BEVERLY HILLS BANCORP NONQUALIFIED STOCK OPTION AGREEMENT

EXHIBIT 10.3

BEVERLY HILLS BANCORP

NONQUALIFIED STOCK OPTION AGREEMENT

2002 PLAN

THIS NONQUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) is made and entered into as of January 3, 2006, by and between Beverly Hills Bancorp Inc., a Delaware corporation (the “Company”), and Larry B. Faigin (the “Optionee”).

A. Pursuant to the Plan, the Administrator has determined that it is to the advantage and best interest of the Company to grant to Optionee this option (the “Option”) to purchase a total of Five Hundred Seventy One Thousand Four Hundred Thirty One (571,431) shares of the Common Stock of the Company (the “Shares” or the “Option Shares”), at the price determined as provided herein, and in all respects subject to the terms, definitions and provisions of the Beverly Hills Bancorp. 2002 Equity Participation Plan (the “Plan”) adopted by the Company, which is incorporated herein by reference.

B. Unless otherwise defined herein, capitalized terms used in this Agreement shall have the meanings set forth in the Plan.

NOW, THEREFORE, in consideration of the mutual agreements contained herein, the Optionee and the Company hereby agree as follows:

1. Grant and Terms of Stock Option.

1.1 Grant of Option. The Company hereby grants to the Optionee the right and option to purchase, subject to the terms and conditions set forth in the Plan and this Agreement, all or any part of the Shares at the purchase price of $10.50 per Share.

1.2 Nature of the Option. This Option is not intended by the Company and Optionee to be an Incentive Stock Option, as defined in Section 422 of the Code. Rather, it is intended to be a Nonqualified Stock Option.

1.3 Vesting and Exercisability. Subject to the provisions of the Plan and the other provisions of this Agreement, this Option shall vest as follows:

1.3.1 40,477 shares shall vest on each of January 3, 2006, January 1, 2007 and January 1, 2008;

1.3.2 50,000 shares shall vest on the first day of each of the second, third and fourth calendar quarters (i.e., April 1, July 1 and October 1) of 2006, 2007 and 2008

1.3.3 The Option shall be deemed fully vested upon termination of Optionee’s employment with the Company if Optionee’s employment with the Company is terminated by the Company without Cause (as defined below);

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1.3.4 The Option shall be deemed fully vested upon the occurrence of a Change of Control of the Company.

1.4 Change of Control Defined. For purposes of this Agreement, the term “Change of Control” shall have the meaning ascribed to such term in the employment agreement between the Company and Optionee; provided, however, that if there is no such agreement, or such agreement does not define Change of Control, a “Change of Control” with respect to the Company shall be deemed to have if occurred upon the occurrence of any one or more of the following:

1.4.1 any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than any individual who is a director of the Company as of the date of this Agreement and any affiliate of such individuals (or group of such persons), is or becomes the “beneficial owner” (as defined in Rule 3d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities; or

1.4.2 the Company merges or consolidates with any other corporation other than a merger or consolidation that results in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent corporation of the surviving entity) more than 50% of the total voting power represented by the voting securities of the Company, the surviving entity or the parent of the surviving entity, as applicable, outstanding immediately after such merger or consolidation; or

1.4.3 the complete liquidation of the Company; or

1.4.4 the occurrence of a transaction pursuant to which the Company no longer owns 50% or more of the outstanding voting securities of the Company’s subsidiary First Bank of Beverly Hills.

1.5 Termination of Vesting. In the event of a Termination of Service with respect to Optionee, this Option shall immediately cease vesting (except as provided in Section 1.3.3), and shall be cancelled to the extent of the number of Shares as to which this Option has not vested as of the date of termination.

2. Term of Option. No portion of this Option may be exercised after January 3, 2011. Subject to Section 1.3 hereof, in the event of Termination of Service with respect to Optionee, this Option shall be cancelled as to any unvested Shares as provided in Section 1.5, and shall terminate and be cancelled with respect to any vested Shares on the earlier of (i) January 3, 2011, or (ii) ninety (90) days after such Termination of Service (or one (1) year in the case of such termination as a result of Optionee’s disability or death); provided, however, if Optionee’s employment with the Company is terminated by the Company for Cause (and regardless of whether Optionee continues service as a director), this entire Option shall be cancelled and terminated as of the date of such termination and shall no longer be exercisable as to any Shares, whether or not previously vested. For purposes of this Agreement, “Cause” shall mean (i) as such term is defined in the employment agreement between the Optionee and

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the Company and (ii) if no such employment agreement exists, any of the following acts or circumstances: (a) fraud, embezzlement, theft, or comparable dishonest activity committed by Optionee (excluding acts involving a de minimis dollar value and not related to the Company); (b) Optionee’s conviction of or entering a plea of guilty or nolo contendere to any crime constituting a felony or any misdemeanor involving fraud, dishonesty or moral turpitude (excluding acts involving a de minimis dollar value and not related to the Company); (c) Optionee’s breach, neglect, refusal, or failure to materially discharge Optionee’s duties (other than due to physical or mental illness) commensurate with Optionee’s title and function or Optionee’s failure to comply with the lawful directions of the Board of Directors, in any such case that is not cured within fifteen (15) days after Optionee has received written notice thereof from the Board of Directors or the Chief Executive Officer of the Company; or (d) a willful and knowing material misrepresentation to the Board of Directors of the Company. For purposes of this Agreement, “Termination of Employment” means the termination of Optionee’s employment with the Company and its subsidiaries unless Optionee is deemed to be in Continuous Status as an Employee as a result of a leave of absence approved by the Board as contemplated by Section 2(j) of the Plan, and “Termination of Service” means the termination of Optionee’s service with the Company and its subsidiaries as employee and director unless, in the case of employment, Optionee is deemed to be in Continuous Status as an Employee as a result of a leave of absence approved by the Board as contemplated by Section 2(j) of the Plan

3. Method of Exercise.

3.1 Delivery of Notice of Exercise. This Option shall be exercisable by written notice in the form attached hereto as Exhibit A which shall state the election to exercise this Option, the number of Shares in respect of which this Option is being exercised, and such other representations and agreements with respect to such Shares as may be required by the Company pursuant to the provisions of this Agreement and the Plan. Such written notice shall be signed by Optionee (or by Optionee’s beneficiary or other person entitled to exercise this Option in the event of Optionee’s death under the Plan) and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the exercise price. This Option shall not be deemed exercised until the Company receives such written notice accompanied by the exercise price and any other applicable terms and conditions of this Agreement are satisfied. This Option may not be exercised for a fraction of a Share.

3.2 Restrictions on Exercise. No Shares will be issued pursuant to the exercise of this Option unless and until there shall have been full compliance with all applicable requirements of the Securities Act of 1933, as amended (whether by registration or satisfaction of exemption conditions), all Applicable Laws, and all applicable listing requirements of any national securities exchange or other market system on which the Common Stock is then listed. As a condition to the exercise of this Option, the Company may require Optionee to deliver to the Company an Investment Representation Statement as well as any other representations necessary or appropriate, in the judgment of the Administrator, to comply with any Applicable Law. For purposes of this Agreement, the term “Applicable Laws” means any applicable statute, ordinance, writ, judgment, injunction, rule, regulation, order or decree of any court or other governmental or regulatory body, agency or authority, federal, state, local or foreign. Without limitation, Optionee shall purchase any shares under

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this Agreement for his own account only and not with a view to, or for the sale in connection with, any distribution of the shares.

3.3 Method of Payment. Payment of the exercise price shall be made in full at the time of exercise: (i) in cash or by check payable to the order of the Company; (ii) unless prohibited by law, by delivery of a properly executed exercise notice together with any other documentation as the Administrator and the Optionee’s broker, if applicable, require to effect an exercise of the options and delivery to the Company of the sale or loan proceeds required to pay the exercise price; or (iii) subject in each case to the advance approval of the Administrator in its sole discretion, by delivery of shares of Common Stock already owned by Optionee, by delivery of a full recourse promissory note made by Optionee in favor of the Company or by any combination of the foregoing. Shares of Common Stock used to satisfy the exercise price of this Option shall be valued at their Fair Market Value determined on the date of exercise (or if such date is not a business day, as of the close of the business day immediately preceding such date). In addition, the Administrator may impose such other conditions in connection with the delivery of shares of Common Stock in satisfaction of the exercise price as it deems appropriate in its sole discretion, including without limitation a requirement that the shares of Common Stock delivered have been held by the Optionee for a specified period of time. Any promissory note delivered pursuant to this Section shall have terms and provisions (including, without limitation, those relating to the maturity date, payment schedule and interest rate) as determined by the Administrator in its sole discretion, shall be secured by the Shares acquired and shall comply with all Applicable Laws (including, without limitation, state and federal margin requirements).

4. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution or to a beneficiary designated pursuant to the Plan, and may be exercised during the lifetime of Optionee only by Optionee. During the six (6) month period after the death of Optionee, this Option may, to the extent it remained unexercised (but vested and exercisable by Optionee in accordance with its terms) on the date of death, be exercised by Optionee’s beneficiary or other person entitled to exercise this Option in the event of Optionee’s death under the Plan.

2. 2002 Plan. The Company has adopted a 2002 Equity Participation Plan (such plan, together with any future amendments thereof, is referred to as the “2002 Plan”). In the event that the 2002 Plan includes additional or alternative terms and conditions that are more favorable to Optionee, such terms and conditions are incorporated into this Agreement.

5. General.

6.1 Governing Law. This Agreement shall be governed by and construed under the laws of the state of California applicable to Agreements made and to be performed entirely in California, without regard to the conflicts of law provisions of Oregon or any other jurisdiction.

6.2 Notices. Any notice required or permitted under this Agreement shall be given in writing by express courier or by postage prepaid, United States registered or certified mail, return receipt requested, to the address set forth below or to such other address for a party as that party may designate by ten (10) days advance written notice to the other parties. Notice shall be effective upon the earlier of receipt or three (3) days after the mailing of such notice.

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If to Optionee, at the address set forth on the signature page.

6.3 Community Property. Without prejudice to the actual rights of the spouses as between each other, for all purposes of this Agreement, the Optionee shall be treated as agent and attorney-in-fact for that interest held or claimed by his or her spouse with respect to this Option and the Option Shares and the parties hereto shall act in all matters as if the Optionee was the sole owner of this Option and any Option Shares. This appointment is coupled with an interest and is irrevocable.

6.4 Modifications. This Agreement may be amended, altered or modified only by a writing signed by the Company and the Optionee hereto.

6.5 Additional Documents. Each party agrees to execute any and all further documents and writings, and to perform such other actions, which may be or become reasonably necessary or expedient to be made effective and carry out this Agreement.

6.6 No Third-Party Benefits. Except as otherwise expressly provided in this Agreement, none of the provisions of this Agreement shall be for the benefit of, or enforceable by, any third-party beneficiary.

6.7 Successors and Assigns. Except as provided herein to the contrary, this Agreement shall be binding upon and inure to the benefit of the parties, their respective successors and permitted assigns.

6.8 No Assignment. Except as otherwise provided in this Agreement, the Optionee may not assign any of his, her or its rights under this Agreement without the prior written consent of the Company, which consent may be withheld in its sole discretion. The Company shall be permitted to assign its rights or obligations under this Agreement, but no such assignment shall release the Company of any obligations pursuant to this Agreement.

6.9 Severability. The validity, legality or enforceability of the remainder of this Agreement shall not be affected even if one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable in any respect.

6.10 Equitable Relief. The Optionee acknowledges that, in the event of a threatened or actual breach of any of the provisions of this Agreement, damages alone will be an inadequate remedy, and such breach will cause the Company great, immediate and irreparable injury and damage. Accordingly, the Optionee agrees that the Company shall be entitled to injunctive and other equitable relief, and that such relief shall be in addition to, and not in lieu of, any remedies they may have at law or under this Agreement.

6.11 Attorneys’ Fees. Should any litigation or arbitration be commenced (including any proceedings in a bankruptcy court) between the parties hereto or their representatives concerning any provision of this Agreement or the rights and duties of any Person or entity

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hereunder, the party or parties prevailing in such proceeding shall be entitled, in addition to such other relief as may be granted, to the reasonable attorneys’ fees and costs incurred by reason of such litigation.

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

6.13 Number and Gender. Throughout this Agreement, as the context may require, (a) the masculine gender includes the feminine and the neuter gender includes the masculine and the feminine; (b) the singular tense and number includes the plural, and the plural tense and number includes the singular; (c) the past tense includes the present, and the present tense includes the past; (d) references to parties, sections, paragraphs and exhibits mean the parties, sections, paragraphs and exhibits of and to this Agreement; and (e) periods of days, weeks or month mean calendar days, weeks or months.

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

6.16 Complete Agreement. This Agreement and the Plan constitute the parties’ entire agreement with respect to the subject matter hereof and supersede all agreements, representations, warranties, statements, promises and understandings, whether oral or written, with respect to the subject matter hereof.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth herein above.

Optionee acknowledges and agrees that the vesting of shares pursuant to Section 1.2 hereof is earned only by continuous status as a director and/or employee (not through the act of being hired or retained, being granted this option or acquiring shares hereunder). Optionee further acknowledges and agrees that this Option, the transactions contemplated hereunder and the vesting schedule set forth herein do not constitute an express or implied promise of continued engagement as an employee of the Company for the vesting period, for any period, or at all. Nothing in this Agreement or the Plan shall limit in any manner whatsoever the right or power of the Company or the Optionee to terminate Optionee’s relationship with the Company with or without cause.

Optionee acknowledges receipt of a copy of the Plan. Optionee represents that he is familiar with the terms and provisions of the Plan, and hereby accepts this option subject to all of the terms and provisions thereof. Optionee also acknowledges that the grant of this option, the purchase of shares upon exercise of this option, and the sale of such shares has important

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tax implications. Optionee has reviewed the Plan and this option in their entirety, has had an opportunity and has been encouraged to obtain the advice of his or her independent legal counsel and tax advisor prior to executing this option and fully understands all provisions of this option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the board or the administrator upon any questions arising under the Plan.

CONSENT OF SPOUSE TO AGREEMENT

By his or her signature below, the spouse of Optionee affirms that he/she has read in its entirety and agrees to be bound by all of the terms and conditions of the foregoing Agreement and the Plan.

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EXHIBIT A

NOTICE OF EXERCISE OF STOCK OPTION

Enclosed herewith is payment in full of the total exercise price.

I represent that I am purchasing the shares for my own account and not with a view to, or for the sale in connection with, any distribution of the shares.

My exact name, current address and social security number for purposes of the stock certificates to be issued and the shareholder list of the Company are:

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