10QSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

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

For the quarterly period ended March 31, 2003

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

For the transition period from                  to                   

Commission File Number 0-24935

SERVICE BANCORP, INC.

(Exact name of small business issuer as specified in its charter)

Massachusetts	04-3430806
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

81 Main Street,

Medway, Massachusetts 02053

(Address of principal executive offices)

                                (508) 533-4343                                

(Issuer’s telephone number, including area code)

                            Not Applicable                            

(Former name, former address and former fiscal

year, if changed since last report)

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date: At April 30, 2003, there were 1,639,284 shares of common stock outstanding, par value $0.01 per share.

Transitional Small Business Disclosure Format (Check one):    YES  ¨        NO  x

SERVICE BANCORP, INC. AND SUBSIDIARY

FORM 10-QSB

INDEX

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2003 and June 30, 2002	1
	Consolidated Statements of Income for the three and nine months ended March 31, 2003 and 2002	2
	Consolidated Statements of Changes in Stockholders’ Equity For the nine months ended March 31, 2003 and 2002	3
	Consolidated Statements of Cash Flows for the nine months ended March 31, 2003 and 2002	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis or Plan of Operation	10
Item 3.	Controls and Procedures	17
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 2.	Changes in Securities	18
Item 3.	Defaults upon Senior Securities	18
Item 4.	Submission of Matters to a Vote of Security Holders	18
Item 5.	Other Information	18
Item 6.	Exhibits and Reports on Form 8-K	18
	Signatures	19
	Certifications	20

PART I—FINANCIAL INFORMATION

ITEM 1. Financial Statements

SERVICE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (unaudited)

(Dollars in thousands, except share amounts)

	March 31, 2003			June 30, 2002
ASSETS
Cash and due from banks	$	7,775		$	8,109
Short-term investments		14,308			15,616
Total cash and cash equivalents		22,083			23,725
Certificates of deposit		100			100
Securities available for sale, at fair value		47,940			55,310
Securities held to maturity, at amortized cost		21,894			34,362
Federal Home Loan Bank stock, at cost		1,948			1,948
Loans		181,606			152,105
Less allowance for loan losses		(1,663	)		(1,258	)
Loans, net		179,943			150,847
Banking premises and equipment, net		3,469			3,678
Accrued interest receivable		1,398			1,757
Net deferred tax asset		153			594
Bank-owned life insurance		3,562			2,753
Other assets		528			2,003
Total assets	$	283,018		$	277,077
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	223,969		$	220,193
Federal Home Loan Bank advances		35,405			34,794
Other liabilities		973			1,725
Total liabilities		260,347			256,712
Stockholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued		—			—
Common stock, $.01 par value; 12,000,000 shares authorized, 1,712,630 issued		17			17
Additional paid-in capital		7,491			7,430
Retained earnings		15,042			13,889
Accumulated other comprehensive income		1,047			5
Treasury stock, at cost—(64,506 shares)		(527	)		(527	)
Unearned ESOP shares—(25,954 and 30,784 shares, respectively)		(260	)		(308	)
Unearned RRP stock—(19,470 and 19,680 shares, respectively)		(139	)		(141	)
Total stockholders’ equity		22,671			20,365
Total liabilities and stockholders’ equity	$	283,018		$	277,077

See accompanying notes to consolidated financial statements.

1

SERVICE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(Dollars in thousands, except per share amounts)

	Three Months Ended March 31,					Nine Months Ended March 31,
	2003		2002			2003			2002
Interest and dividend income:
Interest and fees on loans	$	2,712	$	2,524		$	8,169		$	7,558
Interest and dividends on securities, Federal Home Loan Bank stock and certificates of deposit		1,043		1,457			3,464			4,312
Interest on short-term investments		23		39			100			252
Total interest and dividend income		3,778		4,020			11,733			12,122
Interest expense:
Interest on deposits		887		1,269			3,232			4,199
Interest on Federal Home Loan Bank advances		454		486			1,378			1,426
Total interest expense		1,341		1,755			4,610			5,625
Net interest income		2,437		2,265			7,123			6,497
Provision for loan losses		150		90			420			225
Net interest income, after provision for loan losses		2,287		2,175			6,703			6,272
Noninterest income:
Customer service fees		263		263			794			803
Gain (loss) on securities available for sale, net		6		(257	)		(21	)		25
Other income		79		85			238			238
Total noninterest income		348		91			1,011			1,066
Noninterest expense:
Salaries and employee benefits		1,004		970			3,057			2,897
Occupancy and equipment expenses		376		414			1,111			1,216
Data processing expenses		183		169			527			491
Professional fees		92		74			238			252
Advertising expenses		50		51			180			144
Other general and administrative expenses		296		290			880			972
Total noninterest expense		2,001		1,968			5,993			5,972
Income before income taxes		634		298			1,721			1,366
Provision for income taxes		211		100			568			472
Net income	$	423	$	198		$	1,153		$	894
Weighted average shares outstanding (basic)		1,606,410		1,587,447			1,602,662			1,583,652
Weighted average shares outstanding (diluted)		1,637,374		1,611,588			1,629,735			1,607,733
Earnings per share (basic)	$	0.26	$	0.13		$	0.72		$	0.57
Earnings per share (diluted)	$	0.26	$	0.12		$	0.71		$	0.56

See accompanying notes to consolidated financial statements.

2

SERVICE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

NINE MONTHS ENDED MARCH 31, 2003 AND 2002

(Dollars in thousands, except share amounts)

	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Treasury Stock			Unearned ESOP Shares			Unearned RRP Stock			Total
Balance at June 30, 2002	$	17	$	7,430	$	13,889	$	5	($	527	)	($	308	)	($	141	)	$	20,365
Comprehensive income:
Net income		—		—		1,153		—		—			—			—			1,153
Change in net unrealized gain on securities available for sale, net of tax and reclassification adjustment		—		—		—		1,042		—			—			—			1,042
Total comprehensive income																			2,195
Common stock held by ESOP released and committed to be released (4,830 shares)		—		30		—		—		—			48			—			78
Income tax benefit on stock option exercises		—		6		—		—		—			—			—			6
Amortization of RRP stock (210 shares)		—		25		—		—		—			—			2			27
Balance at March 31, 2003	$	17	$	7,491	$	15,042	$	1,047	($	527	)	($	260	)	($	139	)	$	22,671

See accompanying notes to consolidated financial statements.

3

SERVICE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

NINE MONTHS ENDED MARCH 31, 2003 AND 2002 (concluded)

(Dollars in thousands, except share amounts)

	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Unearned ESOP Shares			Unearned RRP Stock			Total
Balance at June 30, 2001	$	17	$	7,409	$	12,588	($	514	)	($	560	)	($	372	)	($	202	)	$	18,366
Comprehensive income:
Net income		—		—		894		—			—			—			—			894
Change in net unrealized loss on securities available for sale, net of tax and reclassification adjustment		—		—		—		(240	)		—			—			—			(240	)
Total comprehensive income																				654
Common stock held by ESOP released and committed to be released (4,830 shares)		—		15		—		—			—			48			—			63
Amortization of RRP stock (6,453 shares)		—		—		—		—			—			—			46			46
Balance at March 31, 2002	$	17	$	7,424	$	13,482	($	754	)	($	560	)	($	324	)	($	156	)	$	19,129

See accompanying notes to consolidated financial statements.

4

SERVICE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Dollars in thousands)

	Nine Months Ended March 31,
	2003			2002
Cash flows from operating activities:
Net income	$	1,153		$	894
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		420			225
Loss (gain) on securities available for sale, net		21			(25	)
Net amortization of securities		262			43
Depreciation and amortization expense		378			567
Decrease in accrued interest receivable		359			76
Net amortization of deferred loan costs and premiums		320			76
Bank-owned life insurance income		(109	)		(90	)
Deferred tax (benefit) provision		(119	)		84
Other, net		(637	)		144
Net cash provided by operating activities		2,048			1,994
Cash flows from investing activities:
Activity in securities available for sale:
Sales		8,665			22,621
Maturities, prepayments and calls		15,848			22,026
Purchases		(14,273	)		(60,291	)
Activity in securities held to maturity:
Maturities, prepayments and calls		12,340			9,778
Purchases		—			(10,754	)
Net increase in loans, excluding loan purchases		(17,529	)		(8,725	)
Purchases of loans		(12,307	)		(14,124	)
Purchases of banking premises and equipment		(169	)		(298	)
Purchases of bank-owned life insurance		(700	)		(432	)
Purchases of Federal Home Loan Bank stock		—			(335	)
Net cash used by investing activities		(8,125	)		(40,534	)
Cash flows from financing activities:
Net increase in deposits		3,776			22,144
Proceeds from Federal Home Loan Bank advances		5,174			7,012
Repayment of Federal Home Loan Bank advances		(4,563	)		(346	)
Repayment of ESOP loan		48			63
Net cash provided by financing activities		4,435			28,873
Net change in cash and cash equivalents		(1,642	)		(9,667	)
Cash and cash equivalents at beginning of period		23,725			30,651
Cash and cash equivalents at end of period	$	22,083		$	20,984
Supplementary information:
Interest paid on deposits	$	3,234		$	4,220
Interest paid on Federal Home Loan Bank advances		1,373			1,399
Income taxes paid		581			528
Net change in unsettled securities available for sale transactions		1,424			1,000

See accompanying notes to consolidated financial statements.

5

SERVICE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(1) Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements include the accounts of Service Bancorp, Inc. (the “Company”) and its wholly-owned subsidiary, Strata Bank (the “Bank”), a Massachusetts chartered savings bank, and the Bank’s wholly-owned subsidiaries, Medway Security Corporation and Franklin Village Security Corporation, both of which engage solely in the purchase and sale of securities. All significant intercompany balances and transactions have been eliminated in consolidation.

These unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions for Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation have been included. Interim results are not necessarily indicative of the results that may be expected for the entire year. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been omitted. A summary of significant accounting policies followed by the Company is set forth in the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2002.

(2) Earnings per Share

Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects additional common shares (common stock equivalents) that would have been outstanding if dilutive potential shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options and unvested stock granted under the Recognition and Retention Plan (“RRP”) and are determined using the treasury stock method. Assumed conversion of the outstanding dilutive stock options and unvested RRP stock would increase the shares outstanding, but would not require an adjustment to income as a result of the conversion.

(3) Commitments

At March 31, 2003, the Company had outstanding commitments to originate loans of $11.2 million. Unused lines of credit and open commitments available to customers at March 31, 2003 amounted to $27.0 million, of which $11.5 million were home equity lines of credit.

6

SERVICE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

(4) Securities

The following table sets forth the Company’s securities at the dates indicated.

	March 31, 2003				June 30, 2002
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Securities available for sale:
Federal agency securities	$	14,551	$	14,934	$	22,817	$	23,169
Federal agency mortgage-backed securities		8,401		8,640		7,678		7,677
Other debt securities		22,319		23,637		23,668		23,613
Total debt securities		45,271		47,211		54,163		54,459
Marketable equity securities		1,047		729		1,117		851
Total securities available for sale	$	46,318	$	47,940	$	55,280	$	55,310
Securities held to maturity:
Federal agency mortgage-backed securities	$	17,150	$	17,788	$	29,638	$	30,086
Other debt securities		4,744		5,150		4,724		5,074
Total securities held to maturity	$	21,894	$	22,938	$	34,362	$	35,160

(5) Loans

The following table presents data relating to the composition of the Company’s loan portfolio by type of loan at the dates indicated.

	March 31, 2003				June 30, 2002
	Amount			Percent	Amount			Percent
	(Dollars in thousands)
Real estate loans:
Residential	$	99,187		54.86%	$	83,522		55.13%
Commercial and multi-family		43,911		24.29%		37,700		24.88%
Construction		9,799		5.42%		7,513		4.96%
Total real estate loans		152,897		84.57%		128,735		84.97%
Commercial loans		13,092		7.24%		10,855		7.16%
Consumer loans:
Home equity and second mortgages		13,117		7.25%		10,047		6.63%
Passbook secured		534		0.30%		528		0.35%
Other		1,161		0.64%		1,354		0.89%
Total consumer loans		14,812		8.19%		11,929		7.87%
Total gross loans		180,801		100.00%		151,519		100.00%
Net deferred loan costs and premiums		805				586
Allowance for loan losses		(1,663	)			(1,258	)
Total loans, net	$	179,943			$	150,847

7

SERVICE BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (concluded)

(6) Deposits and Federal Home Loan Bank Advances

The following tables indicate types and balances in deposit accounts at the dates indicated.

	March 31, 2003				June 30, 2002
	Amount		Percent		Amount		Percent
	(Dollars in thousands)
Demand	$	29,794	13.30	%	$	27,187	12.35	%
NOW		32,489	14.51	%		31,128	14.14	%
Money market deposits		27,830	12.43	%		22,009	9.99	%
Regular and other savings		43,616	19.47	%		40,721	18.49	%
Total non-certificate accounts		133,729	59.71	%		121,045	54.97	%
Term certificates of $100,000 or greater		26,882	12.00	%		32,785	14.89	%
Term certificates less than $100,000		63,358	28.29	%		66,363	30.14	%
Total certificate accounts		90,240	40.29	%		99,148	45.03	%
Total deposits	$	223,969	100.00	%	$	220,193	100.00	%

The following is a list of advances from the Federal Home Loan Bank of Boston by the earlier of the maturity date or the date callable by the FHLB.

	March 31, 2003				June 30, 2002
	Amount		Percent		Amount		Percent
	(Dollars in thousands)
Less than one year	$	30,669	86.62	%	$	28,550	82.05	%
One to three years		4,000	11.30	%		5,500	15.81	%
Greater than three years		736	2.08	%		744	2.14	%
Total borrowed funds	$	35,405	100.00	%	$	34,794	100.00	%

8

(7) Stock Compensation Plan

At March 31, 2003, the Company had a stock option plan, which is described more fully in Note 11 of the Company’s annual report on Form 10-KSB for the year ended June 30, 2002. The Company measures compensation cost for its stock option plan using the intrinsic value based method of accounting, whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. Stock options issued under the Company’s stock option plan have no intrinsic value at the grant date and no compensation cost is recognized for them.

Had compensation cost for the Company stock option plan been determined using the fair value method based on the Black-Scholes option-pricing model, the Company’s net income and earnings per share for the three and nine month periods ended March 31, 2003 and 2002, would have been reduced to the following pro forma amounts:

	Three Months Ended March 31,				Nine Months Ended March 31,
	2003		2002		2003		2002
	(Dollars in thousands, except per share amounts)
Net income, as reported	$	423	$	198	$	1,153	$	894
Deduct: Total stock-based compensation expense determined under the fair value method, net of taxes		10		6		29		19
Pro forma net income	$	413	$	192	$	1,124	$	875
Earnings per share (basic):
As reported	$	0.26	$	0.13	$	0.72	$	0.57
Pro forma	$	0.26	$	0.12	$	0.70	$	0.55
Earnings per share (diluted):
As reported	$	0.26	$	0.12	$	0.71	$	0.56
Pro forma	$	0.25	$	0.12	$	0.69	$	0.54

9

ITEM 2. Management’s Discussion and Analysis or Plan of Operation

General

This quarterly report on Form 10-QSB contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believe”, “anticipates”, “plans”, “expects” and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company’s actual results to differ materially from those contemplated by such forward-looking statements. These important factors include, without limitation, competitive conditions in the Bank’s marketplace generally, the Bank’s continued ability to originate quality loans, fluctuation in interest rates including fluctuations which may effect the Bank’s interest rate spread, real estate conditions in the Bank’s lending areas, changes in the securities or financial markets, changes in loan defaults and charge-off rates, general and local economic conditions, the Bank’s continued ability to attract and retain deposits, the Company’s ability to control costs, new accounting pronouncements, and changing regulatory requirements. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Comparison of Financial Condition at March 31, 2003 and June 30, 2002

Total assets were $283.0 million at March 31, 2003, an increase of $5.9 million, or 2.1%, from $277.1 million at June 30, 2002. The increase was primarily attributable to an increase of $29.1 million, or 19.3%, in net loans since June 30, 2002. This increase was partially offset by a $19.8 million, or 22.1%, decrease in investment securities. Total deposits increased $3.8 million, or 1.7%, since June 30, 2002, which when combined with the reduction in investment securities provided the funding for the loan growth.

Total investment securities were $69.8 million at March 31, 2003, a decrease of $19.8 million since June 30, 2002 due mostly to amortization on mortgage-backed securities and calls on federal agency securities exceeding new purchases. Investment securities have been a less attractive investment due to the current low interest rate environment and its effect on securities yield. The Company’s continued objective is to prudently increase its loan portfolio, primarily in residential and commercial loans.

Residential real estate loans are originated through the residential mortgage division of the Bank, the Strata Mortgage Center. In addition, the Bank, through Strata Mortgage Center has a contractual arrangement with Marathon Mortgage Company, an independent mortgage loan origination company, which supplements the Bank’s residential mortgage loan origination business. For the nine-month period ended March 31, 2003, the Strata Mortgage Center originated $36.0 million in residential loans. In addition, the Bank purchased $12.3 million of residential loans directly from Marathon Mortgage Company over the same timeframe. With this activity, the Bank’s residential mortgages net of principal payments, increased $15.7 million, or 18.8%, since June 30, 2002. The net increase in residential loans for the quarter ended March 31, 2003 was $1.5 million, which was lower than the increase in the quarter ended December 31, 2002 of $4.1 million and the quarter ended September 30, 2002 of $10.1 million. The decrease in quarterly net growth reflects an increase in refinance and payoff activity in the Bank’s portfolio as a result of the historically low market interest rates for residential mortgage loans. Net deferred loan costs and premiums increased since June 30, 2002 by $219,000, largely due to costs associated with residential loan originations and purchases through Marathon Mortgage Company.

Commercial loans continue to be an area of strong growth for the Bank due to additions to the staff of commercial lenders and healthy demand for commercial loans in the Bank’s market area. The Bank originated $33.1 million in commercial, commercial real estate and construction loans for the nine-month period ended March 31, 2003, which was an $11.1 million increase over the same nine-month period ending March 31, 2002. The total commercial and commercial real estate loan portfolios increased by $10.7 million, or 19.1%, since June 30, 2002. In addition to these loan originations, the Bank emphasizes cross selling of commercial checking and money market deposits from new commercial customers. Since June 30, 2002, total commercial deposits have increased by $4.3 million, or 16.7%, and as of March 31, 2003 represented 13.3% of total deposits.

10

Home equity and second mortgage loans increased 30.6% since June 30, 2002 to $13.1 million at March 31, 2003. The strong growth was due to expansion of the product offerings for new home equity loans and aggressive promotions for these products.

As of March 31, 2003, the Bank had $14.3 million invested in overnight funds, representing 5.1% of total assets, which was a reduction of $1.3 million, since June 30, 2002. This level of overnight funds is maintained for liquidity purposes, particularly at end of month periods due to the volatility in certain of the Bank’s deposits. In addition, excess funds are expected to be utilized to fund the origination of new loans.

Total deposits increased $3.8 million since June 30, 2002 to $224.0 million at March 31, 2003. Core deposits or non-certificate deposits increased $12.7 million, or 10.5%, which provided the Bank the opportunity to reduce higher cost certificate of deposits by $8.9 million, or 9.0%. Most of the decrease in certificate of deposits, approximately $5.9 million, occurred in certificates of deposits with balances in excess of $100,000 which typically are a more volatile funding source compared with certificates under $100,000. Certificates with maturity terms of 18 months and longer decreased $12.6 million since June 30, 2002, and represented 47.0% of the Bank’s total term certificates at March 31, 2003 compared with 55.3% at June 30, 2002.

Stockholders’ equity increased from $20.4 million, or 7.4% of total assets at June 30, 2002 to $22.7 million, or 8.0% of total assets at March 31, 2003. The increase in stockholders’ equity resulted primarily from the Company’s retained earnings and the increase in accumulated other comprehensive income related to unrealized gains on securities available for sale since the beginning of the fiscal year.

Non-Performing Assets and Allowance for Loan Losses

The following indicates the non-performing assets at the dates indicated.

	March 31, 2003			June 30, 2002
	(Dollars in thousands)
Non-accrual loans:
Residential real estate loans	$	—		$	215
Commercial and multi-family real estate		198			169
Consumer loans		2			—
Commercial		107			—
Total		307			384
Accruing loans more than 90 days past due:
Residential real estate loans		—			198
Consumer		—			71
Total		—			269
Foreclosed assets		—			—
Total non-performing assets	$	307		$	653
Total as a percentage of total assets		0.11	%		0.24	%

For the three months ended March 31, 2003 the Bank’s provision for loan losses was $150,000 compared with $90,000 for the same period last year. For the nine months ended March 31, 2003, the Bank’s provision for loan losses was $420,000 compared with $225,000 for the same period last year. The increases were consistent with the growth in loans, including the commercial loan portfolios, which generally present a greater risk of loss than residential loans. In addition, during the second quarter of this fiscal year the Company after considering current economic conditions and risk factors in its loan portfolio, increased the percentage of allowance for loan losses required to be allocated to certain categories of loans. The allowance for loan losses as a percentage of loans was

11

.92% at March 31, 2003, compared with .83% at June 30, 2002. During the nine months ended March 31, 2003, recoveries from previously charged-off loans of $26,000 were received and $41,000 were charged-off.

While management believes that, based on information currently available, the allowance for loan losses is sufficient to cover losses in the Bank’s loan portfolio at this time, no assurances can be given that the level of the allowance will be sufficient to cover loan losses or that future adjustments to the allowance will not be necessary if economic and/or other conditions differ substantially from the economic and other conditions considered by management in evaluating the adequacy of the current level of the allowance.

Comparison of Operating Results for the Three and Nine Months Ended March 31, 2003 and 2002

General

Operating results are primarily dependent on the Bank’s net interest income, which is the difference between the interest earned on the Bank’s earning assets (short-term investments, loans, and securities) and the interest paid on deposits and borrowings. Operating results are also affected by provisions for loan losses, the level of income from non-interest sources such as fees and sales of securities and other assets, operating expenses and income taxes. Operating results are also significantly affected by general economic conditions, particularly changes in interest rates, as well as government policies and actions of regulatory authorities.

Net income for the three months ended March 31, 2003 was $423,000 compared with $198,000 for the three months ended March 31, 2002, an increase of $225,000, or 113.6%. Net income for the nine months ended March 31, 2003 was $1,153,000 compared with $894,000 for the same period last year, an increase of $259,000, or 29.0%. This year’s results included a net gain on securities of $6,000 and net loss on securities of $21,000 for the three and nine month periods, respectively compared with a net loss on securities of $257,000 and net gain on securities of $25,000, respectively, for the same periods last year. Net interest income grew in both periods. For the three-month period ended March 31, 2003 net interest income was $172,000, or 7.6% higher while net interest income for the nine-month period increased $626,000, or 9.6%. The three and nine month periods ended March 31, 2003 also included loan loss provisions of $150,000 and $420,000, respectively, compared with $90,000 and $225,000, respectively, last year. Noninterest expenses were higher by $33,000 and $21,000 for the three and nine-month periods, respectively, compared to the same periods last year. Earnings per share data for the three months ended March 31, 2003 were $0.26 per share (basic and diluted) compared with $0.13 per share (basic) and $0.12 per share (diluted) for the three months ended March 31, 2002. Earnings per share for the nine months ended March 31, 2003 were $0.72 per share (basic) and $0.71 per share (diluted), compared with $0.57 per share (basic) and $0.56 per share (diluted) for the same nine-month period last year.

Interest and Dividend Income

Total interest and dividend income for the three months ended March 31, 2003 was $3.8 million, $242,000 less than the same quarter a year ago. Total interest and dividend income for the nine months ended March 31, 2003 was $11.7 million, $389,000 less than the same nine-month period a year ago. The effect of a reduction in yield on earning assets of 73 basis points this quarter to 5.84% compared to the same quarter a year ago, was only partially offset by an increase in average earning assets this quarter of $14.0 million. Yield on earning assets for the nine months ended March 31, 2003 decreased 75 basis points to 6.04% compared to last year, while average earning assets increased $20.9 million. Average net loans for the quarter increased $34.0 million, or 24.1%, while total loan yield decreased by 97 basis points to 6.23%. Average net loans for the first nine months of this year increased $33.5 million, or 25.3%, while total loan yield decreased by 104 basis points to 6.55%. This year’s lower rate environment reduced the index rates used to set interest rates for loan re-pricing and for new loans which resulted in a lower loan yield between periods. Contributing to the amount of new loan volume priced at this year’s lower rates was an increase level of residential loan refinance activity in the Bank’s existing portfolio. The decrease in yield on loans was also attributable to an increase in amortization expense on deferred loan costs and premiums. Such expense increased $71,000 in the quarter-to-quarter comparison and $244,000 in the nine-month comparison largely as a result of increased loan activities, particularly in residential mortgage loans.

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Average short-term investments this quarter decreased $1.0 million, or 11.0%, and experienced a reduction in yield of 60 basis points to 1.18%. Average short-term investments for the first nine months of this year decreased $3.5 million, or 27.5%, and experienced a sharp reduction in yield of 121 basis points to 1.46%. Yields on the securities portfolio were also lower and declined by 74 and 67 basis points for the three and nine month periods, respectively, to 5.43% and 5.52%, respectively, this year. Certain investments within the Bank’s securities portfolio that matured, were sold or called, were reinvested in lower yielding investments. The average securities portfolio balance decreased $19.0 million and $9.2 million for the three and nine month periods, respectively, compared with the same periods last year, contributing to the lower interest income.

Interest Expense

Interest expense on deposits decreased $382,000, or 30.1%, from $1.3 million for the three months ended March 31, 2002, to $887,000 for the three months ended March 31, 2003. Interest expense on deposits decreased $967,000, or 23.0%, from $4.2 million for the nine months ended March 31, 2002, to $3.2 million for the nine months ended March 31, 2003. These decreases were mostly attributable to a 97 and 95 basis point reduction in cost of deposits for the three and nine month period, respectively, and to increases of $16.1 million and $15.1 million, respectively, in average lower-cost non-certificate deposit balances compared to last year. Over these same timeframes, the higher-cost term certificate balances decreased by $6.4 million and increased by $1.6 million, respectively.

The average balance of FHLB borrowings was $34.5 million during the three months ended March 31, 2003, a decrease of $2.4 million, or 6.6% from the three months ended March 31, 2002. The average balance of FHLB borrowings was $34.4 million during the nine months ended March 31, 2003, a decrease of $347,000, or 1.0% from the nine months ended March 31, 2002. Over the past year the Bank’s deposit growth and reduction in investments has provided most of the funding for the growth in loans, as opposed to additional borrowings. The cost of average borrowings increased from 5.25% to 5.26% in the quarterly comparison and decreased from 5.40% to 5.27% in the nine-month comparison.

Net Interest Income

Net interest income for the three months ended March 31, 2003 increased $172,000, or 7.6%, over the same period last year. Net interest income for the nine months ended March 31, 2003 increased $626,000, or 9.6%, over the same period last year. The increases were mostly due to an increase in average earning assets of $14.0 million and $20.9 million for the three and nine month periods, respectively, over the same periods last year. The Bank’s interest rate spread (the difference between yields earned on earning assets and rates paid on deposits and borrowings) increased 13 basis points to 3.42% in the quarterly comparison and 11 basis points to 3.32% in the nine-month comparison to last year. The Bank’s reductions in rates offered on new and maturing certificates of deposit and reduced rates on savings and money market products were successful in keeping pace with the decrease in yield on earning assets. The net interest margin (net interest income divided by average earning assets) increased from 3.68% to 3.77% for the quarter ended March 31, 2003 and increased from 3.65% to 3.69% for the nine months ended March 31, 2003 over the same time periods last year.

While core-based deposit growth will be emphasized, the Bank may have to rely more on higher-cost retail certificates rather than lower-cost core deposits, or rely on borrowings from the FHLB for future funding requirements. A decrease in market interest rates and continued competition from other financial institutions together with the aforementioned growth in retail certificates could cause future tightening in the interest rate spread.

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The interest rate spread and margin for the periods indicated are as follows:

	Three Months Ended March 31,		Nine Months Ended March 31,
	2003	2002	2003	2002
Weighted average yield earned on:
Short-term investments	1.18%	1.78%	1.46%	2.67%
Securities	5.43%	6.17%	5.52%	6.19%
Total loans, net	6.23%	7.20%	6.55%	7.59%
All interest-earning assets	5.84%	6.57%	6.04%	6.79%
Weighted average rate paid on:
Deposits	1.90%	2.87%	2.26%	3.21%
Borrowed funds	5.26%	5.25%	5.27%	5.40%
All interest-bearing liabilities	2.42%	3.28%	2.72%	3.58%
Weighted average rate spread	3.42%	3.29%	3.32%	3.21%
Net interest margin	3.77%	3.68%	3.69%	3.65%

Noninterest Income

Total noninterest income increased $257,000 from $91,000 for the three months ended March 31, 2002 to $348,000 for the same period in 2003. The increase was largely the result of net securities gains this quarter of $6,000 which included gains from the sale of securities of $48,000 net of impairment write-downs of $42,000, while net securities losses were $257,000 for the same quarter last year due to write-downs of $351,000 net of gains from the sale of securities of $94,000. For the nine months ended March 31, 2003 total noninterest income decreased $55,000 to $1.0 million compared to the same period last year. This decrease was principally due to a net loss on securities of $21,000 due to impairment write-downs of $118,000 net of gains from the sale of securities of $97,000 this year while net securities gains were $25,000 for the same nine month period last year due to $376,000 in net gains from the sale of securities net of $351,000 in write-downs. The Company reviews its available for sale investment securities with unrealized depreciation to assess whether a decline in fair value is temporary or other-than-temporary. The Company judges whether the decline in value is from company-specific events, industry developments, general economic conditions or other reasons. Once the estimated reasons for the decline are identified, further judgments are required as to whether those conditions are likely to reverse and, if so, whether that reversal is likely to result in a recovery of the fair value of the investment in the near term. As part of the Company’s quarterly review of the investment securities portfolio, it was determined that the decline in the fair value of certain equity investment securities was other-than-temporary and required impairment write-downs for the quarter and nine months ended March 31, 2003 and the comparable periods last year.

Noninterest Expense

Total noninterest expense increased $33,000, or less than 2%, to $2.0 million for the three months ended March 31, 2003 compared with the same period last year. For the nine months ended March 31, 2003, total noninterest expense increased $21,000 from the same period last year. The 2002 nine-month period included $150,000 in charges related to the cancellation of a property lease. Excluding these charges, noninterest expense increased $171,000, or only 2.9%, over the same nine-month period last year. Salary and benefits increased $34,000, or 3.5%, and $160,000, or 5.5%, for the quarter and first nine months of this year compared with last year, respectively, as the result of the growth in operations and enhancements in the employee benefit plans as well as increases in benefit costs such as health insurance. Occupancy and equipment expenses decreased $38,000, or 9.2%, and $105,000, or 8.6%, respectively, due mostly to lower depreciation expense on fixed assets. The decrease in depreciation was the result of older capital assets reaching their depreciation lives and the Company’s recent successful efforts in limiting fixed asset expenditures. Data processing fees increased $14,000, or 8.3%, and $36,000, or 7.3%, for the three and nine

14

month periods, respectively, consistent with the growth in business. Professional fees increased $18,000 this quarter reflecting increased legal fees related to new and changing regulations and higher fees paid to new outsourced professional service providers such as internal audit and credit review. In the nine-month comparison professional fees decreased $14,000 over last year, which included $40,000 in charges related to the aforementioned lease cancellation. Advertising expenses were consistent with the same quarter last year at approximately $50,000, in the nine-month period advertising expenses were $36,000 higher due to the additional product promotions this year.

Other operating expenses for the quarter ended March 31, 2003 were $296,000, consistent with the same quarter last year, while other operating expenses for the nine-month period decreased $92,000 mostly as the result of $110,000 in charges last year for the aforementioned lease cancellation. The operating efficiency ratio (total noninterest expense divided by the sum of net interest income plus total noninterest income excluding securities gains and losses) for the three months ended March 31, 2003, was 72.0%, which was a reduction from 75.3% for the three months ended March 31, 2002. The operating efficiency ratio for the nine months ended March 31, 2003, was 73.5%, compared with 79.2% for the nine months ended March 31, 2002.

Income Taxes

Income tax expense increased by $111,000, or 111.0%, for three months ended March 31, 2003 and increased $96,000, or 20.3% for the nine months ended March 31, 2003 due mostly to this year’s higher level of pre-tax income. The effective income tax rates were 33.3% and 33.6% for the three months ended March 31, 2003 and 2002, respectively, and 33.0% and 34.6% for the nine months ended March 31, 2003 and 2002, respectively. The effective tax rates are below the statutory combined state and federal income tax rates because the Bank’s two securities corporations take advantage of the lower state tax rate afforded to these types of entities and additional tax preference items that are nontaxable.

Asset/Liability Management

A principal operating objective of the Bank is to produce stable earnings by achieving a favorable interest rate spread that can be sustained during fluctuations in prevailing interest rates. Since the Bank’s principal interest-earning assets generally have longer terms to maturity than its primary source of funds, i.e., deposit liabilities, increases in general interest rates will generally result in an increase in the Bank’s cost of funds before the yield on its asset portfolio adjusts upward. Financial institutions have generally sought to reduce their exposure to adverse changes in interest rates by attempting to achieve a closer match between the repricing periods of interest rate sensitive assets and liabilities. Such matching, however, is carefully monitored so as not to sacrifice net interest margin performance for the perfect matching of these interest rate sensitive instruments. The Bank has established an Asset/Liability Management Committee (“ALCO”) made up of the chief executive officer, the chief financial officer, the senior loan officer, the senior vice president of bank administration and others to assess the asset/liability mix and recommend strategies that will enhance income while managing the Bank’s vulnerability to changes in interest rate. This committee meets regularly to discuss interest rate conditions and potential product lines that would enhance the Bank’s income performance.

Certain strategies have been implemented to improve the match between interest rate sensitive assets and liabilities. These strategies include, but are not limited to: daily monitoring of the Bank’s cash requirements, originating adjustable and fixed rate mortgage loans, both residential and commercial, for the Bank’s own portfolio, managing the cost and structure of deposits, and generally using the matched borrowings to fund specific purchases of loan packages and large loan originations. Occasionally, management may choose to deviate from specific matching of maturities of assets and liabilities if an attractive opportunity to enhance yield becomes available.

Quarterly, ALCO modeling is performed with the assistance of an outside advisor which projects the Bank’s financial performance over the next twenty four months using loan and deposit projections, projections of changes in interest rates, and anticipated changes in other income and operating expenses to reveal the full impact of the Bank’s operating strategies on financial performance. The results of the ALCO process are reported to the Board at least on a quarterly basis.

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Liquidity and Capital Resources

The Bank’s primary sources of funds consist of deposits, borrowings, repayment and prepayment of loans, sales of loans and securities, maturities and early calls of securities, and funds provided from operations. While scheduled repayments of loans and maturities of securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by the general level of interest rates, economic conditions, and competition. The Bank uses its liquidity resources primarily to fund existing and future loan commitments, to fund net deposit outflows, to invest in other interest-earning assets, to maintain liquidity, and to pay operating expenses.

From time to time, the Bank utilizes advances from the FHLB primarily in connection with its management of the interest rate sensitivity of its assets and liabilities. Total advances outstanding at March 31, 2003 amounted to $35.4 million. The Bank’s ability to borrow from the FHLB is dependent upon the amount and type of collateral the Bank has to secure the loans. Such collateral consists of, but is not limited to, one-to-four family owner-occupied residential property. As of March 31, 2003, the Bank’s total borrowing capacity through the Federal Home Loan Bank was $73.9 million. The Bank has additional capacity to borrow through such instruments as repurchase agreements if the situation arises utilizing federal agency obligations and mortgage-backed securities as collateral.

A major portion of the Bank’s liquidity consists of cash and cash equivalents, short-term investments, U.S. Government and federal agency obligations, mortgage-backed securities, and other debt securities. The level of these assets is dependent upon the Bank’s operating, lending, and financing activities during any given period.

At March 31, 2003, the Bank had $11.2 million of outstanding commitments to originate loans and unused lines of credit and open commitments available to customers totaling $27.0 million. The Bank anticipates that it will have sufficient funds available to meet these commitments. Certificates of deposit, which are scheduled to mature in one year or less, totaled $60.1 million at March 31, 2003. Based upon historical experience, management believes that a significant portion of such deposits will remain with the Bank.

At March 31, 2003, the Company and the Bank continued to exceed all regulatory capital requirements.

On February 25, 2003, the Board of Directors of the Company approved a Stock Repurchase Plan under which the Company is authorized to acquire up to 4% of the outstanding common stock, or up to approximately 65,925 shares of the issued and outstanding shares of its common stock in the open market or in private transactions. Under the plan, shares may be repurchased from time to time and in such amounts as market conditions warrant, and subject to regulatory considerations. The repurchased shares are expected to be used by the Company for general corporate purposes. As of March 31, 2003, no shares of the Company’s common stock had been repurchased under the plan.

Recent Accounting Pronouncements

In October 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 147, “Acquisitions of Certain Financial Institutions.” This Statement amends SFAS No. 72, SFAS No. 144 and FASB Interpretation No. 9, and SFAS No. 147 and provides guidance on the application of the purchase method to acquisitions of financial institutions and includes guidance on the recognition and measurement of intangible assets associated with such acquisitions. This Statement is generally effective for acquisitions occurring on or after October 1, 2002. This Statement did not have any effect on the Company’s consolidated financial statements.

In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.” This Statement amends SFAS No. 123 “Accounting for Stock-Based Compensation” and provides three alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123. The transition guidance and annual disclosure provisions of this Statement are effective for fiscal years ending after December 15, 2002 and the interim period disclosure provisions are effective for interim periods beginning after December 31, 2002. Other than expanding the required disclosures with these interim financial statements, this Statement did not have any effect on the Company’s consolidated financial statements.

On April 30, 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for

16

hedging activities under SFAS No. 133. This Statement is effective for contracts entered into or modified after June 30, 2003, except in certain circumstances, and for hedging relationships designated after June 30, 2003. This Statement is not expected to have a material effect on the Company’s consolidated financial statements.

ITEM 3. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

As required by new Rule 13a-15 under the Securities Exchange Act of 1934, within the 90 days prior to the date of this report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b) Change in internal controls.

None.

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PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which, in the aggregate, involved amounts believed by management to be immaterial to the financial condition and operations of the Company.

ITEM 2. Changes in Securities

Not applicable.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.1 Supplemental Retirement Agreement between Pamela J. Montpelier and the Company, Strata Bank and Service Bancorp, MHC dated March 18, 2003.

99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

None.

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SERVICE BANCORP, INC.
Date:        May 13, 2003	By:	/s/    Pamela J. Montpelier
		Pamela J. Montpelier
		President and Chief Executive Officer
Date:        May 13, 2003	By:	/s/    Dana S. Philbrook
		Dana S. Philbrook
		Chief Financial Officer

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CERTIFICATIONS

I, Pamela J. Montpelier, hereby certify that:

(1) I have reviewed this quarterly report on Form 10-QSB of Service Bancorp, Inc.;

(2) Based on my knowledge, this quarterly 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 quarterly report;

(3) Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14(c) and 15d-14(c)) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

(5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the board of directors (or persons fulfilling the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

(6) The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ Pamela J. Montpelier

Pamela J. Montpelier

Chief Executive Officer

May 13, 2003

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CERTIFICATIONS

I, Dana S. Philbrook, hereby certify that:

(1) I have reviewed this quarterly report on Form 10-QSB of Service Bancorp, Inc.;

(2) Based on my knowledge, this quarterly 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 quarterly report;

(3) Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14(c) and 15d-14(c)) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

(5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the board of directors (or persons fulfilling the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

(6) The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ Dana S. Philbrook

Dana S. Philbrook

Chief Financial Officer

May 13, 2003

21

EX-10.1

EXHIBIT 10.1

SUPPLEMENTAL RETIREMENT AGREEMENT

THIS AGREEMENT is made and entered into as of the 18th day of March, 2003, by and between Strata Bank, a bank chartered under the laws of Massachusetts with its headquarters located in Medway, Massachusetts (the “Bank”), Service Bancorp, MHC, a corporation chartered under the laws of Massachusetts (“Service Bancorp, MHC” or “MHC”), Service Bancorp, Inc., a corporation chartered under the laws of Massachusetts (the “Company”) and Pamela J. Montpelier (the “Executive”).

W I T N E S S E T H:

WHEREAS, the Executive is employed by MHC, the Company and the Bank in senior executive capacities, respectively;

WHEREAS, because of the Executive’s experience, knowledge of the affairs of the Company, and reputation and contacts in the Company’s industry, the Company deems the Executive’s continued employment with the Company important for its future growth;

WHEREAS, it is the desire of the Company and in its best interest that the Executive’s services be retained; and

WHEREAS, in order to induce the Executive to continue in the employ of the Company, the Company, MHC and the Bank have entered into this Agreement to provide her or her beneficiaries with certain benefits in accordance with the terms and conditions hereinafter set forth;

NOW, THEREFORE, in consideration of services performed in the past and to be performed in the future as well as of the mutual promises and covenants herein contained, it is agreed as follows:

ARTICLE I—DEFINITIONS

1.01    “Accrued Benefits” shall mean the Executive’s Normal Retirement Benefit calculated on the basis of the Benefit Computation Base as of the date on which the Executive’s employment with the Company terminates, multiplied by a fraction, the numerator of which is the actual number of full years (not to exceed 15) between October 24, 2000, and the date on which Executive’s employment with the Company terminates, and the denominator of which is 15.

1.02    “Actuarial Equivalent” shall mean a benefit of equivalent current value to the benefit which could otherwise have been provided to the Executive, computed on the basis of an annual interest rate equal to 100% of the appropriate (i.e., short-term, mid-term or long-term, as the case may be) Applicable Federal Rate (as described in Section 1274 of the Internal Revenue

Code of 1986, as amended (the “Code”)) (the “AFR”) in effect for the month during which any such lump sum payment is to be made. If an Actuarial Equivalent is paid in the discretion of the Committee or the Board of Directors of the Company over a period of time not to exceed 60 months, such payments shall include interest at the appropriate AFR.

1.03    “Benefit Computation Base” shall mean the Executive’s average base salary (without bonus or profit sharing) from the Company over the 12 consecutive complete calendar months during which the Executive’s base salary is the highest, determined without regard for reductions pursuant to Sections 125, 132(f)(4) or 401(k) of the Code.

1.04    “Board of Directors” shall mean the Board of Directors of the Company, the Board of Directors of the Bank, and the Board of Trustees of MHC, as applicable.

1.05    “Cause” shall mean:

(a)    dishonest statements or acts of the Executive concerning material matters relating to the Company or any affiliate of the Company;

(b)    the commission by or indictment of the Executive for (i) a felony or (ii) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud (“indictment,” for these purposes, meaning an indictment, probable cause hearing or any other procedure pursuant to which an initial determination of probable or reasonable cause with respect to such offense is made);

(c)    failure to perform to the reasonable satisfaction of the Board of Directors a substantial portion of the Executive’s duties and responsibilities assigned or delegated by the Board of Directors, which failure continues, in the reasonable judgment of the Board of Directors, after written notice given to the Executive by the Board of Directors;

(d)    gross negligence, willful misconduct or insubordination of the Executive with respect to the Company or any affiliate of the Company; or

(e)    material breach by the Executive of any of the Executive’s obligations under this Agreement or under any Employment Agreement in effect between the Executive and the Company.

1.06    “Change in Control” shall mean the occurrence of one or more of the following events:

(a)    following any conversion of Service Bancorp, MHC from mutual to stock form, 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”)) becomes a “beneficial owner” (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) (other than Service Bancorp, MHC, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company, in substantially the same proportions as their ownership of stock of Service Bancorp, MHC), directly or indirectly, of securities of Service Bancorp, MHC, representing fifty percent

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(50%) or more of the combined voting power of any of Service Bancorp, MHC’s then outstanding securities; or

(b)    any “person” (as hereinabove defined) becomes a “beneficial owner” (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) (other than Service Bancorp, MHC, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or the Bank, or any corporation owned, directly or indirectly, by the stockholders of the Company, in substantially the same proportions as their ownership of stock of the Company ), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities; or

(c)    persons who, as of the Effective Date, constituted the Company’s, the Bank’s or MHC’s Board of Directors (the “Incumbent Directors”) cease for any reason including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board of Directors of such entity, provided that any person becoming a director of the Company, the Bank, or MHC, as applicable, subsequent to the Effective Date shall be considered an Incumbent Director if such person’s election was approved by or such person was nominated for election by either (i) a vote of at least a majority of the Incumbent Directors of such entity or (ii) a vote of at least a majority of the Incumbent Directors of such entity who are members of a nominating committee comprised, in the majority, of Incumbent Directors of such entity; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board of Directors of such entity or other actual or threatened solicitation of proxies or consents by or on behalf of a “person” other than the Incumbent Directors of such entity, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director of such entity; or

(d)    the stockholders of the Company approve a merger or consolidation of the Company with any other corporation or other entity, other than (i) a merger or consolidation which would result 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) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no “person” (as hereinabove defined) other than Service Bancorp, MHC acquires more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities; or

(e)    following any conversion of Service Bancorp, MHC from mutual to stock form, the stockholders of Service Bancorp, MHC approve a merger or consolidation of Service Bancorp, MHC with any other corporation or other entity, other than (i) a merger or consolidation which would result in the voting securities of Service Bancorp, MHC outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of Service Bancorp, MHC or such surviving entity outstanding immediately after such merger or consolidation or (ii) a merger or

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consolidation effected to implement a recapitalization of Service Bancorp, MHC (or similar transaction) in which no “person” (as hereinabove defined) acquires more than fifty percent (50%) of the combined voting power of MHC’s then outstanding securities; or

(f)    the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

(g)    the Board of Trustees or the Board of Corporators of MHC approves a merger or consolidation of MHC with any other corporation or other entity which would result in a Change in Control under Section 1.06(c) if the transaction were consummated

1.07    “Committee” shall mean the Compensation Committee of the Board of Directors of the Company.

1.08    “Effective Date” shall mean the date first written above.

1.09    “Good Reason” shall mean

(a)    a reduction in the Executive’s base salary (other than in connection with a salary reduction applicable to senior executives of the Company generally); or

(b)    the Company’s material breach of this Agreement or of any Employment Agreement in effect between the Executive and the Company and/or the Bank; or

(c)    the relocation of the offices at which the Executive is principally employed to a location more than 50 miles from such offices, which relocation is not approved by the Executive; or

(d)    a material and adverse change in the Executive’s position, responsibilities or duties.

1.10    “Normal Retirement Age” shall mean the date on which the Executive attains age 60.

1.11    “Normal Retirement Benefit” shall mean a benefit payable to the Executive for a term of 15 years (180 months) in an annual amount equal to A minus B, where “A” is 70% of the Executive’s Benefit Computation Base and “B” is the sum of (a) 50% of the annual primary social security retirement benefit payable (before earnings reduction) to the Executive starting at age 62 or which would be payable if applied for by the Executive and, (b) the total amounts contributed by the Company to the “company account” (e.g., matching contributions and profit sharing contributions) under the SBERA 401(k) Plan as adopted by the Bank (the “Bank 401(k) Plan”) on behalf of the Executive (such reduction to be calculated on the assumption that the Executive had selected a single life annuity form of payment thereunder). In the case of the termination of the Executive’s employment prior to the Executive reaching her Normal Retirement Age, in calculating the Executive’s Normal Retirement Benefit, the offset for annual primary social security benefit shall be calculated on the basis of the amount projected to be payable at age 62 assuming continued earnings by the Executive at the rate in effect at

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termination of employment until age 60, and the offset for Company contributions to the Bank 401(k) Plan at the rate in effect at termination of employment until age 60 on behalf of the Executive shall be calculated on the basis of the amount projected to be payable at age 60 assuming continued employment of the Executive until age 60 at the same level of compensation. The “Normal Retirement Benefit” shall be increased by 0.0194% for each month that the Executive is employed by the Company, MHC or the Bank after her Normal Retirement Age.

ARTICLE II—RETIREMENT BENEFITS

2.01    Retirement at or After Normal Retirement Age. If the Executive retires from the employ of the Company at or after attaining her Normal Retirement Age, she shall receive the Normal Retirement Benefit. The Normal Retirement Benefit shall be paid to the Executive in 180 substantially equal monthly payments unless the Executive requests and the Committee approves an Optional Benefit Form in accordance with Section 2.03 hereof. The Executive shall receive such Normal Retirement Benefit commencing on the first day of the month next following her actual retirement.

2.02    Extension of Benefits. If the Executive is entitled to receive a benefit hereunder, and following the commencement of benefit payments hereunder she dies before the date the final payment is to be made to the Executive hereunder (the “Final Payment Date”), then the remaining payments that would otherwise have been paid to the Executive hereunder on or before the Final Payment Date shall be paid to the Executive’s beneficiary or beneficiaries or to the Executive’s estate if she fails to designate a beneficiary.

2.03    Optional Forms of Benefits. In lieu of the 180-month installment form of payment, with the Committee’s approval in its sole discretion, the Executive may elect an Actuarial Equivalent to be paid in the form of a single lump sum payment, provided that such election shall become irrevocable two years prior to the date on which the Executive retires or otherwise terminates employment. The Committee, in its sole discretion, may elect to pay such Actuarial Equivalent in substantially equal monthly payments over a period not to exceed 60 months.

ARTICLE III—DEATH AND DISABILITY BENEFITS

3.01    Death Benefits. If the Executive dies prior to commencement of any payment of benefits hereunder, the Executive’s beneficiary or beneficiaries (or the Executive’s estate if she fails to designate a beneficiary) shall be entitled to receive the Accrued Benefit. Such benefit shall commence in substantially equal monthly payments for a period of 180 months on the first business day of the month following the month of Executive’s death. The Board of Directors of the Company, in its sole discretion, may elect at the time of such death to pay the Actuarial Equivalent of such Accrued Benefit in a single lump sum or over a period of time not to exceed 60 months.

3.02    Disability Benefits. In the event the Committee shall determine, prior to the Executive’s retirement or other termination of employment with the Company, on the basis of such medical evidence as it may require, that the Executive has become disabled, mentally or

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physically, such that she is prevented from performing all the essential functions of her duties with or without reasonable accommodation, the Executive shall be deemed to be continuously employed by the Company until her Normal Retirement Age, at which time she shall be entitled to a Normal Retirement Benefit pursuant to Section 2.01.

3.03    Return to Work. In the event the Executive returns to work with the Company after a disability described in Section 3.02, this Agreement shall continue in effect as though such disability had not occurred. Notwithstanding anything herein to the contrary, in the event after a disability described in Section 3.02 the Executive commences employment in a full-time business capacity other than with the Company or any of its affiliates, the Executive shall be deemed to have terminated employment with the Company in accordance with Section 4.02(a) as of the date of such commencement of employment.

ARTICLE IV—TERMINATION BENEFITS

4.01    Involuntary Termination.

(a)    Termination by Company for Cause. Notwithstanding anything herein to the contrary, if at any time the Company, MHC or the Bank terminates the Executive’s employment for Cause, the Executive shall not be entitled to receive any benefit hereunder and her Accrued Benefit shall be reduced to zero.

(b)  Termination by the Company Prior to a Change in Control. If prior to the occurrence of a Change in Control the Company, MHC or the Bank terminates the Executive’s employment other than for Cause, the Executive shall be entitled to receive her Accrued Benefit. She shall begin receiving such benefit in substantially equal monthly payments for a period of 180 months beginning on the first day of the month next following the earlier of (i) the month during which her employment is terminated and (ii) the month during which she attains her Normal Retirement Age. The Board of Directors of the entity terminating her employment, in its sole discretion, may elect at the time of such termination to pay the Actuarial Equivalent of such Accrued Benefit in a single lump sum or over a period of time not to exceed 60 months.

(c)    Termination by the Company After a Change in Control. If on or after the occurrence of a Change in Control the Company, MHC or the Bank terminates the Executive’s employment other than for Cause, the Executive shall be entitled to receive her Normal Retirement Benefit. She shall begin receiving such benefit in substantially equal monthly payments for a period of 180 months beginning on the first day of the month next following the earlier of (i) the month during which her employment is terminated and (ii) the month during which she attains her Normal Retirement Age. The Board of Directors of the entity terminating her employment, in its sole discretion, may elect at the time of such termination to pay the Actuarial Equivalent of such Normal Retirement Benefit in a single lump sum or over a period of time not to exceed 60 months.

4.02    Voluntary Termination.

(a)    Termination by Executive without Good Reason. If the Executive terminates her employment with the Company, MHC and the Bank for reasons other than with Good Reason, disability (except as provided in Section 3.03) or death, she shall be entitled to

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receive an amount equal to her Accrued Benefit. She shall begin receiving such benefit in substantially equal monthly payments for a period of 180 months beginning on the first day of the month next following the later of (i) the month during which her employment is terminated and (ii) the month during which she attains her Normal Retirement Age. The Board of Directors of the Company, in its sole discretion, may elect at the time of such termination to pay the Actuarial Equivalent of such Accrued Benefit in a single lump sum or over a period of time not to exceed 60 months.

(b)    Termination by the Executive with Good Reason. If the Executive terminates her employment with the Company, MHC or the Bank with Good Reason, she shall be entitled to receive the Normal Retirement Benefit. She shall begin receiving such benefit in substantially equal monthly payments for a period of 180 months beginning on the first day of the month next following the earlier of (i) the month during which her employment is terminated and (ii) the month during which she attains her Normal Retirement Age. The Board of Directors of the Company, in its sole discretion, may elect at the time of such termination to pay the Actuarial Equivalent of such Normal Retirement Benefit in a single lump sum or over a period of time not to exceed 60 months.

4.03    Change in Control.

(a)    Anything in this Agreement to the contrary notwithstanding, in the event that any compensation, payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the “Special Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, the following provisions shall apply:

(i)    If the Special Payments, reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local income and employment taxes payable by Executive on the amount of the Special Payments which are in excess of the Threshold Amount, are greater than or equal to the Threshold Amount, Executive shall be entitled to the full benefits payable under this Agreement.

(ii)    If the Threshold Amount is less than (x) the Special Payments, but greater than (y) the Special Payments reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local income and employment taxes on the amount of the Special Payments which are in excess of the Threshold Amount, then the benefits payable under this Agreement shall be reduced (but not below zero) to the extent necessary so that the maximum Special Payments shall not exceed the Threshold Amount. To the extent that there is more than one method of reducing the payments to bring them within the Threshold Amount, Executive shall determine which method shall be followed; provided that if Executive fails to make such determination within 45 days after the Company has sent Executive written notice of the need for such reduction, the Company may determine the amount of such reduction in its sole discretion.

(b)    For the purposes of this Section 4.03, “Threshold Amount” shall mean three times Executive’s “base amount” within the meaning of Section 280G(b)(3) of the Code

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and the regulations promulgated thereunder less one dollar ($1.00); and “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code, and any interest or penalties incurred by Executive with respect to such excise tax.

(c)    The determination as to which of the alternative provisions of Section 4.03(a)(ii) shall apply to Executive shall be made by Wolf & Company, P.C., or any other nationally recognized accounting firm selected by the Company (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Company and Executive within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Company or Executive. For purposes of determining which of the alternative provisions of Section 4.03(a) shall apply, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of Executive’s residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Any determination by the Accounting Firm shall be binding upon the Company and Executive.

ARTICLE V—BENEFICIARY DESIGNATION

The Executive may designate one or more beneficiaries to receive specified percentages of her death benefit payments. The Executive shall designate any such beneficiaries in writing and shall submit such writing to the Chief Financial Officer of the Company. Only designated beneficiaries alive at the Executive’s death shall be entitled to share in the benefit payments. Absent a contrary specification by the Executive in writing submitted to the Chief Financial Officer of the Company, each beneficiary alive at the Executive’s death (or, in the case of the beneficiary’s death after the Executive’s death, the beneficiary’s estate) shall share equally in death benefit payments. If no designated beneficiary is alive at the Executive’s death, her estate shall be entitled to all death benefit payments.

ARTICLE VI—OBLIGATIONS OF EXECUTIVE

6.01    Non-Disclosure by Executive. The Executive shall not disclose to any other person or entity (except as required by applicable law or court order) or use for her own benefit or gain, any confidential information of the Company obtained by her incident to her employment with the Company. The term “confidential information” includes, without limitation, financial information, business plans, prospects and opportunities (such as lending relationships, financial product developments, or possible acquisitions or dispositions of businesses or facilities) which have been discussed or considered by the management of the Company but does not include any information which has become part of the public domain by means other than the Executive’s non-observance of her obligations hereunder.

6.02    Violation of Agreement. If at any time the Company considers that the Executive is acting in a manner which is in breach of the terms of Section 6.01 above, the Company will so notify the Executive in writing and will request that she cease such action, or take such reasonable action as may be required, to conform to the terms of Section 6.01 above. In the event of a breach by the Executive in the performance of her obligation under the terms of

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Section 6.01 which is not rectified within 30 days after such notice is mailed by the Company, the Company shall not be obligated to make any further payments under this Agreement.

6.03    Remedies. The Executive agrees that her services and the confidential and proprietary information which she has previously acquired as an employee of the Company is unique, and that any breach of her obligations under this Article VI by her may not be adequately compensated by damages at law, and the Executive agrees, therefore, that the Company shall be entitled, in addition to any other remedies that may be available to it, to equitable relief in a court of equity by injunction or otherwise, without the necessity of proving actual damage to the Company for any breach by the Executive hereunder.

ARTICLE VII—CLAIMS PROCEDURE

The Company shall promptly notify the Executive (or one of her beneficiaries in the case of the Executive’s death) if payment of benefits is not being made, or is not to be made, under this Agreement. In the event that benefits under this Agreement are not paid to the Executive (or one of her beneficiaries in the case of the Executive’s death), and such person believes that he or she is entitled to receive them, a claim shall be made in writing to the Company within 90 days after written notice from the Company to the Executive, her beneficiary, or an appropriate personal representative that payments are not being made, or are not to be made, under this Agreement. Such claim shall be reviewed by the Company. If the claim is approved or denied, in full or in part, the Company shall provide a written notice of approval or denial within 30 days of its receipt of the claim. A written notice of denial shall set forth the specific reason for denial, specific reference to the provision or provisions of this Agreement upon which the denial is based and any additional material or information necessary to perfect the claim, if any. Also, such written notice of denial shall indicate the steps to be taken if a review of the denial is desired. A claim shall be deemed denied if the Company does not take action within the aforesaid 30-day period. If a claim is denied and a review is desired, the Executive (or beneficiary in the case of the Executive’s death), shall notify the Company in writing within 30 days after such claim is denied. In requesting a review, the Executive or her beneficiary may review this Agreement or any document relating to it and submit any written issues and comments he or she may feel appropriate. The Company shall then review the claim and provide a written decision within 30 days. The decision likewise shall state the specific reasons for the decision and shall include reference to specific provisions of this Agreement on which the decision is based.

Any decision of the Company shall be binding on the Executive, any beneficiary, or any personal representative. However, no decision shall preclude legal action by the Executive, beneficiary or personal representative. If the Executive, any beneficiary, or any personal representative shall prevail in any such legal action, such person or persons shall be entitled to receive reimbursement of reasonable attorneys’ fees from the Company, unless the Company acted in good faith in the reasonable belief that its position was justified.

ARTICLE VIII—MISCELLANEOUS

8.01    No Compensation Deferral. The annual benefit payments provided by this Agreement are not part of any salary-reduction plan or arrangement deferring a bonus or salary

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increase. The Executive has no option to take any current payment or bonus in lieu of the above discussed benefit payments.

8.02    Alienability. Neither the Executive nor any beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of the benefits payable hereunder, nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance, owed by the Executive or any of her beneficiaries, or be transferable by operation of law in the event of bankruptcy, or otherwise.

8.03    Other Payment. Any annual benefit payments that the Executive receives pursuant to this Agreement shall be in addition to payments she receives pursuant to any other agreements or arrangement she has with the Company.

8.04    Participation In Other Plans. Nothing contained in this Agreement shall be construed to alter, abridge, or in any manner affect the rights and privileges of the Executive to participate in, and be covered by, any employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended) which the Company may have or may hereafter adopt.

8.05    Funding. The Company reserves the absolute right at its sole discretion to insure or otherwise provide for the obligations of the Company undertaken by this Agreement or to refrain from doing so, and to determine the extent, nature and method thereof. Should the Company elect to insure this Agreement, in whole or in part, through the medium of insurance or annuities, or both, the Company shall be the owner and beneficiary of such policy or policies. At no time shall the Executive be deemed to have any right, title or interest in, or to, any specific asset or assets of the Company, including but not by way of restriction, any insurance or annuity contract or contracts or the proceeds therefrom. At all times, the Executive shall be no more than an unsecured, general creditor of the Company with respect to amounts owed to her under this Agreement. No policy, contract or asset of the Company shall, in any way, be considered to be security for the performance of the obligations of this Agreement.

If the Company elects to insure its obligations under this Agreement by purchasing a life insurance or annuity policy on the life of the Executive, she agrees to sign any papers that may be required for that purpose and to undergo any medical examination or tests which may be necessary, and generally to cooperate with the Company in securing such policy and keeping the same in force.

8.06    Governing Law. This is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of The Commonwealth of Massachusetts.

8.07    Not an Employment Contract. This Agreement is not an employment contract, and nothing in this Agreement shall obligate the Company to continue to employ the Executive.

8.08    Assignment. This Agreement shall be binding upon, and shall inure to the benefit of, the successors, assigns and personal representatives, as the case may be, of the Company and the Executive.

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8.09    Communications. Any notice or communication required of either party with respect to this Agreement shall be made in writing and may either be delivered personally or sent by first class mail, as the case may be.

To the Executive, at her home address as appearing on the records of the Company.

To the Company, addressed to the attention of the Chairman of the Board of Directors with a copy addressed to the attention of the Chief Financial Officer.

Each party shall have the right by written notice to change the place to which any notice may be addressed.

8.10    Waiver. The failure of either party to require the performance of any term or obligation of this Agreement or the waiver by either party of any breach of this Agreement shall not foreclose a subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

8.11    Amendment. This Agreement may be amended, modified, or terminated at any time by the mutual written consent of the Company and the Executive.

8.12    Entire Agreement. This Agreement sets forth the entire agreement between the parties hereto, and fully supersedes any and all prior written and oral agreements and understandings between the parties hereto pertaining to the subject matter hereof.

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Upon execution below by both parties, this Agreement will enter into full force and effect.

	SERVICE BANCORP, INC.
/s/    PAMELA J. MONTPELIER	By:	/s/      WILLIAM L. CASEY
Pamela J. Montpelier		Name: William L. Casey Title: Chairman of the Board

	SERVICE BANCORP, MHC
/s/    PAMELA J. MONTPELIER	By:	/s/    WILLIAM L. CASEY
Pamela J. Montpelier		Name: William L. Casey Title: Chairman of the Board

	STRATA BANK
/s/    PAMELA J. MONTPELIER	By:	/s/    WILLIAM L. CASEY
Pamela J. Montpelier		Name: William L. Casey Title: Director

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EX-99.1

Exhibit 99.1

CERTIFICATION PURSUANT TO

18 U.S.C. § 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned Chief Executive Officer of Service Bancorp, Inc. (the “Company”) hereby certifies that the Company’s quarterly report on Form 10-QSB for the quarterly period ended March 31, 2003 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 13, 2003	/s/    PAMELA J. MONTPELIER
	Pamela J. Montpelier President and Chief Executive Officer

EX-99.2

Exhibit 99.2

CERTIFICATION PURSUANT TO

18 U.S.C. § 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned Chief Financial Officer of Service Bancorp, Inc. (the “Company”) hereby certifies that the Company’s quarterly report on Form 10-QSB for the quarterly period ended March 31, 2003 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 13, 2003	/s/    DANA S. PHILBROOK
	Dana S. Philbrook Chief Financial Officer