiver, expressed or implied, of any other agreement or understanding between the Company and me.  Nothing herein shall be construed as an agreement or commitment by the Company to continue my employment.

This Agreement shall be governed by and construed in accordance with the laws of the State of California.

Yours very truly,

Signature

EX-10.12

Exhibit 10.12

1ST CENTURY BANCSHARES, INC.

FOUNDER STOCK OPTION PLAN

Adopted by Board on January 16, 2004

Approved by Shareholders on February 24, 2004

1.     PURPOSES.

The purpose of the Plan is to promote the interests of 1st Century Bancshares, Inc. (the “Company”) and its Affiliates and shareholders by enabling the Company to offer certain of its founders that are not also officers or directors of the Company an opportunity to acquire an equity interest in the Company as part of the consideration paid to them for their pre-organizational efforts and for other paid and valuable consideration.

2.     DEFINITIONS.

For purposes of this Plan, the following terms shall have the meanings set forth below.

(a)           “Accredited Investor” shall mean (i) a director or executive officer of the Company, (ii) any natural person whose individual net worth or joint net worth with that person’s spouse exceeds $1,000,000, (iii) any natural person who had individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and a reasonable expectation of reaching the same income level in the current year, or (iv) any other “accredited investor” as defined in Rule 502 under the Securities Act.

(b)           “Affiliate” means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.

(c)           “Company” is defined in Section 1 above.

(d)           “Board” means the Board of Directors of the Company.

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

(f)            “Committee” means a committee consisting of one or more members of the Board that is appointed by the Board (as described in Section 3) to administer the Plan.

(g)           “Common Stock” means the common stock of the Company.

(h)           “Comptroller” means the United States Comptroller of the Currency.

(i)            “Covered Employee” means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.

(j)            “Director” means a member of the Board of Directors of the Company.

(k)           “Employee” means any person employed by the Company or an Affiliate.  Mere service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.

(l)            “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(m)          “Fair Market Value” means, as of any date, the value of the Common Stock determined as follows:

(i)          If the Common Stock is listed on any established national securities exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the average of the closing bid and ask prices, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination for which such quotation exists, as reported in The Wall Street Journal or such other source as the Board deems reliable.

(ii)         In the absence of such markets for the Common Stock described in subsection (i) above, Fair Market Value shall be the average of the closing bid and ask prices of the Common Stock reported by the Nasdaq Electronic Bulletin Board for the last market trading day prior to the day of determination for which such quotation exists, or any comparable system on that day.

(iii)       In the absence of such markets for the Common Stock described in subsections (i) and (ii) above, the Fair Market Value shall be determined in good faith by the Board using any reasonable valuation method, including the valuation methods described in Treasury Regulations Section 20.2031-2.

(n)           “Founders” means a person who is not also an officer or director of the Company and has been involved in promoting the interests of the Company, providing advice to the executive officers of the Company and/or have provided funds for pre-opening expenses of the Company.

(o)           “Listing Date” means the first date upon which any class of common equity securities of the Company is required to be registered under section 12 of the Exchange Act.

(p)           “Non-Employee Director” means a Director of the Company who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required by the Company under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“Regulation S-K”)), does not possess an interest in any other transaction as to which disclosure would be required by the Company under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

(q)           “Option” means an option not intended to qualify as an “incentive stock option” within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(r)           “Officer” means (i) before the Listing Date, any person designated by the Company as an officer and (ii) on and after the Listing Date, a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(s)“Option Agreement” means a written agreement between the Company and a Participant (as defined below) evidencing the terms and conditions of an individual Option grant.  Each Option Agreement shall be subject to the terms and conditions of the Plan.

(t)“Outside Director” means a Director of the Company who either (i) is not a current employee of the Company or an “affiliated corporation” (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an “affiliated corporation” receiving compensation for prior services (other than, benefits under a tax qualified pension plan), was not an officer of the Company or an “affiliated corporation” at any time and is not currently receiving direct or indirect remuneration from the Company or an “affiliated corporation” for services in any capacity other than as a Director or (ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code.

(u)“Participant” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.

(v)“Plan” means this 1st Century Bancshares, Inc. Founders Stock Option Plan.

(w)“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

(x)“Securities Act” means the Securities Act of 1933, as amended, as made applicable (including the regulations promulgated thereunder) to national banks by the Comptroller.

3.     ADMINISTRATION.

(a)Administration by Committee.  One or more Committees appointed by the Board shall administer the Plan.  The Board shall designate one of the members of each Committee as the chairperson of such Committee.  The term “Committee” shall apply to any person or persons to who such authority has been delegated.  If no Committee has been appointed, the entire Board shall constitute the Committee.  Members of each Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time.  The Board also may at any time terminate the functions of any Committee and reassume all powers and authority previously delegated to such Committee.  After the Listing Date, a Committee may consist of (i) solely of two or more Outside Directors in accordance with Section 162(m) of the Code and (ii) solely of two or more Non-Employee Directors in accordance with Rule 16b-3.

(b)Authority of Committee.  Subject to the provisions of the Plan, the Committee shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan.  Such actions shall include:  (i) selecting persons who are to receive Options under the Plan; (ii) determining the number and other features and conditions of such awards; (iii) interpreting the Plan; and (iv) making all other decisions relating to the operation of the Plan.  The Committee may adopt such rules and guidelines as it deems appropriate to implement the Plan.  The Committee’s determinations under the Plan shall be final and binding on all persons.

(c)Indemnification.  Each member of a Committee, or of the Board, shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or any Option Agreement or stock purchase agreement entered into in connection with the Plan and (ii) from any and all amounts paid by him or her

in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf.  The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Association or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless and shall be subject to any applicable limitations under law.

4.     SHARES SUBJECT TO THE PLAN.

(a)           Share Reserve.  Subject to the provisions of Section 10 relating to adjustments upon changes in stock, the stock that may be issued under this Plan shall not exceed in the aggregate of Seventy—Five Thousand (75,000) shares of Common Stock of the Company.

(b)           Reversion of Shares to the Share Reserve.  If any Option shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the shares of Common Stock not acquired under such Option shall revert to and again become available for issuance under the Plan.

(c)           Source of Shares.  The stock subject to the Plan may be unissued shares or reacquired shares bought on the market or otherwise.

5.     ELIGIBILITY.

(a)           Eligibility for Options.  Options may be granted only to Founders.

(b)           Section 162(m) Limitation.  Subject to the provisions of Section 10 relating to adjustments upon changes in stock, no employee shall be eligible to be granted Options covering more than Twenty-five Thousand (25,000) shares of the Common Stock during any calendar year.  This subsection 5(b) shall not apply prior to the Listing Date and, following the Listing Date, this subsection 5(b) shall not apply until (i) the earliest of:  (1) the first material modification of the Plan (including any increase in the number of shares reserved for issuance under the Plan in accordance with Section 4); (2) the issuance of all of the shares of Common Stock reserved for issuance under the Plan; (3) the expiration of the Plan; or (4) the first meeting of shareholders at which Directors of the Company are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security under Section 12 of the Exchange Act; or (ii) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder.

6.     OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and conditions as the Committee shall deem appropriate.  A separate certificate or certificates will be issued for shares purchased on exercise of each Option.  The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:

(a)           Term.  No Option shall be exercisable after the expiration of ten (10) years from the date it was granted.

(b)           Exercise Price.  The exercise price of each Option grant made under the Plan shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted.

(c)           Consideration.  The purchase price of stock acquired pursuant to an Option shall be paid in cash at the time the Option is exercised.  No fractional shares shall be issuable upon exercise of this right, but, in lieu thereof, the Company shall pay to the Participant an amount in cash equal to the fair market value of the resulting fractional share on the exercise date.

(d)           Transferability of Option.  An Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant; provided, however, that, in the sole discretion of the Committee, any Option may be transferred by a Participant to any member of the Participant’s immediate family, to a partnership the partners of which are all members of the Participant’s immediate family, or to a family trust the beneficiaries of which are all members of the Participant’s immediate family.  Notwithstanding the foregoing provisions of this subsection 6(d), the Participant may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Participant, shall thereafter be entitled to exercise the Option.

(e)           Vesting.  The total number of shares of Common Stock subject to an Option grant to a Founder shall be fully-vested and not subject to forfeiture in the event of a termination of a Participant’s termination of employment with the Company or status as a director or officer of the Company or any of its Affiliates.

7.     COVENANTS OF THE COMPANY.

(a)           Availability of Shares.  During the terms of the Options, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Options.

(b)           Securities Law Compliance.  The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Options and to issue and sell shares of Common Stock upon exercise of the Options; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Option or any stock issued or issuable pursuant to any such Option.  If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan or is otherwise unable to obtain a valid exemption from registration for purposes of issuing Options under such Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Options unless and until such authority is obtained or a valid exemption from registration is obtained.

8.     USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to Options shall constitute general funds of the Company.

9.     EXERCISE OR FORFEITURE.

In the event that Company’s capital falls below the minimum requirements contained in 12 C.F.R. 3 or below a higher requirement as determined by the Comptroller, the Comptroller may direct the Company to require Participants who have outstanding Options pursuant to this Plan to either exercise

such Options or to forfeit all such Options.  The Company will notify Participants who have outstanding Options pursuant to this Plan within forty-five (45) days from the date the Comptroller notifies the Company in writing that such Participants must exercise or forfeit their Options.  Notwithstanding anything in this Plan or an applicable Option Agreement to the contrary, the Company will cancel outstanding Options not exercised within twenty-one (21) days of the Company’s notification.  The Company has agreed to comply with any request by the Comptroller that the Company invoke its right to require Participants who have outstanding Options pursuant to this Plan to exercise or forfeit their options under the previous circumstances.

10.  ADJUSTMENTS UPON CHANGES IN COMMON STOCK.

(a)           Capitalization Adjustments.  If any change is made in the stock subject to the Plan, or subject to any Option, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person pursuant to subsection 5(b), and the outstanding Options will be appropriately adjusted in the class(es) and number of securities and price per share of stock subject to such outstanding Options.  The Board, the determination of which shall be final, binding and conclusive, shall make such adjustments.  For this purpose, the conversion of any convertible securities of the Company shall not be treated as a transaction “without receipt of consideration” by the Company.

(b)           Change in Control—Dissolution or Liquidation.  In the event of a dissolution or liquidation of the Company, then such Options shall be terminated if not exercised prior to such event.

(c)            Change in Control—Asset Sale, Merger, Consolidation or Reverse Merger.  In the event of (i) a sale of all or substantially all of the assets of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation or (iii) a reverse merger in which the Company is the surviving corporation but (A) the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property (whether in the form of securities, cash or otherwise) or (B) the voting securities of the Company outstanding immediately preceding the merger represent less than fifty percent (50%) of the total voting power represented by the voting securities of the Company surviving such merger (other than, with respect to events otherwise described in items (i) through (iii) above, the formation of a holding company by the Company, a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the shareholders of the Company or their relative stock holdings and the Options granted under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all Participants), then any surviving corporation or acquiring corporation shall assume any Options outstanding under the Plan or shall substitute similar Options (including an award to acquire the same consideration paid to the shareholders in the transaction described in this subsection 10(c) for those outstanding under the Plan).  In the event any surviving corporation or acquiring corporation refuses to assume such Options or to substitute similar options for those outstanding under the Plan, the Options shall terminate if not exercised at or prior to such event and the Plan shall terminate.

11.  DURATION AND AMENDMENTS.

(a)           Term of Plan.  The Plan, as set forth herein, shall become effective on the date of its adoption by the Board, subject to the approval of the Company’s shareholders.  In the event that the

shareholders fail to approve the Plan within twelve (12) months after its adoption by the Board, any Options already made shall be null and void, and no additional Options shall be made after such date.  The Plan shall terminate automatically ten (10) years after its adoption by the Board and may be terminated on any earlier date pursuant to subsection (b) below.

(b)           Right to Amend or Terminate Plan.  The Board may amend or terminate the Plan at any time.  Rights under any Option granted before amendment of the Plan shall not be materially altered, or impaired adversely, by such amendment without the Participant’s consent.

(c)           Effect of Amendment or Termination.  No Common Stock shall be issued or sold under the Plan after the termination thereof, except upon the exercise of an Option granted prior to such termination.  The termination of the Plan, or any amendment thereof, shall not affect any Common Stock previously issued or Option previously granted under the Plan.

12.  MISCELLANEOUS.

(a)           Shareholder Rights.  No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option unless and until such Participant has satisfied all requirements for exercise of the Option pursuant to its terms.

(b)           No Employment or other Service Rights.  Nothing in the Plan or any instrument executed or Option granted pursuant thereto shall confer upon any Participant or other holder of Options any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Option was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause or (ii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

(c)           Investment Assurances.  The Company may require a Participant, as a condition of exercising or acquiring any Option or stock under any Option, (i) to give written assurances satisfactory to the Company as to the Participant’s Accredited Investor status, knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring the Option or the stock subject to the Option for the Participant’s own account and not with any present intention of selling or otherwise distributing the stock or Option.  The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws.  The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Options or the stock.

(d)           Withholding Obligations.  To the extent provided by the terms of an Option Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Option by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the participant as a result of the exercise or acquisition of stock

under the Option; of (iii) delivering to the Company owned and unencumbered shares of the Common Stock.

(e)           Governing Law.  This Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of California, except in the event the provisions of federal law are mandatorily applicable.

EX-10.13

Exhibit 10.13

Grant No.               

1ST CENTURY BANCSHARES, INC.
FOUNDER STOCK OPTION PLAN

FOUNDER STOCK OPTION AGREEMENT

1st Century Bancshares, Inc. (the “Company”) hereby grants to the Optionholder named below an option to purchase the number of shares of the Company’s common stock set forth below (the “Common Stock”).  The terms and conditions of the Option are set forth in this Founder Stock Option Agreement (the “Agreement”) and in the 1st Century Bancshares, Inc.’s Founder Stock Option Plan (the “Plan”) and the Notice of Exercise, all of which are enclosed herewith and incorporated herein in their entirety.  Capitalized terms not defined herein shall have the meanings assigned to them in the Plan.

Optionholder:
Date of Grant:	, 20
Number of Shares Subject to Option:
Exercise Price Per Share:	$
Expiration Date:	, 20

Payment:                              By cash or check

Acknowledgements:  By signing this cover sheet, you acknowledge receipt of, and understand and agree to, all of the terms and conditions described in this Agreement and in the Plan and Notice of Exercise, copies of which are also enclosed.  Further, you acknowledge that as of the Date of Grant, this Agreement and the Plan and Notice of Exercise set forth the entire understanding between you and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements (including, without limitation, any employment agreement with the Company) on that subject.  You further acknowledge that you are an Accredited Investor (as such term is defined in the Plan).

1ST CENTURY BANCSHARES, INC.	OPTIONHOLDER:
By:
Signature	Signature
Name:	Date:
Title:
Date:

ENCLOSURES:  Copy of the Founder Stock Option Plan and Notice of Founder Stock Option Exercise

1ST CENTURY BANCSHARES, INC.
FOUNDER STOCK OPTION PLAN

FOUNDER STOCK OPTION AGREEMENT

The details of your Option are as follows:

1.Vesting.  Your Option is fully-vested.

2.Number of Shares and Exercise Price.  The number of shares subject to your Option and your exercise price per share referenced in the cover sheet of this Agreement may be adjusted from time to time for capitalization adjustments, as provided in the Plan.

3.Method of Payment.  Payment of the exercise price is due in full upon exercise of all or any part of your Option.  You may elect to make payment of the exercise price in cash or by check.

4.Whole Shares.  Your Option may only be exercised for whole shares.

5.Securities Law Compliance.  Notwithstanding anything to the contrary contained herein, your Option may not be exercised unless the shares issuable upon exercise of your Option are then registered under the Securities Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act.  The exercise of your Option must also comply with other applicable laws and regulations governing the Option, and the Option may not be exercised if the Company determines that the exercise would not be in material compliance with such laws and regulations.

6.Term.  The term of your Option commences on the Date of Grant and expires upon the tenth (10th) anniversary of the Date of Grant.

7.Exercise.

(a)You may exercise your Option during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require.

(b)By exercising your Option you agree that, as a condition to any exercise of your Option, the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your Option, (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise or (3) the disposition of shares acquired upon such exercise.

(c)By exercising your Option you agree that the Company (or a representative of the underwriters) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, as applicable to national banks, require that you not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of time specified by the underwriter(s) following the effective date of the registration statement of the Company filed under the Securities Act, as applicable to national banks.  You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) which are consistent with the foregoing or which are necessary to give further effect thereto.  In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your Common Stock until the end of such period.

8.Transferability.  Your Option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you; provided, however, and to the extent permitted by applicable law and regulation, Options may be transferred for no value to any inter vivos or terminating trust, which shall agree in writing to be bound by the terms of this Agreement and the Plan, established for estate planning purposes for the sole and exclusive benefit of such owner of the Option, one or more members of such owners’ family that are related to such owner (which member shall include, without limitation, the spouse, adopted children and stepchildren of such owner) and/or any other lineal descendants of such owner and in which such owner is a trustee thereof.  Notwithstanding anything to the contrary, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your Option.

9.Option Not a Service Contract.  Your Option is not an employment or service contract, and nothing in your Option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment.  In addition, nothing in your Option shall obligate the Company or an Affiliate, their respective shareholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director for the Company or an Affiliate.

10.Withholding Obligations.

(a)At the time your Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for, any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with your Option.

(b)Your Option is not exercisable unless the tax withholding obligations of the Company and/or any Affiliate are satisfied.  Accordingly, you may not be able to exercise your Option when desired even though your Option is vested, and the Company shall have no obligation to issue a certificate for such shares or release such shares from any escrow provided for herein.

11.Notices.  Any notices provided for in your Option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.

12.Governing Plan Document.  Your Option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your Option, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan.  In the event of any conflict between the provisions of your Option and those of the Plan, the provisions of the Plan shall control.

By signing the cover sheet of this Agreement, you agree to all of the term and conditions described above and in the Plan.

NOTICE OF FOUNDER STOCK OPTION EXERCISE

FOUNDER STOCK OPTION PLAN (THE “PLAN”)

[Name], Inc.

                  , CA 9 Date of Exercise:                        

Ladies and Gentlemen:

This constitutes notice under my Option that I elect to purchase the number of shares for the price set forth below.

Stock option dated:

Number of shares as to which option is exercised:

Certificates to be issued in name of:

Total exercise price:

Cash payment delivered herewith:

By this exercise, I agree (a) to provide such additional documents as you may require pursuant to the terms of the 1st Century Bancshares, Inc. Founder Stock Option Plan and (b) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option.

I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the “Shares”), which are being acquired by me for my own account upon exercise of the Option as set forth above:

I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and are deemed to constitute “restricted securities” under the Securities Act, and, if I am an “affiliate” of the Company (as such term is defined in Rule 144 of the Securities Act) control securities” under Rule 144.  I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Securities Act and any applicable state securities laws.

I further acknowledge that I am an Accredited Investor as such term is defined in the Plan.

I further acknowledge that all certificates representing any of the Shares subject to the provisions of the Option shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Company’s Articles of Association, Bylaws and/or applicable securities laws.

I further acknowledge that there may be tax consequences as a result of the purchase or disposition of the Shares, and I have consulted with any tax consultants I wished to consult and I am not relying on the Company for any tax advise.

I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, I will not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale of any shares of Common Stock or other securities of the Company during such period following the effective date of the registration statement of the Company filed under the Securities Act as may be requested by the Company or the representative of the underwriters.  I further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriters which are consistent with the foregoing or which are necessary to give further effect thereto and that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period.

Very truly yours,

EX-10.14

EXHIBIT 10.14

OPTION ANTI-DILUTION AGREEMENT

THIS OPTION ANTI-DILUTION AGREEMENT (this “Agreement”) is entered into effective as of May 11, 2005 by and between 1st Century Bank, N.A. (the “Bank”), and Richard S. Cupp (“Cupp”), an individual residing in the State of California.  This Agreement is made with reference to the following facts and circumstances:

RECITALS

A.The Bank and Cupp entered into that certain Stock Option Agreement, effective as of February 24, 2004 (the “Option Agreement”) for the option to purchase two hundred seventy thousand (270,000) shares of common stock of the Bank (the “Options”), post two-for-one stock split effective February 28, 2005, under the Bank’s 2004 Director and Employee Stock Option Plan (the “Plan”).

B.The parties hereto now desire to provide Cupp with limited anti-dilution protection with respect to the Options issued pursuant to the Option Agreement and provide for such other matters as the parties hereto deem appropriate.

AGREEMENT

NOW THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.Anti-Dilution Protection.

(a)  Upon the consummation of the Offering (as defined below), the Bank shall grant to Cupp additional stock options under the Plan to purchase shares of capital stock in the Bank equal to five percent (5.0%) of the additional shares of the capital stock of the Bank issued in connection with the Offering (the “Additional Options”).

(b)  The Bank’s obligation to grant the Additional Options under this Agreement shall continue until the earlier of the date of the dissolution or liquidation of the Bank or the date of termination of Cupp’s “Continuous Service” as such term is defined in the Plan.  For purposes of this Agreement, the term “Offering” shall mean the first common stock offering consummated by the Bank on a “best efforts” basis on or after the effective date of this Agreement.

(c)  Any Additional Option grants made to Cupp pursuant to this Agreement shall be made subject to the same terms and conditions as the Options, including vesting, except that the exercise price of the Additional Options shall be made at the then “Fair Market Value” (as such term is defined in the Plan) of the underlying shares but in no event less than the gross offering price of the Offering.

(d)  Cupp hereby acknowledges that the Additional Options may have a higher exercise price than the Options.

(e)  In the event the Plan does not have available a sufficient number of unreserved shares of common stock to grant the Additional Options, the Bank shall grant the maximum number of options available thereto under the Plan.  Thereafter, the Bank shall use its best efforts to adopt a new option plan which shall contain substantially the same terms and conditions as the Plan.  Subject to the receipt of all required regulatory, Board of Directors and shareholder approvals, and subject to compliance with all applicable securities laws, the Bank shall issue such number of options under the new plan such that all Additional Options have been issued as soon thereafter as possible; provided, however, that this undertaking shall not require the Bank to register under the Securities Act the new plan, any option or any stock issued or issuable pursuant to any such option.  If, after reasonable efforts, the Bank is unable to obtain from any such person the requisite authority or consent which counsel for the Bank deems necessary for the lawful issuance and sale of stock under the new plan or is otherwise unable to obtain a valid exemption from registration for purposes of issuing options under such new plan, the Bank shall be relieved from any liability for failure to issue and sell stock upon exercise of such options unless and until such authority or consent is obtained or a valid exemption from registration is obtained.

2.Representations and Warranties of Cupp.  Cupp hereby represents and warrants to the Bank that:

(a)  as of the date of this Agreement, the Options held by Cupp are owned legally and beneficially by Cupp and have not been hypothecated, sold or otherwise pledged by Cupp.

(b)  Cupp has had the opportunity to receive independent tax and legal advice from attorneys of his choice with respect to the advisability of executing this Agreement and is not relying on the Bank, any of its affiliates, or their respective shareholders, directors, officers, employees, agents and/or counsel for tax or legal advice.

The foregoing representations and warranties shall survive the execution and delivery of this Agreement.

3.No Employment or Service Contract.  This Agreement is not an employment or service contract, and nothing in this Agreement shall be deemed to create in any way whatsoever any obligation of Cupp to continue in the employ of the Bank or any affiliate thereof, or of the Bank or any of its affiliates to continue to employ Cupp.  In addition, nothing in this Agreement shall obligate the Bank or any of its affiliates or their respective shareholders, directors, officers and/or employees to continue any relationship that Cupp might have as a director, officer or consultant for the Bank or an affiliate thereof.

4.Expenses.  Each party hereby acknowledges and agrees that such party shall be liable for its own costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Agreement.

5.Arbitration.  Any dispute or controversy arising under or in connection with this Agreement, the inception or termination of the Cupp’s employment, or any alleged discrimination or tort claim related to such employment, including issues raised regarding the Agreement’s formation, interpretation or breach, shall be settled exclusively by binding arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (“AAA”). Without limiting the foregoing, the following potential claims by the Cupp would be subject to arbitration under the Arbitration Agreement:  claims for wages or other compensation due; claims for breach of any contract or covenant (express or implied) under which the Cupp believes he would be entitled to compensation or benefits; tort claims related to such employment; claims for discrimination and harassment (including, but not limited to, race, sex, religion, national origin, age, marital status or medical condition, disability, sexual orientation, or any other characteristic protected by federal, state or local law); claims for benefits (except where an employee benefit or pension plan specifies that its claims procedure shall culminate in an arbitration or other procedure different from this one); and claims for violation of any public policy, federal, state or other governmental law, statute, regulation or ordinance.  The arbitration will be conducted in Los Angeles County.   The arbitration shall provide for written discovery and depositions adequate to give the parties access to documents and witnesses that are essential to the dispute.  The arbitrator shall have no authority to add to or to modify this Agreement, shall apply all applicable law, and shall have no lesser and no greater remedial authority than would a court of law resolving the same claim or controversy.  The arbitrator shall issue a written decision that includes the essential findings and conclusions upon which the decision is based, which shall be signed and dated. Cupp and the Bank shall each bear his or its own costs and attorneys’ fees incurred in conducting the arbitration and, except in such disputes where Cupp asserts a claim otherwise under a state or federal statute prohibiting discrimination in employment (“a Statutory Claim”), or unless required otherwise by applicable law, shall split equally the fees and administrative costs charged by the arbitrator and AAA.  In disputes where Cupp asserts a Statutory Claim against the Bank, Cupp shall be required to pay only the AAA filing fee to the extent such filing fee does not exceed the fee to file a complaint in state or federal court.  Cupp shall pay the balance of the arbitrator’s fees and administrative costs.  Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

6.Miscellaneous.

(a)  Cooperation.  Each party hereto agrees to perform any further acts, and to execute and deliver (with acknowledgement, verification and/or affidavit, if required) any further documents and instruments, as may be reasonably necessary or advisable to implement and/or accomplish the provisions of this Agreement and the transactions contemplated herein.

(b)  Amendment.  This Agreement may not be amended except by an instrument in writing signed by each of the parties hereto.

(c)  Entire Agreement.  This Agreement constitutes the entire agreement of the parties and supersedes all prior agreements and undertakings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof.

(d)  Assignment.  This Agreement is personal in nature and Cupp may not assign its rights or delegate the performance of its duties under this Agreement without the prior written consent of the Bank.  Any purported assignment without such consent shall be void and of no force or effect.

(e)  Parties in Interest.  This Agreement shall be binding upon and inure solely to the benefit of and be enforceable by each party and its respective successors and permitted assigns.

(f)  Governing Law.  This Agreement shall be governed by and construed under the laws of the State of California, except to the extent the laws of the United States of America are mandatorily applicable.

(g)  Counterparts.  This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

IN WITNESS WHEREOF, each of the parties hereto that is not a natural person has caused this Agreement to be executed on its behalf by its officers or other persons thereunto duly authorized, all as of the day and year first above written.

1st Century Bank, N.A.
By:	/s/ Jeffrey M. Watson
Name:			Jeffrey M. Watson
Title:		Secretary
/s/ Richard S. Cupp
Richard S. Cupp

EX-10.15

EXHIBIT 10.15

OPTION ANTI-DILUTION AGREEMENT

THIS OPTION ANTI-DILUTION AGREEMENT (this “Agreement”) is entered into effective as of May 11, 2005 by and between 1st Century Bank, N.A. (the “Bank”), and Alan I. Rothenberg (“Rothenberg”), an individual residing in the State of California.  This Agreement is made with reference to the following facts and circumstances:

RECITALS

A.The Bank and Rothenberg entered into that certain Stock Option Agreement, effective as of February 24, 2004 (the “Option Agreement”) for the option to purchase three hundred seventy thousand (370,000) shares of common stock of the Bank (the “Options”), post two-for-one stock split effective February 28, 2005, under the Bank’s 2004 Director and Employee Stock Option Plan (the “Plan”).

B.The parties hereto now desire to provide Rothenberg with limited anti-dilution protection with respect to the Options issued pursuant to the Option Agreement and provide for such other matters as the parties hereto deem appropriate.

AGREEMENT

NOW THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.Anti-Dilution Protection.

(a)Upon the consummation of the Offering (as defined below), the Bank shall grant to Rothenberg additional stock options under the Plan to purchase shares of capital stock in the Bank equal to seven percent (7.0%) of the additional shares of the capital stock of the Bank issued in connection with the Offering (the “Additional Options”).

(b)The Bank’s obligation to grant the Additional Options under this Agreement shall continue until the earlier of the date of the dissolution or liquidation of the Bank or the date of termination of Rothenberg’s “Continuous Service” as such term is defined in the Plan.  For purposes of this Agreement, the term “Offering” shall mean the first common stock offering consummated by the Bank on a “best efforts” basis on or after the effective date of this Agreement.

(c)Any Additional Option grants made to Rothenberg pursuant to this Agreement shall be made subject to the same terms and conditions as the Options, including vesting, except that the exercise price of the Additional Options shall be made at the then “Fair Market Value” (as such term is defined in the Plan) of the underlying shares but in no event less than the gross offering price of the Offering.

(d)Rothenberg hereby acknowledges that the Additional Options may have a higher exercise price than the Options.

(e)In the event the Plan does not have available a sufficient number of unreserved shares of common stock to grant the Additional Options, the Bank shall grant the maximum number of options available thereto under the Plan.  Thereafter, the Bank shall use its best efforts to adopt a new option plan which shall contain substantially the same terms and conditions as the Plan.  Subject to the receipt of all required regulatory, Board of Directors and shareholder approvals, and subject to compliance with all applicable securities laws, the Bank shall issue such number of options under the new plan such that all Additional Options have been issued as soon thereafter as possible; provided, however, that this undertaking shall not require the Bank to register under the Securities Act the new plan, any option or any stock issued or issuable pursuant to any such option.  If, after reasonable efforts, the Bank is unable to obtain from any such person the requisite authority or consent which counsel for the Bank deems necessary for the lawful issuance and sale of stock under the new plan or is otherwise unable to obtain a valid exemption from registration for purposes of issuing options under such new plan, the Bank shall be relieved from any liability for failure to issue and sell stock upon exercise of such options unless and until such authority or consent is obtained or a valid exemption from registration is obtained.

2.Representations and Warranties of Rothenberg.  Rothenberg hereby represents and warrants to the Bank that:

(a)as of the date of this Agreement, the Options held by Rothenberg are owned legally and beneficially by Rothenberg and have not been hypothecated, sold or otherwise pledged by Rothenberg.

(b)Rothenberg has had the opportunity to receive independent tax and legal advice from attorneys of his choice with respect to the advisability of executing this Agreement and is not relying on the Bank, any of its affiliates, or their respective shareholders, directors, officers, employees, agents and/or counsel for tax or legal advice.

The foregoing representations and warranties shall survive the execution and delivery of this Agreement.

3.No Employment or Service Contract.  This Agreement is not an employment or service contract, and nothing in thisAgreementshallbedeemedtocreateinanywaywhatsoeveranyobligationofRothenbergtocontinueintheemployoftheBankoranyaffiliatethereof,oroftheBankoranyofitsaffiliatestocontinuetoemployRothenberg.Inaddition,nothinginthisAgreementshallobligatetheBankoranyofitsaffiliatesortheirrespectiveshareholders,directors,officersand/oremployeestocontinueanyrelationshipthatRothenbergmighthaveasadirector,officerorconsultantfortheBankoranaffiliatethereof.

4.Expenses.  Each party hereby acknowledges and agrees that such party shall be liable for its own costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Agreement.

5.Arbitration.  Any dispute or controversy arising under or in connection with this Agreement, the inception or termination of the Rothenberg’s employment, or any alleged discrimination or tort claim related to such employment, including issues raised regarding the Agreement’s formation, interpretation or breach, shall be settled exclusively by binding arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (“AAA”). Without limiting the foregoing, the following potential claims by the Rothenberg would be subject to arbitration under the Arbitration Agreement:  claims for wages or other compensation due; claims for breach of any contract or covenant (express or implied) under which the Rothenberg believes he would be entitled to compensation or benefits; tort claims related to such employment; claims for discrimination and harassment (including, but not limited to, race, sex, religion, national origin, age, marital status or medical condition, disability, sexual orientation, or any other characteristic protected by federal, state or local law); claims for benefits (except where an employee benefit or pension plan specifies that its claims procedure shall culminate in an arbitration or other procedure different from this one); and claims for violation of any public policy, federal, state or other governmental law, statute, regulation or ordinance.  The arbitration will be conducted in Los Angeles County.  The arbitration shall provide for written discovery and depositions adequate to give the parties access to documents and witnesses that are essential to the dispute.  The arbitrator shall have no authority to add to or to modify this Agreement, shall apply all applicable law, and shall have no lesser and no greater remedial authority than would a court of law resolving the same claim or controversy.  The arbitrator shall issue a written decision that includes the essential findings and conclusions upon which the decision is based, which shall be signed and dated. Rothenberg and the Bank shall each bear his or its own costs and attorneys’ fees incurred in conducting the arbitration and, except in such disputes where Rothenberg asserts a claim otherwise under a state or federal statute prohibiting discrimination in employment (“a Statutory Claim”), or unless required otherwise by applicable law, shall split equally the fees and administrative costs charged by the arbitrator and AAA.  In disputes where Rothenberg asserts a Statutory Claim against the Bank, Rothenberg shall be required to pay only the AAA filing fee to the extent such filing fee does not exceed the fee to file a complaint in state or federal court.  Rothenberg shall pay the balance of the arbitrator’s fees and administrative costs.  Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

6.Miscellaneous.

(a)Cooperation.  Each party hereto agrees to perform any further acts, and to execute and deliver (with acknowledgement, verification and/or affidavit, if required) any further documents and instruments, as may be reasonably necessary or advisable to implement and/or accomplish the provisions of this Agreement and the transactions contemplated herein.

(b)Amendment.  This Agreement may not be amended except by an instrument in writing signed by each of the parties hereto.

(c)Entire Agreement.  This Agreement constitutes the entire agreement of the parties and supersedes all prior agreements and undertakings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof.

(d)Assignment.  This Agreement is personal in nature and Rothenberg may not assign its rights or delegate the performance of its duties under this Agreement without the prior written consent of the Bank.  Any purported assignment without such consent shall be void and of no force or effect.

(e)Parties in Interest.  This Agreement shall be binding upon and inure solely to the benefit of and be enforceable by each party and its respective successors and permitted assigns.

(f)Governing Law.  This Agreement shall be governed by and construed under the laws of the State of California, except to the extent the laws of the United States of America are mandatorily applicable.

(g)Counterparts.  This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

IN WITNESS WHEREOF, each of the parties hereto that is not a natural person has caused this Agreement to be executed on its behalf by its officers or other persons thereunto duly authorized, all as of the day and year first above written.

1st Century Bank, N.A.
By:	/s/ Jeffrey M. Watson
Name:			Jeffrey M. Watson
Title:		Secretary
/s/ Alan I. Rothenberg
Alan I. Rothenberg

EX-10.16

Exhibit 10.16

RESOLUTIONS FOR THE NOVEMBER 25, 2004

MEETING OF THE ORGANIZING BOARD OF

1^ST CENTURY BANK, NATIONAL ASSOCIATION

I.CUPP EMPLOYMENT AGREEMENT

WHEREAS, Richard S. Cupp has been engaged by the Organizers and the Organizing Board as a consultant during the application and organizational phases of the Bank, pursuant to which (i) consulting fees of $7,000 per month have been paid since February 1, 2003 and will continue to be paid until the Bank opens for business; and (ii) from February 1, 2003, until the Bank opens for business, the Bank will accrue, for payment after the Bank opens for business, the additional amount of $8,833 per month in payment for these consulting services; and

WHEREAS, the Organizing Board desires to ratify and affirm the terms of the consulting agreement in effect with Richard S. Cupp; and

WHEREAS, it is in the best interests of the Bank that it enter into an employment agreement with Richard S. Cupp as the prospective President and Chief Executive Officer of the Bank to commence when the Bank opens for business; and

WHEREAS, there has been presented to the Organizing Board a proposed form of Employment Agreement in the form attached hereto as Exhibit “A” (the “Cupp Agreement”) which the Board desires to adopt, and which shall be subject to confirmation and ratification by the Board of Directors of the Bank when elected by the shareholders, and to required regulatory review and non-objection;

NOW, THEREFORE, BE IT HEREBY RESOLVED, that the terms and conditions of the consulting agreement in effect with Richard S. Cupp are hereby ratified and affirmed.

BE IT FURTHER RESOLVED, that the Cupp Agreement in substantially the form attached hereto as Exhibit “A” is approved and adopted, subject to confirmation and ratification by the Board of Directors of the Bank when elected by the shareholders, and to required regulatory review and non-objection; and

BE IT FURTHER RESOLVED, that the prospective officers of the Bank are authorized and directed to execute the Cupp Agreement for and on behalf of the Bank, and to do and perform any and all other acts necessary or desirable to carry out the terms of the Cupp Agreement.

BE IT FURTHER RESOLVED, that the Secretary or Assistant Secretary of the Bank is directed to insert a duly executed copy of the Cupp agreement in the minute books of the Bank.

EX-10.17

Exhibit 10.17

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of this 25^th day of November, 2003, by and between 1st Century Bank, National Association (In Organization) (the “Bank”), on one hand, and Richard S. Cupp (the “Executive”), on the other hand.

WHEREAS, the parties hereto wish to enter into an employment agreement to employ the Executive as the President and Chief Executive Officer of the Bank and to set forth certain additional agreements between the Executive and the Bank.

NOW, THEREFORE, in consideration of the mutual covenants and representations contained herein, the parties hereto agree as follows:

1.Term.  The Bank will employ the Executive, and the Executive will serve the Bank, under the terms of this Agreement for an initial term of three (3) years (the “Initial Term”), commencing on the date the Bank opens for business (the “Effective Date”).  However, if the Bank does not open for business on or before December 31, 2004, this Agreement shall automatically terminate and be of no effect. The Initial Term of this Agreement shall automatically be extended for an additional one (1) year period unless, not later than sixty (60) days prior to the expiration of the Initial Term, either party hereto shall have given notice to the other that the Initial Term shall not be so extended. Notwithstanding the foregoing, the Executive’s employment hereunder may be earlier terminated, as provided in Section 4 hereof. The term of this Agreement, as in effect from time to time in accordance with the foregoing, shall be referred to herein as the “Term”. The period of time between the Effective Date and the termination of the Executive’s employment hereunder shall be referred to herein as the “Employment Period.”

2.Employment.

(a)Positions and Reporting. The Bank hereby employs the Executive for the Employment Period as its President and Chief Executive Officer. During the Employment Period, the Executive shall report directly to the Board of Directors of the Bank (the “Board”), or a committee of the Board specifically authorized to direct the Executive, composed of at least three (3) members of the Board.

(b)Authority and Duties. The Executive shall exercise such authority, perform such executive duties and functions and discharge such responsibilities as are reasonably associated with the Executive’s position as President and Chief Executive Officer, commensurate with the authority vested in the Executive pursuant to this Agreement and consistent with the bylaws of the Bank.  During the Employment Period, the Executive shall devote his full business time, skill and efforts to the business of the Bank. Notwithstanding the foregoing, the Executive may (i) make and manage personal business investments of his choice and serve in any capacity with any civic, educational or charitable organization, or any trade association, without seeking or obtaining approval by the Board, provided such activities and service do not materially

interfere or conflict with the performance of his duties hereunder and (ii) with the approval of the Board serve on the boards of directors of other corporations  By entering into this Agreement the Board specifically acknowledges that the activities described in Exhibit A, attached and incorporated by this reference, are permitted by the foregoing language.

The Bank shall make Executive a director of the Bank, and any subsidiaries of the Bank contemporaneously with the execution of this Agreement. As the Bank desires that Executive continue to serve as a director, the Bank shall use its reasonable best efforts to cause the Executive to be elected a director at any meeting of the Board or of the shareholders held for the purpose of electing directors during the Term, and shall use its reasonable best efforts to insure that the Executive remains a director of each subsidiary, including such subsidiaries as may from time to time come into existence after the date hereof.  The Executive shall not be entitled during the Employment Period to receive any additional compensation (excluding the payment or reimbursement of any expenses incurred by the Executive) for his services as a director of any of the above entities.

3.Compensation and Benefits.

(a)Salary. During the Employment Period, the Bank shall pay to the Executive, as compensation for the performance of his duties and obligations under this Agreement, a base salary at the rate of $190,000 per annum, payable in arrears not less frequently than monthly in accordance with the normal payroll practices of the Bank (the “Base Salary”). Such Base Salary shall be subject to review in the eleventh (11^th) month after the Effective Date, and at each anniversary of the Effective Date thereafter, for possible increase by the Board based on factors including, but not limited to, market conditions and performance of Executive and the Bank, in its sole discretion, but shall in no event be decreased from the levels set forth above during the Initial Term, or from its then-existing level during the Employment Period.

(b)Annual Bonus.  Effective on the earlier of eighteen (18) months after the Effective Date, or the day after the end of the first quarter in which the Bank has a quarterly net profit, the Executive shall be entitled to receive annual bonus amounts in the form of cash awards based upon the satisfaction of performance criteria (the “Performance Goals”) that will be established by the Board in its discretion and upon negotiation with the Executive at the beginning of each year, subject to the approval of the Board.  Increased levels of achievement of the agreed upon Performance Goals will correlate to increased levels of annual bonus.  In the first year of the Term the target bonus available shall be equal to 20% to 50% of the Executive’s base annual salary then in effect, as determined in the sole discretion of the Board.  After the completion of the first year of the Term, the target bonus available shall be equal to 40% to 60% of the Executive’s base annual salary then in effect, as determined in the sole discretion of the Board.   Performance Goals will include goals consistent with the Bank’s business plan for the year, as established by the Bank’s management and subject to the review and approval of the Board. The final determinations as to the actual corporate and individual performance against the Performance Goals shall be made by the Board in its sole good faith discretion.  Executive’s bonus, if any, shall be paid in one lump sum to Executive at such time as other executive bonuses are paid.  The Board retains the discretion to determine whether a pro-rata bonus is appropriate if

the Executive is terminated or leaves the employ of the Bank prior to the annual determination of bonuses.

(c)Other Benefits. During the Employment Period, the Executive shall receive such life insurance, disability insurance and health insurance benefits, holiday, vacation and sick pay benefits and other benefits which the Bank extends, as a matter of policy, to all of its executive employees, except as otherwise provided herein, and shall be entitled to participate in all deferred compensation and other incentive plans of the Bank, on the same basis as other like employees of the Bank. Without limiting the generality of the foregoing, the Executive shall be entitled to four (4) weeks of vacation during the first year of the Employment Period, and five (5) weeks of vacation during each subsequent year of the Employment Period, which shall be scheduled in the Executive’s discretion, subject to and taking into account applicable banking laws and regulations and business needs. Unused vacation may be accrued up to a maximum of six (6) weeks of unused vacation, at which time the Executive shall cease to accrue unused vacation until used.

(d)Business Expenses. During the Employment Period, the Bank shall promptly reimburse the Executive for all documented reasonable business expenses incurred by the Executive in the performance of his duties under this Agreement, in accordance with the Bank’s employee manual or policies adopted by the Board from time to time.

(e)Car Allowance. The Bank shall provide the Executive with a monthly automobile allowance of $750.00 per month during the Employment Period.

(f)Club Membership. The Executive and the Bank agree that the Executive’s participation in the membership of a country club or similar club will assist in promoting the Bank’s business.  For this reason, the Bank shall be responsible for the monthly dues related to such membership, as well as those entertainment costs that are business related (without regard, however, to whether such costs are deductible for income tax purposes), provided that appropriate documentation is provided regarding the entertainment costs.

(g)Stock Options

(i)On the date of the first meeting of the Board following the date the Bank opens for business, pursuant to the terms of the 2004 1st Century Bank Stock Option Plan (the “Plan”), which shall be in the form of Exhibit B attached hereto (subject to such changes as the parties shall agree to after good faith negotiations during the thirty-day period immediately following the execution hereof or as may be required by regulatory authorities), and subject to subsequent shareholder approval of the Plan, the Bank shall grant to the Executive an incentive stock option (the “Stock Option Agreement”) to purchase up to that number of shares of the Bank’s common stock which is equal to 5% of the number of shares of common stock of the Bank’s duly issued, fully paid and outstanding shares as of the date the Bank opens for business. The exercise price shall be $10.00, equal to the offering price for such shares in the Bank’s initial stock offering, which the parties agree shall be deemed to be the fair market value of such shares at the date of grant.  The Stock Option Agreement shall have a term of 10 years. The options granted under the Stock Option Agreement shall be exercisable as follows, subject to the Plan: (i) 25% of the options shall vest and become exercisable on the first anniversary of the Effective

Date; and (ii) another 25% of the options shall vest and become exercisable on each of the second, third and fourth anniversary of the Effective Date.

4.Termination of Employment.

(a)Termination for Cause. The Board may terminate the Executive’s employment hereunder for “Cause” or without “Cause.” For purposes of this Agreement termination for “Cause” shall mean termination because of Executive’s personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order or material breach of any provision of this Agreement.  For purposes of this Agreement, no act, or the failure to act, on Executive’s part shall be considered “willful” unless done, or omitted to be done, not in good faith and without reasonable belief that the action or omission was in the best interests of the Bank.

Termination under this Paragraph shall not prejudice any remedy that the Bank may have at law, in equity, or under this Agreement.

(b)Termination for Good Reason. The Executive shall have the right at any time to terminate his employment with the Bank for any reason.  For purposes of this Agreement, and subject to the Bank’s opportunity to cure as provided in Section 4(c) hereof, the Executive shall have “Good Reason” to terminate his employment hereunder if such termination shall be the result of:

(i)a material diminution during the Employment Period in the Executive’s title, duties or responsibilities as set forth in Section 2 hereof;

(ii)a material breach by the Bank of the compensation and benefits provisions set forth in Section 3 hereof;

(iii)a material breach by the Bank of any material terms of this Agreement; or

(iv)the relocation of the Executive’s principal place of employment to any location more than 50 miles from the Bank’s headquarters at the Effective Date.

(c)Notice and Opportunity to Cure. Notwithstanding the foregoing, it shall be a condition precedent to the Bank’s right to terminate the Executive’s employment for “Cause” pursuant to Paragraph 4(a), and the Executive’s right to terminate his employment for “Good Reason” that (1) the party seeking the termination shall first have given the other party written notice stating with specificity the reason for the termination (“breach”) and (2) if such breach is susceptible of cure or remedy, a period of 30 days from and after the giving of such notice to cure the breach.  If the breach cannot reasonably be cured or remedied within 30 days, the period for remedy or cure shall be extended for a reasonable time (not to exceed 30 days), provided the

breaching party has made and continues to make a diligent effort to effect such remedy or cure.  With respect to terminations because of a willful violation of any law, rule or regulation or final cease-and-desist order, or because of the Executive’s personal dishonest or breach of fiduciary duty involving personal profit, the Bank will not be required to provide a cure period.  Additionally,  Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a notice of termination which shall include a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the members of the Board at a meeting of the Board called and held for that purpose (which may be telephonic) finding that, in the good faith opinion of the Board, Executive was guilty of conduct justifying termination for Cause and specifying the particulars thereof in detail.

(d)Termination Upon Death or Permanent Disability.  The Employment Period shall automatically be terminated by the death of the Executive. The Employment Period may be terminated by the Bank if the Executive shall be subject to a “permanent disability” as such term is defined in the disability insurance provided by the Bank, or if such insurance is not provided by the Bank, the term shall mean that the Executive has been unable to perform his duties under this Agreement for a period of at least 90 consecutive days or 120 days in any 180 day period, and it is not reasonable to believe that he would ever be able to resume his duties on a full time basis.  If the Employment Period is terminated by reason of the permanent disability of the Executive, the Bank shall give 30-days’ advance written notice to that effect to the Executive.

(e)Termination Upon a Change of Control.  In the event this Agreement or Executive’s employment is terminated without Cause by the Bank or for Good Reason by the Executive within twelve (12) months after the occurrence of a Change of Control, (as defined below), the Executive shall be entitled to the severance pay as described in Paragraph 5(a) below.

(f)Definition of Change in Control.  A “Change in Control” shall be deemed to have taken place if:

(i)there shall be consummated any consolidation or merger of the Bank in which the Bank is not the continuing or surviving corporation or pursuant to which shares of the Bank’s capital stock are converted into cash, securities or other property (other than a consolidation or merger of the Bank in which the holders of the Bank’s voting stock immediately prior to the consolidation or merger shall, upon consummation of the consolidation or merger, own at least 50% of the voting stock) or any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Bank; or

(ii)any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) shall, after the date hereof, become the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of securities of the Bank representing 40% or more of the voting power of all of the then outstanding securities of the Bank having the right under ordinary circumstances to vote in an election of the Board (including, without limitation, any securities of the Bank that any such person has the right to acquire pursuant to any agreement, or upon

exercise of conversion rights, warrants or options, or otherwise, shall be deemed beneficially owned by such person); or

(iii)individuals who as of the Effective Date constitute the entire Board and any new directors whose election by the Bank’s shareholders, or whose nomination for election by the Board, shall have been approved by a vote of at least a majority of the directors then in office who either were directors at the date hereof or whose election or nomination for election shall have been so approved shall cease for any reason to constitute a majority of the members of the Board.

Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred in the event the Bank forms a holding company as a result of which the holders of the Bank’s outstanding voting securities immediately prior to the transaction hold, in approximately the same relative proportions as they held prior to the transaction, substantially all of the outstanding voting securities of a holding company owning all of the Bank’s outstanding voting securities after the completion of the transaction.

5.Consequences of Termination. The following are the severance pay and benefits to which the Executive is entitled upon termination of employment in all positions with the Bank, and such payments and benefits shall be the exclusive payments and benefits to which the Executive is entitled upon such termination.  Except in the case of termination of employment by the Bank with Cause, or due to death, the post-termination payments and benefits shall only be provided if the Executive first enters into a form of release agreement reasonably satisfactory to the Bank releasing both parties from any and all claims, known and unknown, related to the Executive’s employment with the Bank.

(a)Termination Without Cause or for Good Reason. In the event of termination of the Executive’s employment hereunder (i) by the Bank without “Cause” (other than upon death or permanent disability), (ii) by the Executive for “Good Reason,” or (iii) a termination by the Bank without Cause or the Executive for Good Reason within 12 months following a Change in Control, the Executive shall be entitled to the following severance pay and benefits:

(i)Severance Pay – a lump sum amount equal to one (1) year of the Executive’s annual Base Salary.  However, in the event Executive’s employment is terminated  by the Bank without Cause or the Executive terminates his employment for Good Reason within 12 months following a Change in Control, the Executive shall be entitled to receive two (2) times the highest annual cash compensation amount paid to the Executive by the Bank within the three years preceding the Change in Control;

(ii)Benefits Continuation – continuation for 24 months (the “Severance Period”) of coverage under the group medical care, disability and life insurance benefit plans or arrangements in which the Executive is participating at the time of termination, with the Bank continuing to pay its share of premiums and associated costs as if Executive continued in the employ of the Bank; provided, however, that the Bank’s obligation to provide such coverages shall be terminated if the Executive obtains comparable substitute coverage from another employer at any time during the Severance Period.  Executive agrees to advise the Bank

immediately if such comparable substitute coverage is obtained from another employer.  The Executive shall be entitled, at the expiration of the Severance Period, to elect continued coverage under the Bank’s medical benefit plans pursuant to the terms of COBRA.

(b)Termination Upon Disability.  In the event of termination of the Executive’s employment hereunder by the Bank on account of permanent disability, the Executive shall be entitled to the following severance pay and benefits.

(i)Severance Pay – severance payments in the form of continuation of the Executive’s Base Salary as in effect immediately prior to such termination for a period of 6 months following the first date of disability; and

(ii)Benefits Continuation – the same benefits as provided in Section 5(a)(ii) above, to be provided during the Employment Period while the Executive is suffering from a permanent disability and for a period of 6 months following the effective date of termination of employment by reason of permanent disability.

(c)Termination Upon Death.  In the event of termination of the Executive’s employment hereunder on account of the Executive’s death, the Bank shall pay to the Executive’s beneficiary or beneficiaries or his estate, as the case may be, the accrued Base Salary and accrued and unused vacation earned through the date of death.  Such payment shall be made no later than sixty (60) days after the date of death. In addition, Executive’s beneficiary(ies) or his estate shall be entitled to the payment of benefits pursuant to any life insurance policy of the Executive, as provided for in Section 3(c) above. The Executive’s beneficiary or estate shall not be required to remit to the Bank any payments received pursuant to any life insurance policy purchased pursuant to Section 3(c) above.

(d)Accrued Rights.  Notwithstanding the foregoing provisions of this Section 5, in the event of termination of the Executive’s employment hereunder for any reason, the Executive shall be entitled to payment of any unpaid portion of his Base Salary through the effective date of termination, payment of any unreimbursed business expenses incurred pursuant to Section 3(d) above, and payment of any accrued but unpaid benefits solely in accordance with the terms of any incentive bonus or employee benefit plan or program of the Bank.

(e)Termination for Cause or Due to End of the Term.  In the event the employment of the Executive is terminated by the Bank for Cause, the Bank shall provide the Executive only salary and vacation earned through the date of termination.  No severance payment or benefit shall be provided in such instance. In the event the employment of the Executive is terminated as a result of the expiration of the Term, the Executive shall be entitled to no severance payment or benefit of any kind notwithstanding any provision to the contrary in the Bank’s employee manual or policies then in effect, except as to matters such as COBRA coverage required by law without reference to such manual or policies.

(f)Nonassignability.  Neither the Executive nor any other person or entity shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of the rights or benefits of the Executive under this Section 5, nor shall any of said rights or benefits be subject to seizure for the payment of any

debts, judgments, alimony or separate maintenance, owed by the Executive or any other person or entity, or be transferable by operation of law in the event of bankruptcy, insolvency or otherwise.  The terms of this Section 5(f) shall not affect the interpretation of any provision of this Agreement.

(g)Regulatory Restrictions.  The parties understand and agree that at the time any payment would otherwise be made or benefit provided under Sections 5 or 18, depending on the facts and circumstances existing at such time, the satisfaction of such obligations by the Bank may be deemed by a regulatory authority to be illegal, an unsafe and unsound practice, or for some other reason not properly due or payable by the Bank.  Among other things, the regulations at 12 C.F.R. Part 30, Appendix A and at 12 C.F.R. Part 359 promulgated pursuant to Sections 18(k) and 39(a) of the Federal Deposit Insurance Act, respectively, or similar regulations or regulatory action following similar principles may apply at such time. The parties understand, acknowledge and agree that, notwithstanding any other provision of this Agreement, the Bank shall not be obligated to make any payment or provide any benefit under Sections 5 or 18 where an appropriate regulatory authority disapproves or does not acquiesce as required, if required, and the regulatory authority’s disapproval or non-acquiescence is documented in a writing from the regulatory authority, a copy of which is actually provided by the regulatory authority or the Bank to the Executive.

(h)Conditions to Severance Benefits. The Bank shall have the right to seek repayment of the severance payments and benefits or to terminate payments or benefits provided by this Section 5 in the event that the Executive fails to honor, in accordance with their terms, the provisions of Sections 6 or 9 hereof.  For purposes only of this Section, Executive shall be treated as having failed to honor the provisions of Section 6 or Section 9 hereof only upon the vote of two-thirds of the Board following notice by the Bank to the Executive of the alleged failure, an opportunity for the Executive to cure the alleged failure for a period of 30 days from the date of such notice and the Executive’s opportunity to be heard on the issue by the Board.

(i)Suspension and Removal Orders.  If Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) and (g)(1)), the Bank’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank may in its discretion:  (i) pay Executive all or part of the compensation withheld while its obligations under this Agreement were suspended; and (ii) reinstate (in whole or in part) any of its obligations which were suspended.  If Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) or (g)(1)), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.

(j)Termination by Default.  If the Bank is in default (as defined in Section 3(x)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(x)(1)), all obligations under this Agreement shall terminate as of the date of default, but vested rights of the parties shall not be affected.

(k)Supervisory Assistance or Merger.  All obligations under this Agreement shall be terminated, except to the extent that it is determined that continuation of the Agreement is necessary for the continued operation of the Bank:  (i) by the Comptroller of the Currency (the “Comptroller”) or his or her designee, at the time that the Federal Deposit Insurance Corporation enters into an agreement to provide assistant to or on behalf of the Bank under the authority contained in Section 11 of the Federal Deposit Insurance Act (12 U.S.C. Section 1821); or (ii) by the Comptroller or his or her designee, at the time that the Comptroller or his or her designee approves a supervisory merger to resolve problems related to the operation of the Bank or when the Bank is in an unsafe or unsound condition.  All rights of the parties that have already vested, however, shall not be affected by such action.

6.Confidentiality. The Executive agrees that he will not at any time during the Employment Period or at any time thereafter for any reason, in any fashion, form or manner, either directly or indirectly, divulge, disclose or communicate to any person, firm, corporation or other business entity, in any manner whatsoever, any confidential information or trade secrets concerning the business of the Bank, including, without limiting the generality of the foregoing, the techniques, methods or systems of its operation or management, any information regarding its financial matters, or any other material information concerning the business of the Bank (including customer lists), any of its customers, governmental relations, customer contacts, underwriting methodology, loan program configuration and qualification strategies, marketing strategies and proposals, its manner of operation, its plans or other material data, or any other information concerning the business of the Bank, its subsidiaries or affiliates, and the Bank’s good will (the “Business”).  The provisions of this Section 6 shall not apply to (i) information disclosed in the performance of the Executive’s duties to the Bank based on his good faith belief that such a disclosure is in the best interests of Bank; (ii) information that is, at the time of the disclosure, public knowledge; (iii) information disseminated by the Bank to third parties in the ordinary course of business; (iv) information lawfully received by the Executive from a third party who, based upon inquiry by the Executive, is not bound by a confidential relationship to the Bank or otherwise improperly received the information; or (v) information disclosed under a requirement of law or as directed by applicable legal authority having jurisdiction over the Executive.

Executive agrees that all manuals, documents, files, reports, studies or other materials used and/or developed by Executive for the Bank during the Term of this Agreement are solely the property of the Bank, and that Executive has no right, title or interest therein.  Upon termination of Executive’s employment, Executive or Executive’s representative shall promptly deliver possession of all such materials (including any copies thereof) to the Bank.

7.Keyman Life Insurance. The Bank shall have the right to obtain and hold a “keyman” life insurance policy on the life of the Executive with the Bank as beneficiary of the policy. The Executive agrees to provide any information required for the issuance of such policy and submit himself to any physical examination required for such policy.

8.Unsecured General Creditor.  Neither the Executive nor any other person or entity shall have any legal right or equitable rights interests or claims in or to any property or assets of the Bank under the provisions of this Agreement.  No assets of the Bank shall be held under any trust for the benefit of the Executive or any other person or entity or held in any way as security

for the fulfilling of the obligations of the Bank under this Agreement. All of the Bank’s assets shall be and remain the general, unpledged, unrestricted assets of the Bank. The Bank’s obligations under this Agreement are unfunded and unsecured promises, and to the extent such promises involve the payment of money, they are promises to pay money in the future.  The Executive and any person or entity claiming through him shall be unsecured general creditors with respect to any rights or benefits hereunder.

9.Business Protection Covenants.

(a)Covenant Not to Compete.  The Executive agrees that he will not, during the Employment Period, voluntarily or involuntarily, directly or indirectly, (i) engage in any banking or financial products or service business, loan origination or deposit-taking business or any other business competitive with that of the Bank, its subsidiaries or affiliates (“Competitive Business”) within Los Angeles County (the “Market Area”), (ii) directly or indirectly own any interest in (other than less than three percent (3%) of any publicly traded company or mutual fund), manage, operate, control, be employed by, or provide management or consulting services in any capacity to any firm, corporation, or other entity (other than the Bank or its subsidiaries or affiliates) engaged in any Competitive Business in the Market Area, or (iii) directly or indirectly solicit or otherwise intentionally cause any employee, officer, or member of the Board or any of its subsidiaries or affiliates to engage in any action prohibited under (i) or (ii) of this Section 9(a).

(b)Inducing Employees To Leave The Bank; Employment of Employees.  Any attempt on the part of the Executive to induce others to leave the Bank’s employ, or the employ of any of its subsidiaries or affiliates, or any effort by the Executive to interfere with the Bank’s relationship with its other employees would be harmful and damaging to the Bank.  The Executive agrees that during the Employment Period and for a period of twelve (12) months thereafter, the Executive will not in any way, directly or indirectly:  (i) induce or attempt to induce any employee of the Bank or any of its subsidiaries of affiliates to quit employment with the Bank or the relevant subsidiary or affiliate; (ii) otherwise interfere with or disrupt the relationships between the Bank and its subsidiaries and affiliates and their respective employees; (iii) solicit, entice, or hire away any employee of the Bank or any of its subsidiaries or affiliates; or (iv) hire or engage any employee of the Bank or any subsidiary or affiliate or any former employee of the Bank or any subsidiary or affiliate whose employment with the Bank or the relevant subsidiary or affiliate ceased less than one (1) year before the date of such hiring or engagement.

(c)Nonsolicitation of Business.  For a period of twelve (12) months from the date of termination of employment, the Executive will not divert or attempt to divert from the Bank or any of its subsidiaries or affiliates, any business the Bank or a subsidiary or affiliate had enjoyed or solicited from its customers, borrowers, depositors or investors during the twelve (12) months prior to termination of his employment.

(d)Bank’s Ownership of Inventions.  To the extent that Executive has intellectual property rights of any kind in any pre-existing works which are subsequently incorporated in any work or work product produced in rendering services to the Bank, Executive hereby grants Bank a royalty-free, irrevocable, world-wide, perpetual non-exclusive license

(with the right to sublicense), to make, have made, copy, modify, use, sell, license, disclose, publish or otherwise disseminate or transfer such subject matter.  Similarly, Executive agrees that all inventions, discoveries, improvements, trade secrets, original works of authorship, developments, formulae, techniques, processes, and know-how, whether or not patentable, and whether or not reduced to practice, that are conceived, developed or reduced to practice during Executive’s employment with the Bank, either alone or jointly with others, if on the Bank’s time, using the Bank’s facilities, or relating to the Bank shall be owned exclusively by the Bank, and Executive hereby assigns to the Bank all of Executive’s right, title and interest throughout the world in all such intellectual property.  Executive agrees that the Bank shall be the sole owner of all domestic and foreign patents or other rights pertaining thereto, and further agrees to execute all documents that the Bank reasonably determines to be necessary or convenient for use in applying for, prosecuting, perfecting, or enforcing patents or other intellectual property rights, including the execution of any assignments, patent applications, or other documents that the Bank may reasonably request.  This provision is intended to apply to the extent permitted by applicable law and is expressly limited by Section 2870 of the California Labor Code, which is set forth in its entirety in Exhibit A to this Agreement.  By signing this Agreement, Executive acknowledges that this Paragraphs shall constitute written notice of the provisions of Section 2870.

(e)Bank’s Ownership of Copyrights.  Executive agrees that all original works of authorship not otherwise within the scope of Paragraph (d) above that are conceived or developed during Executive’s employment with the Bank, either alone or jointly with others, if on the Bank’s time, using Bank facilities, or relating to the Bank, are “works for hire” to the greatest extent permitted by law and shall be owned exclusively by the Bank, and Executive hereby assigns to the Bank all of Executive’s right, title, and interest in all such original works of authorship.  Executive agrees that the Bank shall be the sole owner of all rights pertaining thereto, and further agrees to execute all documents that the Bank reasonably determines to be necessary or convenient for establishing in the Bank’s name the copyright to any such original works of authorship.

10.Resignations. The Executive agrees that upon termination of employment, for any reason, he will submit his resignations from all offices and directorships with the Bank and all of its subsidiaries.

11.Other Agreements. The parties further agree that to the extent of any inconsistency between this Agreement and any employee manual or policy of the Bank, that the terms of this Agreement shall supersede the terms of such employee manual or policy.

12.Notice.  For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be personally delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, or sent by facsimile, provided that the facsimile cover sheet contains a notation of the date and time of transmission, and shall be deemed received: (i) if personally delivered, upon the date of delivery to the address of the person to receive such notice, (ii) if mailed in accordance with the provisions of this Section 13, two (2) business days after the date placed in the United States mail, (iii) if mailed other than in accordance with the provisions of this Section 13 or mailed from outside the United States, upon the date of delivery

to the address of the person to receive such notice, or (iv) if given by facsimile, when sent.  Notices shall be addressed as follows:

If to the Bank:
	1st Century Bank, National Association
	1875 Century Park East
	Suite 1400
	Los Angeles, CA 90067
	Attn: Chairman of the Board
With a copy to:
	Manatt, Phelps & Phillips, LLP
	11355 West Olympic Avenue
	Los Angeles, CA 90064
	Attn: T.J. Grasmick, Esq.
If to the Executive, to:
	Richard S. Cupp
	4253 Mesa Vista Drive
	La Canada, CA 91011

or to such other respective addresses as the parties hereto shall designate to the other by like notice, provided that notice of a change of address shall be effective only upon receipt thereof.

13.Arbitration.  Any dispute or controversy arising under or in connection with this Agreement, the inception or termination of the Executive’s employment, or any alleged discrimination or tort claim related to such employment, including issues raised regarding the Agreement’s formation, interpretation or breach, shall be settled exclusively by binding arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (“AAA”). Without limiting the foregoing, the following potential claims by the Executive would be subject to arbitration under the Arbitration Agreement:  claims for wages or other compensation due; claims for breach of any contract or covenant (express or implied) under which the Executive believes he would be entitled to compensation or benefits; tort claims related to such employment; claims for discrimination and harassment (including, but not limited to, race, sex, religion, national origin, age, marital status or medical condition, disability, sexual orientation, or any other characteristic protected by federal, state or local law); claims for benefits (except where an employee benefit or pension plan specifies that its claims procedure shall culminate in an arbitration or other procedure different from this one); and claims for violation of any public policy, federal, state or other governmental law, statute, regulation or ordinance.  The arbitration will be conducted in Los Angeles County.   The arbitration shall provide for written discovery and depositions adequate to give the parties access to documents and witnesses that are essential to the dispute.  The arbitrator shall have no authority to add to or to modify this Agreement, shall apply all applicable law, and shall have no lesser and no greater remedial authority than would a court of law

resolving the same claim or controversy.  The arbitrator shall issue a written decision that includes the essential findings and conclusions upon which the decision is based, which shall be signed and dated. Executive and the Bank shall each bear his or its own costs and attorneys’ fees incurred in conducting the arbitration and, except in such disputes where Executive asserts a claim otherwise under a state or federal statute prohibiting discrimination in employment (“a Statutory Claim”), or unless required otherwise by applicable law, shall split equally the fees and administrative costs charged by the arbitrator and AAA.  In disputes where Executive asserts a Statutory Claim against the Bank, Executive shall be required to pay only the AAA filing fee to the extent such filing fee does not exceed the fee to file a complaint in state or federal court.  Executive shall pay the balance of the arbitrator’s fees and administrative costs.  Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

14.Waiver of Breach.  Any waiver of any breach of this Agreement shall not be construed to be a continuing waiver or consent to any subsequent breach on the part either of the Executive or of the Bank.  No delay or omission in the exercise of any power, remedy, or right herein provided or otherwise available to any party shall impair or affect the right of such party thereafter to exercise the same.  Any extension of time or other indulgence granted to a party hereunder shall not otherwise alter or affect any power, remedy or right of any other party, or the obligations of the party to whom such extension or indulgence is granted except as specifically waived.

15.Non-Assignment; Successors. Neither party hereto may assign his or its rights or delegate his or its duties under this Agreement without the prior written consent of the other party; provided, however, that: (i) this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Bank upon any sale of all or substantially all of the Bank’s assets, or upon any merger, consolidation or reorganization of the Bank with or into any other corporation, all as though such successors and assigns of the Bank and their respective successors and assigns were the Bank; and (ii) this Agreement shall inure to the benefit of and be binding upon the heirs, assigns or designees of the Executive to the extent of any payments due to them hereunder.  As used in this Agreement, the term “Bank” shall be deemed to refer to any such successor or assign of the Bank referred to in the preceding sentence.

16.Withholding of Taxes. All payments required to be made by the Bank to the Executive under this Agreement shall be subject to the withholding and deduction of such amounts, if any, relating to tax, and other payroll deductions as the Bank may reasonably determine it should withhold and/or deduct pursuant to any applicable law or regulation (including, but not limited to, the Executive’s portion of social security payments and income tax withholding) now in effect or which may become effective any time during the term of this Agreement.

17.Excise Tax Provision.  Notwithstanding anything elsewhere in this Agreement to the contrary, if any of the payments or benefits provided for in this Agreement, together with any other payments or benefits which the Executive has the right to receive from the Bank (or its affiliated companies), would constitute a “parachute payment” as defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”), the parties agree that the payments or benefits provided to the Executive pursuant to this Agreement shall be reduced (in each case, in such manner as the Executive in his sole discretion shall determine) so

that the present value of the total amount received by the Executive that would constitute a “parachute payment” will be one dollar ($1.00) less than three (3) times the Executive’s base amount (as defined in Section 280G of the Code) and so that no portion of the payment or benefits received by the Executive would be subject to the excise tax imposed by Section 4999 of the Code.

18.Indemnification.  To the fullest extent permitted by law, regulation, and the Bank’s Articles of Incorporation and Bylaws, the Bank shall pay as and when incurred all expenses, including legal and attorney costs, incurred by, or shall satisfy as and when entered or levied a judgment or fine rendered or levied against, Executive in an action brought by a third party against Executive (whether or not the Bank is joined as a party defendant) to impose a liability or penalty on Executive for an act alleged to have been committed by Executive while an officer of the Bank; provided, however, that Executive was acting in good faith, within what Executive reasonably believed to be the scope of Executive’s employment or authority and for a purpose which the Executive reasonably believed to be in the best interests of the Bank or the Bank’s shareholders, and in the case of a criminal proceeding, that the Executive had no reasonable cause to believe that Executive’s conduct was unlawful.  Payments authorized hereunder include amounts paid and expenses incurred in settling any such action or threatened action.  All rights hereunder are limited by any applicable state or Federal laws.

19.Severability.  To the extent any provision of this Agreement or portion thereof shall be invalid or unenforceable, it shall be considered deleted therefrom (but only for so long as such provision or portion thereof shall be invalid or unenforceable) and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect to the fullest extent permitted by law if enforcement would not frustrate the overall intent of the parties (as such intent is manifested by all provisions of the Agreement including such invalid, void, or otherwise unenforceable portion).

20.Payment.  All amounts payable by the Bank to the Executive under this Agreement shall be paid promptly on the dates required for such payment in this Agreement without notice or demand.  Any salary, benefits or other amounts paid or to be paid to Executive or provided to or in respect of the Executive pursuant to this Agreement shall not be reduced by amounts owing from Executive to the Bank.

21.Expenses.  The Bank shall pay or reimburse the Executive for all legal fees and expenses incurred by him in the drafting, review and negotiation of this Agreement.

22.Authority.  Each of the parties hereto hereby represents that each has taken all actions necessary in order to execute and deliver this Agreement.

23.Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

24.Governing Law.  This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of California, without giving effect to the choice of law principles thereof.

25.Entire Agreement.  This Agreement and written agreements, if any, entered into concurrently herewith constitute the entire agreement by the Bank and the Executive with respect to the subject matter hereof and merges and supersedes any and all prior discussions, negotiations, agreements or understandings between the Executive and the Bank with respect to the subject matter hereof, whether written or oral, including without limitation, the oral discussions referred to and the provisions set forth in electronic e-mail exchanges dated February 21, 2003 and February 23, 2003, provided, however, that Executive shall be entitled to any unpaid pre-opening consulting fees and expense reimbursements provided therein. This Agreement may be amended or modified only by a written instrument executed by the Executive and the Bank. With regard to such amendments, alterations, or modifications, facsimile signatures shall be effective as original signatures.  Any amendment, alteration, or modification requiring the signature of more than one party may be signed in counterparts.

26.Further Actions.  Each party agrees to perform any further acts and execute and deliver any further documents reasonably necessary to carry out the provisions of this Agreement.

27.Time of Essence.  Time is of the essence of each and every term, condition, obligation and provision hereof.

28.No Third Party Beneficiaries.  This Agreement and each and every provision hereof is for the exclusive benefit of the parties and not for the benefit of any third party.

29.Headings.  The headings in this Agreement are inserted only as a matter of convenience, and in no way define, limit, or extend or interpret the scope of this Agreement or of any particular provision hereof.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

1st CENTURY BANK, National Association (In Organization)
By:	/s/ Alan I. Rothenberg
	Alan I. Rothenberg
	Chairman of the Organizing Board
EXECUTIVE:
/s/ Richard S. Cupp
Richard S. Cupp

EX-10.18

Exhibit 10.18

BUSINESS DEVELOPMENT AND CONSULTATION AGREEMENT

THIS BUSINESS DEVELOPMENT AND CONSULTATION AGREEMENT (the “Agreement”) is made and entered into as of this 25^th day of November, 2003, by and between 1^st Century Bank, National Association (In Organization) (the “Bank”), on one hand, and Alan I. Rothenberg (the “Consultant”), on the other hand.

WHEREAS, the parties hereto wish to enter into a business development and consultation agreement to obtain certain services from Consultant in addition to his expected role as a director and Chairman of the Board of Directors of the Bank, and to set forth certain additional agreements between the Consultant and the Bank, provided that this Agreements shall be subject to ratification by the full Board of Directors prior to the opening of the Bank for business.

NOW, THEREFORE, in consideration of the mutual covenants and representations contained herein, the parties hereto agree as follows:

1.     Term.  The Bank will utilize the Consultant’s services, and the Consultant will serve the Bank under the terms of this Agreement, for a period of one (1) year (the “Initial Term”), commencing on the date the Bank opens for business (the “Effective Date”).  However, if the Bank does not open for business on or before December 31, 2004, this Agreement shall automatically terminate and be of no further effect. The Initial Term of this Agreement and the terms of this Agreement may be extended annually for an additional one (1) year period (each an “Extended Term”) at the discretion of the Board of Directors by written notice to the Consultant no later than the expiration of the Initial Term or the effective Extended Term.  Notwithstanding the foregoing, this Agreement may be terminated earlier by the Consultant at any time, and in the discretion of the Board, upon one month’s written notice.

2.     Consulting Services to Be Provided. The Bank hereby retains Consultant to perform business development and related consulting services above and beyond those services typically expected and provided by a member of the Board of Directors or by the Chairman of the Board and which shall include, but not be limited to:

(a)Provide leadership and direction on business development, marketing and public relations activities related to key industries and sectors in the bank’s market territory.  These sectors will include entertainment, legal, sports management and professional services.

(b)Oversee and provide guidance to management on civic, community and philanthropic activities.

(c)Actively participate in direct calling, customer solicitation, and relationship management to achieve the Bank’s marketing and business development plan.

(d)Service as spokesperson for the Bank in key areas of business presentation, civic affairs and public relations.

3.     Remuneration.

(a)   Fee. During the Initial Term, the Bank shall pay to Consultant for the performance of the services described under this Agreement a fee of Seventy Five Thousand Dollars ($75,000), payable in equal monthly installments. If this Agreement is extended as provided herein, the Board and Consultant shall mutually agree upon, at the time this Agreement is extended, an appropriate fee for services to be rendered during the Extended Term.

(b)   Business Expenses. During the effectiveness of the Initial Term of this Agreement or any Extended Term, the Bank shall advance or reimburse Consultant for all documented reasonable business expenses incurred by the Consultant in the performance of the services described under this Agreement, in accordance with policies adopted from time to time by or under the delegation of the Board of Directors.

4.             Confidentiality. The Consultant agrees that he will not at any time during the term of this Agreement, or at any time thereafter for any reason, in any fashion, form or manner, either directly or indirectly, divulge, disclose or communicate to any person, firm, corporation or other business entity, in any manner whatsoever, any confidential information or trade secrets concerning the business of the Bank, including, without limiting the generality of the foregoing, the techniques, methods or systems of its operation or management, any information regarding its financial matters, or any other material information concerning the business of the Bank (including customer lists), any of its customers, governmental relations, customer contacts, underwriting methodology, loan program configuration and qualification strategies, marketing strategies and proposals, its manner of operation, its plans or other material data, or any other information concerning the business of the Bank, its subsidiaries or affiliates, and the Bank’s good will (the “Business”).  The provisions of this Section 4 shall not apply to (i) information disclosed in the performance of the Consultant’s services to the Bank based on his good faith belief that such a disclosure is in the best interests of Bank; (ii) information that is, at the time of the disclosure, public knowledge; (iii) information disseminated by the Bank to third parties in the ordinary course of business; (iv) information lawfully received by the Consultant from a third party who, based upon inquiry by the Consultant, is not bound by a confidential relationship to the Bank or otherwise improperly received the information; or (v) information disclosed under a requirement of law or as directed by applicable legal authority having jurisdiction over the Consultant.

5.             Arbitration.  Any dispute or controversy arising under or in connection with this Agreement, the inception or termination of the Consultant’s services, including issues raised regarding the Agreement’s formation, interpretation or breach, shall be settled exclusively by binding arbitration in accordance with the Commercial Rules of the American Arbitration Association (“AAA”). The arbitration will be conducted in Los Angeles County. The arbitrator shall have no authority to add to or to modify this Agreement, shall apply all applicable law, and shall have no lesser and no greater remedial authority than would a court of law resolving the same claim or controversy.  The arbitrator shall issue a written decision that includes the essential findings and conclusions upon which the decision is based, which shall be signed and dated. Consultant and the Bank shall each bear their own respective costs and attorneys’ fees

incurred in conducting the arbitration and shall split equally the fees and administrative costs charged by the arbitrator and AAA. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

6.             Waiver of Breach.  Any waiver of any breach of this Agreement shall not be construed to be a continuing waiver or consent to any subsequent breach on the part either of the Consultant or of the Bank.  No delay or omission in the exercise of any power, remedy, or right herein provided or otherwise available to any party shall impair or affect the right of such party thereafter to exercise the same.  Any extension of time or other indulgence granted to a party hereunder shall not otherwise alter or affect any power, remedy or right of any other party, or the obligations of the party to whom such extension or indulgence is granted except as specifically waived.

7.             Non-Assignment; Successors. Neither party hereto may assign his or its rights or delegate his or its duties under this Agreement without the prior written consent of the other party; provided, however, that: (i) this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Bank upon any sale of all or substantially all of the Bank’s assets, or upon any merger, consolidation or reorganization of the Bank with or into any other corporation, all as though such successors and assigns of the Bank and their respective successors and assigns were the Bank; and (ii) this Agreement shall inure to the benefit of and be binding upon the heirs, assigns or designees of the Consultant to the extent of any payments due to him hereunder.  As used in this Agreement, the term “Bank” shall be deemed to refer to any such successor or assign of the Bank referred to in the preceding sentence.

8.             Severability.  To the extent any provision of this Agreement or portion thereof shall be invalid or unenforceable, it shall be considered deleted therefrom (but only for so long as such provision or portion thereof shall be invalid or unenforceable) and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect to the fullest extent permitted by law if enforcement would not frustrate the overall intent of the parties (as such intent is manifested by all provisions of the Agreement including such invalid, void, or otherwise unenforceable portion).

9.             Authority.  Each of the parties hereto hereby represents that each has taken all actions necessary in order to execute and deliver this Agreement, provided that this Agreement is subject to ratification by the Board of Directors of the Bank prior to the opening of the Bank for business.

10.           Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

11.           Governing Law.  This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of California, without giving effect to the choice of law principles thereof.

12.           Entire Agreement.  This Agreement and written agreements, if any, entered into concurrently herewith constitute the entire agreement by the Bank and the Consultant with

respect to the subject matter hereof and merges and supersedes any and all prior discussions, negotiations, agreements or understandings between the Consultant and the Bank with respect to the subject matter hereof, whether written or oral.  This Agreement may be amended or modified only by a written instrument executed by the Consultant and the Bank. With regard to such amendments, alterations, or modifications, facsimile signatures shall be effective as original signatures.  Any amendment, alteration, or modification requiring the signature of more than one party may be signed in counterparts.

13.           Further Actions.  Each party agrees to perform any further acts and execute and deliver any further documents reasonably necessary to carry out the provisions of this Agreement.

14.           No Third Party Beneficiaries.  This Agreement and each and every provision hereof is for the exclusive benefit of the parties and not for the benefit of any third party.

15.           Headings.  The headings in this Agreement are inserted only as a matter of convenience, and in no way define, limit, or extend or interpret the scope of this Agreement or of any particular provision hereof.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

1st CENTURY BANK, N.A. (In Organization)
By:	/s/ Richard S. Cupp
Richard S. Cupp
Representing the Organizing
Board of Directors
CONSULTANT:
/s/ Alan I. Rothenberg
Alan I. Rothenberg

CERTIFICATION OF RATIFICATION

I HEREBY CERTIFY THAT this Agreement was approved and ratified by the Board of Directors of 1st Century Bank, National Association by action taken on February 24, 2004.

/s/ Jeffrey M. Watson

Jeffrey M. Watson

Assistant Secretary of the Board

EX-10.19

Exhibit 10.19

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of this 1st day of June, 2007 (the “Effective Date”), by and between 1st Century Bank, National Association, Los Angeles, California (the “Bank”), on one hand, and Dan Kawamoto (the “Executive”), on the other hand.

WHEREAS, the parties hereto wish to enter into an employment agreement to employ Executive as Executive Vice President and Chief Financial Officer of the Bank and to set forth certain additional agreements between Executive and the Bank.

NOW, THEREFORE, in consideration of the mutual covenants and representations contained herein, the parties hereto agree as follows:

1.Term.  The Bank will employ Executive, and Executive will serve the Bank, under the terms of this Agreement for an initial term of three (3) years (the “Initial Term”), commencing on the Effective Date.  The Initial Term of this Agreement shall automatically be extended for an additional one (1) year period unless, not later than sixty (60) days prior to the expiration of the Initial Term, either party hereto shall have given notice to the other that the Initial Term shall not be so extended. Notwithstanding the foregoing, Executive’s employment hereunder may be earlier terminated, as provided in Section 4 hereof. The term of this Agreement, as in effect from time to time in accordance with the foregoing, shall be referred to herein as the “Term”. The period of time between the Effective Date and the termination of Executive’s employment hereunder shall be referred to herein as the “Employment Period.”

2.Position; Authority and Duties.

(a)Positions and Reporting.  Executive shall serve as Executive Vice President and Chief Financial Officer of the Bank.  During the Employment Period, Executive shall report directly to the President or the Chief Executive Officer of the Bank, as directed by the Board of Directors of the Bank (the “Board”).

(b)Authority and Duties.  Executive shall exercise such authority, perform such executive duties and functions and discharge such responsibilities as are reasonably associated with Executive’s position as Executive Vice President and Chief Financial Officer consistent with this Agreement and the bylaws of the Bank.  Executive’s job duties will primarily involve overseeing and managing the Bank’s finance department, financial policies and procedures and communicating with the bank regulators and auditors.

3.Compensation and Benefits.

(a)Salary.  During the Employment Period, the Bank shall pay to Executive, as compensation for the performance of his duties and obligations under this Agreement, a base salary at the rate of $15,500 per month, payable in arrears semi-monthly in accordance with the normal payroll practices of the Bank (the “Base Salary”). Such Base Salary shall be subject to review within sixty (60) days after each calendar year during the Employment Period, for

possible increases by the Board based on factors including, but not limited to, market conditions and performance of Executive and the Bank, in its sole discretion, but shall in no event be decreased from the levels set forth above or from its then-existing level during the Employment Period.

(b)Bonus.

(i)Guaranteed Bonus.  On or before March 31, 2008, Executive shall receive a cash bonus of no less than 30% of the Base Salary, as a guaranteed bonus, whether or not he is employed by the Bank on such date (the “Guaranteed Bonus”), unless Executive’s employment shall have been terminated prior to such date for Cause or unless Executive shall have resigned from the Bank prior to such date without Good Reason.

(ii)Annual Bonus.  After payment of the Guaranteed Bonus, Executive shall be entitled to receive annual bonus amounts in the form of cash and/or restricted stock awards based upon the satisfaction of performance criteria (the “Performance Goals”) that will be established at the beginning of each calendar year by and at the discretion of the individual to whom Executive reports (pursuant to Section 2(a) hereof), in consultation with Executive and subject to the approval of the Board.  The relative amounts of cash and restricted stock awards with which any annual bonus is payable shall be determined by the Board. It is anticipated that increased levels of achievement of the agreed upon Performance Goals will correlate to increased levels of annual bonus. Performance Goals will include goals consistent with the Bank’s business plan for the year, as established by the Bank’s management and subject to the review and approval of the Board. The final determinations as to the actual corporate and individual performance against the Performance Goals shall be made by the Board in its sole good faith discretion. The Guaranteed Bonus and any bonus payable thereafter shall be paid or granted, as appropriate, in one lump sum to Executive at such time as other executive bonuses are paid.  The Board retains the discretion, but shall have no obligation, to determine whether a pro-rata bonus is appropriate if Executive is terminated or leaves the employ of the Bank prior to the annual determination of bonuses.

(c)Other Benefits.  During the Employment Period, Executive shall receive such life insurance, disability insurance and health, dental and vision and other insurance benefits, holiday, paid time off (“PTO”) benefits, 401(k) plan participation, and other benefits which the Bank extends, as a matter of policy, to all of its executive employees, except as otherwise provided herein, and shall be entitled to participate in all deferred compensation and other incentive plans of the Bank, on the same basis as other like employees of the Bank.  Without limiting the generality of the foregoing, Executive shall be entitled to thirteen (13) days of PTO through calendar year 2007 and twenty-three (23) days of PTO per year during the Employment Period thereafter, which shall be scheduled in Executive’s discretion, subject to and taking into account applicable banking laws and regulations and business needs.  Unused PTO may be accrued up to a maximum of six (6) weeks of unused PTO, at which time Executive shall cease to accrue unused PTO until used.

(d)Business Expenses.  During the Employment Period, the Bank shall promptly reimburse Executive for all documented reasonable business expenses, including travel-related expenses, incurred by Executive in the performance of his duties under this

Agreement, in accordance with the Bank’s employee manual or policies adopted by the Board from time to time.  If any of the Business Expenses are taxable as personal income to Executive, the Bank shall reimburse Executive the costs grossed up for taxes at the effective personal tax rate of Executive.

(e)Restricted Stock Award.

(i)The Bank agrees to grant to Executive a total of 50,000 shares of restricted stock (the “Restricted Stock”), pursuant to a Notice of Grant and Restricted Stock Agreement (the “Award Agreement”), under and subject to the terms and conditions of the 1st Century Bank, N.A. Amended 2005 Equity Incentive Plan (“the Plan”).  Of the 50,000 shares of Restricted Stock, 10,000 shares will vest on the first anniversary of the date of the Employment Agreement, 12,500 shares will vest on the second anniversary of the date of the Employment Agreement, 12,500 shares will vest on the third anniversary of the date of the Employment Agreement, and 15,000 shares will vest on the fourth anniversary of the date of the Employment Agreement.  The vesting of the shares referred to herein is subject to Executive’s continued employment with the Bank on the relevant vesting dates, unless Executive is terminated without Cause (as defined in Section 4(a) of this Agreement) or Executive terminates his employment for Good Reason (as defined in Section 4(b) of this Agreement) pursuant to Section 5(a) hereof.

(ii)In the event of any termination of employment for any reason, Executive hereby grants to Bank the right and option, for a period of thirty (30) days after the effective date of such termination, to purchase any shares of Restricted Stock owned by him on the effective date of such termination that have been released from or are not otherwise subject to any restriction on resales under the Plan at a price equal to 100% of the volume weighted average closing price of the Bank’s common stock for the twenty (20) trading days immediately prior to the effective date of termination of employment as reported on any quotation service or exchange on which the Bank’s common stock is then quoted or traded.  This provision is limited to shares of Restricted Stock granted to Executive under this Agreement and subsequent grants of restricted stock, and it does not include shares acquired by Executive using personal funds, upon the exercise of stock options under the Plan, or otherwise.

4.Termination of Employment.

(a)Termination for Cause.  The Board may terminate Executive’s employment hereunder for Cause or without Cause.  For purposes of this Agreement termination for “Cause” shall mean termination because (i) Executive: (A) committed a significant act of dishonesty, deceit or breach of fiduciary duty in the performance of his duties as an employee of the Bank; (B) grossly neglected or willfully failed in any way to perform substantially the duties of such employment after a written demand for performance is given to Executive by the Board, which demand specifically identifies the manner in which such Board believes Executive has failed to perform his duties; (C) has committed a material breach of any provision of this Agreement; (D) willfully acted or failed to act in any other way that materially and adversely affects the Bank; (E) is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) or (g)(1)); or (ii) the Bank has received a final cease-and-desist order that requires in substance that the Bank retain a qualified chief financial

officer acceptable to bank regulators with the experience, skill and other qualifications required to ensure compliance with such order and the bank regulators have determined that Executive does not meet these qualifications.

Termination under this Paragraph shall not prejudice any remedy that the Bank may have at law, in equity, or under this Agreement.

(b)Termination for Good Reason.  Executive shall have the right at any time to terminate his employment with the Bank for any reason.  For purposes of this Agreement, and subject to the Bank’s opportunity to cure as provided in Section 4(c) hereof, Executive shall have “Good Reason” to terminate his employment hereunder if such termination shall be the result of:

(i)a material diminution during the Employment Period in Executive’s title, duties or responsibilities as set forth in Section 2 hereof, unless such events follow any of the circumstances described in Section 4(a) regarding termination for Cause;

(ii)a material breach by the Bank of the compensation and benefits provisions set forth in Section 3 hereof;

(iii)a material breach by the Bank of any material terms of this Agreement; or

(iv)the relocation of Executive’s principal place of employment to any location more than 50 miles from the Bank’s headquarters at the Effective Date.

(c)Notice and Opportunity to Cure.  Notwithstanding the foregoing, it shall be a condition precedent to the Bank’s right to terminate Executive’s employment for Cause, and Executive’s right to terminate his employment for Good Reason that (1) the party seeking the termination shall first have given the other party written notice stating with specificity the reason for the termination (“breach”) and (2) if such breach is susceptible of cure or remedy, a period of thirty (30) days from and after the giving of such notice to cure the breach.  With respect to terminations because of a willful violation of any law, rule or regulation or issuance of a final cease-and-desist order, or because of Executive’s personal dishonesty or breach of fiduciary duty involving personal profit, the Bank will not be required to provide a cure period.

(d)Termination Upon Death or Permanent Disability.  The Employment Period shall automatically be terminated by the death of Executive. The Employment Period may be terminated by the Bank if Executive shall be subject to a “permanent disability” as such term is defined in the disability insurance provided by the Bank, or if such insurance is not provided by the Bank, the term shall mean that Executive has been unable to perform his duties under this Agreement for a period of at least ninety (90) consecutive days or one-hundred twenty (120) days in any one-hundred eighty (180) day period, and it is not reasonable to believe that he would ever be able to resume his duties on a full time basis.

Termination Upon a Change in Control.  In the event this Agreement or Executive’s employment is terminated without Cause by the Bank or for Good Reason by Executive within twelve (12) months after the occurrence of a Change in Control, (as defined below), Executive shall be entitled to the separation pay as described in Paragraph 5(a)(ii) below.

(f)Definition of Change in Control.  A “Change in Control” shall be deemed to have taken place if:

(i)there shall be consummated any consolidation or merger of the Bank in which the Bank is not the continuing or surviving corporation or pursuant to which shares of the Bank’s capital stock are converted into cash, securities or other property (other than a consolidation or merger of the Bank in which the holders of the Bank’s voting stock immediately prior to the consolidation or merger shall, upon consummation of the consolidation or merger, own at least 50% of the voting stock) or any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Bank; or

(ii)any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) shall, after the date hereof, become the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of securities of the Bank representing 40% or more of the voting power of all of the then outstanding securities of the Bank having the right under ordinary circumstances to vote in an election of the Board (including, without limitation, any securities of the Bank that any such person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed beneficially owned by such person); or

(iii)individuals who as of the Effective Date constitute the entire Board and any new directors whose election by the Bank’s shareholders, or whose nomination for election by the Board, shall have been approved by a vote of at least a majority of the directors then in office who either were directors at the date hereof or whose election or nomination for election shall have been so approved shall cease for any reason to constitute a majority of the members of the Board.

Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred in the event the Bank forms a holding company as a result of which the holders of the Bank’s outstanding voting securities immediately prior to the transaction hold, in approximately the same relative proportions as they held prior to the transaction, substantially all of the outstanding voting securities of a holding company owning all of the Bank’s outstanding voting securities after the completion of the transaction.

5.Consequences of Termination.  The following are the separation pay and benefits to which Executive is entitled upon termination of employment in all positions with the Bank, and such payments and benefits shall be the exclusive payments and benefits to which Executive is entitled upon such termination.  Except in the case of termination of employment by the Bank with Cause, or due to death, the post-termination payments and benefits shall only be provided if Executive first enters into a form of release agreement reasonably satisfactory to the Bank releasing the Bank from any and all claims, known and unknown, related to Executive’s employment with the Bank or any other claims Executive may have against the Bank.

(a)Termination Without Cause or for Good Reason. In the event the Bank terminates Executive’s employment hereunder without Cause (other than upon death or

permanent disability) or Executive terminates his employment for Good Reason, Executive shall become immediately vested in any of the remaining 50,000 shares of restricted stock granted to him under the Award Agreement, plus any future grants or restricted shares or options.  In addition,

(i)Executive will be entitled to separation pay in a lump sum amount equal to:

(A)Within twelve (12) months from the date of this  Agreement, 50% of the highest amount of Executive’s annual Base Salary and the highest Annual Bonus paid to Executive within the three year period preceding the termination;

(B)Within the period between twelve (12) to twenty-four (24) months from date of this Agreement, 75% of the highest amount of Executive’s annual Base Salary and the highest Annual Bonus paid to Executive within the three year period preceding the termination;

(C)After twenty-four (24) months from date of this Agreement, 100% of the highest amount of Executive’s annual Base Salary and the highest Annual Bonus paid to Executive within the three year period preceding the termination.

(ii)In the event of a termination by the Bank without Cause or Executive for Good Reason within twelve (12) months following a Change in Control, Executive shall be entitled to the following separation pay and benefits:

(A)Within twelve (12) months from the date of this  Agreement, a lump sum amount equal to 100% of the highest amount of Executive’s annual Base Salary and the highest Annual Bonus paid to Executive within the three year period preceding the termination;

(B)The period between twelve (12) to twenty-four (24) months from date of this  Agreement, a lump sum amount equal to 150% of the highest amount of Executive’s annual Base Salary and the highest Annual Bonus paid to Executive within the three year period preceding the termination;

(C)After thirty-six (36) months from date of this  Agreement, a lump sum amount equal to 200% of the highest amount of Executive’s annual Base Salary and the highest Annual Bonus paid to Executive within the three year period preceding the termination.

(iii)Benefits Continuation – continuation for six (6) months (the “Separation Period”) of coverage under the group medical care, disability and life insurance benefit plans or arrangements in which Executive is participating at the time of termination, with the Bank continuing to pay its share of premiums and associated costs as if Executive continued in the employ of the Bank; provided, however, that the Bank’s obligation to provide such coverage shall be terminated if Executive obtains comparable substitute coverage from another employer at any time during the Separation Period.  Executive agrees to advise the Bank immediately if such comparable substitute coverage is obtained from another employer.

Executive shall be entitled, at the expiration of the Separation Period, to elect continued coverage under the Bank’s medical benefit plans pursuant to the terms of COBRA.

(b)Termination Upon Disability.  In the event of termination of Executive’s employment hereunder by the Bank on account of permanent disability, Executive shall be entitled to the following separation pay and benefits.

(i)Separation pay – Separation payments in the form of continuation of Executive’s Base Salary as in effect immediately prior to such termination for a period of six (6) months paid in equal installments on the Bank’s regularly schedule payroll dates following the first date of disability; and

(ii)Benefits Continuation – the same benefits as provided in Section 5(a)(iii) above, to be provided during the Employment Period while Executive is suffering from a permanent disability and for a period of six (6) months following the effective date of termination of employment by reason of permanent disability.

(c)Termination Upon Death.  In the event of termination of Executive’s employment hereunder on account of Executive’s death, the Bank shall pay to Executive’s beneficiary or beneficiaries or his estate, as the case may be, the accrued Base Salary and accrued and unused PTO earned through the date of death.  Such payment shall be made no later than sixty (60) days after the date of death. In addition, Executive’s beneficiary(ies) or his estate shall be entitled to the payment of benefits pursuant to any life insurance policy of Executive, as provided for in Section 3(c) above.  Executive’s beneficiary or estate shall not be required to remit to the Bank any payments received pursuant to any life insurance policy purchased pursuant to Section 3(c) above.

(d)Accrued Rights.  Notwithstanding the foregoing provisions of this Section 5, in the event of termination of Executive’s employment hereunder for any reason, Executive shall be entitled to (i) payment of any unpaid portion of his Base Salary through the effective date of termination,  (ii) payment of any unreimbursed reasonable business expenses incurred pursuant to Section 3(d) above, and (iii) payment of any accrued but unpaid benefits solely in accordance with the terms of any employee benefit plan or program of the Bank (except for the Guaranteed Bonus, remuneration under any other bonus plan is not guaranteed).

(e)Termination for Cause.  In the event the employment of Executive is terminated by the Bank for Cause, the Bank shall provide Executive only salary and PTO earned and unreimbursed business expenses incurred through the date of termination.  No separation payment or benefit shall be provided in such instance.

(f)Nonassignability.  Neither Executive nor any other person or entity shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of the rights or benefits of Executive under this Section 5.  The terms of this Section 5(f) shall not affect the interpretation of any provision of this Agreement.

(g)Regulatory Restrictions.  The parties understand and agree that at the time any payment would otherwise be made or benefit provided under Sections 5 or 18, depending on

the facts and circumstances existing at such time, the satisfaction of such obligations by the Bank may be deemed by a regulatory authority to be illegal, an unsafe and unsound practice, or for some other reason not properly due or payable by the Bank.  Among other things, the regulations at 12 C.F.R. Part 30, Appendix A and at 12 C.F.R. Part 359 promulgated pursuant to Sections 18(k) and 39(a) of the Federal Deposit Insurance Act, respectively, or similar regulations or regulatory action following similar principles may apply at such time. The parties understand, acknowledge and agree that, notwithstanding any other provision of this Agreement, the Bank shall not be obligated to make any payment or provide any benefit, and any such obligation of the Bank to do so under Sections 5 or 18 shall be extinguished if an appropriate regulatory authority disapproves or does not acquiesce, if required, and the regulatory authority’s disapproval or non-acquiescence is documented in a writing from the regulatory authority, a copy of which is actually provided by the regulatory authority or the Bank to Executive.

(h)Conditions to Separation Benefits.  The Bank shall have the right to seek repayment of the separation payments and benefits or to terminate payments or benefits provided by this Section 5 in the event that Executive fails to honor, in accordance with their terms, the provisions of Sections 6 or 9 hereof.

(i)Suspension and Removal Orders.  If Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) and (g)(1)) or successor provisions, the Bank’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank may in its discretion:  (i) pay Executive all or part of the compensation withheld while its obligations under this Agreement were suspended; and (ii) reinstate (in whole or in part) any of its obligations which were suspended.  If Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) or (g)(1)), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.

(j)Termination by Default.  If the Bank is in default (as defined in Section 3(x)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(x)(1)), all obligations under this Agreement shall terminate as of the date of default, but vested rights of the parties shall not be affected.

(k)Supervisory Assistance or Merger.  All obligations under this Agreement shall be terminated, except to the extent that it is determined that continuation of the Agreement is necessary for the continued operation of the Bank:  (i) by the Comptroller of the Currency (the “Comptroller”) or his or her designee, at the time that the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 11 of the Federal Deposit Insurance Act (12 U.S.C. Section 1821); or (ii) by the Comptroller or his or her designee, at the time that the Comptroller or his or her designee approves a supervisory merger to resolve problems related to the operation of the Bank or when the Bank is in an unsafe or unsound condition.  All rights of the parties that have already vested, however, shall not be affected by such action.

6.Confidentiality.  Executive agrees that he will not at any time during the Employment Period or at any time thereafter for any reason, in any fashion, form or manner, either directly or indirectly, divulge, disclose or communicate to any person, firm, corporation or other business entity, in any manner whatsoever, any confidential information or trade secrets concerning the business of the Bank, including, without limiting the generality of the foregoing, the techniques, methods or systems of its operation or management, any information regarding its financial matters, or any other material information concerning the business of the Bank (including customer lists), any of its customers, governmental relations, customer contacts, underwriting methodology, loan program configuration and qualification strategies, marketing strategies and proposals, its manner of operation, its plans or other material data, or any other information concerning the business of the Bank, its subsidiaries or affiliates, and the Bank’s good will (the “Business”).  The provisions of this Section 6 shall not apply to (i) information disclosed in the performance of Executive’s duties to the Bank based on his good faith belief that such a disclosure is in the best interests of Bank; (ii) information that is, at the time of the disclosure, public knowledge; (iii) information disseminated by the Bank to third parties in the ordinary course of business; (iv) information lawfully received by Executive from a third party who, based upon inquiry by Executive, is not bound by a confidential relationship to the Bank or otherwise improperly received the information; or (v) information disclosed under a requirement of law or as directed by applicable legal authority having jurisdiction over Executive.

Executive agrees that all manuals, documents, files, reports, studies or other materials used and/or developed by Executive for the Bank during the Term of this Agreement are solely the property of the Bank, and that Executive has no right, title or interest therein.  Upon termination of Executive’s employment, Executive or Executive’s representative shall promptly deliver possession of all such materials (including any copies thereof) to the Bank.

7.Keyman Life Insurance. The Bank shall have the right to obtain and hold a “keyman” life insurance policy on the life of Executive with the Bank as beneficiary of the policy. Executive agrees to provide any information required for the issuance of such policy and submit himself to any physical examination required for such policy.

8.Unsecured General Creditor.  Neither Executive nor any other person or entity shall have any legal right or equitable rights, interests or claims in or to any property or assets of the Bank under the provisions of this Agreement.  No assets of the Bank shall be held under any trust for the benefit of Executive or any other person or entity or held in any way as security for the fulfilling of the obligations of the Bank under this Agreement.  All of the Bank’s assets shall be and remain the general, unpledged, unrestricted assets of the Bank. The Bank’s obligations under this Agreement are unfunded and unsecured promises, and to the extent such promises involve the payment of money, they are promises to pay money in the future.  Executive and any person or entity claiming through him shall be unsecured general creditors with respect to any rights or benefits hereunder.

9.Business Protection Covenants.

(a)Covenant Not to Compete.  Executive agrees that he will not, during the Employment Period, voluntarily or involuntarily, directly or indirectly, (i) engage in any banking or financial products or service business, loan origination or deposit-taking business or any other

business competitive with that of the Bank, its subsidiaries or affiliates (“Competitive Business”), (ii) directly or indirectly own any interest in (other than less than 3% of any publicly traded company or mutual fund), manage, operate, control, be employed by, or provide management or consulting services in any capacity to any firm, corporation, or other entity (other than the Bank or its subsidiaries or affiliates) engaged in any Competitive Business, or (iii) directly or indirectly solicit or otherwise intentionally cause any employee, officer, or member of the Board or any of its subsidiaries or affiliates to engage in any action prohibited under (i) or (ii) of this Section 9(a).

(b)Inducing Employees To Leave The Bank; Employment of Employees.  Any attempt on the part of Executive to induce others to leave the Bank’s employ, or the employ of any of its subsidiaries or affiliates, or any effort by Executive to interfere with the Bank’s relationship with its other employees would be harmful and damaging to the Bank.  Executive agrees that during the Employment Period and for a period of twelve (12) months thereafter, Executive will not in any way, directly or indirectly:  (i) induce or attempt to induce any employee of the Bank or any of its subsidiaries of affiliates to quit employment with the Bank or the relevant subsidiary or affiliate; (ii) otherwise interfere with or disrupt the relationships between the Bank and its subsidiaries and affiliates and their respective employees; (iii) solicit, entice, or hire away any employee of the Bank or any of its subsidiaries or affiliates; or (iv) hire or engage any employee of the Bank or any subsidiary or affiliate, or any former employee of the Bank or any subsidiary or affiliate whose employment with the Bank or the relevant subsidiary or affiliate ceased less than one (1) year before the date of such hiring or engagement.

(c)Nonsolicitation of Business.  For a period of twelve (12) months from the date of termination of employment, Executive will not utilize the confidential proprietary or trade secret information to divert or attempt to divert from the Bank or any of its subsidiaries or affiliates, any business the Bank or a subsidiary or affiliate had enjoyed or solicited from its customers, borrowers, depositors or investors during the twelve (12) months prior to termination of his employment.

(d)Bank’s Ownership of Intellectual Property.  To the extent that Executive has intellectual property rights of any kind in any pre-existing works which are subsequently incorporated in any work or work product produced in rendering services to the Bank, Executive hereby grants Bank a royalty-free, irrevocable, world-wide, perpetual non-exclusive license (with the right to sublicense), to make, have made, copy, modify, use, sell, license, disclose, publish or otherwise disseminate or transfer such subject matter.  Similarly, Executive agrees that all inventions, discoveries, improvements, trade secrets, original works of authorship, developments, formulae, techniques, processes, and know-how, whether or not patentable, and whether or not reduced to practice, that are conceived, developed or reduced to practice during Executive’s employment with the Bank, either alone or jointly with others, if on the Bank’s time, using the Bank’s facilities, or relating to the Bank shall be owned exclusively by the Bank, and Executive hereby assigns to the Bank all of Executive’s right, title and interest throughout the world in all such intellectual property.  Executive agrees that the Bank shall be the sole owner of all domestic and foreign patents or other rights pertaining thereto, and further agrees to execute all documents that the Bank reasonably determines to be necessary or convenient for use in applying for, prosecuting, perfecting, or enforcing patents or other intellectual property rights, including the execution of any assignments, patent applications, or other documents that the

Bank may reasonably request.  This provision is intended to apply to the extent permitted by applicable law and is expressly limited by Section 2870 of the California Labor Code, which is set forth in its entirety in Exhibit A to this Agreement.  By signing this Agreement, Executive acknowledges that this paragraph shall constitute written notice of the provisions of Section 2870.

(e)Bank’s Ownership of Copyrights.  Executive agrees that all original works of authorship not otherwise within the scope of Paragraph (d) above that are conceived or developed during Executive’s employment with the Bank, either alone or jointly with others, if on the Bank’s time, using Bank facilities, or relating to the Bank, are “works for hire” to the greatest extent permitted by law and shall be owned exclusively by the Bank, and Executive hereby assigns to the Bank all of Executive’s right, title, and interest in all such original works of authorship.  Executive agrees that the Bank shall be the sole owner of all rights pertaining thereto, and further agrees to execute all documents that the Bank reasonably determines to be necessary or convenient for establishing in the Bank’s name the copyright to any such original works of authorship.

10.No Breach of Prior Agreement.  Executive represents that his performance of all the terms of this Agreement and his duties as an executive of the Bank will not breach any agreement with any former employer or other party.  Executive represents that he will not bring with him to the Bank or use in the performance of his duties for the Bank any documents or materials of a former employer that are not generally available to the public or have not been legally transferred to the Bank.

11.Resignations.  Executive agrees that upon termination of employment, for any reason, he will submit his resignations from all offices and directorships with the Bank and all of its subsidiaries.

12.Other Agreements.  The parties further agree that to the extent of any inconsistency between this Agreement and any employee manual or policy of the Bank, that the terms of this Agreement shall supersede the terms of such employee manual or policy.

13.Notice.  For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be personally delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, or sent by facsimile, provided that the facsimile cover sheet contains a notation of the date and time of transmission, and shall be deemed received:  (i) if personally delivered, upon the date of delivery to the address of the person to receive such notice, (ii) if mailed in accordance with the provisions of this Section 13, two (2) business days after the date placed in the United States mail, (iii) if mailed other than in accordance with the provisions of this Section 13 or mailed from outside the United States, upon the date of delivery to the address of the person to receive such notice, or (iv) if given by facsimile, when sent.  Notices shall be addressed as follows:

If to the Bank:

1st Century Bank, National Association
1875 Century Park East
Suite 1400
Los Angeles, CA  90067
Attn:  Chairman of the Board and President/COO

With a copy to:

Manatt, Phelps & Phillips, LLP
11355 West Olympic Avenue
Los Angeles, CA 90064
Attn: Gordon M. Bava, Esq.

If to Executive, to:

Dan Kawamoto
425 Grand Oak Court
Walnut Creek, CA 94598

or to such other respective addresses as the parties hereto shall designate to the other by like notice, provided that notice of a change of address shall be effective only upon receipt thereof.

14.Arbitration.  Any dispute or controversy arising under or in connection with this Agreement, the inception or termination of Executive’s employment, or any alleged discrimination or tort claim related to such employment, including issues raised regarding the Agreement’s formation, interpretation or breach, shall be settled exclusively by binding arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (“AAA”). Without limiting the foregoing, the following potential claims by Executive would be subject to arbitration under the Arbitration Agreement:  claims for wages or other compensation due; claims for breach of any contract or covenant (express or implied) under which Executive believes he would be entitled to compensation or benefits; tort claims related to such employment; claims for discrimination and harassment (including, but not limited to, race, sex, religion, national origin, age, marital status or medical condition, disability, sexual orientation, or any other characteristic protected by federal, state or local law); claims for benefits (except where an employee benefit or pension plan specifies that its claims procedure shall culminate in an arbitration or other procedure different from this one); and claims for violation of any public policy, federal, state or other governmental law, statute, regulation or ordinance.  The arbitration will be conducted in Los Angeles County.  The arbitration shall provide for written discovery and depositions adequate to give the parties access to documents and witnesses that are essential to the dispute.  The arbitrator shall have no authority to add to or to modify this Agreement, shall apply all applicable law, and shall have no lesser and no greater remedial authority than would a court of law resolving the same claim or controversy.  The arbitrator shall issue a written decision that includes the essential findings and conclusions upon which the decision is based, which shall be signed and dated.  Executive and the Bank shall each bear his or its own costs and attorneys’ fees incurred in conducting the

arbitration and, except in such disputes where Executive asserts a claim otherwise under a state or federal statute prohibiting discrimination in employment (a “Statutory Claim”), or unless required otherwise by applicable law, shall split equally the fees and administrative costs charged by the arbitrator and AAA.  For such disputes that do not involve Statutory Claims, if Executive is determined to be the prevailing party, the arbitrator shall have the discretion to order the Bank to reimburse Executive for his portion of the arbitrator’s fees and administrative costs of AAA charged to the parties as a result of the arbitration, but not his attorneys’ fees or other costs.  In disputes where Executive asserts a Statutory Claim against the Bank or where otherwise required by law, Executive shall be required to pay only the AAA filing fee to the extent such filing fee does not exceed the fee to file a complaint in state or federal court.  The Bank shall pay the balance of the arbitrator’s fees and administrative costs.  If any party prevails on a Statutory Claim that affords the prevailing party attorneys’ fees, the arbitrator may award attorneys’ fees to the prevailing party, consistent with applicable law.  Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

15.Waiver of Breach.  Any waiver of any breach of this Agreement shall not be construed to be a continuing waiver or consent to any subsequent breach on the part either of Executive or of the Bank.  No delay or omission in the exercise of any power, remedy, or right herein provided or otherwise available to any party shall impair or affect the right of such party thereafter to exercise the same.  Any extension of time or other indulgence granted to a party hereunder shall not otherwise alter or affect any power, remedy or right of any other party, or the obligations of the party to whom such extension or indulgence is granted except as specifically waived.

16.Non-Assignment; Successors.  Neither party hereto may assign his or its rights or delegate his or its duties under this Agreement without the prior written consent of the other party; provided, however, that: (i) this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Bank upon any sale of all or substantially all of the Bank’s assets, or upon any merger, consolidation or reorganization of the Bank with or into any other corporation, all as though such successors and assigns of the Bank and their respective successors and assigns were the Bank; and (ii) this Agreement shall inure to the benefit of and be binding upon the heirs, assigns or designees of Executive to the extent of any payments due to them hereunder.  As used in this Agreement, the term “Bank” shall be deemed to refer to any such successor or assign of the Bank referred to in the preceding sentence.

17.Withholding of Taxes. All payments required to be made by the Bank to Executive under this Agreement shall be subject to the withholding and deduction of such amounts, if any, relating to tax, and other payroll deductions as the Bank may reasonably determine it should withhold and/or deduct pursuant to any applicable law or regulation (including, but not limited to, Executive’s portion of social security payments and income tax withholding) now in effect or which may become effective any time during the term of this Agreement.

18.Excise Tax Provision.  Notwithstanding anything elsewhere in this Agreement to the contrary, if any of the payments or benefits provided for in this Agreement, together with any other payments or benefits which Executive has the right to receive from the Bank (or its affiliated companies), would constitute a “parachute payment” as defined in Section 280G(b)(2) 

of the Internal Revenue Code of 1986, as amended (the “Code”) or any successor provision, the parties agree that the payments or benefits provided to Executive pursuant to this Agreement shall be reduced (in each case, in such manner as Executive in his sole discretion shall determine) so that the present value of the total amount received by Executive that would constitute a “parachute payment” will be $1.00 less than three (3) times Executive’s base amount (as defined in Section 280G of the Code) and so that no portion of the payment or benefits received by Executive would be subject to the excise tax imposed by Section 4999 of the Code.

19.Indemnification.  To the fullest extent permitted by law, regulation, and the Bank’s Articles of Incorporation and Bylaws, the Bank shall pay as and when incurred all expenses, including legal and attorney costs, incurred by, or shall satisfy as and when entered or levied a judgment or fine rendered or levied against, Executive in an action brought by a third party against Executive (whether or not the Bank is joined as a party defendant) to impose a liability or penalty on Executive for an act alleged to have been committed by Executive while an officer of the Bank, provided that Executive was acting in good faith, within what Executive reasonably believed to be the scope of Executive’s employment or authority and for a purpose which Executive reasonably believed to be in the best interests of the Bank or the Bank’s shareholders, and in the case of a criminal proceeding, that Executive had no reasonable cause to believe that Executive’s conduct was unlawful.  Payments authorized hereunder include amounts paid and expenses incurred in settling any such action or threatened action.  All rights hereunder are limited by any applicable state or Federal laws.

20.Severability.  To the extent any provision of this Agreement or portion thereof shall be invalid or unenforceable, it shall be considered deleted therefrom (but only for so long as such provision or portion thereof shall be invalid or unenforceable) and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect to the fullest extent permitted by law if enforcement would not frustrate the overall intent of the parties (as such intent is manifested by all provisions of the Agreement including such invalid, void, or otherwise unenforceable portion).

21.Payment.  All amounts payable by the Bank to Executive under this Agreement shall be paid promptly on the dates required for such payment in this Agreement without notice or demand.

22.Authority.  Each of the parties hereto hereby represents that each has taken all actions necessary in order to execute and deliver this Agreement.

23.Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

24.Governing Law.  This Agreement shall be construed, interpreted and enforced in accordance with the National Bank Act and the laws of the State of California, without giving effect to the choice of law principles thereof.

25.Entire Agreement.  This Agreement and written agreements, if any, entered into concurrently herewith constitute the entire agreement by the Bank and Executive with respect to

the subject matter hereof and merges and supersedes any and all prior discussions, negotiations, agreements or understandings between Executive and the Bank with respect to the subject matter hereof, whether written or oral.  This Agreement may be amended or modified only by a written instrument executed by Executive and the Bank. With regard to such amendments, alterations, or modifications, facsimile signatures shall be effective as original signatures.  Any amendment, alteration, or modification requiring the signature of more than one party may be signed in counterparts.

26.Further Actions.  Each party agrees to perform any further acts and execute and deliver any further documents reasonably necessary to carry out the provisions of this Agreement.

27.Time of Essence.  Time is of the essence of each and every term, condition, obligation and provision hereof.

28.No Third Party Beneficiaries.  This Agreement and each and every provision hereof is for the exclusive benefit of the parties and not for the benefit of any third party.

29.Headings.  The headings in this Agreement are inserted only as a matter of convenience, and in no way define, limit, or extend or interpret the scope of this Agreement or of any particular provision hereof.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

1ST CENTURY BANK, NATIONAL ASSOCIATION
By:	/s/ Alan I. Rothenberg
	Alan I. Rothenberg
	Chairman of the Board
By:	/s/ Jason P. DiNapoli
	Jason P. DiNapoli
	President and Chief Operating Officer
EXECUTIVE:
/s/ Dan Kawamoto
Dan Kawamoto

EX-14

Exhibit 14

Conflict of Interest/Code of Ethics Policy and Procedures

POLICY STATEMENT

All officers and employees of 1^st Century Bank are expected and required to act in a responsible and respectable manner at all times. Furthermore, while acting in their capacities as bank employees, all officers and employees must remain free of outside influence that could result in the loss of objectivity regarding business conducted with customers or with the bank. Officers and employees are expected to be honest and act with integrity when conducting bank business with customers, vendors, and fellow employees.

The Board adopts this conflict of interest/code of ethics policy to govern the disclosure of potential conflicts of interest and to prevent the development of improper relationships between the bank’s employees and the bank and the customers it serves.

DOCUMENTATION

Each officer and employee will receive his or her own copy of this policy annually and will sign a written acknowledgement of its receipt and an agreement to comply with the policy.

DISCLOSURE

The bank’s officers and employees will disclose all potential conflicts of interest in writing annually. All written disclosures will be retained in the bank’s files. These potential conflicts would include but are not limited to the following:

·Management positions, such as directorships, held at outside organizations

·Related interests, such as a company or political campaign controlled by that person, or the funds or services of which will benefit that person

·Any compensation (including salaries, wages, or gifts) received from outside organizations

It is the responsibility of each officer and employee to be aware of the appearance of any potential conflict of interest and to remove himself or herself from any compromising position

regarding the bank’s relationship with any organization with which he or she may be connected.

ACCEPTANCE OF GIFTS

Bank officers and employees may accept small gifts or other items of value from business associates of the bank as long as they are properly disclosed and the dollar value is considered nominal. Gifts valued up to $200 may be accepted without prior approval. Gifts exceeding $200 must receive the approval of the Board of Directors before acceptance.

Following are examples of the types of gifts bank officers may accept from individuals or companies doing or seeking to do business with the bank:

·Meals, gratuities, amenities, or favors based on obvious family or personal relationships

·Meals, refreshments, travel arrangements, accommodations, or entertainment of reasonable value in the course of a meeting or other bona fide business occasion

·Loans from other financial institutions when made on customary terms for the purpose of financing usual and proper activities (Insiders must refer to the bank’s insider policy for additional guidance and regulatory requirements concerning loans from correspondent banks.)

·Advertising or promotional material of reasonable value (pens, note pads, calendars, etc.)

·Discounts or rebates on merchandise or services that are available to other similar customers

·Gifts of reasonable value related to commonly recognized events or occasions such as a promotion, wedding, retirement, holiday, or other special occasion

·Civic, charitable, education, or religious organizational awards for recognition of service and accomplishment

·Other benefits or items of value, when approved in writing on a case-by-case basis.

EXTERNAL INVOLVEMENT

The bank encourages employees to participate in activities outside of the bank, including charitable or political activities. However, federal law prohibits the bank from making political contributions. To ensure the bank’s separation from any political connections, employees are prohibited from soliciting other employees for political contributions.

While the bank may support certain charitable organizations, officers and employees may not coerce other employees into contributions to such organizations.

CONFLICT OF INTEREST

Officers and employees must avoid any personal activity or investment that may exploit their position at the bank and should avoid all appearance of conflict of interest.

Following are some examples of potential conflicts:

·Advance their own personal or business interests, or those of others with whom they have a personal or business relationship, at the expense of 1^st Century Bank.

·Use nonpublic bank, customer, or vendor information for personal gain by employees, relatives, or friends (including, but not limited to securities transactions based on such information)

·Have a controlling financial interest in any of the bank’s vendors or competitors

·Receive a loan, or guarantee of obligations, as a result of their employment with the bank rather than their creditworthiness

·Compete with the bank while still employed, that is, employees and officers may not work for 1^st Century Bank and another financial institution at the same time

Officers and employees must report any employment outside of the bank to their direct supervisor.

ACCOUNTING AND FINANCIAL INFORMATION

1^st Century Bank will maintain the highest standards possible when preparing and disclosing financial information to the public and regulators.  The bank will not issue false or misleading information to its customers, stockholders, regulators, or the general public.  The required periodic reports will be issued in accordance with the applicable laws and regulations and fairly and accurately reflect, in reasonable detail, the bank’s financial position.

REPORTING QUESTIONABLE ACCOUNTING PRACTICES

The Board encourages officers and employees to report any concerns regarding questionable accounting or auditing matters to the Board on a confidential and anonymous basis.  The Board will immediately investigate each allegation.  All information will be held in strict confidence, as appropriate. Employees may submit a concern regarding an actual or suspected questionable accounting or auditing matter without fear of dismissal or retaliation of any kind.

ACTION FOR NONCOMPLIANCE WITH THE POLICY

All instances of violation of this policy will be reported to the Board of Directors directly or through the Audit Committee. The Board will consider the situation, and appropriate action will be taken by the human resources department. Action will be commensurate with the seriousness of the misconduct. Failure to comply with this policy may result in termination of employment.

The Board of Directors approved and adopted this policy on November 17, 2005.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-148302 and 333-148303 on Form S-8 of 1^st Century Bancshares, Inc. of our report, dated March 3, 2008, relating to our audit of the consolidated financial statements and internal control over financial reporting, which appears in this Annual Report on Form 10-K of 1^st Century Bancshares, Inc. for the year ended December 31, 2007.

/s/ Perry-Smith LLP

Sacramento, California

March 14, 2008

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated March 13, 2007 accompanying the financial statements included in the Annual Report of 1st Century Bancshares, Inc. on Form 10-K for the year ended December 31, 2007. We hereby consent to the incorporation by reference of said report in the Registration Statements of 1st Century Bancshares, Inc. on Forms S-8 (File No. 333-148303, effective December 21, 2007 and File No. 333-148302, effective December 21, 2007).

/s/ Grant Thornton LLP

Woodland Hills, California

March 14, 2008

EX-31.1

Exhibit 31.1

CERTIFICATIONS

We, Alan I. Rothenberg and Jason P. DiNapoli, certify, that:

1.     We have reviewed this report on Form 10-K of 1^st Century Bancshares, Inc.;

2.     Based on our knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on our knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     We and the registrant’s other certifying officer are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     We and the registrant’s other certifying officer have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 17, 2008	/s/ Alan I. Rothenberg.
	Alan I. Rothenberg
	Chairman of the Board and
	Chief Executive Officer
Date:  March 17, 2008	/s/ Jason P. DiNapoli.
	Jason P. DiNapoli
	President and Chief Operating Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Dan T. Kawamoto, certify, that:

1.     I have reviewed this report on Form 10-K of 1^st Century Bancshares, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 17, 2008	/s/ Dan T. Kawamoto.
	Dan T. Kawamoto
	Executive Vice President and
	Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION*

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of 1^st Century Bancshares, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigneds hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of the undersigneds’ knowledge that:

(1)           The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: March 17, 2008	/s/ Alan I. Rothenberg.
	Alan I. Rothenberg
	Chairman of the Board and
	Chief Executive Officer
Date: March 17, 2008	/s/ Jason P. DiNapoli.
	Jason P. DiNapoli
	President and Chief Operating Officer
Date: March 17, 2008	/s/ Dan T. Kawamoto.
	Dan T. Kawamoto
	Executive Vice President and
	Chief Financial Officer

*  A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.