-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VsZVP9vdr3dYc3ZZuG9wsZNm8XwnIgCQlTuWBtMnikMucl+5V3ocYLRCy569my92 hPdXspBREl//QtQKE06A6w== 0001019056-04-001367.txt : 20041115 0001019056-04-001367.hdr.sgml : 20041115 20041115160006 ACCESSION NUMBER: 0001019056-04-001367 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041115 DATE AS OF CHANGE: 20041115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVICE 1ST BANCORP CENTRAL INDEX KEY: 0001225078 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 320061893 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-50323 FILM NUMBER: 041145177 BUSINESS ADDRESS: STREET 1: 2800 W MARCH LANE SUITE 120 CITY: STOCKTON STATE: CA ZIP: 95219 BUSINESS PHONE: 2099567800 MAIL ADDRESS: STREET 1: 2800 W MARCH LANE SUITE 120 CITY: STOCKTON STATE: CA ZIP: 95219 10QSB 1 service_10qsb.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2004 ------------------ [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 For the Transition Period from _________ to _________ Commission File No. 000-50323 SERVICE 1st BANCORP -------------------------------------------------------------- (Exact Name of Small Business Issuer specified in its Charter) State of California 32-0061893 --------------------------------- ------------------------ (State or other jurisdiction (IRS Employer ID Number) of incorporation or organization) 2800 W. March Lane, Suite 120, Stockton, CA 95219 - -------------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (209) 956-7800 ------------------------------------------------ (Issuer's Telephone Number, Including Area Code) None --------------------------------------------------------------------------- (Former name, former address and fiscal year, if changed since last report) Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: No par value Common Stock - 1,165,456 shares outstanding as of November 2, 2004 The Index to Exhibits is located on page 22 Item 1. Financial Statements SERVICE 1ST BANCORP CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS 09/30/04 12/31/03 ------------------------------ Cash & due from banks $ 8,262,778 $ 6,484,537 Fed Funds sold 4,043,349 155,000 ------------------------------ Cash and cash equivalents 12,306,127 6,639,537 Certificates of deposits with other banks 285,000 -- Securities available-for-sale 44,228,055 45,460,112 Securities held-to-maturity 648,833 1,659,233 Loans, net 65,542,661 52,500,408 Bank premises and equipment, net 629,670 717,526 Bank owned life insurance 2,303,328 2,233,046 Accrued interest and other assets 1,977,913 1,317,914 ------------------------------ Total assets $ 127,921,587 $ 110,527,776 ============================== LIABILITIES & SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing DDA $ 20,386,633 $ 13,588,553 Interest-bearing DDA 63,161,371 45,709,526 Money market deposit accounts 5,743,866 11,572,827 Savings accounts 3,068,563 3,834,932 Certificates of deposit 25,158,347 26,915,239 ------------------------------ Total deposits 117,518,780 101,621,077 Other borrowings 230,948 248,061 Other liabilities 711,454 375,867 ------------------------------ Total liabilities 118,461,182 102,245,005 Shareholders' equity: Common stock 11,012,562 10,915,069 Accumulated deficit (1,478,913) (2,529,737) Accumulated other comprehensive income net of tax (73,244) (102,561) ------------------------------ Total shareholders' equity 9,460,405 8,282,771 ------------------------------ Total liabilities and shareholders' equity $ 127,921,587 $ 110,527,776 ============================== The accompanying notes are an integral part of the financial statements. Page 2 of 87
SERVICE 1ST BANCORP CONSOLIDATED INCOME STATEMENTS (Unaudited) For the three months ended For the nine months ended 09/30/04 09/30/03 09/30/04 09/30/03 ------------------------------------------------------- Interest income: Interest & fees on loans $ 1,175,010 $ 890,822 $ 3,238,520 $ 2,575,480 Interest on investments 424,042 273,479 1,277,068 706,512 Interest on federal funds sold 4,413 11,312 15,701 50,529 ------------------------------------------------------- Total interest income 1,603,465 1,175,553 4,531,289 3,332,521 Interest expense: Interest expense on deposits 472,079 399,651 1,344,872 1,151,314 Interest on borrowings 8,396 768 15,849 2,515 ------------------------------------------------------- 480,475 400,419 1,360,721 1,153,829 ------------------------------------------------------- Net interest income before provision for loan losses 1,122,990 775,134 3,170,568 2,178,692 Provision for loan losses 20,000 95,000 125,000 195,000 ------------------------------------------------------- Net interest income after provision for loan losses 1,102,990 680,134 3,045,568 1,983,692 Gain on sale of securities -- 1,902 9,774 20,141 Other income 278,583 271,882 720,527 589,453 General & administrative expenses: Salaries & benefits 605,320 474,246 1,655,977 1,301,332 Occupancy & equipment 139,057 146,644 408,580 403,519 Other operating 308,305 200,694 908,403 672,355 ------------------------------------------------------- Total G & A expenses 1,052,682 821,584 2,972,960 2,377,206 ------------------------------------------------------- Income before income taxes 328,891 132,334 802,909 216,080 Income tax benefit (150,000) -- (250,000) -- ------------------------------------------------------- Net income $ 478,891 $ 132,334 $ 1,052,909 $ 216,080 ======================================================= Net income per share - basic $ 0.40 $ 0.11 $ 0.90 $ 0.19 ======================================================= Net income per share - diluted $ 0.38 $ 0.11 $ 0.87 $ 0.19 =======================================================
The accompanying notes are an integral part of the financial statements. Page 3 of 87
SERVICE 1ST BANCORP CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited) Accumulated Common Stock Other Total ----------------------- Comprehensive Accumulated Comprehensive Shareholders' Shares Amount Income Deficit Income Equity ------------------------------------------------------------------------------------ Balance January 1, 2003 1,155,105 $ 10,915,069 $(2,902,979) $ 108,307 $ 8,120,397 Comprehensive income Net loss $ 373,242 373,242 -- 373,242 Unrealized losses on securities net of taxes of $66,299 (198,985) -- (198,985) (198,985) Reclassifacation adjustment adjustment for gains included in net loss, net of tax of $19,840 (11,883) -- (11,883) (11,883) ---------- Comprehensive income $ 162,374 ========== -------------------------- ----------------------------------------- Balance December 31,2003 1,155,105 10,915,069 (2,529,737) (102,561) 8,282,771 Cash Pay in Lieu of Stock Dividend (149) (2,085) (2,085) Stock options exercised 10,500 97,493 97,493 Comprehensive income Net income $1,052,909 1,052,909 1,052,909 Unrealized gains on securities net of taxes of $20,596 29,317 29,317 29,317 ---------- Comprehensive income $1,082,226 ========== -------------------------- ----------------------------------------- Balances September 30,2004 1,165,456 $ 11,012,562 $(1,478,913) $ (73,244) $ 9,460,405 ========================== =========================================
The accompanying notes are an integral part of the financial statements. Page 4 of 87
SERVICE 1ST BANCORP CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) For the nine months ended 9/30/2004 9/30/2003 ------------------------------- Operating activities: Net income $ 1,052,909 $ 216,080 Adjustments to reconcile net income to net cash from operating activities: Provision for loan losses 125,000 195,000 Depreciation 140,481 127,759 Amortization and accretion on securities 353,713 443,783 Gain on sale of securities, net (9,774) (20,141) Decrease (Increase) in accrued interest 34,915 (82,140) Increase in other assets (727,523) (284,050) Increase in accrued expenses and other liabilities 335,587 60,735 ------------------------------- Net cash provided by operating activities 1,305,308 535,556 Investing activities: Purchases of securities available-for-sale (23,826,315) (43,671,512) Proceeds from sales of available-for-sale securities 995,156 4,087,407 Proceeds from payments, maturities and calls of available-for-sale securities 23,781,203 25,197,767 Proceeds from payments, maturities and calls of held-to-maturity securities 1,010,400 1,345,265 Net increase in loans (13,167,253) (6,490,537) Certificates of deposit with other banks (285,000) Purchase Bank Owned Life Insurance (70,282) 2,218,795 Purchases of premises and equipment (52,625) (71,495) ------------------------------- Net cash used by investing activities (11,616,801) (21,821,900) Financing activities: Net increase in demand and interest-bearing deposits, and savings 17,654,595 18,062,114 Cah paid in lieu of stock dividends (2085) Net increase in time deposits (1,756,892) 3,260,891 Options exercised 97,493 -- Net change in borrowings (17,113) -- ------------------------------- Net cash provided by financing activities 15,978,083 21,323,005 ------------------------------- Net increase in cash and cash equivalents 5,666,590 36,661 Cash and cash equivalents at beginning of period 6,639,537 10,084,700 ------------------------------- Cash and cash equivalents at end of period $ 12,306,127 $ 10,121,361 =============================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 1,384,328 $ 1,163,405 Income taxes -- --
The accompanying notes are an integral part of the financial statements Page 5 of 87 SERVICE 1ST BANCORP NOTES TO UNAUDITED FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATION The accompanying unaudited consolidated financial statements of Service 1st Bancorp (the "Company") have been prepared in accordance with the instructions to Form 10-QSB and, therefore, do not include information or footnote disclosures required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and related footnotes included in the Company's annual report on Form 10-KSB for the year ended December 31, 2003 of the Company's subsidiary Service 1st Bank. In the opinion of management, the financial statements presented herein include all adjustments (consisting of normal recurring accruals) necessary to present fairly, in all material respects, the financial position of the Company as of September 30, 2004 and the Company's income statements for the three months and nine months September 30, 2004 and 2003, and the statement of cash flows for the nine months ended September 30, 2004 and 2003. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. The balance sheet as of December 31, 2003, has been derived from the audited balance sheet as of that date. Stock based compensation SFAS No. 123, "Accounting for Stock-Based Compensation," requires entities to disclose the fair value of their employee stock options, but permits entities to account for employee stock options under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has determined that it will continue to use the method prescribed by APB Opinion No. 25, which recognizes compensation costs to the extent of the difference between the quoted market price of the stock at the date of grant and the amount an employee must pay to acquire the stock. The exercise price of each option is greater than or equal to the fair market value of the stock on the date of grant Accordingly, no compensation cost has been recognized for the plan. Had compensation cost for the plan been determined based on the fair value of the options at the grant dates consistent with the method of SFAS No. 123, the net income and income per share would have been changed to the pro forma amounts indicated below.
For the three For the nine months ended months ended 09/30/04 09/30/03 09/30/04 09/30/03 ----------------------------------------------- Net Income: As reported $ 478,891 $ 132,334 $ 1,052,909 $ 216,080 Stock-Based Compensation using the Intrinsic Value Method Stock-Based Compensation that would have been reported using the Fair Value Method of SFAS No. 123 (2,689) (25,087) (8,067) (75,261) ----------------------------------------------- Pro Forma $ 476,202 $ 107,247 $ 1,044,842 $ 140,819 =============================================== Net income per share - basic As reported $ 0.40 $ .11 $ .90 $ .19 Pro Forma $ 0.39 $ .09 $ .90 $ .12 Net income per share - diluted As reported $ 0.38 $ .11 $ .87 $ .19 Pro Forma $ 0.38 $ .09 $ .87 $ .12
Page 6 of 87 SERVICE 1ST BANCORP NOTES TO UNAUDITED FINANCIAL STATEMENTS NOTE 2: EARNINGS PER SHARE (EPS) Basic EPS excludes dilution and is computed by dividing income available to common shareholders' by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in earnings of the entity as of September 30, 2004 and 2003. NOTE 3: INVESTMENT SECURITIES Securities are classified in three categories and accounted for as follows: debt and equity securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and are measured at amortized cost; debt and equity securities bought and held principally for the purpose of selling in the near term are classified as trading securities and are measured at fair value, with unrealized gains and losses included in earnings; debt and equity securities not classified as either held-to-maturity or trading securities are deemed available-for-sale and are measured at fair value, with unrealized gains and losses, net of applicable taxes reported in a separate component of stockholders' equity. Any gains or losses on sales of investments are computed on a specific identification basis. The amortized cost and fair values of investment securities available-for-sale at September 30, 2004 were:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------------------------------------------- Obligations of U.S. Government Agencies $19,472,049 $ 24,808 (100,429) 19,396,428 State and public subdivisions 125,000 4,310 -- 129,310 Asset backed-securities 4,394,050 35,632 (6,301) 4,423,381 Mortgage backed-securities 20,361,647 45,727 (128,438) 20,278,936 ----------------------------------------------- $44,352,746 $ 110,477 $(235,168) $44,228,055 ===============================================
The amortized cost and fair values of investment securities held-to-maturity at September 30, 2004 were:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------------------------------------------- Asset backed-securities $ 49,946 $ 6,240 $ -- $ 309,536 Mortgage backed-securities 345,537 13,279 (146) 358,670 ----------------------------------------------- $ 698,779 $ 19,519 $ (146) $ 668,206 ===============================================
Page 7 of 87 SERVICE 1ST BANCORP NOTES TO UNAUDITED FINANCIAL STATEMENTS NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES Service 1st Bank's customers are primarily located in San Joaquin County. Approximately 71% of the Bank's loans are for real estate and construction loans and approximately 21% of the Bank's loans are for general commercial users including professional, retail, and small businesses. Consumer loans make up approximately 3% of the loan portfolio with agriculture loans making up the remaining 5%. Generally, real estate loans are collateralized by real property while commercial and other loans are collateralized by funds on deposit, business or personal assets. Repayment is generally expected from the sale of property for real estate loans and cash flows of the borrowers for other loans. Major classifications of loans were: 9/30/2004 12/31/2003 ---------------------------- Real estate $ 48,221,274 $ 37,564,352 Commercial 14,215,348 11,278,955 Agricultural 2,316,179 2,869,187 Consumer 1,985,407 1,785,920 All other (including overdrafts) 19,722 46,887 ---------------------------- 66,757,930 53,545,301 Deferred loan fees and costs (252,269) (206,893) Allowance for loan losses (963,000) (838,000) ---------------------------- Total net loans $ 65,542,661 $ 52,500,408 ============================ Page 8 of 87 Item 2. Management's Discussion and Analysis or Plan of Operation Certain matters discussed or incorporated by reference in this Quarterly Report on Form 10-QSB including, but not limited to, matters described in "Item 2 - Management's Discussion and Analysis or Plan of Operation," are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Changes to such risks and uncertainties, which could impact future financial performance, include, among others, (1) competitive pressures in the banking industry; (2) changes in the interest rate environment; (3) general economic conditions, nationally, regionally and in operating market areas, including a decline in real estate values in the Company's market areas; (4) the effects of terrorism, the threat of terrorism or the impact of potential military conflicts and the war in Iraq; (5) changes in the regulatory environment; (6) changes in business conditions and inflation; (7) changes in securities markets; (8) data processing compliance problems; (9) variances in the actual versus projected growth in assets; (10) return on assets; (11) loan losses; (12) expenses; (13) rates charged on loans and earned on securities investments; (14) rates paid on deposits; and (15) fee and other noninterest income earned, as well as other factors. This entire Quarterly Report and the Annual Report on Form 10-KSB for the year ended December 31, 2003, 2004 quarterly reports on Form 10-QSB, and current reports on Form 8-K should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Company's business. Therefore, the information set forth therein should be carefully considered when evaluating the business prospects of the Company. Business Background - ------------------- Service 1st Bancorp (the "Company") commenced operations on June 26, 2003 with the acquisition of Service 1st Bank (the "Bank") as its wholly-owned subsidiary. Each share of Bank stock was converted into one share of stock in the Company. The Bank commenced operations on November 10, 1999. The Bank operates full-service branch offices in the cities of Stockton and Tracy, California and a loan production office in Castro Valley, California. The focus of the Bank's business plan is to provide general commercial banking services primarily to small-to-medium size businesses, professionals, and members of the professional community. The Bank offers a wide range of deposit accounts, loan types, and specialized services. The following analysis is designed to provide a more complete understanding of the material changes and trends related to the Company's financial condition, results of operations, cash flows, and capital resources. This discussion should be read in conjunction with the financial statements included in Item 1 and the Annual Report on Form 10-KSB for the year ended December 31, 2003. Critical Accounting Policies - ---------------------------- Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 1 to the Financial Statements describes the significant accounting policies used in the preparation of the Financial Statements. A critical accounting policy is defined as one that is both material to the presentation of the Company's financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on the Company's financial condition and results of operations. Management believes that the following are critical accounting policies: Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expenses. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb losses inherent in existing loans and commitments to extend credit, based on evaluations of collectibility and prior loss experience of loans and commitments to extend credit. The evaluations take into consideration such factors as changes in the nature and volume of the Page 9 of 87 portfolio, overall portfolio quality, loan concentration, specific problem loans, commitments, and current economic conditions that may affect the borrowers' ability to pay. Stock-Based Compensation. SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Summary of Financial Condition - ------------------------------ The Company's total consolidated assets increased 15.7% from December 31, 2003 to September 30, 2004. As of September 30, 2004, total consolidated assets were $127,921,587 compared to $110,527,776 as of December 31, 2003. The increase in growth is from increased customer recognition and market acceptance of the Liquid Gold Checking account and Municipal Investment Account. Total net loans at September 30, 2004 were $65,542,661 compared to $52,500,408 at December 31, 2003. This represents an increase in net loans of 24.8% from December 31, 2003. The increase in loans represents management's continued success at attracting new loan customers. Total investment securities at September 30, 2004 were $44,876,888 compared to $47,119,345 at December 31, 2003. The decrease in investments from December 31, 2003 was $2,242,457. Total deposits were $117,518,780 at September 30, 2004 compared to $101,621,077 at December 31, 2003. This growth in deposits was primarily an increase in the Bank's Liquid Gold Checking Account and Municipal Investment Account. Liquid Gold Checking Accounts grew to $37,873,608 at September 30, 2004 compared to $34,975,926 at December 31, 2003. The Municipal Investment Account at September 30, 2004 was $23,295,490 compared to $9,050,875 at December 31, 2003. Noninterest-bearing DDA accounts increased from $13,588,553 at December 31, 2003 to $20,386,633 at September 30, 2004. Results of Operations - --------------------- Consolidated net income for the three months ended September 30, 2004 was $478,891 compared to $132,334 for the same period during 2003. Consolidated net income for the nine months ended September 30, 2004 was $1,052,909 compared to $216,080 for the same period during 2003. Basic net income per share for the three months ended September 30, 2004 was $0.40 and diluted net income per share was $0.38. The basic and diluted income per share for the third quarter of September 30, 2003 was $.011. Basic net income per share for the nine months ended September 30, 2004 was $0.90 and diluted net income per share was $.87. The basic and diluted income per share for the nine months ended of 2003 was $00.19. The favorable improvement in the Company's operations for the three months and nine months ended September 30, 2004 reflects the income that the Bank has been able to generate from an increase in loan and investment income, increased fees on deposit accounts, premiums received on loans sold, and loan servicing fees as well as recognition of tax benefits related to prior operating losses. There were also increased expenses incurred for the consolidated operations primarily resulting from the growth of the Company. Net Interest Income and Net Interest Margin - ------------------------------------------- Net interest income, the primary component of the net earnings of a financial institution, refers to the difference between the interest earned on loans and investments and the interest paid on deposits and borrowings. Please see the tables of average balance sheet and net interest income on the next page. Page 10 of 87 The following table sets forth average balance sheet information, interest income and expense, average yields and rates, and net interest income and margin for the three months ended September 30, 2004 and 2003.
September 30, 2004 September 30, 2003 -------------------------------------- ------------------------------------- Average Average Average Income/ Yield or Average Income/ Yield or Balance Expense Rate Paid Balance Expense Rate Paid --------------------------------------------------------------------------------- Interest-earning assets: Interest-bearing deposits $ 111,521 $ 378 $ -- $ -- $ -- Investment securities 46,754,686 423,664 3.60% 39,416,119 273,419 2.75% Federal funds sold 1,158,419 4,413 1.51% 4,552,186 11,312 0.99% Loans (1) (2) 66,640,395 1,175,010 7.00% 49,349,543 890,822 7.16% ------------------------- ------------------------ Total interest-earning assets 114,665,021 1,603,465 5.55% 93,279,455 1,175,553 5.00% Allowance for possible loan losses (957,073) (715,661) Cash and due from banks 7,426,860 4,441,529 Bank premises and equipment 656,850 756,962 Accrued interest receivable 531,169 371,840 Other assets 3,964,838 428,361 ------------ ----------- Total assets $126,287,665 $98,562,486 ============ =========== Interest-Bearing Liabilities: Demand deposits $ 64,185,376 246,085 1.52% $44,183,331 196,792 1.77% Savings & money market accounts 7,717,465 14,408 0.74% 9,138,079 20,512 0.89% Time Deposits 24,691,164 211,586 3.40% 23,194,658 182,347 3.12% Other borrowings 1,660,666 8,396 2.01% 129,841 768 2.35% ------------------------- ------------------------ Total interest-bearing liabilities 98,254,671 480,475 1.94% 76,645,909 400,419 2.07% ---------- ---------- Non-interest bearing demand deposits 18,431,810 13,474,028 Other Liabilities 936,000 329,175 ------------ ----------- Total liabilities 117,622,481 90,449,112 Shareholders' equity 8,665,184 8,113,374 ------------ ----------- Total liabilities and shareholders' equity $126,287,665 $98,562,486 ============ =========== Net interest income $1,122,990 $ 775,134 ========== ========== Net interest margin on average interest earning assets (3) 3.90% 3.30%
1. Average loan balances include average deferred loan fees of $233,090 and $191,094 for the three month periods ending September 30, 2004 and 2003, respectively. 2. Interest on loans includes fees of $94,168 and $25,011 for the three month periods ending September 30, 2004 and 2003, respectively. 3. Net interest margin is computed by dividing net interest income by total average earning assets. All average balances have been computed using daily balances. Page 11 of 87 The following table sets forth average balance sheet information, interest income and expense, average yields and rates, and net interest income and margin for the nine months ended September 30, 2004 and 2003.
September 30, 2004 September 30, 2003 -------------------------------------- ------------------------------------- Average Average Average Income/ Yield or Average Income/ Yield or Balance Expense Rate Paid Balance Expense Rate Paid --------------------------------------------------------------------------------- Interest-earning assets: Interest-bearing deposits $ 37,445 $ 378 1.35% $ -- $ -- 0.00% Investments 49,584,363 1,276,690 3.44% 32,428,575 706,512 2.91% Federal funds sold 1,887,465 15,701 1.11% 5,813,563 50,529 1.16% Loans (1) (2) 61,226,057 3,238,520 7.07% 46,982,482 2,575,480 7.33% ------------------------- ------------------------ Total interest-earning assets 112,735,330 4,531,289 5.37% 85,224,620 3,332,521 5.23% Allowance for possible loan losses (904,906) (651,534) Cash and due from banks 6,561,585 5,279,284 Bank premises and equipment 683,693 769,803 Accrued interest receivable 528,928 353,476 Other assets 3,668,655 419,281 ------------ ----------- Total assets $123,273,285 $91,394,930 ============ =========== Interest Bearing Liabilities: Demand deposits $ 59,426,555 681,291 1.53% $34,565,831 528,941 2.05% Savings & money market accounts 10,712,051 65,971 0.82% 9,990,319 80,232 1.07% Time Deposits 25,179,411 597,610 3.17% 22,711,697 542,141 3.19% Other borrowings 806,457 15,849 2.63% 65,965 2,515 5.10% ------------------------- ------------------------ Total interest-bearing liabilities 96,124,474 1,360,721 1.89% 67,333,812 1,153,829 2.29% ---------- ------------------------ Non-interest bearing demand deposits 17,823,384 15,548,817 Other Liabilities 636,263.00 361,220 ------------ ----------- Total liabilities 114,584,121 83,243,849 Shareholders' equity 8,689,164 8,151,081 ------------ ----------- Total liabilities and shareholders' equity $123,273,285 $91,394,930 ============ =========== Net interest income $3,170,568 $2,178,692 ========== ========== Net interest margin on average interest earning assets (3) 3.76% 3.42%
1. Average loan balances include average deferred loan fees of $235,050 and $144,398 for the nine month periods ending September 30, 2004 and 2003, respectively. 2. Interest on loans includes fees of $109,278 and $97,398 for the nine month periods ending September 30, 2004 and 2003, respectively. 3. Net interest margin is computed by dividing net interest income by total average earning assets. All average balances have been computed using daily balances. Page 12 of 87 Net interest income for the three months ended September 30, 2004 was $1,122,990 compared to $775,134 for 2003. Average interest-earning assets for the three months ended September 30, 2004 was $114,665,021 compared to $93,279,455 during the same three months of 2003 The yield earned on average interest-earning assets during the third quarter of 2004 was 5.55% compared to 5.00% during the third quarter of 2003. The average rate paid on interest bearing-liabilities decreased from 2.07% for the third quarter of 2003 to 1.94% during the third quarter of 2004. Net interest income for the nine months ended September 30, 2004 was $3,170,568 compared to $2,178,692 for 2003. Average interest-earning assets for the nine months ended September 30, 2004 was $112,735,330 compared to $85,224,620 during the same nine months of 2003 The yield earned on average interest-earning assets during the nine months ended September 30, 2004 was 5.37% compared to 5.23% during the same period of 2003. The average rate paid on interest bearing-liabilities for the nine months ended September 30, 2004 was 1.89% compared to 2.29% for the same period of 2003. The decline in rates paid on deposits and earned on loans was a result of the Federal Reserve Bank cutting interest rates over the last three years to stimulate the economy. The lower interest rates caused the yields to decline on loans, Federal Funds sold, and deposits. On June 30, 2004, the Federal Reserve Bank increased interest rates on the target for federal funds from 1.00% to 1.25%, on August 10, 2004 they increased the interest rate to 1.50%, and on September 21, 2004 they increased interest rates to 1.75%. Total average interest-bearing liabilities for the three months ended September 30, 2004 increased to $98,254,761 from $76,645,909 for the same period of 2003. Total average interest-bearing liabilities for the nine months ended September 30, 2004 increased to $96,124,474 from $67,333,812 for the same period of 2003. Allowance and Provision for Loan Losses - --------------------------------------- The Company assesses and manages credit risk on an ongoing basis through stringent credit review and approval policies, extensive internal monitoring, and established formal lending policies. Additionally, the Bank contracts with an outside source to periodically review the existing loan portfolio. Management believes its ability to identify and assess risk and return characteristics of the Company's loan portfolio is critical for profitability and growth. Management strives to continue the historically low level of credit losses by continuing its emphasis on credit quality in the loan approval process, active credit administration, and regular monitoring. Management has implemented a loan review and grading system that functions to continually assess the credit risk inherent in the loan portfolio. In extending credit and commitments to borrowers, the Bank generally requires collateral and/or guarantees as security. The repayment of such loans is expected to come from cash flow or from proceeds from the sale of selected assets of the borrowers. The Bank's requirement for collateral and/or guarantees is determined on a case-by-case basis in connection with management's evaluation of the creditworthiness of the borrower. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, income-producing properties, residences, and other real property. Construction loans and other real estate secured loans comprise 71% of total loans outstanding at September 30, 2004. Although management believes such loans have no more than the normal risk of collectibility, a substantial decline in the economy in general, or a decline in real estate values in the Company's primary operating market areas in particular, could have an adverse impact on the collectibility of such loans. In addition, such an occurrence could result in an increase in loan losses and an increase in the provision for loan losses, which could adversely affect the Company's future prospects, results of operations, overall profitability, and the market price of the Company's common stock. The provision for loan losses for the three months ended September 30, 2004 was $20,000 compared to $95,000 during the same quarter of 2003. The provision of loan losses for the nine months ended September 30, 2004 was $125,000 compared to $195,000 for the previous period in 2003. At September 30, 2004, the allowance for loan losses was $963,000 compared to $838,000 at December 31, 2003. The ratio of allowance for loan losses to gross loans was 1.44% at September 30, 2004 compared to 1.57% at December 31, 2003. The Page 13 of 87 allowance for loan losses is adjusted by charges to income and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions. Additional provisions will be added as new loans are placed on the books in an amount adequate to support the risks inherent in the portfolio. The following table summarizes the changes in the allowances for loan losses arising from loans charged-off, recoveries on loans previously charged-off, and additions to the allowance which have been charged to operating expenses and certain ratios relating to the allowance for loan losses. For the Nine Months Ended September 30, 2004 2003 ----------- ----------- Outstanding Loans: Average for the Period $61,226,057 $46,982,482 End of the Period $66,505,661 $51,732,145 Allowance For Loan Losses: Balance at Beginning of Year $ 838,000 $ 598,000 Actual Charge-Offs: Commercial -- -- Consumer -- 10,000 Real Estate -- -- ----------- ----------- Total Charge-Offs -- 10,000 Less Recoveries: Commercial -- -- Consumer -- -- Real Estate -- -- ----------- ----------- Total Recoveries -- -- ----------- ----------- Net Loans Charged-Off -- -- Provision for Loan Losses 125,000 195,000 ----------- ----------- Balance at End of Period $ 963,000 $ 783,000 =========== =========== Ratios: Net Loans Charged-Off to Average Loans 0% .02% Allowance for Loan Losses to Total Loans 1.44% 1.57% Net Loans Charged-Off to Beginning Allowance for Loan Losses 0% 1.67% Net Loans Charged-Off to Provision for Loan Losses 0% 5.13% Allowance for Loan Losses to Nonperforming Loans 8.60% 74.63% Nonaccrual Loans, Loans Past Due 90 Days and OREO - ------------------------------------------------- Management generally places loans on nonaccrual status when they become 90 days past due, unless the loan is well secured and in the process of collection. Loans are charged off when, in the opinion of management, collection appears unlikely. There were nonaccrual loans of $82,806 at September 30, 2004 and $1,049,138 at September 30, 2003 and $699,000 at December 31, 2003. At September 30, 2004 there were loans totaling $82,806 that were considered impaired or troubled debt restructurings compared to $699,000 at December 31, 2003, and $1,049,138 at September 30, 2003. These loans were delinquent and placed on nonaccrual, but management believes that the loans will be collected in full. The loans were placed on nonaccrual to defer future income recognition until the delinquent payments have been received. There were no loan concentrations in excess of 10% of total loans not otherwise disclosed as a category of loans as of September 30, 2004 or December 31, 2003. Management is not aware of any potential problem loans, which were accruing and current at September 30, 2004 or December 31, 2003, Page 14 of 87 where serious doubt exists as to the ability of the borrower to comply with the present repayment terms. There was no other real estate owned at September 30, 2004 and December 31, 2003. Noninterest Income - ------------------ Noninterest income for the three months ended September 30, 2004 was $278,583 compared to $271,882 for the same period during 2003. Service charges and other income for the three months ended September 30, 2004 was $60,394 compared to $44,554 for 2003. Service charges for the nine months ended September 30, 2004 was $158,077 compared to $98,447 for the nine months ended September 30, 2003. The increase in service charges and other income was from the growth in the number of deposit accounts. The Bank offers loans on single family homes through a first party lender. The Bank receives fees for the packaging of the loans provided to the first party lender. The loans are funded by and become assets of the first party lender. The fees on residential first trust deeds for the three months ended September 30, 2004 were $40,082 compared to $69,877 in 2003. The fees on residential first trust deeds for the nine months ended September 30, 2004 were $116,338 compared to $151,922 in 2003. During 2003, the refinance market for loans was strong. The refinance demand has declined in 2004 causing the earnings from the activity to decrease. The Bank originates loans through various government guarantee programs. The guaranteed portion of these loans can be sold in the secondary market. Gains on loans sold in the secondary market and the servicing of these loans for the three months ended September 30, 2004 were $113,685 compared to $122,671 during the same period in 2003. The premium on loans sold was $287,706 for the nine months ended September 30, 2004 compared to $258,997. Noninterest Expense - ------------------- Salaries and employee benefits for the three months ended September 30, 2004 was $605,320 compared to $474,246 for the three months ended September 30, 2003. Salaries and employee benefits for the nine months ended September 30, 2004 was $1,655,977 compared to $1,301,332 for the period of 2003. The increase in salaries and employee benefits during 2004 was a result of bonuses, retirement benefits, and additional employees. Accrued bonuses for the three months ended September 30, 2004 was $101,769 and the bonus accrual for the nine months ended September 30, 2004 was $191,885. There were no bonuses accrued during 2003. In July 2003, the Company established a retirement plan for certain key executives. The Company accrued retirement expense of $58,896 for the three months ended September 30, 2004 compared to $36,789 for the same period during 2003. For the nine months ended September 30, 2004, the Company accrued $132,859.35 compared to $36,789 for the same period of 2003. The additional increase in salaries and employee benefits reflects an increase in staff as a result of the growth in the Company. Occupancy and equipment expense was $139,057 for the three months ended September 30, 2004 compared to $146,645 for the same period during 2003. Occupancy and equipment expense was $408,580 for the nine months ended September 30, 2004 compared to $403,520 for the same period during 2003. Other operating expenses, primarily comprised of marketing, data processing, professional fees, and other expenses, for the three months ended September 30, 2004 were $308,305 compared to $200,694 for the three months ended September 30, 2003. Other operating expenses for the nine months ended September 30, 2004 were $908,403 compared to $672,3554. The increase in other expenses was commensurate with the growth of the Bank. Capital Resources - ----------------- Total shareholders' equity at September 30, 2004 was $9,460,405 compared to $8,282,771 at December 31, 2003. The increase was primarily from the net income for the nine months ended September 30, 2004. One officer and a director exercised options during the third quarter. The shares issued for the options exercised were 10,500 with cash of $97,493paid to the Company. The Company and the Bank are subject to regulations issued by the Board of Governors of the Federal Reserve System and the FDIC, which require maintenance of a certain level of capital. Under the regulations, capital requirements are based upon the composition of an institution's asset base and the risk factors assigned to those assets. The guidelines characterize an Page 15 of 87 institution's capital as being "Tier 1" capital (defined to be principally shareholders' equity less intangible assets) and "Tier 2" capital (defined to be principally the allowance for loan losses, limited to one and one-fourth percent of gross risk weighted assets). The guidelines require the Company and the Bank to maintain a risk-based capital target ratio of 8%, one-half or more of which should be in the form of Tier 1 capital. The following table shows the Company's and the Bank's actual capital amounts and ratios at September 30, 2004 and December 31, 2003 as well as the minimum capital ratios for capital adequacy under the regulatory framework:
To Be Categorized Well Capitalized Under For Capital Prompt Corrective Actual: Adequacy Purposes: Action Provisions: Company Amount Ratio Amount Ratio Amount Ratio ------- ----- ------- ----- ------- ----- As of September 30, 2004 - ------------------------ Total Capital (to Risk Weighted Assets): $10,519 12.4% $ 6,792 8.00% N/A Tier 1 Capital (to Risk Weighted Assets): $ 9,521 11.2% $ 3,396 4.00% N/A Tier 1 Capital (to AverageAssets): $ 9,521 7.6% $ 5,034 4.00% N/A As of December 31, 2003 - ----------------------- Total Capital (to Risk Weighted Assets): $ 9,214 13.0% $ 5,686 8.00% N/A Tier 1 Capital (to Risk Weighted Assets): $ 8,376 11.8% $ 2,843 4.00% N/A Tier 1 Capital (to Average Assets): $ 8,376 7.4% $ 4,541 4.00% N/A Bank As of September 30, 2004 - ------------------------ Total Capital (to Risk Weighted Assets): $10,767 12.7% $ 6,792 8.00% $ 8,489 10.00% Tier 1 Capital (to Risk Weighted Assets): $ 9,769 11.5% $ 3,396 4.00% $ 5,094 6.00% Tier 1 Capital (to Average Assets): $ 9,769 7.8% $ 5,033 4.00% $ 6,292 5.00% As of December 31, 2003 - ----------------------- Total Capital (to Risk Weighted Assets): $ 9,182 12.9% $ 5,686 8.00% $ 7,107 10.00% Tier 1 Capital (to Risk Weighted Assets): $ 8,344 11.7% $ 2,843 4.00% $ 4,264 6.00% Tier 1 Capital (to Average Assets): $ 8,344 7.4% $ 4,541 4.00% $ 5,677 5.00%
The Bank meets the "well capitalized" capital ratio measures at both September 30, 2004 and December 31, 2003; however, the Company has committed to raise $3 to $5 million in additional Tier 1 capital by year-end to achieve a leverage ratio of 8.5% or higher, in accordance with a capital plan adopted in response to the Company's asset growth and directives by the California Department of Financial Institutions and the FDIC. The capital will be raised in a private placement of common stock primarily to accredited investors during the fourth quarter of 2004. Page 16 of 87 Liquidity - --------- The objective of liquidity management is to ensure continuous availability of funds to meet the demands of depositors, investors, and borrowers. Liquidity is primarily derived from cash, Federal Funds, and other liquid investments. The Bank has also established borrowing lines from correspondent banks and Federal Home Loan Bank of San Francisco totaling $24,700,000. Management is not aware of any future capital expenditures or other significant demands on commitments that would severely impair liquidity. Inflation - --------- The impact of inflation on a financial institution differs significantly from that exerted on manufacturing or other commercial concerns, primarily because its assets and liabilities are largely monetary. In general, inflation primarily affects the Company and the Bank indirectly through its effect on market rates of interest, and thus the ability of the Bank to attract loan customers. Inflation affects the growth of total assets by increasing the level of loan demand, and potentially adversely affects the Company's and the Bank's capital adequacy because loan growth in inflationary periods can increase at rates higher than the rate that capital grows through retention of earnings, which the Company may generate in the future. In addition to its effects on interest rates, inflation directly affects the Company by increasing operating expenses. The effects of inflation were not material to the Company's and Bank's results of operations during the periods ending September 30, 2004 and 2003. Off-Balance Sheet Items - ----------------------- As of September 30, 2004 and December 31, 2003, commitments to extend credit and letters of credit were the only financial instruments with off-balance sheet risk. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options or similar instruments. Loan commitments and letters of credit were $23,774,682 and $20,558,000 at September 30, 2004 and December 31, 2003, respectively. As a percentage of net loans these off-balance sheet items represent 35.6% and 39.2%, respectively. Certain financial institutions have elected to use special purpose vehicles ("SPV") to dispose of problem assets. A SPV is typically a subsidiary company with an asset and liability structure and legal status that makes its obligations secure even if the parent corporation goes bankrupt. Under certain circumstances, these financial institutions may exclude the problem assets from their reported impaired and non-performing assets. The Company doesn't use those vehicles or any other structures to dispose of problem assets. Effects of Terrorism - -------------------- The terrorist actions on September 11, 2001 and thereafter and the conflict with Iraq have had significant adverse effects upon the United States economy. Whether the terrorist activities in the future and the actions of the United States and its allies in combating terrorism on a worldwide basis will adversely impact the Company and the extent of such impact is uncertain. However, such events have had and may continue to have an adverse effect on the economy in the Company's market areas. Such continued economic deterioration could adversely affect the Company's future results of operations by, among other matters, reducing the demand for loans and other products and services offered by the Bank, increasing nonperforming loans and the amounts reserved for loan losses, and causing a decline in the Company's stock price. Website Access - -------------- Information on the Company and Bank may be obtained from the Company's website www.service1stbank.com. Copies of the annual report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K, and all amendments thereto, as well as Section 16 reports and amendments thereto, are available free of charge on the website as soon as they are published by the Page 17 of 87 SEC through a link to the Edgar reporting system maintained by the SEC. To obtain copies of or to view the reports on Form 10-KSB, 10-QSB, and 8-K, click on the "Go to Service 1st Bancorp button, then click on the "Click here to view Service 1st Bancorp SEC Filings" link. To obtain copies of or to view Section 16 reports filed by the Company's insiders, click on the "Click here to view Section 16 Reports" link on the above webpage. Item 3. Controls and Procedures (a) Disclosure Controls and Procedures: An evaluation of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and other members of the Company's senior management as of the end of the Company's fiscal quarter ended September 30, 2004. The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. (b) Internal Control Over Financial Reporting: An evaluation of any changes in the Company's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), that occurred during the Company's fiscal quarter ended September 30, 2004, was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and other members of the Company's senior management. The Company's Chief Executive Officer and Chief Financial Officer concluded that no change identified in connection with such evaluation has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal None Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities and Mall Business Issuers Purchases of Equity Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Page 18 of 87 Item 6. Exhibits (2.1) Plan of Reorganization and Merger Agreement (included in Annex A), incorporated by reference from the Registrant's Form S-4EF, Registration No. 333-104244, filed with the Securities and Exchange Commission on April 1, 2003. (3.1) Articles of Incorporation, incorporated by reference from the Registrant's Form S-4EF, Registration No. 333-104244, filed with the Securities and Exchange Commission on April 1, 2003. (3.2) Bylaws, incorporated by reference from the Registrant's Form S-4EF, Registration No. 333-104244, filed with the Securities and Exchange Commission on April 1, 2003. (4.1) Specimen form of certificate for Service 1st Bancorp common stock, incorporated by reference from Registrant's Form 10-QSB, filed with the Securities and Exchange Commission on November 14, 2003. (10.1) Lease agreement dated May 3, 2003, related to 2800 W. March Lane, Suite 120, CA 95219, incorporated by reference from the Registrant's Form S-4EF, Registration No. 333-104244, filed with the Securities and Exchange Commission on April 1, 2003. (10.2) Lease agreement dated April 13, 1999 and amendment thereto dated June 17, 1999, related to 60 W. 10th Street, Tracy, CA 95376, incorporated by reference from the Registrant's Form S-4EF, Registration No. 333-104244, filed with the Securities and Exchange Commission on April 1, 2003. (10.3)* 1999 Service 1st Bancorp Stock Option Plan, Amendment No. 1 thereto, and related forms of Incentive and Nonstatutory Stock Option Agreements entered into with executive officers and directors, incorporated by reference from the Registrant's Form S-8, Registration No. 333-107346, filed with the Securities and Exchange Commission on July 25, 2003. (10.4) Agreement dated July 27, 1999 with BancData Solutions, Inc. for service bureau and data processing services, incorporated by reference from the Registrant's Form S- 4EF, Registration No. 333-104244, filed with the Securities and Exchange Commission on April 1, 2003. (10.5) Agreement with Financial Marketing Services dated February 1, 2000, incorporated by reference from the Registrant's Form S-4EF, Registration No. 333-104244, filed with the Securities and Exchange Commission on April 1, 2003. (10.6)* Service 1st Bank 401(k) Profit Sharing Plan and Trust Summary Plan Description, dated January 1, 2000 incorporated by reference from the Registrant's Form S- 4EF, Registration No. 333-104244, filed with the Securities and Exchange Commission on April 1, 2003. (10.7) Dennis A. Reed (Senior Vice President/Senior Real Estate Officer) Employment Agreement dated January 22, 2003, incorporated by reference from the Registrant's Form S-4EF, Registration No. 333-104244, filed with the Securities and Exchange Commission on April 1, 2003. (10.8) John A. Montalbo (Senior Vice President/SBA Department Manager) Employment Agreement dated March 18, 2003, incorporated by reference from the Registrant's Form S-4EF, Registration No. 333-104244, filed with the Securities and Exchange Commission on April 1, 2003. (10.9) Lease agreement dated March 27, 2003, related to 3533 Jamison Way, Castro Valley, California 94546, incorporated by reference from the Registrant's Form 10-KSB, filed with the Securities and Exchange Commission on March 30, 2004. Page 19 of 87 (10.10)* John O. Brooks Salary Continuation Agreement dated September10, 2003, incorporated by reference from the Registrant's Form 10-KSB, filed with the Securities and Exchange Commission on March 30, 2004. . (10.11)* Bryan R. Hyzdu Salary Continuation Agreement dated September 10, 2003, incorporated by reference from the Registrant's Form 10-KSB, filed with the Securities and Exchange Commission on March 30, 2004. (10.12)* Robert E. Bloch Salary Continuation Agreement dated September 10, 2003, incorporated by reference from the Registrant's Form 10-KSB, filed with the Securities and Exchange Commission on March 30, 2004. (10.13)* Patrick J. Carman Salary Continuation Agreement dated September 10, 2003, incorporated by reference from the Registrant's Form 10-KSB, filed with the Securities and Exchange Commission on March 30, 2004. (10.14)* John O. Brooks Employment Agreement dated July 15, 2004. (10.15)* Bryan R. Hyzdu Employment Agreement dated July 15, 2004. (10.16)* Robert E. Bloch Employment Agreement dated July 15, 2004. (10.17)* Patrick J. Carman Employment Agreement dated July 15, 2004. (10.18)* Shannon Reinard Employment Agreement dated July 15, 2004. (14.1) Code of Ethics, incorporated by reference from the Registrant's Form 10-KSB, filed with the Securities and Exchange Commission on March 30, 2004. (21.1) The Registrant's only subsidiary is Service 1st Bank. (31.1) Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (31.2) Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (32.1) Certification of Service 1st Bancorp by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *Denotes management compensatory plans or arrangements. Page 20 of 87 SIGNATURES Pursuant to 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 1st Bancorp Date: November 12, 2004 /s/ JOHN O. BROOKS ---------------------------------------- John O. Brooks, Chief Executive Officer Date: November 12, 2004 /s/ ROBERT E. BLOCH ---------------------------------------- Robert E. Bloch, Chief Financial Officer Page 21 of 87 EXHIBIT INDEX Exhibit Sequential Number Description Page Number - ------- ----------- ----------- 10.14 John O. Brooks Employment Agreement dated July 15, 2004 23 10.15 Bryan R. Hyzdu Employment Agreement dated July 15, 2004 36 10.16 Robert E. Bloch Employment Agreement dated July 15, 2004 49 10.17 Patrick J. Carman Employment Agreement dated July 15, 2004 62 10.18 Shannon Reinard Employment Agreement dated July 15, 2004 74 31.1 Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 85 31.2 Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 86 32.1 Certification of Service 1st Bancorp by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 87 Page 22 of 87 EX-10.14 2 ex10_14.txt EXHIBIT 10.14 EXHIBIT 10.14 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made and entered into as of July 15, 2004, by and among Service 1st Bancorp ("Bancorp"), Service 1st Bank ("Bank") and John O. Brooks ("Executive"). RECITALS WHEREAS, Bancorp is a California corporation and bank holding company registered under the Bank Holding Company Act of 1956, as amended, subject to the supervision and regulation of the Board of Governors of the Federal Reserve System ("BGFRS"); WHEREAS, Bancorp is the parent holding company for Bank, which is a California state-chartered banking corporation and wholly-owned subsidiary of Bancorp, subject to the supervision and regulation of the California Department of Financial Institutions ("CDFI") and the Federal Deposit Insurance Corporation ("FDIC"); WHEREAS, Bancorp, Bank and Executive desire to enter into an employment agreement for the purposes of engaging the services of Executive and to delineate the rights, obligations and responsibilities of Bancorp, Bank and Executive; WHEREAS, Bancorp and Executive intend that Executive devote approximately seventy percent (70%) of his business time, ability, and attention to the business of Bancorp during the term of this Agreement and the balance of approximately thirty percent (30%) of such time to the business of Bank (such percentages hereinafter referred to as the "Allocation"), in each case as delineated in a position description approved by the Boards of Directors of Bancorp and Bank as described hereinafter and attached to this Agreement as an addendum; and WHEREAS, Bancorp and Bank intend to allocate the compensation and benefits payable or provided to Executive under this Agreement in accordance with the Allocation. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, Bancorp, Bank and Executive agree as follows: AGREEMENT 1. Term of Employment. Bancorp and Bank hereby employ Executive in the positions with Bancorp and Bank, in accordance with the Allocation and as hereinafter set forth, and Executive hereby accepts employment with Bancorp and Bank upon the terms and conditions hereinafter set forth, for a period of two (2) years from the date hereof, subject to the termination provisions of paragraph 16 and any required regulatory approvals as specified in paragraph 28 of this Agreement. Upon the occurrence of the second annual anniversary of the date of this Agreement, and on each annual anniversary date thereafter, the term of this Agreement shall be deemed automatically extended for an additional one (1) year term, subject to the termination provisions of paragraph 16. Page 23 of 87 2. Duties and Obligations of Executive. Executive shall serve as the Chairman of the Board of Directors and Chief Executive Officer of Bancorp and as the Chairman of the Board of Directors of Bank in accordance with the Allocation, and shall perform the duties of such positions as set forth in the position descriptions approved by resolutions adopted by the Boards of Directors of Bancorp and Bank, which shall be attached to this Agreement as an addendum, and such additional duties as may from time to time be reasonably requested of him by the Boards of Directors of Bancorp and Bank. 3. Devotion to Bancorp's and Bank's Business. (a) Executive shall devote his business time, ability, and attention to the business of the Bancorp and Bank in accordance with the Allocation during the term of this Agreement and shall not during the term of this Agreement engage in any other business activities, duties, or pursuits whatsoever, or directly or indirectly render any services of a business, commercial, or professional nature to any other person or organization, whether for compensation or otherwise, without the prior written consent of the Bank and Bancorp's Board of Directors. (b) The expenditure of reasonable amounts of time for educational, charitable, or professional activities shall not be deemed a breach of this Agreement if those activities do not materially interfere with the services required of Executive under this Agreement. It is expressly understood and agreed that Executive may continue to participate in any such activities in which Executive participated prior to the date of this Agreement with the knowledge of Bancorp. Nothing in this Agreement shall be interpreted to prohibit Executive from making passive personal investments; provided that, except for ownership interests in businesses acquired prior to the date of this Agreement which represent in each case less than three percent (3%) of the total ownership of each such business, Executive shall not directly or indirectly acquire, hold, or retain any ownership interest in any financial institution, including its affiliated companies, or any other business competing with or similar in nature to the business of Bancorp or Bank, or their respective subsidiaries or affiliates, which conducts business or operations in San Joaquin County. (c) Executive agrees to conduct himself at all times with due regard to public conventions and morals. Executive further agrees not to do or commit any act that will reasonably tend to shock or offend the community and have an adverse effect upon Bancorp or Bank. (d) Executive hereby represents and agrees that the services to be performed under the terms of this Agreement are of a special, unique, unusual, extraordinary, and intellectual character that gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law. Executive therefore expressly agrees that in addition to any other rights or remedies that Bancorp or Bank may possess, they shall be entitled to injunctive and other equitable relief to prevent or remedy a breach of this Agreement by Executive. 4. Noncompetition by Executive. Executive shall not, during the term of this Agreement, directly or indirectly, either as a consultant, agent, principal, stockholder (except as permitted in paragraph 3(b) of this Page 24 of 87 Agreement), officer, director, or in any other individual or representative capacity, engage, assist, consult or participate in any other banking or financial services business without the prior written consent of the Board of Directors of Bancorp. Following the termination of this Agreement and during any period when Executive is receiving severance payments from Bancorp or Bank pursuant to or related to this Agreement, Executive shall be subject to the foregoing noncompetition restrictions only with respect to banking or financial services businesses which conduct business or operations in San Joaquin County. This paragraph 4 shall survive the expiration or termination of this Agreement. 5. Indemnification. (a) Executive shall indemnify and hold Bancorp and Bank, and their respective affiliates and subsidiaries, harmless from all liability for loss, damage, or injury to persons or property resulting from the gross negligence or intentional misconduct of Executive. (b) To the fullest extent permitted by law and applicable regulations of the BGFRS and FDIC, Bancorp shall indemnify Executive if he was or is a party or is threatened to be made a party in any action brought by a third party against Executive (whether or not Bancorp or Bank is joined as a party defendant) against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with said action if Executive acted in good faith and in a manner Executive reasonably believed to be in the best interests of Bancorp and Bank (and with respect to a criminal proceeding if Executive had no reasonable cause to believe his conduct was unlawful), provided that the alleged conduct of Executive arose out of and was within the course and scope of his employment as an officer or executive of Bancorp or Bank. 6. Disclosure of Information. Executive shall not, either before or after termination of this Agreement, without the prior written consent of Bancorp's Board of Directors or except as required by law to comply with legal process including, without limitation, by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process, disclose to anyone any financial information, trade or business secrets, customer lists, computer software or other information not otherwise publicly available concerning the business or operations of Bancorp or Bank and their respective affiliates and subsidiaries. Executive further recognizes and acknowledges that any financial information concerning any customers of Bancorp or Bank and their respective affiliates or subsidiaries, as it may exist from time to time, is strictly confidential and is a valuable, special and unique asset of Bancorp's and Bank's business. Executive shall not, either before or after termination of this Agreement, without such consent or except as required by law, disclose to anyone said financial information or any part thereof, for any reason or purpose whatsoever. In the event Executive is required by law to disclose such information described in this paragraph 6, Executive will provide Bancorp and its counsel with immediate notice of such request so that they may consider seeking a protective order. If in the absence of a protective order or the receipt of a waiver hereunder Executive is nonetheless, in the written opinion of knowledgeable counsel, compelled to disclose any of such information to any tribunal or any other party or else stand liable for contempt or suffer other material censure or material penalty, then Executive may disclose (on an "as needed" basis only) such information to such tribunal or other party without liability hereunder. Notwithstanding the foregoing, Executive may disclose such information concerning the business or operations of Bancorp or Bank and their respective affiliates and subsidiaries as may be required by the BGFRS, FDIC or other Page 25 of 87 regulatory agency having jurisdiction over the operations of Bancorp or Bank in connection with an examination of Bancorp or Bank or other proceeding conducted by such regulatory agency. This paragraph 6 shall survive the expiration or termination of this Agreement. 7. Written, Printed or Electronic Material. All written, printed or electronic material, notebooks and records including, without limitation, computer disks used by Executive in performing duties for Bancorp or Bank, other than Executive's personal notes and diaries, are and shall remain the sole property of Bancorp. Upon termination of employment, Executive shall promptly return all such material (including all copies, extracts and summaries thereof) to Bancorp. This paragraph 7 shall survive the expiration or termination of this Agreement. 8. Surety Bond. Executive agrees that he will furnish all information and take any other steps necessary from time to time to enable Bancorp or Bank to obtain or maintain a fidelity bond conditional on the rendering of a true account by Executive of all monies, goods, or other property which may come into the custody, charge, or possession of Executive during the term of his employment. The surety company issuing the bond and the amount of the bond must be acceptable to Bancorp. All premiums on the bond shall be paid by Bancorp and Bank in accordance with the Allocation. Bancorp shall have no obligation to pay severance benefits to Executive in accordance with paragraph 16 (d) of this Agreement in the event that the Executive's employment is terminated in connection with the Executive's failure to qualify for a surety bond at any time during the term of this Agreement and such failure to qualify results from an occurrence described in paragraph 16(a) (5), (6), (7), (8), (9), or (11, to the extent of an Executive breach). 9. Base Salary. In consideration for the services to be performed hereunder, Bancorp and Bank shall pay to Executive in accordance with the Allocation, a base salary at the rate of One Hundred Thirty-Eight Thousand Five Hundred Thirty-Nine Dollars ($138,539) per annum, payable in substantially equal installments during the term of this Agreement of approximately Five Thousand Seven Hundred Seventy-Two Dollars and Forty-Six Cents ($5,772.46) on the fifteenth and last days of each month, subject to applicable adjustments for withholding taxes and prorations for any partial employment period. Executive shall receive such annual adjustments in base salary, if any, as may be determined by Bancorp's Board of Directors, in its sole discretion. 10. Salary Continuation During Disability. If Executive for any reason (except as expressly provided below) becomes temporarily or permanently disabled so that he is unable to perform the duties under this Agreement, Bancorp and Bank agree to pay Executive in accordance with the Allocation, the base salary otherwise payable to Executive pursuant to paragraph 9 of this Agreement reduced by the amounts received by Executive from state disability insurance, or worker's compensation or other similar insurance benefits through policies provided by Bancorp or Bank, for a period of six (6) months from the date of disability. For purposes of this paragraph 10, "disability" shall be defined as provided in any disability insurance coverage provided by Bancorp or Bank to Executive or as may otherwise be defined in any disability insurance program of Bancorp or Bank. Notwithstanding anything herein to the contrary, Bancorp and Bank shall have no obligation to make payments for a disability Page 26 of 87 resulting from the deliberate, intentional actions of Executive, such as, but not limited to, attempted suicide or chemical dependence of Executive. 11. Incentive Compensation. Executive shall be entitled to receive an annual incentive compensation payment as determined by the Board of Directors of Bancorp based upon the implementation of Bancorp's strategic plan for each year and the profitability of Bancorp for each year during the term of this Agreement. Notwithstanding the foregoing, no incentive compensation payments shall be prorated for a partial year and Executive shall not be entitled to receive incentive compensation payments based upon the increased profitability described above for any year during the term of this Agreement in which Executive was not employed by Bancorp and Bank for the full fiscal year. Any incentive compensation payable to Executive shall be distributed to Executive following review by Bancorp's Board of Directors of the final audited consolidated financial results of operations for the immediately preceding fiscal year of Bancorp. 12. Stock Options. Executive has previously been granted incentive stock options to purchase Twenty-Five Thousand (25,000) shares of Bancorp's common stock pursuant to the 1999 Stock Option Plan (the "1999 Plan"). Notwithstanding any contrary provision of the 1999 Plan or related Incentive Stock Option Agreement, no rights of employment shall be conferred upon Executive or result from the 1999 Plan or such Incentive Stock Option Agreement. Bancorp has a 2004 Stock Option Plan (the "2004 Plan") pursuant to which no stock options have been granted to Executive as of the date of this Agreement. Executive shall be eligible for a future grant of stock options under the 2004 Plan in the sole discretion of Bancorp's Board of Directors. In the event stock options are granted to Executive under the 2004 Plan in the future, no rights of employment shall be conferred upon Executive or result from the 2004 Plan or stock option agreements thereunder. Any employment rights and corresponding duties of Executive pursuant to his employment by Bancorp or Bank shall be limited to and interpreted solely in accordance with the terms and provisions of this Agreement. 13. Other Benefits. Executive shall be entitled to those benefits adopted by Bancorp or Bank for all executive officers of Bancorp or Bank, subject to the Allocation, and to applicable qualification requirements and regulatory approval requirements, if any. Executive shall be further entitled to the following additional benefits which shall supplement or replace, to the extent duplicative of any part or all of the general benefits available for executive officers of Bancorp or Bank, the benefits otherwise provided to Executive: (a) Vacation. Executive shall be entitled to annual vacation leave, the duration of which shall be equal to an aggregate of four (4) weeks. The vacation leave shall be paid by Bancorp and Bank in accordance with the Allocation, based on Executive's then existing rate of base salary each year during the term of this Agreement. Executive may be absent from his employment for vacation as long as such leave is reasonable and does not jeopardize his responsibilities and duties specified in this Agreement. The length of vacation should not exceed two (2) weeks without the approval of Bancorp's Board of Directors, but at least two (2) consecutive weeks of vacation must be taken each year during the term of this Agreement. Vacation time will accrue in accordance with Bancorp's personnel policies. Page 27 of 87 (b) Insurance. Bancorp shall provide during the term of this Agreement group life, health (including medical, dental and hospitalization), accident and disability insurance coverage for Executive and his dependents through a policy or policies provided by the California Bankers Association group insurance program or similarly equivalent program. The cost of such insurance shall be paid by Bancorp and Bank in accordance with the Allocation. 14. Annual Physical Examination. Bancorp and Bank shall pay or reimburse Executive in accordance with the Allocation for the cost of an annual physical examination conducted by a California licensed physician selected by Executive and reasonably acceptable to Bancorp. 15. Business Expenses. Executive shall be reimbursed for all ordinary and necessary expenses incurred by Executive in connection with his employment. Executive shall also be reimbursed for expenses incurred in activities associated with promoting the business of Bancorp or Bank, including expenses for club memberships, entertainment, travel and other expenses for attendance at conventions and education programs, and similar items. Bancorp and Bank will pay for or will reimburse Executive for such expenses in accordance with the Allocation upon presentation by Executive from time to time of receipts or other appropriate evidence of such expenditures in form and content reasonably acceptable to Bancorp and Bank. Any club memberships shall be approved in advance of purchase by Bancorp's and Bank's Boards of Directors. 16. Termination of Agreement. (a) Automatic Termination. This Agreement shall terminate automatically without further act of the parties and immediately upon the occurrence of any one of the following events, subject to a party's right, without any obligation whatsoever, to waive an event reasonably susceptible of waiver which otherwise benefits the waiving party, and the obligation of Bancorp and Bank to pay in accordance with the Allocation, the amounts which would otherwise be payable to Executive under this Agreement through the end of the month in which the event occurs, except that only in the event of termination based upon subparagraphs (1), (4) or (11, to the extent of Bancorp's or Bank's breach) below shall Executive be entitled to receive severance payments and continuation of group insurance benefits based upon automatic termination pursuant to paragraph 16 (d) of this Agreement: (1) The occurrence of circumstances that make it impossible or impractical for Bancorp and Bank to conduct or continue business. (2) The death of Executive. (3) The loss by Executive of legal capacity. (4) The loss by Bancorp and Bank of legal capacity to contract. Page 28 of 87 (5) The willful and material breach or the habitual and continued neglect by the Executive of his employment responsibilities and duties; (6) The continuous mental or physical incapacity of the Executive, subject to disability rights under this Agreement; (7) The Executive's willful violation of any federal banking or securities laws, or of the bylaws, rules, policies or resolutions of Bancorp or Bank, or the rules or regulations of the BGFRS, CDFI, FDIC, or other regulatory agency or governmental authority having jurisdiction over Bancorp or Bank, which has an adverse effect upon the Bancorp or Bank; (8) The written determination by a state or federal banking agency or governmental authority having jurisdiction over the Bancorp or Bank that Executive is not suitable to act in the capacity for which he is employed by Bancorp and Bank; (9) The Executive's conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Executive's willful commission of a fraudulent or dishonest act; or (10) The Executive's willful disclosure, without authority, of any secret or confidential information concerning Bancorp or Bank and their respective affiliates or subsidiaries, or taking any action which Bancorp's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Bancorp or Bank, or their respective affiliates or subsidiaries. (11) Bancorp, Bank or Executive materially breaches the terms or provisions of this Agreement. (b) Termination by Bancorp and Bank. Bancorp and Bank may, at their election and in their sole discretion, terminate this Agreement at any time for any reason, or for no reason, without prejudice to any other remedy to which Bancorp or Bank may be entitled either at law, in equity or under this Agreement. Upon such termination, Executive shall immediately cease performing and discharging the duties and responsibilities of his positions with Bancorp and Bank and remove himself and his personal belongings from Bancorp's and Bank's premises. All rights and obligations accruing to Executive under this Agreement shall cease at such termination, except that such termination shall not prejudice Executive's rights regarding employment benefits which shall have accrued prior to such termination, including the right to receive the severance pay and benefits specified in paragraph 16 (d) below, and any other remedy which Executive may have at law, in equity or under this Agreement, which remedy accrued prior to such termination. Page 29 of 87 (c) Termination by Executive. This Agreement may be terminated at any time by Executive for any reason, or no reason, by giving not less than thirty (30) days' prior written notice of termination to Bancorp and Bank. Upon such termination, all rights and obligations accruing to Executive under this Agreement shall cease, except that such termination shall not prejudice Executive's rights regarding employment benefits which shall have accrued prior to such termination and any other remedy which Executive may have at law, in equity or under this Agreement, which remedy accrued prior to such termination. (d) Severance Pay and Insurance Continuation Benefits - Termination by Bancorp and Bank. In the event of termination by Bancorp and Bank pursuant to paragraph 16 (b) or automatic termination based upon paragraph 16 (a) (1), (4) or (11, to the extent of Bancorp's or Bank's breach) of this Agreement, Executive shall be entitled to receive severance pay (in addition to any base salary, incentive compensation, or other payments, if any, due Executive) equal to twelve (12) months base salary, payable by Bancorp and Bank in accordance with the Allocation in substantially equal installments on the fifteenth and last days of each month commencing with the month immediately following such termination. Executive shall also be entitled to receive continuation of group insurance coverages in effect at the date of termination for Executive and his dependents, at the expense of Bancorp and Bank in accordance with the Allocation, for a period of one hundred eighty (180) days from the date of termination. Notwithstanding the foregoing, in the event of a "change in control" as defined in subparagraph (e) below, Executive shall not be entitled to severance pay or continuation of group insurance coverages pursuant to this subparagraph (d) and any rights of Executive to severance pay or other benefits shall be limited to such rights and benefits as are specified in subparagraph (e) below. Executive acknowledges and agrees that severance pay and continuation of group insurance coverages pursuant to this subparagraph (d) is in lieu of all damages, payments and liabilities on account of the early termination of this Agreement and the sole and exclusive remedy for Executive terminated at the will of Bancorp and Bank pursuant to paragraph 16 (b) or pursuant to certain provisions of paragraph 16 (a) described herein. (e) Severance Pay - Change in Control. In the event of a "change in control" as defined herein and within a period of twenty-four (24) months following consummation of such a change in control (i) Executive's employment is terminated; or (ii) any adverse change occurs in the nature and scope of Executive's position, responsibilities, duties, base salary, benefits or location of employment; or (iii) any event occurs which reasonably constitutes a demotion, significant diminution or constructive termination (by resignation or otherwise) of Executive's employment, Executive shall be entitled to receive severance pay in addition to any bonus or incentive compensation payments due Executive. Any such severance pay due Executive shall be in an amount equal to twenty-four (24) months of Executive's base salary at the rate in effect immediately prior to termination. Executive shall also be entitled to receive continuation of group insurance coverages in effect at the date of termination for Executive and his dependents, at the expense of Bancorp and Bank in accordance with the Allocation, for a period of one hundred eighty (180) days from the date of termination. Notwithstanding the foregoing provisions of paragraph 16 (e), Executive may resign his position at any time during the period commencing on the expiration of six (6) months following a "change in control" through the expiration of twelve (12) months following a "change in control" and upon such resignation receive the severance pay specified in paragraph 16 (e) above without regard to whether an event described in paragraph 16 (e) (i), (ii) or (iii) has occurred; provided, however, that Executive shall deliver a Page 30 of 87 letter of resignation that clearly states the intention to resign as of a date specified therein and such date of resignation shall be at least thirty (30) days after the date of receipt of the resignation letter by Executive's employer following such "change in control." Any such severance shall be payable in lump sum by Bancorp and Bank in accordance with the Allocation, within thirty (30) days following the occurrence of an event described in paragraph 16 (e). Such severance payments, if any, shall be in lieu of all damages, payments and liabilities on account of the events described above for which such severance payments, if any, may be due Executive and any severance payment rights of Executive under paragraph 16 (d) of this Agreement. This paragraph 16 (e) shall be binding upon and inure to the benefit of the parties and any successors or assigns of the parties or any "person" as defined herein. Notwithstanding the foregoing, Executive shall not be entitled to receive nor shall Bancorp or Bank, their respective successors, assigns or any "person" as defined herein be obligated to pay severance payments pursuant to this paragraph 16 (e) in the event of an occurrence described in paragraph 16 (a) (5), (7) (8), (9), (10), or (11, to the extent of Executive's breach), or in the event Executive terminates employment in accordance with paragraph 16 (c) and the termination is not a result of or based upon the occurrence of any event described in paragraph 16 (e) (ii) or (iii) above. 17. Change in Control Definition. The term "change in control" shall mean the first to occur of any of the following events with respect to Bancorp or Bank: (a) Any "person" (as such term is used in sections 13 and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes the beneficial owner (as that term is used in section 13(d) of the Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of Bancorp's or Bank's capital stock, other than a group of two or more persons not (i) acting in concert for the purpose of acquiring, holding or disposing of such stock or (ii) otherwise required to file any form or report with any governmental agency or regulatory authority having jurisdiction over Bancorp or Bank which requires the reporting of any change in control; (b) During any period of not more than two (2) consecutive years, not including any period prior to the date of this Agreement, individuals who, at the beginning of such period, constitute the Board of Directors of Bancorp or Bank, cease for any reason to constitute at least a majority thereof; (c) The effective date of any consolidation or merger of Bancorp or Bank (after all requisite shareholder, applicable regulatory and other approvals and consents have been obtained), other than a consolidation or merger of Bancorp or Bank in which the holders of the voting capital stock of Bancorp or Bank immediately prior to the consolidation or merger hold more than fifty percent (50%) of the voting capital stock of the surviving entity immediately after the consolidation or merger; (d) The shareholders of Bancorp or Bank approve any plan or proposal for the liquidation or dissolution of Bancorp or Bank; or Page 31 of 87 (e) The shareholders of Bancorp or Bank approve the sale or transfer of substantially all of Bancorp's or Bank's assets to parties that are not within a "controlled group of corporations" (as that term is defined in section 1563 of the Code) in which Bancorp or, as applicable Bank, is a member. Notwithstanding the foregoing or anything else contained herein to the contrary, there shall not be a "change in control" for purposes of this Agreement if the event which would otherwise come within the meaning of the term "change in control" involves (i) an Employee Stock Ownership Plan sponsored by the Bancorp, which Plan is the party that acquires "control" or is the principal participant in the transaction constituting a "change in control," as described above, or (ii) a reorganization in which the Bank or any bank subsidiary of the Bancorp is merged with and into another bank subsidiary of Bancorp to consolidate operations under the charter of such other bank subsidiary. 18. Notices. Any notices to be given hereunder by a party to another party shall be in writing and may be transmitted by personal delivery or by U.S. mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses listed as follows: Bancorp or Bank: Principal place of business address. Executive: Principal residence address as shown in Bancorp's Personnel Records and Executive's personal file. Each party may change the address for receipt of notices by written notice in accordance with this paragraph 18. Notices delivered personally shall be deemed communicated as of the date of actual receipt; mailed notices shall be deemed communicated as of three (3) days after the date of mailing. 19. Arbitration. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Bancorp in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc., San Francisco, California ("JAMS"), in accordance with the rules and procedures of JAMS then in effect. In the event JAMS is unable or unwilling to conduct such arbitration, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association, San Francisco, California ("AAA"), shall conduct such binding arbitration in accordance with the rules and procedures of the AAA then in effect. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the Page 32 of 87 provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Stockton, California, unless otherwise agreed to by the parties. 20. Attorneys' Fees and Costs. In the event of litigation, arbitration or any other action or proceeding between the parties to interpret or enforce this Agreement or any part thereof or otherwise arising out of or relating to this Agreement, the prevailing party shall be entitled to recover its costs related to any such action or proceeding and its reasonable fees of attorneys, accountants and expert witnesses incurred by such party in connection with any such action or proceeding. The prevailing party shall be deemed to be the party which obtains substantially the relief sought by final resolution, compromise or settlement, or as may otherwise be determined by order of a court of competent jurisdiction in the event of litigation, an award or decision of one or more arbitrators in the event of arbitration, or a decision of a comparable official in the event of any other action or proceeding. Every obligation to indemnify under this Agreement includes the obligation to pay reasonable fees of attorneys, accountants and expert witnesses incurred by the indemnified party in connection with matters subject to indemnification. 21. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the employment of Executive hereunder and contains all of the covenants and agreements between the parties with respect to the employment of Executive hereunder. Each party to this Agreement acknowledges that no other representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on a party. Notwithstanding the foregoing or any contrary term or provision hereunder, this Agreement shall be construed in light of the Allocation in order to avoid duplication of payments and benefits to which Executive may be entitled as set forth in paragraph 28 below. 22. Modifications. Any modification of this Agreement will be effective only if it is in writing and signed by a party or its authorized representative. 23. Waiver. The failure of either party to insist on strict compliance with any of the terms, provisions, covenants, or conditions of this Agreement by the other party shall not be deemed a waiver of any term, provision, covenant, or condition, individually or in the aggregate, unless such waiver is in writing, nor shall any waiver or relinquishment of any right or power at any one time or times be deemed a waiver or relinquishment of that right or power for all or any other times. 24. Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way. 25. Advice of Counsel and Advisors. Executive acknowledges and agrees that he has read and understands the terms and provisions of this Agreement and prior to signing this Agreement, he has had the advice of counsel and such other advisors as he deemed appropriate in connection with his review and analysis of such terms and provisions of this Agreement. Page 33 of 87 26. Governing Law and Venue. The laws of the State of California, other than those laws denominated choice of law rules, shall govern the validity, construction and effect of this Agreement. Any action which in any way involves the rights, duties and obligations of the parties hereunder and is not resolved by arbitration as set forth in paragraph 19 of this Agreement shall be brought in the courts of the State of California and venue for any action or proceeding shall be in San Joaquin County or in the United States District Court for the Eastern District of California, and the parties hereby submit to the personal jurisdiction of said courts. 27. Payments Due Deceased Executive. If Executive dies prior to the expiration of the term of his employment, any payments that may be due Executive under this Agreement as of the date of death shall be paid to Executive's executors, administrators, heirs, personal representatives, successors, or assigns. 28. Limitation Upon Payments and Benefits. Notwithstanding any other term or provision of this Agreement, each and all of the payments or benefits to which Executive may be entitled under this Agreement including, without limitation, payments or benefits described in paragraphs 9 through 16 of this Agreement, shall be made in accordance with the Allocation and shall not result in any duplicative payments or benefits to Executive. Bancorp, Bank and Executive intend that the Allocation applicable to such payments and benefits under this Agreement will, on a combined basis, equal one hundred percent (100%) of Executive's entitlement thereto. 29. Regulatory Approval. Bancorp, Bank and Executive agree to cooperate in obtaining any required regulatory approvals of this Agreement from the BGFRS, CDFI, FDIC or other governmental or regulatory authority having jurisdiction over Bancorp or Bank at the earliest practicable date. Notwithstanding any other term or provision of this Agreement, Bancorp, Bank and Executive further agree that no benefits, rights or obligations shall accrue to the parties hereunder in the absence of obtaining any such required regulatory approvals and in the event that any such governmental or regulatory authority shall disapprove any provision of this Agreement, then the parties hereto will use their best efforts, acting in good faith, to amend this Agreement in a manner that will be acceptable to the parties and to such governmental or regulatory authorities. Page 34 of 87 IN WITNESS WHEREOF, the parties have executed this Agreement in Stockton, California, as of the date set forth above. BANCORP: EXECUTIVE: Service 1st Bancorp By: ----------------------------- ------------------------- Eugene Gini John O. Brooks Chairman, Executive Committee BANK: Service 1st Bank By: ----------------------------- Eugene Gini Chairman, Executive Committee Page 35 of 87 EX-10.15 3 ex10_15.txt EXHIBIT 10.15 EXHIBIT 10.15 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made and entered into as of July 15, 2004, by and among Service 1st Bancorp ("Bancorp"), Service 1st Bank ("Bank") and Bryan R. Hyzdu ("Executive"). RECITALS WHEREAS, Bancorp is a California corporation and bank holding company registered under the Bank Holding Company Act of 1956, as amended, subject to the supervision and regulation of the Board of Governors of the Federal Reserve System ("BGFRS"); WHEREAS, Bancorp is the parent holding company for Bank, which is a California state-chartered banking corporation and wholly-owned subsidiary of Bancorp, subject to the supervision and regulation of the California Department of Financial Institutions ("CDFI") and the Federal Deposit Insurance Corporation ("FDIC"); WHEREAS, Bancorp, Bank and Executive desire to enter into an employment agreement for the purposes of engaging the services of Executive and to delineate the rights, obligations and responsibilities of Bancorp, Bank and Executive; WHEREAS, Bancorp and Executive intend that Executive devote approximately ten percent (10%) of his business time, ability, and attention to the business of Bancorp during the term of this Agreement and the balance of approximately ninety percent (90%) of such time to the business of Bank (such percentages hereinafter referred to as the "Allocation"), in each case as delineated in a position description approved by the Boards of Directors of Bancorp and Bank as described hereinafter and attached to this Agreement as an addendum; and WHEREAS, Bancorp and Bank intend to allocate the compensation and benefits payable or provided to Executive under this Agreement in accordance with the Allocation. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, Bancorp, Bank and Executive agree as follows: AGREEMENT 1. Term of Employment. Bancorp and Bank hereby employ Executive in the positions with Bancorp and Bank, in accordance with the Allocation and as hereinafter set forth, and Executive hereby accepts employment with Bancorp and Bank upon the terms and conditions hereinafter set forth, for a period of three (3) years from the date hereof, subject to the termination provisions of paragraph 16 and any required regulatory approvals as specified in paragraph 28 of this Agreement. Upon the occurrence of the third annual anniversary of the date of this Agreement, and on each annual anniversary date thereafter, the term of this Agreement shall be deemed automatically extended for an additional one (1) year term, subject to the termination provisions of paragraph 16. Page 36 of 87 2. Duties and Obligations of Executive. Executive shall serve as the President of Bancorp and President and Chief Executive Officer of Bank in accordance with the Allocation, and shall perform the duties of such positions as set forth in the position descriptions approved by resolutions adopted by the Boards of Directors of Bancorp and Bank, which shall be attached to this Agreement as an addendum, and such additional duties as may from time to time be reasonably requested of him by the Boards of Directors of Bancorp and Bank. 3. Devotion to Bancorp's and Bank's Business. (a) Executive shall devote his business time, ability, and attention to the business of the Bancorp and Bank in accordance with the Allocation during the term of this Agreement and shall not during the term of this Agreement engage in any other business activities, duties, or pursuits whatsoever, or directly or indirectly render any services of a business, commercial, or professional nature to any other person or organization, whether for compensation or otherwise, without the prior written consent of the Bank and Bancorp's Board of Directors. (b) The expenditure of reasonable amounts of time for educational, charitable, or professional activities shall not be deemed a breach of this Agreement if those activities do not materially interfere with the services required of Executive under this Agreement. It is expressly understood and agreed that Executive may continue to participate in any such activities in which Executive participated prior to the date of this Agreement with the knowledge of Bancorp. Nothing in this Agreement shall be interpreted to prohibit Executive from making passive personal investments; provided that, except for ownership interests in businesses acquired prior to the date of this Agreement which represent in each case less than three percent (3%) of the total ownership of each such business, Executive shall not directly or indirectly acquire, hold, or retain any ownership interest in any financial institution, including its affiliated companies, or any other business competing with or similar in nature to the business of Bancorp or Bank, or their respective subsidiaries or affiliates, which conducts business or operations in San Joaquin County. (c) Executive agrees to conduct himself at all times with due regard to public conventions and morals. Executive further agrees not to do or commit any act that will reasonably tend to shock or offend the community and have an adverse effect upon Bancorp or Bank. (d) Executive hereby represents and agrees that the services to be performed under the terms of this Agreement are of a special, unique, unusual, extraordinary, and intellectual character that gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law. Executive therefore expressly agrees that in addition to any other rights or remedies that Bancorp or Bank may possess, they shall be entitled to injunctive and other equitable relief to prevent or remedy a breach of this Agreement by Executive. 4. Noncompetition by Executive. Executive shall not, during the term of this Agreement, directly or indirectly, either as a consultant, agent, principal, stockholder (except as permitted in paragraph 3(b) of this Agreement), officer, director, or in any other individual or representative capacity, engage, assist, consult or participate in any other banking or financial services business without the prior written consent of the Board of Page 37 of 87 Directors of Bancorp. Following the termination of this Agreement and during any period when Executive is receiving severance payments from Bancorp or Bank pursuant to or related to this Agreement, Executive shall be subject to the foregoing noncompetition restrictions only with respect to banking or financial services businesses which conduct business or operations in San Joaquin County. This paragraph 4 shall survive the expiration or termination of this Agreement. 5. Indemnification. (a) Executive shall indemnify and hold Bancorp and Bank, and their respective affiliates and subsidiaries, harmless from all liability for loss, damage, or injury to persons or property resulting from the gross negligence or intentional misconduct of Executive. (b) To the fullest extent permitted by law and applicable regulations of the BGFRS and FDIC, Bancorp shall indemnify Executive if he was or is a party or is threatened to be made a party in any action brought by a third party against Executive (whether or not Bancorp or Bank is joined as a party defendant) against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with said action if Executive acted in good faith and in a manner Executive reasonably believed to be in the best interests of Bancorp and Bank (and with respect to a criminal proceeding if Executive had no reasonable cause to believe his conduct was unlawful), provided that the alleged conduct of Executive arose out of and was within the course and scope of his employment as an officer or executive of Bancorp or Bank. 6. Disclosure of Information. Executive shall not, either before or after termination of this Agreement, without the prior written consent of Bancorp's Board of Directors or except as required by law to comply with legal process including, without limitation, by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process, disclose to anyone any financial information, trade or business secrets, customer lists, computer software or other information not otherwise publicly available concerning the business or operations of Bancorp or Bank and their respective affiliates and subsidiaries. Executive further recognizes and acknowledges that any financial information concerning any customers of Bancorp or Bank and their respective affiliates or subsidiaries, as it may exist from time to time, is strictly confidential and is a valuable, special and unique asset of Bancorp's and Bank's business. Executive shall not, either before or after termination of this Agreement, without such consent or except as required by law, disclose to anyone said financial information or any part thereof, for any reason or purpose whatsoever. In the event Executive is required by law to disclose such information described in this paragraph 6, Executive will provide Bancorp and its counsel with immediate notice of such request so that they may consider seeking a protective order. If in the absence of a protective order or the receipt of a waiver hereunder Executive is nonetheless, in the written opinion of knowledgeable counsel, compelled to disclose any of such information to any tribunal or any other party or else stand liable for contempt or suffer other material censure or material penalty, then Executive may disclose (on an "as needed" basis only) such information to such tribunal or other party without liability hereunder. Notwithstanding the foregoing, Executive may disclose such information concerning the business or operations of Bancorp or Bank and their respective affiliates and subsidiaries as may be required by the BGFRS, FDIC or other regulatory agency having jurisdiction over the operations of Bancorp or Bank in connection with an examination of Bancorp or Bank or other proceeding conducted by such regulatory agency. This paragraph 6 shall survive the expiration or termination of this Agreement. Page 38 of 87 7. Written, Printed or Electronic Material. All written, printed or electronic material, notebooks and records including, without limitation, computer disks used by Executive in performing duties for Bancorp or Bank, other than Executive's personal notes and diaries, are and shall remain the sole property of Bancorp. Upon termination of employment, Executive shall promptly return all such material (including all copies, extracts and summaries thereof) to Bancorp. This paragraph 7 shall survive the expiration or termination of this Agreement. 8. Surety Bond. Executive agrees that he will furnish all information and take any other steps necessary from time to time to enable Bancorp or Bank to obtain or maintain a fidelity bond conditional on the rendering of a true account by Executive of all monies, goods, or other property which may come into the custody, charge, or possession of Executive during the term of his employment. The surety company issuing the bond and the amount of the bond must be acceptable to Bancorp. All premiums on the bond shall be paid by Bancorp and Bank in accordance with the Allocation. Bancorp shall have no obligation to pay severance benefits to Executive in accordance with paragraph 16 (d) of this Agreement in the event that the Executive's employment is terminated in connection with the Executive's failure to qualify for a surety bond at any time during the term of this Agreement and such failure to qualify results from an occurrence described in paragraph 16(a) (5), (6), (7), (8), (9), or (11, to the extent of an Executive breach). 9. Base Salary. In consideration for the services to be performed hereunder, Bancorp and Bank shall pay to Executive in accordance with the Allocation, a base salary at the rate of One Hundred Thirty-Nine Thousand Six Hundred Ninety-One Dollars ($139,691) per annum, payable in substantially equal installments during the term of this Agreement of approximately Five Thousand Four Hundred Forty-Five Dollars and Forty-Six Cents ($5,820.46) on the fifteenth and last days of each month, subject to applicable adjustments for withholding taxes and prorations for any partial employment period. Executive shall receive such annual adjustments in base salary, if any, as may be determined by Bancorp's Board of Directors, in its sole discretion. 10. Salary Continuation During Disability. If Executive for any reason (except as expressly provided below) becomes temporarily or permanently disabled so that he is unable to perform the duties under this Agreement, Bancorp and Bank agree to pay Executive in accordance with the Allocation, the base salary otherwise payable to Executive pursuant to paragraph 9 of this Agreement reduced by the amounts received by Executive from state disability insurance, or worker's compensation or other similar insurance benefits through policies provided by Bancorp or Bank, for a period of six (6) months from the date of disability. For purposes of this paragraph 10, "disability" shall be defined as provided in any disability insurance coverage provided by Bancorp or Bank to Executive or as may otherwise be defined in any disability insurance program of Bancorp or Bank. Notwithstanding anything herein to the contrary, Bancorp and Bank shall have no obligation to make payments for a disability resulting from the deliberate, intentional actions of Executive, such as, but not limited to, attempted suicide or chemical dependence of Executive. Page 39 of 87 11. Incentive Compensation. Executive shall be entitled to receive an annual incentive compensation payment as determined by the Board of Directors of Bancorp based upon the implementation of Bancorp's strategic plan for each year and the profitability of Bancorp for each year during the term of this Agreement. Notwithstanding the foregoing, no incentive compensation payments shall be prorated for a partial year and Executive shall not be entitled to receive incentive compensation payments based upon the increased profitability described above for any year during the term of this Agreement in which Executive was not employed by Bancorp and Bank for the full fiscal year. Any incentive compensation payable to Executive shall be distributed to Executive following review by Bancorp's Board of Directors of the final audited consolidated financial results of operations for the immediately preceding fiscal year of Bancorp. 12. Stock Options. Executive has previously been granted incentive stock options to purchase Twenty Thousand (20,000) shares of Bancorp's common stock pursuant to the 1999 Stock Option Plan (the "1999 Plan"). Notwithstanding any contrary provision of the 1999 Plan or related Incentive Stock Option Agreement, no rights of employment shall be conferred upon Executive or result from the 1999 Plan or such Incentive Stock Option Agreement. Bancorp has a 2004 Stock Option Plan (the "2004 Plan") pursuant to which no stock options have been granted to Executive as of the date of this Agreement. Executive shall be eligible for a future grant of stock options under the 2004 Plan in the sole discretion of Bancorp's Board of Directors. In the event stock options are granted to Executive under the 2004 Plan in the future, no rights of employment shall be conferred upon Executive or result from the 2004 Plan or stock option agreements thereunder. Any employment rights and corresponding duties of Executive pursuant to his employment by Bancorp or Bank shall be limited to and interpreted solely in accordance with the terms and provisions of this Agreement. 13. Other Benefits. Executive shall be entitled to those benefits adopted by Bancorp or Bank for all executive officers of Bancorp or Bank, subject to the Allocation, and to applicable qualification requirements and regulatory approval requirements, if any. Executive shall be further entitled to the following additional benefits which shall supplement or replace, to the extent duplicative of any part or all of the general benefits available for executive officers of Bancorp or Bank, the benefits otherwise provided to Executive: (a) Vacation. Executive shall be entitled to annual vacation leave, the duration of which shall be equal to an aggregate of four (4) weeks. The vacation leave shall be paid by Bancorp and Bank in accordance with the Allocation, based on Executive's then existing rate of base salary each year during the term of this Agreement. Executive may be absent from his employment for vacation as long as such leave is reasonable and does not jeopardize his responsibilities and duties specified in this Agreement. The length of vacation should not exceed two (2) weeks without the approval of Bancorp's Board of Directors, but at least two (2) consecutive weeks of vacation must be taken each year during the term of this Agreement. Vacation time will accrue in accordance with Bancorp's personnel policies. (b) Insurance. Bancorp shall provide during the term of this Agreement group life, health (including medical, dental and hospitalization), accident and disability insurance coverage for Executive and his dependents through a policy or policies provided by the California Bankers Association group insurance program or similarly equivalent program. In addition to the Page 40 of 87 foregoing, the personal disability policy with Unum Provident Company (Policy # 7905284) established for the benefit of Executive and in existence at the date of this Agreement shall be maintained or substantially equivalent personal disability insurance coverage obtained which is reasonably acceptable to Executive. The cost of such insurance shall be paid by Bancorp and Bank in accordance with the Allocation. 14. Annual Physical Examination. Bancorp and Bank shall pay or reimburse Executive in accordance with the Allocation for the cost of an annual physical examination conducted by a California licensed physician selected by Executive and reasonably acceptable to Bancorp. 15. Business Expenses. Executive shall be reimbursed for all ordinary and necessary expenses incurred by Executive in connection with his employment. Executive shall also be reimbursed for expenses incurred in activities associated with promoting the business of Bancorp or Bank, including expenses for club memberships, entertainment, travel and other expenses for attendance at conventions and education programs, and similar items. Bancorp and Bank will pay for or will reimburse Executive for such expenses in accordance with the Allocation upon presentation by Executive from time to time of receipts or other appropriate evidence of such expenditures in form and content reasonably acceptable to Bancorp and Bank. Any club memberships shall be approved in advance of purchase by Bancorp's and Bank's Boards of Directors. 16. Termination of Agreement. (a) Automatic Termination. This Agreement shall terminate automatically without further act of the parties and immediately upon the occurrence of any one of the following events, subject to a party's right, without any obligation whatsoever, to waive an event reasonably susceptible of waiver which otherwise benefits the waiving party, and the obligation of Bancorp and Bank to pay in accordance with the Allocation, the amounts which would otherwise be payable to Executive under this Agreement through the end of the month in which the event occurs, except that only in the event of termination based upon subparagraphs (1), (4) or (11, to the extent of Bancorp's or Bank's breach) below shall Executive be entitled to receive severance payments and continuation of group insurance benefits based upon automatic termination pursuant to paragraph 16 (d) of this Agreement: (1) The occurrence of circumstances that make it impossible or impractical for Bancorp and Bank to conduct or continue business. (2) The death of Executive. (3) The loss by Executive of legal capacity. (4) The loss by Bancorp and Bank of legal capacity to contract. Page 41 of 87 (5) The willful and material breach or the habitual and continued neglect by the Executive of his employment responsibilities and duties; (6) The continuous mental or physical incapacity of the Executive, subject to disability rights under this Agreement; (7) The Executive's willful violation of any federal banking or securities laws, or of the bylaws, rules, policies or resolutions of Bancorp or Bank, or the rules or regulations of the BGFRS, CDFI, FDIC, or other regulatory agency or governmental authority having jurisdiction over Bancorp or Bank, which has an adverse effect upon the Bancorp or Bank; (8) The written determination by a state or federal banking agency or governmental authority having jurisdiction over the Bancorp or Bank that Executive is not suitable to act in the capacity for which he is employed by Bancorp and Bank; (9) The Executive's conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Executive's willful commission of a fraudulent or dishonest act; or (10) The Executive's willful disclosure, without authority, of any secret or confidential information concerning Bancorp or Bank and their respective affiliates or subsidiaries, or taking any action which Bancorp's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Bancorp or Bank, or their respective affiliates or subsidiaries. (11) Bancorp, Bank or Executive materially breaches the terms or provisions of this Agreement. (b) Termination by Bancorp and Bank. Bancorp and Bank may, at their election and in their sole discretion, terminate this Agreement at any time for any reason, or for no reason, without prejudice to any other remedy to which Bancorp or Bank may be entitled either at law, in equity or under this Agreement. Upon such termination, Executive shall immediately cease performing and discharging the duties and responsibilities of his positions with Bancorp and Bank and remove himself and his personal belongings from Bancorp's and Bank's premises. All rights and obligations accruing to Executive under this Agreement shall cease at such termination, except that such termination shall not prejudice Executive's rights regarding employment benefits which shall have accrued prior to such termination, including the right to receive the severance pay and benefits specified in paragraph 16 (d) below, and any other remedy which Executive may have at law, in equity or under this Agreement, which remedy accrued prior to such termination. Page 42 of 87 (c) Termination by Executive. This Agreement may be terminated at any time by Executive for any reason, or no reason, by giving not less than thirty (30) days' prior written notice of termination to Bancorp and Bank. Upon such termination, all rights and obligations accruing to Executive under this Agreement shall cease, except that such termination shall not prejudice Executive's rights regarding employment benefits which shall have accrued prior to such termination and any other remedy which Executive may have at law, in equity or under this Agreement, which remedy accrued prior to such termination. (d) Severance Pay and Insurance Continuation Benefits - Termination by Bancorp and Bank. In the event of termination by Bancorp and Bank pursuant to paragraph 16 (b) or automatic termination based upon paragraph 16 (a) (1), (4) or (11, to the extent of Bancorp's or Bank's breach) of this Agreement, Executive shall be entitled to receive severance pay (in addition to any base salary, incentive compensation, or other payments, if any, due Executive) equal to twelve (12) months base salary, payable by Bancorp and Bank in accordance with the Allocation in substantially equal installments on the fifteenth and last days of each month commencing with the month immediately following such termination. Executive shall also be entitled to receive continuation of group insurance coverages in effect at the date of termination for Executive and his dependents, at the expense of Bancorp and Bank in accordance with the Allocation, for a period of one hundred eighty (180) days from the date of termination. Executive shall also be entitled to receive continuation of group insurance coverages in effect at the date of termination for Executive and his dependents, at the expense of Bancorp and Bank in accordance with the Allocation, for a period of one hundred eighty (180) days from the date of termination. Notwithstanding the foregoing, in the event of a "change in control" as defined in subparagraph (e) below, Executive shall not be entitled to severance pay or continuation of group insurance coverages pursuant to this subparagraph (d) and any rights of Executive to severance pay or other benefits shall be limited to such rights and benefits as are specified in subparagraph (e) below. Executive acknowledges and agrees that severance pay and continuation of group insurance coverages pursuant to this subparagraph (d) is in lieu of all damages, payments and liabilities on account of the early termination of this Agreement and the sole and exclusive remedy for Executive terminated at the will of Bancorp and Bank pursuant to paragraph 16 (b) or pursuant to certain provisions of paragraph 16 (a) described herein. (e) Severance Pay - Change in Control. In the event of a "change in control" as defined herein and within a period of twenty-four (24) months following consummation of such a change in control (i) Executive's employment is terminated; or (ii) any adverse change occurs in the nature and scope of Executive's position, responsibilities, duties, base salary, benefits or location of employment; or (iii) any event occurs which reasonably constitutes a demotion, significant diminution or constructive termination (by resignation or otherwise) of Executive's employment, Executive shall be entitled to receive severance pay in addition to any bonus or incentive compensation payments due Executive. Any such severance pay due Executive shall be in an amount equal to twenty-four (24) months of Executive's base salary at the rate in effect immediately prior to termination. Notwithstanding the foregoing provisions of paragraph 16 (e), Executive may resign his position at any time during the period commencing on the expiration of six (6) months following a "change in control" through the expiration of twelve (12) months following a "change in control" and upon Page 43 of 87 such resignation receive the severance pay specified in paragraph 16 (e) above without regard to whether an event described in paragraph 16 (e) (i), (ii) or (iii) has occurred; provided, however, that Executive shall deliver a letter of resignation that clearly states the intention to resign as of a date specified therein and such date of resignation shall be at least thirty (30) days after the date of receipt of the resignation letter by Executive's employer following such "change in control." Any such severance shall be payable in lump sum by Bancorp and Bank in accordance with the Allocation, within thirty (30) days following the occurrence of an event described in paragraph 16 (e). Such severance payments, if any, shall be in lieu of all damages, payments and liabilities on account of the events described above for which such severance payments, if any, may be due Executive and any severance payment rights of Executive under paragraph 16 (d) of this Agreement. This paragraph 16 (e) shall be binding upon and inure to the benefit of the parties and any successors or assigns of the parties or any "person" as defined herein. Notwithstanding the foregoing, Executive shall not be entitled to receive nor shall Bancorp or Bank, their respective successors, assigns or any "person" as defined herein be obligated to pay severance payments pursuant to this paragraph 16 (e) in the event of an occurrence described in paragraph 16 (a) (5), (7) (8), (9), (10), or (11, to the extent of Executive's breach), or in the event Executive terminates employment in accordance with paragraph 16 (c) and the termination is not a result of or based upon the occurrence of any event described in paragraph 16 (e) (ii) or (iii) above. 17. Change in Control Definition. The term "change in control" shall mean the first to occur of any of the following events with respect to Bancorp or Bank: (a) Any "person" (as such term is used in sections 13 and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes the beneficial owner (as that term is used in section 13(d) of the Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of Bancorp's or Bank's capital stock, other than a group of two or more persons not (i) acting in concert for the purpose of acquiring, holding or disposing of such stock or (ii) otherwise required to file any form or report with any governmental agency or regulatory authority having jurisdiction over Bancorp or Bank which requires the reporting of any change in control; (b) During any period of not more than two (2) consecutive years, not including any period prior to the date of this Agreement, individuals who, at the beginning of such period, constitute the Board of Directors of Bancorp or Bank, cease for any reason to constitute at least a majority thereof; (c) The effective date of any consolidation or merger of Bancorp or Bank (after all requisite shareholder, applicable regulatory and other approvals and consents have been obtained), other than a consolidation or merger of Bancorp or Bank in which the holders of the voting capital stock of Bancorp or Bank immediately prior to the consolidation or merger hold more than fifty percent (50%) of the voting capital stock of the surviving entity immediately after the consolidation or merger; Page 44 of 87 (d) The shareholders of Bancorp or Bank approve any plan or proposal for the liquidation or dissolution of Bancorp or Bank; or (e) The shareholders of Bancorp or Bank approve the sale or transfer of substantially all of Bancorp's or Bank's assets to parties that are not within a "controlled group of corporations" (as that term is defined in section 1563 of the Code) in which Bancorp or, as applicable Bank, is a member. Notwithstanding the foregoing or anything else contained herein to the contrary, there shall not be a "change in control" for purposes of this Agreement if the event which would otherwise come within the meaning of the term "change in control" involves (i) an Employee Stock Ownership Plan sponsored by the Bancorp, which Plan is the party that acquires "control" or is the principal participant in the transaction constituting a "change in control," as described above, or (ii) a reorganization in which the Bank or any bank subsidiary of the Bancorp is merged with and into another bank subsidiary of Bancorp to consolidate operations under the charter of such other bank subsidiary. 18. Notices. Any notices to be given hereunder by a party to another party shall be in writing and may be transmitted by personal delivery or by U.S. mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses listed as follows: Bancorp or Bank: Principal place of business address. Executive: Principal residence address as shown in Bancorp's Personnel Records and Executive's personal file. Each party may change the address for receipt of notices by written notice in accordance with this paragraph 18. Notices delivered personally shall be deemed communicated as of the date of actual receipt; mailed notices shall be deemed communicated as of three (3) days after the date of mailing. 19. Arbitration. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Bancorp in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc., San Francisco, California ("JAMS"), in accordance with the rules and procedures of JAMS then in effect. In the event JAMS is unable or unwilling to conduct such arbitration, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association, San Francisco, California ("AAA"), shall conduct such binding arbitration in accordance with the rules and procedures of the AAA then in effect. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, Page 45 of 87 and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Stockton, California, unless otherwise agreed to by the parties. 20. Attorneys' Fees and Costs. In the event of litigation, arbitration or any other action or proceeding between the parties to interpret or enforce this Agreement or any part thereof or otherwise arising out of or relating to this Agreement, the prevailing party shall be entitled to recover its costs related to any such action or proceeding and its reasonable fees of attorneys, accountants and expert witnesses incurred by such party in connection with any such action or proceeding. The prevailing party shall be deemed to be the party which obtains substantially the relief sought by final resolution, compromise or settlement, or as may otherwise be determined by order of a court of competent jurisdiction in the event of litigation, an award or decision of one or more arbitrators in the event of arbitration, or a decision of a comparable official in the event of any other action or proceeding. Every obligation to indemnify under this Agreement includes the obligation to pay reasonable fees of attorneys, accountants and expert witnesses incurred by the indemnified party in connection with matters subject to indemnification. 21. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the employment of Executive hereunder and contains all of the covenants and agreements between the parties with respect to the employment of Executive hereunder. Each party to this Agreement acknowledges that no other representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on a party. Notwithstanding the foregoing or any contrary term or provision hereunder, this Agreement shall be construed in light of the Allocation in order to avoid duplication of payments and benefits to which Executive may be entitled as set forth in paragraph 28 below. 22. Modifications. Any modification of this Agreement will be effective only if it is in writing and signed by a party or its authorized representative. 23. Waiver. The failure of any party to insist on strict compliance with any of the terms, provisions, covenants, or conditions of this Agreement by the other party shall not be deemed a waiver of any term, provision, covenant, or condition, individually or in the aggregate, unless such waiver is in writing, nor shall any waiver or relinquishment of any right or power at any one time or times be deemed a waiver or relinquishment of that right or power for all or any other times. 24. Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way. 25. Advice of Counsel and Advisors. Executive acknowledges and agrees that he has read and understands the terms and provisions of this Agreement and prior to signing this Agreement, he has had the advice of Page 46 of 87 counsel and such other advisors as he deemed appropriate in connection with his review and analysis of such terms and provisions of this Agreement. 26. Governing Law and Venue. The laws of the State of California, other than those laws denominated choice of law rules, shall govern the validity, construction and effect of this Agreement. Any action which in any way involves the rights, duties and obligations of the parties hereunder and is not resolved by arbitration as set forth in paragraph 19 of this Agreement shall be brought in the courts of the State of California and venue for any action or proceeding shall be in San Joaquin County or in the United States District Court for the Eastern District of California, and the parties hereby submit to the personal jurisdiction of said courts. 27. Payments Due Deceased Executive. If Executive dies prior to the expiration of the term of his employment, any payments that may be due Executive under this Agreement as of the date of death shall be paid to Executive's executors, administrators, heirs, personal representatives, successors, or assigns. 28. Limitation Upon Payments and Benefits. Notwithstanding any other term or provision of this Agreement, each and all of the payments or benefits to which Executive may be entitled under this Agreement including, without limitation, payments or benefits described in paragraphs 9 through 16 of this Agreement, shall be made in accordance with the Allocation and shall not result in any duplicative payments or benefits to Executive. Bancorp, Bank and Executive intend that the Allocation applicable to such payments and benefits under this Agreement will, on a combined basis, equal one hundred percent (100%) of Executive's entitlement thereto. 29. Regulatory Approval. Bancorp, Bank and Executive agree to cooperate in obtaining any required regulatory approvals of this Agreement from the BGFRS, CDFI, FDIC or other governmental or regulatory authority having jurisdiction over Bancorp or Bank at the earliest practicable date. Notwithstanding any other term or provision of this Agreement, Bancorp, Bank and Executive further agree that no benefits, rights or obligations shall accrue to the parties hereunder in the absence of obtaining any such required regulatory approvals and in the event that any such governmental or regulatory authority shall disapprove any provision of this Agreement, then the parties hereto will use their best efforts, acting in good faith, to amend this Agreement in a manner that will be acceptable to the parties and to such governmental or regulatory authorities. Page 47 of 87 IN WITNESS WHEREOF, the parties have executed this Agreement in Stockton, California, as of the date set forth above. BANCORP: EXECUTIVE: Service 1st Bancorp By: ------------------ -------------- John O. Brooks Bryan R. Hyzdu Chairman and Chief Executive Officer BANK: Service 1st Bank By: ------------------ John O. Brooks Chairman Page 48 of 87 EX-10.16 4 ex10_16.txt EXHIBIT 10.16 EXHIBIT 10.16 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made and entered into as of July 15, 2004, by and among Service 1st Bancorp ("Bancorp"), Service 1st Bank ("Bank") and Robert E. Bloch ("Executive"). RECITALS WHEREAS, Bancorp is a California corporation and bank holding company registered under the Bank Holding Company Act of 1956, as amended, subject to the supervision and regulation of the Board of Governors of the Federal Reserve System ("BGFRS"); WHEREAS, Bancorp is the parent holding company for Bank, which is a California state-chartered banking corporation and wholly-owned subsidiary of Bancorp, subject to the supervision and regulation of the California Department of Financial Institutions ("CDFI") and the Federal Deposit Insurance Corporation ("FDIC"); WHEREAS, Bancorp, Bank and Executive desire to enter into an employment agreement for the purposes of engaging the services of Executive and to delineate the rights, obligations and responsibilities of Bancorp, Bank and Executive; WHEREAS, Bancorp and Executive intend that Executive devote approximately thirty percent (30%) of his business time, ability, and attention to the business of Bancorp during the term of this Agreement and the balance of approximately seventy percent (70%) of such time to the business of Bank (such percentages hereinafter referred to as the "Allocation"), in each case as delineated in a position description approved by the Boards of Directors of Bancorp and Bank as described hereinafter and attached to this Agreement as an addendum; and WHEREAS, Bancorp and Bank intend to allocate the compensation and benefits payable or provided to Executive under this Agreement in accordance with the Allocation. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, Bancorp, Bank and Executive agree as follows: AGREEMENT 1. Term of Employment. Bancorp and Bank hereby employ Executive in the positions with Bancorp and Bank, in accordance with the Allocation and as hereinafter set forth, and Executive hereby accepts employment with Bancorp and Bank upon the terms and conditions hereinafter set forth, for a period of three (3) years from the date hereof, subject to the termination provisions of paragraph 16 and any required regulatory approvals as specified in paragraph 28 of this Agreement. Upon the occurrence of the third annual anniversary of the date of this Agreement, and on each annual anniversary date thereafter, the term of this Agreement shall be deemed automatically extended for an additional one (1) year term, subject to the termination provisions of paragraph 16. Page 49 of 87 2. Duties and Obligations of Executive. Executive shall serve as the Executive Vice President and Chief Financial Officer of Bancorp and Bank in accordance with the Allocation, and shall perform the duties of such positions as set forth in the position descriptions approved by resolutions adopted by the Boards of Directors of Bancorp and Bank, which shall be attached to this Agreement as an addendum, and such additional duties as may from time to time be reasonably requested of him by the Boards of Directors of Bancorp and Bank. 3. Devotion to Bancorp's and Bank's Business. (a) Executive shall devote his business time, ability, and attention to the business of the Bancorp and Bank in accordance with the Allocation during the term of this Agreement and shall not during the term of this Agreement engage in any other business activities, duties, or pursuits whatsoever, or directly or indirectly render any services of a business, commercial, or professional nature to any other person or organization, whether for compensation or otherwise, without the prior written consent of the Bank and Bancorp's Board of Directors. (b) The expenditure of reasonable amounts of time for educational, charitable, or professional activities shall not be deemed a breach of this Agreement if those activities do not materially interfere with the services required of Executive under this Agreement. It is expressly understood and agreed that Executive may continue to participate in any such activities in which Executive participated prior to the date of this Agreement with the knowledge of Bancorp. Nothing in this Agreement shall be interpreted to prohibit Executive from making passive personal investments; provided that, except for ownership interests in businesses acquired prior to the date of this Agreement which represent in each case less than three percent (3%) of the total ownership of each such business, Executive shall not directly or indirectly acquire, hold, or retain any ownership interest in any financial institution, including its affiliated companies, or any other business competing with or similar in nature to the business of Bancorp or Bank, or their respective subsidiaries or affiliates, which conducts business or operations in San Joaquin County. (c) Executive agrees to conduct himself at all times with due regard to public conventions and morals. Executive further agrees not to do or commit any act that will reasonably tend to shock or offend the community and have an adverse effect upon Bancorp or Bank. (d) Executive hereby represents and agrees that the services to be performed under the terms of this Agreement are of a special, unique, unusual, extraordinary, and intellectual character that gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law. Executive therefore expressly agrees that in addition to any other rights or remedies that Bancorp or Bank may possess, they shall be entitled to injunctive and other equitable relief to prevent or remedy a breach of this Agreement by Executive. 4. Noncompetition by Executive. Executive shall not, during the term of this Agreement, directly or indirectly, either as a consultant, agent, principal, stockholder (except as permitted in paragraph 3(b) of this Agreement), officer, director, or in any other individual or representative capacity, engage, assist, consult or participate in any other banking or Page 50 of 87 financial services business without the prior written consent of the Board of Directors of Bancorp. Following the termination of this Agreement and during any period when Executive is receiving severance payments from Bancorp or Bank pursuant to or related to this Agreement, Executive shall be subject to the foregoing noncompetition restrictions only with respect to banking or financial services businesses which conduct business or operations in San Joaquin County. This paragraph 4 shall survive the expiration or termination of this Agreement. 5. Indemnification. (a) Executive shall indemnify and hold Bancorp and Bank, and their respective affiliates and subsidiaries, harmless from all liability for loss, damage, or injury to persons or property resulting from the gross negligence or intentional misconduct of Executive. (b) To the fullest extent permitted by law and applicable regulations of the BGFRS and FDIC, Bancorp shall indemnify Executive if he was or is a party or is threatened to be made a party in any action brought by a third party against Executive (whether or not Bancorp or Bank is joined as a party defendant) against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with said action if Executive acted in good faith and in a manner Executive reasonably believed to be in the best interests of Bancorp and Bank (and with respect to a criminal proceeding if Executive had no reasonable cause to believe his conduct was unlawful), provided that the alleged conduct of Executive arose out of and was within the course and scope of his employment as an officer or executive of Bancorp or Bank. 6. Disclosure of Information. Executive shall not, either before or after termination of this Agreement, without the prior written consent of Bancorp's Board of Directors or except as required by law to comply with legal process including, without limitation, by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process, disclose to anyone any financial information, trade or business secrets, customer lists, computer software or other information not otherwise publicly available concerning the business or operations of Bancorp or Bank and their respective affiliates and subsidiaries. Executive further recognizes and acknowledges that any financial information concerning any customers of Bancorp or Bank and their respective affiliates or subsidiaries, as it may exist from time to time, is strictly confidential and is a valuable, special and unique asset of Bancorp's and Bank's business. Executive shall not, either before or after termination of this Agreement, without such consent or except as required by law, disclose to anyone said financial information or any part thereof, for any reason or purpose whatsoever. In the event Executive is required by law to disclose such information described in this paragraph 6, Executive will provide Bancorp and its counsel with immediate notice of such request so that they may consider seeking a protective order. If in the absence of a protective order or the receipt of a waiver hereunder Executive is nonetheless, in the written opinion of knowledgeable counsel, compelled to disclose any of such information to any tribunal or any other party or else stand liable for contempt or suffer other material censure or material penalty, then Executive may disclose (on an "as needed" basis only) such information to such tribunal or other party without liability hereunder. Notwithstanding the foregoing, Executive may disclose such information concerning the business or operations of Bancorp or Bank and their respective affiliates and subsidiaries as may be required by the BGFRS, FDIC or other regulatory agency having jurisdiction over the operations of Bancorp or Bank in connection with an examination of Bancorp or Bank or other proceeding conducted by such regulatory agency. This paragraph 6 shall survive the expiration or termination of this Agreement. Page 51 of 87 7. Written, Printed or Electronic Material. All written, printed or electronic material, notebooks and records including, without limitation, computer disks used by Executive in performing duties for Bancorp or Bank, other than Executive's personal notes and diaries, are and shall remain the sole property of Bancorp. Upon termination of employment, Executive shall promptly return all such material (including all copies, extracts and summaries thereof) to Bancorp. This paragraph 7 shall survive the expiration or termination of this Agreement. 8. Surety Bond. Executive agrees that he will furnish all information and take any other steps necessary from time to time to enable Bancorp or Bank to obtain or maintain a fidelity bond conditional on the rendering of a true account by Executive of all monies, goods, or other property which may come into the custody, charge, or possession of Executive during the term of his employment. The surety company issuing the bond and the amount of the bond must be acceptable to Bancorp. All premiums on the bond shall be paid by Bancorp and Bank in accordance with the Allocation. Bancorp shall have no obligation to pay severance benefits to Executive in accordance with paragraph 16 (d) of this Agreement in the event that the Executive's employment is terminated in connection with the Executive's failure to qualify for a surety bond at any time during the term of this Agreement and such failure to qualify results from an occurrence described in paragraph 16(a) (5), (6), (7), (8), (9), or (11, to the extent of an Executive breach). 9. Base Salary. In consideration for the services to be performed hereunder, Bancorp and Bank shall pay to Executive in accordance with the Allocation, a base salary at the rate of One Hundred Nine Thousand, Four Hundred Seventy-Six Dollars ($109,476) per annum, payable in substantially equal installments during the term of this Agreement of approximately Four Thousand Five Hundred Sixty-One Dollars and Fifty Cents ($4,561.50) on the fifteenth and last days of each month, subject to applicable adjustments for withholding taxes and prorations for any partial employment period. Executive shall receive such annual adjustments in base salary, if any, as may be determined by Bancorp's Board of Directors, in its sole discretion. 10. Salary Continuation During Disability. If Executive for any reason (except as expressly provided below) becomes temporarily or permanently disabled so that he is unable to perform the duties under this Agreement, Bancorp and Bank agree to pay Executive in accordance with the Allocation, the base salary otherwise payable to Executive pursuant to paragraph 9 of this Agreement reduced by the amounts received by Executive from state disability insurance, or worker's compensation or other similar insurance benefits through policies provided by Bancorp or Bank, for a period of six (6) months from the date of disability. For purposes of this paragraph 10, "disability" shall be defined as provided in any disability insurance coverage provided by Bancorp or Bank to Executive or as may otherwise be defined in any disability insurance program of Bancorp or Bank. Notwithstanding anything herein to the contrary, Bancorp and Bank shall have no obligation to make payments for a disability resulting from the deliberate, intentional actions of Executive, such as, but not limited to, attempted suicide or chemical dependence of Executive. Page 52 of 87 11. Incentive Compensation. Executive shall be entitled to receive an annual incentive compensation payment as determined by the Board of Directors of Bancorp based upon the implementation of Bancorp's strategic plan for each year and the profitability of Bancorp for each year during the term of this Agreement. Notwithstanding the foregoing, no incentive compensation payments shall be prorated for a partial year and Executive shall not be entitled to receive incentive compensation payments based upon the increased profitability described above for any year during the term of this Agreement in which Executive was not employed by Bancorp and Bank for the full fiscal year. Any incentive compensation payable to Executive shall be distributed to Executive following review by Bancorp's Board of Directors of the final audited consolidated financial results of operations for the immediately preceding fiscal year of Bancorp. 12. Stock Options. Executive has previously been granted incentive stock options to purchase Fifteen Thousand (15,000) shares of Bancorp's common stock pursuant to the 1999 Stock Option Plan (the "1999 Plan"). Notwithstanding any contrary provision of the 1999 Plan or related Incentive Stock Option Agreement, no rights of employment shall be conferred upon Executive or result from the 1999 Plan or such Incentive Stock Option Agreement. Bancorp has a 2004 Stock Option Plan (the "2004 Plan") pursuant to which no stock options have been granted to Executive as of the date of this Agreement. Executive shall be eligible for a future grant of stock options under the 2004 Plan in the sole discretion of Bancorp's Board of Directors. In the event stock options are granted to Executive under the 2004 Plan in the future, no rights of employment shall be conferred upon Executive or result from the 2004 Plan or stock option agreements thereunder. Any employment rights and corresponding duties of Executive pursuant to his employment by Bancorp or Bank shall be limited to and interpreted solely in accordance with the terms and provisions of this Agreement. 13. Other Benefits. Executive shall be entitled to those benefits adopted by Bancorp or Bank for all executive officers of Bancorp or Bank, subject to the Allocation, and to applicable qualification requirements and regulatory approval requirements, if any. Executive shall be further entitled to the following additional benefits which shall supplement or replace, to the extent duplicative of any part or all of the general benefits available for executive officers of Bancorp or Bank, the benefits otherwise provided to Executive: (a) Vacation. Executive shall be entitled to annual vacation leave, the duration of which shall be equal to an aggregate of four (4) weeks. The vacation leave shall be paid by Bancorp and Bank in accordance with the Allocation, based on Executive's then existing rate of base salary each year during the term of this Agreement. Executive may be absent from his employment for vacation as long as such leave is reasonable and does not jeopardize his responsibilities and duties specified in this Agreement. The length of vacation should not exceed two (2) weeks without the approval of Bancorp's Board of Directors, but at least two (2) consecutive weeks of vacation must be taken each year during the term of this Agreement. Vacation time will accrue in accordance with Bancorp's personnel policies. (b) Insurance. Bancorp shall provide during the term of this Agreement group life, health (including medical, dental and hospitalization), accident and disability insurance coverage for Executive and his dependents through a policy or policies provided by the California Bankers Association Page 53 of 87 group insurance program or similarly equivalent program. The cost of such insurance shall be paid by Bancorp and Bank in accordance with the Allocation. 14. Annual Physical Examination. Bancorp and Bank shall pay or reimburse Executive in accordance with the Allocation for the cost of an annual physical examination conducted by a California licensed physician selected by Executive and reasonably acceptable to Bancorp. 15. Business Expenses. Executive shall be reimbursed for all ordinary and necessary expenses incurred by Executive in connection with his employment. Executive shall also be reimbursed for expenses incurred in activities associated with promoting the business of Bancorp or Bank, including expenses for club memberships, entertainment, travel and other expenses for attendance at conventions and education programs, and similar items. Bancorp and Bank will pay for or will reimburse Executive for such expenses in accordance with the Allocation upon presentation by Executive from time to time of receipts or other appropriate evidence of such expenditures in form and content reasonably acceptable to Bancorp and Bank. Any club memberships shall be approved in advance of purchase by Bancorp's and Bank's Boards of Directors. 16. Termination of Agreement. (a) Automatic Termination. This Agreement shall terminate automatically without further act of the parties and immediately upon the occurrence of any one of the following events, subject to a party's right, without any obligation whatsoever, to waive an event reasonably susceptible of waiver which otherwise benefits the waiving party, and the obligation of Bancorp and Bank to pay in accordance with the Allocation, the amounts which would otherwise be payable to Executive under this Agreement through the end of the month in which the event occurs, except that only in the event of termination based upon subparagraphs (1), (4) or (11, to the extent of Bancorp's or Bank's breach) below shall Executive be entitled to receive severance payments and continuation of group insurance benefits based upon automatic termination pursuant to paragraph 16 (d) of this Agreement: (1) The occurrence of circumstances that make it impossible or impractical for Bancorp and Bank to conduct or continue business. (2) The death of Executive. (3) The loss by Executive of legal capacity. (4) The loss by Bancorp and Bank of legal capacity to contract. (5) The willful and material breach or the habitual and continued neglect by the Executive of his employment responsibilities and duties; Page 54 of 87 (6) The continuous mental or physical incapacity of the Executive, subject to disability rights under this Agreement; (7) The Executive's willful violation of any federal banking or securities laws, or of the bylaws, rules, policies or resolutions of Bancorp or Bank, or the rules or regulations of the BGFRS, CDFI, FDIC, or other regulatory agency or governmental authority having jurisdiction over Bancorp or Bank, which has an adverse effect upon the Bancorp or Bank; (8) The written determination by a state or federal banking agency or governmental authority having jurisdiction over the Bancorp or Bank that Executive is not suitable to act in the capacity for which he is employed by Bancorp and Bank; (9) The Executive's conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Executive's willful commission of a fraudulent or dishonest act; or (10) The Executive's willful disclosure, without authority, of any secret or confidential information concerning Bancorp or Bank and their respective affiliates or subsidiaries, or taking any action which Bancorp's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Bancorp or Bank, or their respective affiliates or subsidiaries. (11) Bancorp, Bank or Executive materially breaches the terms or provisions of this Agreement. (b) Termination by Bancorp and Bank. Bancorp and Bank may, at their election and in their sole discretion, terminate this Agreement at any time for any reason, or for no reason, without prejudice to any other remedy to which Bancorp or Bank may be entitled either at law, in equity or under this Agreement. Upon such termination, Executive shall immediately cease performing and discharging the duties and responsibilities of his positions with Bancorp and Bank and remove himself and his personal belongings from Bancorp's and Bank's premises. All rights and obligations accruing to Executive under this Agreement shall cease at such termination, except that such termination shall not prejudice Executive's rights regarding employment benefits which shall have accrued prior to such termination, including the right to receive the severance pay and benefits specified in paragraph 16 (d) below, and any other remedy which Executive may have at law, in equity or under this Agreement, which remedy accrued prior to such termination. (c) Termination by Executive. This Agreement may be terminated at any time by Executive for any reason, or no reason, by giving not less than thirty (30) days' prior written notice of termination to Bancorp and Bank. Upon such termination, all rights and obligations accruing to Executive under this Agreement shall cease, except that such termination Page 55 of 87 shall not prejudice Executive's rights regarding employment benefits which shall have accrued prior to such termination and any other remedy which Executive may have at law, in equity or under this Agreement, which remedy accrued prior to such termination. (d) Severance Pay and Insurance Continuation Benefits - Termination by Bancorp and Bank. In the event of termination by Bancorp and Bank pursuant to paragraph 16 (b) or automatic termination based upon paragraph 16 (a) (1), (4) or (11, to the extent of Bancorp's or Bank's breach) of this Agreement, Executive shall be entitled to receive severance pay (in addition to any base salary, incentive compensation, or other payments, if any, due Executive) equal to six (6) months base salary, payable by Bancorp and Bank in accordance with the Allocation in substantially equal installments on the fifteenth and last days of each month commencing with the month immediately following such termination. Executive shall also be entitled to receive continuation of group insurance coverages in effect at the date of termination for Executive and his dependents, at the expense of Bancorp and Bank in accordance with the Allocation, for a period of one hundred eighty (180) days from the date of termination. Notwithstanding the foregoing, in the event of a "change in control" as defined in subparagraph (e) below, Executive shall not be entitled to severance pay or continuation of group insurance coverages pursuant to this subparagraph (d) and any rights of Executive to severance pay or other benefits shall be limited to such rights and benefits as are specified in subparagraph (e) below. Executive acknowledges and agrees that severance pay and continuation of group insurance coverages pursuant to this subparagraph (d) is in lieu of all damages, payments and liabilities on account of the early termination of this Agreement and the sole and exclusive remedy for Executive terminated at the will of Bancorp and Bank pursuant to paragraph 16 (b) or pursuant to certain provisions of paragraph 16 (a) described herein. (e) Severance Pay - Change in Control. In the event of a "change in control" as defined herein and within a period of twenty-four (24) months following consummation of such a change in control (i) Executive's employment is terminated; or (ii) any adverse change occurs in the nature and scope of Executive's position, responsibilities, duties, base salary, benefits or location of employment; or (iii) any event occurs which reasonably constitutes a demotion, significant diminution or constructive termination (by resignation or otherwise) of Executive's employment, Executive shall be entitled to receive severance pay in addition to any bonus or incentive compensation payments due Executive. Any such severance pay due Executive shall be in an amount equal to twelve (12) months of Executive's base salary at the rate in effect immediately prior to termination. Executive shall also be entitled to receive continuation of group insurance coverages in effect at the date of termination for Executive and his dependents, at the expense of Bancorp and Bank in accordance with the Allocation, for a period of one hundred eighty (180) days from the date of termination. Notwithstanding the foregoing provisions of paragraph 16 (e), Executive may resign his position at any time during the period commencing on the expiration of six (6) months following a "change in control" through the expiration of twelve (12) months following a "change in control" and upon such resignation receive the severance pay specified in paragraph 16 (e) above without regard to whether an event described in paragraph 16 (e) (i), (ii) or (iii) has occurred; provided, however, that Executive shall deliver a letter of resignation that clearly states the intention to resign as of a date specified therein and such date of resignation shall be at least thirty (30) days after the date of receipt of the resignation letter by Executive's employer following such "change in control." Page 56 of 87 Any such severance shall be payable in lump sum by Bancorp and Bank in accordance with the Allocation, within thirty (30) days following the occurrence of an event described in paragraph 16 (e). Such severance payments, if any, shall be in lieu of all damages, payments and liabilities on account of the events described above for which such severance payments, if any, may be due Executive and any severance payment rights of Executive under paragraph 16 (d) of this Agreement. This paragraph 16 (e) shall be binding upon and inure to the benefit of the parties and any successors or assigns of the parties or any "person" as defined herein. Notwithstanding the foregoing, Executive shall not be entitled to receive nor shall Bancorp or Bank, their respective successors, assigns or any "person" as defined herein be obligated to pay severance payments pursuant to this paragraph 16 (e) in the event of an occurrence described in paragraph 16 (a) (5), (7) (8), (9), (10), or (11, to the extent of Executive's breach), or in the event Executive terminates employment in accordance with paragraph 16 (c) and the termination is not a result of or based upon the occurrence of any event described in paragraph 16 (e) (ii) or (iii) above. 17. Change in Control Definition. The term "change in control" shall mean the first to occur of any of the following events with respect to Bancorp or Bank: (a) Any "person" (as such term is used in sections 13 and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes the beneficial owner (as that term is used in section 13(d) of the Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of Bancorp's or Bank's capital stock, other than a group of two or more persons not (i) acting in concert for the purpose of acquiring, holding or disposing of such stock or (ii) otherwise required to file any form or report with any governmental agency or regulatory authority having jurisdiction over Bancorp or Bank which requires the reporting of any change in control; (b) During any period of not more than two (2) consecutive years, not including any period prior to the date of this Agreement, individuals who, at the beginning of such period, constitute the Board of Directors of Bancorp or Bank, cease for any reason to constitute at least a majority thereof; (c) The effective date of any consolidation or merger of Bancorp or Bank (after all requisite shareholder, applicable regulatory and other approvals and consents have been obtained), other than a consolidation or merger of Bancorp or Bank in which the holders of the voting capital stock of Bancorp or Bank immediately prior to the consolidation or merger hold more than fifty percent (50%) of the voting capital stock of the surviving entity immediately after the consolidation or merger; (d) The shareholders of Bancorp or Bank approve any plan or proposal for the liquidation or dissolution of Bancorp or Bank; or (e) The shareholders of Bancorp or Bank approve the sale or transfer of substantially all of Bancorp's or Bank's assets to parties that are not within a "controlled group of corporations" (as that term is defined in section 1563 of the Code) in which Bancorp or, as applicable Bank, is a member. Page 57 of 87 Notwithstanding the foregoing or anything else contained herein to the contrary, there shall not be a "change in control" for purposes of this Agreement if the event which would otherwise come within the meaning of the term "change in control" involves (i) an Employee Stock Ownership Plan sponsored by the Bancorp, which Plan is the party that acquires "control" or is the principal participant in the transaction constituting a "change in control," as described above, or (ii) a reorganization in which the Bank or any bank subsidiary of the Bancorp is merged with and into another bank subsidiary of Bancorp to consolidate operations under the charter of such other bank subsidiary. 18. Notices. Any notices to be given hereunder by a party to another party shall be in writing and may be transmitted by personal delivery or by U.S. mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses listed as follows: Bancorp or Bank: Principal place of business address. Executive: Principal residence address as shown in Bancorp's Personnel Records and Executive's personal file. Each party may change the address for receipt of notices by written notice in accordance with this paragraph 18. Notices delivered personally shall be deemed communicated as of the date of actual receipt; mailed notices shall be deemed communicated as of three (3) days after the date of mailing. 19. Arbitration. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Bancorp in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc., San Francisco, California ("JAMS"), in accordance with the rules and procedures of JAMS then in effect. In the event JAMS is unable or unwilling to conduct such arbitration, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association, San Francisco, California ("AAA"), shall conduct such binding arbitration in accordance with the rules and procedures of the AAA then in effect. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Stockton, California, unless otherwise agreed to by the parties. Page 58 of 87 20. Attorneys' Fees and Costs. In the event of litigation, arbitration or any other action or proceeding between the parties to interpret or enforce this Agreement or any part thereof or otherwise arising out of or relating to this Agreement, the prevailing party shall be entitled to recover its costs related to any such action or proceeding and its reasonable fees of attorneys, accountants and expert witnesses incurred by such party in connection with any such action or proceeding. The prevailing party shall be deemed to be the party which obtains substantially the relief sought by final resolution, compromise or settlement, or as may otherwise be determined by order of a court of competent jurisdiction in the event of litigation, an award or decision of one or more arbitrators in the event of arbitration, or a decision of a comparable official in the event of any other action or proceeding. Every obligation to indemnify under this Agreement includes the obligation to pay reasonable fees of attorneys, accountants and expert witnesses incurred by the indemnified party in connection with matters subject to indemnification. 21. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the employment of Executive hereunder and contains all of the covenants and agreements between the parties with respect to the employment of Executive hereunder. Each party to this Agreement acknowledges that no other representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on a party. Notwithstanding the foregoing or any contrary term or provision hereunder, this Agreement shall be construed in light of the Allocation in order to avoid duplication of payments and benefits to which Executive may be entitled as set forth in paragraph 28 below. 22. Modifications. Any modification of this Agreement will be effective only if it is in writing and signed by a party or its authorized representative. 23. Waiver. The failure of any party to insist on strict compliance with any of the terms, provisions, covenants, or conditions of this Agreement by the other party shall not be deemed a waiver of any term, provision, covenant, or condition, individually or in the aggregate, unless such waiver is in writing, nor shall any waiver or relinquishment of any right or power at any one time or times be deemed a waiver or relinquishment of that right or power for all or any other times. 24. Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way. 25. Advice of Counsel and Advisors. Executive acknowledges and agrees that he has read and understands the terms and provisions of this Agreement and prior to signing this Agreement, he has had the advice of counsel and such other advisors as he deemed appropriate in connection with his review and analysis of such terms and provisions of this Agreement. 26. Governing Law and Venue. The laws of the State of California, other than those laws denominated choice of law rules, shall govern the validity, construction and effect of this Agreement. Any action which in any way involves the rights, duties and obligations of the parties hereunder and Page 59 of 87 is not resolved by arbitration as set forth in paragraph 19 of this Agreement shall be brought in the courts of the State of California and venue for any action or proceeding shall be in San Joaquin County or in the United States District Court for the Eastern District of California, and the parties hereby submit to the personal jurisdiction of said courts. 27. Payments Due Deceased Executive. If Executive dies prior to the expiration of the term of his employment, any payments that may be due Executive under this Agreement as of the date of death shall be paid to Executive's executors, administrators, heirs, personal representatives, successors, or assigns. 28. Limitation Upon Payments and Benefits. Notwithstanding any other term or provision of this Agreement, each and all of the payments or benefits to which Executive may be entitled under this Agreement including, without limitation, payments or benefits described in paragraphs 9 through 16 of this Agreement, shall be made in accordance with the Allocation and shall not result in any duplicative payments or benefits to Executive. Bancorp, Bank and Executive intend that the Allocation applicable to such payments and benefits under this Agreement will, on a combined basis, equal one hundred percent (100%) of Executive's entitlement thereto. 29. Regulatory Approval. Bancorp, Bank and Executive agree to cooperate in obtaining any required regulatory approvals of this Agreement from the BGFRS, CDFI, FDIC or other governmental or regulatory authority having jurisdiction over Bancorp or Bank at the earliest practicable date. Notwithstanding any other term or provision of this Agreement, Bancorp, Bank and Executive further agree that no benefits, rights or obligations shall accrue to the parties hereunder in the absence of obtaining any such required regulatory approvals and in the event that any such governmental or regulatory authority shall disapprove any provision of this Agreement, then the parties hereto will use their best efforts, acting in good faith, to amend this Agreement in a manner that will be acceptable to the parties and to such governmental or regulatory authorities. Page 60 of 87 IN WITNESS WHEREOF, the parties have executed this Agreement in Stockton, California, as of the date set forth above. BANCORP: EXECUTIVE: Service 1st Bancorp By: ------------------ --------------- John O. Brooks Robert E. Bloch Chairman and Chief Executive Officer BANK: Service 1st Bank By: ------------------ John O. Brooks Chairman Page 61 of 87 EX-10.17 5 ex10_17.txt EXHIBIT 10.17 EXHIBIT 10.17 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made and entered into as of July 15, 2004, by and between Service 1st Bank ("Bank") and Patrick J. Carman ("Executive"). RECITALS WHEREAS, Bank is a California state-chartered banking corporation, subject to the supervision and regulation of the California Department of Financial Institutions ("CDFI") and the Federal Deposit Insurance Corporation ("FDIC"); WHEREAS, Bank is a wholly-owned subsidiary of Service 1st Bancorp, a California corporation and bank holding company registered under the Bank Holding Company Act of 1956, as amended ("Bancorp"), subject to the supervision and regulation of the Board of Governors of the Federal Reserve System ("BGFRS"); and WHEREAS, Bank and Executive desire to enter into an employment agreement for the purposes of engaging the services of Executive and to delineate the rights, obligations and responsibilities of Bank and Executive. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Bank and Executive agree as follows: AGREEMENT 1. Term of Employment. Bank hereby employs Executive in the position with Bank as hereinafter set forth, and Executive hereby accepts employment with Bank upon the terms and conditions hereinafter set forth, for a period of three (3) years from the date hereof, subject to the termination provisions of paragraph 16 and any required regulatory approvals as specified in paragraph 28 of this Agreement. Upon the occurrence of the third annual anniversary of the date of this Agreement, and on each annual anniversary date thereafter, the term of this Agreement shall be deemed automatically extended for an additional one (1) year term, subject to the termination provisions of paragraph 16. 2. Duties and Obligations of Executive. Executive shall serve as the Executive Vice President and Chief Credit Officer of Bank and shall perform the duties of such positions as set forth in the position description approved by resolutions adopted by the Board of Directors of Bank, which shall be attached to this Agreement as an addendum, and such additional duties as may from time to time be reasonably requested of him by the Board of Directors of Bank. 3. Devotion to Bank's Business. (a) Executive shall devote his business time, ability, and attention to the business of Bank during the term of this Agreement and shall not during the term of this Agreement engage in any other business activities, duties, or pursuits whatsoever, or directly or indirectly render any services of a business, commercial, or professional nature to any other Page 62 of 87 person or organization, whether for compensation or otherwise, without the prior written consent of Bank's Board of Directors. (b) The expenditure of reasonable amounts of time for educational, charitable, or professional activities shall not be deemed a breach of this Agreement if those activities do not materially interfere with the services required of Executive under this Agreement. It is expressly understood and agreed that Executive may continue to participate in any such activities in which Executive participated prior to the date of this Agreement with the knowledge of Bank. Nothing in this Agreement shall be interpreted to prohibit Executive from making passive personal investments; provided that, except for ownership interests in businesses acquired prior to the date of this Agreement which represent in each case less than three percent (3%) of the total ownership of each such business, Executive shall not directly or indirectly acquire, hold, or retain any ownership interest in any financial institution, including its affiliated companies, or any other business competing with or similar in nature to the business of Bancorp or Bank, or their respective subsidiaries or affiliates, which conducts business or operations in San Joaquin County. (c) Executive agrees to conduct himself at all times with due regard to public conventions and morals. Executive further agrees not to do or commit any act that will reasonably tend to shock or offend the community and have an adverse effect upon Bancorp or Bank. (d) Executive hereby represents and agrees that the services to be performed under the terms of this Agreement are of a special, unique, unusual, extraordinary, and intellectual character that gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law. Executive therefore expressly agrees that in addition to any other rights or remedies that Bank may possess, it shall be entitled to injunctive and other equitable relief to prevent or remedy a breach of this Agreement by Executive. 4. Noncompetition by Executive. Executive shall not, during the term of this Agreement, directly or indirectly, either as a consultant, agent, principal, stockholder (except as permitted in paragraph 3(b) of this Agreement), officer, director, or in any other individual or representative capacity, engage, assist, consult or participate in any other banking or financial services business without the prior written consent of the Board of Directors of Bank. Following the termination of this Agreement and during any period when Executive is receiving severance payments from Bancorp or Bank pursuant to or related to this Agreement, Executive shall be subject to the foregoing noncompetition restrictions only with respect to banking or financial services businesses which conduct business or operations in San Joaquin County. This paragraph 4 shall survive the expiration or termination of this Agreement. 5. Indemnification. (a) Executive shall indemnify and hold Bancorp and Bank, and their respective affiliates and subsidiaries, harmless from all liability for loss, damage, or injury to persons or property resulting from the gross negligence or intentional misconduct of Executive. Page 63 of 87 (b) To the fullest extent permitted by law and applicable regulations of the BGFRS, CDFI and FDIC, Bank shall indemnify Executive if he was or is a party or is threatened to be made a party in any action brought by a third party against Executive (whether or not Bank is joined as a party defendant) against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with said action if Executive acted in good faith and in a manner Executive reasonably believed to be in the best interests of Bank (and with respect to a criminal proceeding if Executive had no reasonable cause to believe his conduct was unlawful), provided that the alleged conduct of Executive arose out of and was within the course and scope of his employment as an officer or executive of Bank. 6. Disclosure of Information. Executive shall not, either before or after termination of this Agreement, without the prior written consent of Bank's Board of Directors or except as required by law to comply with legal process including, without limitation, by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process, disclose to anyone any financial information, trade or business secrets, customer lists, computer software or other information not otherwise publicly available concerning the business or operations of Bancorp or Bank and their respective affiliates and subsidiaries. Executive further recognizes and acknowledges that any financial information concerning any customers of Bancorp or Bank and their respective affiliates or subsidiaries, as it may exist from time to time, is strictly confidential and is a valuable, special and unique asset of Bancorp's and Bank's business. Executive shall not, either before or after termination of this Agreement, without such consent or except as required by law, disclose to anyone said financial information or any part thereof, for any reason or purpose whatsoever. In the event Executive is required by law to disclose such information described in this paragraph 6, Executive will provide Bank and its counsel with immediate notice of such request so that they may consider seeking a protective order. If in the absence of a protective order or the receipt of a waiver hereunder Executive is nonetheless, in the written opinion of knowledgeable counsel, compelled to disclose any of such information to any tribunal or any other party or else stand liable for contempt or suffer other material censure or material penalty, then Executive may disclose (on an "as needed" basis only) such information to such tribunal or other party without liability hereunder. Notwithstanding the foregoing, Executive may disclose such information concerning the business or operations of Bancorp or Bank and their respective affiliates and subsidiaries as may be required by the BGFRS, CDFI, FDIC or other regulatory agency having jurisdiction over the operations of Bancorp or Bank in connection with an examination of Bancorp or Bank or other proceeding conducted by such regulatory agency. This paragraph 6 shall survive the expiration or termination of this Agreement. 7. Written, Printed or Electronic Material. All written, printed or electronic material, notebooks and records including, without limitation, computer disks used by Executive in performing duties for Bancorp or Bank, other than Executive's personal notes and diaries, are and shall remain the sole property of Bank. Upon termination of employment, Executive shall promptly return all such material (including all copies, extracts and summaries thereof) to Bank. This paragraph 7 shall survive the expiration or termination of this Agreement. 8. Surety Bond. Executive agrees that he will furnish all information and take any other steps necessary from time to time to enable Bank to obtain or maintain a fidelity bond conditional on the rendering of a Page 64 of 87 true account by Executive of all monies, goods, or other property which may come into the custody, charge, or possession of Executive during the term of his employment. The surety company issuing the bond and the amount of the bond must be acceptable to Bank. All premiums on the bond shall be paid by Bank. Bank shall have no obligation to pay severance benefits to Executive in accordance with paragraph 16 (d) of this Agreement in the event that the Executive's employment is terminated in connection with the Executive's failure to qualify for a surety bond at any time during the term of this Agreement and such failure to qualify results from an occurrence described in paragraph 16(a) (5), (6), (7), (8), (9), or (11, to the extent of an Executive breach). 9. Base Salary. In consideration for the services to be performed hereunder, Bank shall pay to Executive a base salary at the rate of One Hundred One Thousand Three Hundred Three Dollars ($101,303) per annum, payable in substantially equal installments during the term of this Agreement of approximately Four Thousand Two Hundred Twenty Dollars and Ninety-Six Cents ($4,220.96) on the fifteenth and last days of each month, subject to applicable adjustments for withholding taxes and prorations for any partial employment period. Executive shall receive such annual adjustments in base salary, if any, as may be determined by Bank's Board of Directors, in its sole discretion. 10. Salary Continuation During Disability. If Executive for any reason (except as expressly provided below) becomes temporarily or permanently disabled so that he is unable to perform the duties under this Agreement, Bank agrees to pay Executive the base salary otherwise payable to Executive pursuant to paragraph 9 of this Agreement reduced by the amounts received by Executive from state disability insurance, or worker's compensation or other similar insurance benefits through policies provided by Bancorp or Bank, for a period of six (6) months from the date of disability. For purposes of this paragraph 10, "disability" shall be defined as provided in any disability insurance coverage provided by Bancorp or Bank to Executive or as may otherwise be defined in any disability insurance program of Bancorp or Bank. Notwithstanding anything herein to the contrary, Bank shall have no obligation to make payments for a disability resulting from the deliberate, intentional actions of Executive, such as, but not limited to, attempted suicide or chemical dependence of Executive. 11. Incentive Compensation. Executive shall be entitled to receive an annual incentive compensation payment as determined by the Board of Directors of Bank based upon the implementation of Bancorp's strategic plan for each year and the profitability of Bancorp for each year during the term of this Agreement. Notwithstanding the foregoing, no incentive compensation payments shall be prorated for a partial year and Executive shall not be entitled to receive incentive compensation payments based upon the increased profitability described above for any year during the term of this Agreement in which Executive was not employed by Bank for the full fiscal year. Any incentive compensation payable to Executive shall be distributed to Executive following review by Bank's Board of Directors of the final audited consolidated financial results of operations for the immediately preceding fiscal year of Bancorp. Page 65 of 87 12. Stock Options. Executive has previously been granted incentive stock options to purchase Ten Thousand (10,000) shares of Bancorp's common stock pursuant to the 1999 Stock Option Plan (the "1999 Plan"). Notwithstanding any contrary provision of the 1999 Plan or related Incentive Stock Option Agreement, no rights of employment shall be conferred upon Executive or result from the 1999 Plan or such Incentive Stock Option Agreement. Bancorp has a 2004 Stock Option Plan (the "2004 Plan") pursuant to which no stock options have been granted to Executive as of the date of this Agreement. Executive shall be eligible for a future grant of stock options under the 2004 Plan in the sole discretion of Bancorp's Board of Directors. In the event stock options are granted to Executive under the 2004 Plan in the future, no rights of employment shall be conferred upon Executive or result from the 2004 Plan or stock option agreements thereunder. Any employment rights and corresponding duties of Executive pursuant to his employment by Bank shall be limited to and interpreted solely in accordance with the terms and provisions of this Agreement. 13. Other Benefits. Executive shall be entitled to those benefits adopted by Bancorp or Bank for all executive officers of Bancorp or Bank, subject to applicable qualification requirements and regulatory approval requirements, if any. Executive shall be further entitled to the following additional benefits which shall supplement or replace, to the extent duplicative of any part or all of the general benefits available for executive officers of Bancorp or Bank, the benefits otherwise provided to Executive: (a) Vacation. Executive shall be entitled to annual vacation leave, the duration of which shall be equal to an aggregate of four (4) weeks. The vacation leave shall be paid by Bank based on Executive's then existing rate of base salary each year during the term of this Agreement. Executive may be absent from his employment for vacation as long as such leave is reasonable and does not jeopardize his responsibilities and duties specified in this Agreement. The length of vacation should not exceed two (2) weeks without the approval of Bank's Board of Directors, but at least two (2) consecutive weeks of vacation must be taken each year during the term of this Agreement. Vacation time will accrue in accordance with Bank's personnel policies. (c) Insurance. Bank shall provide during the term of this Agreement group life, health (including medical, dental and hospitalization), accident and disability insurance coverage for Executive and his dependents through a policy or policies provided by the California Bankers Association group insurance program or similarly equivalent program. The cost of such insurance shall be paid by Bank. 14. Annual Physical Examination. Bank shall pay or reimburse Executive for the cost of an annual physical examination conducted by a California licensed physician selected by Executive and reasonably acceptable to Bank. 15. Business Expenses. Executive shall be reimbursed for all ordinary and necessary expenses incurred by Executive in connection with his employment. Executive shall also be reimbursed for expenses incurred in activities associated with promoting the business of Bancorp or Bank, including expenses for club memberships, entertainment, travel and other expenses for attendance at conventions and education programs, and similar items. Bank will pay for or will reimburse Executive for such expenses upon presentation by Executive from time to time of receipts or other appropriate evidence of such expenditures in form and content reasonably acceptable to Bank. Any club memberships shall be approved in advance of purchase by Bank's Boards of Directors. Page 66 of 87 16. Termination of Agreement. (a) Automatic Termination. This Agreement shall terminate automatically without further act of the parties and immediately upon the occurrence of any one of the following events, subject to a party's right, without any obligation whatsoever, to waive an event reasonably susceptible of waiver which otherwise benefits the waiving party, and the obligation of Bank to pay the amounts which would otherwise be payable to Executive under this Agreement through the end of the month in which the event occurs, except that only in the event of termination based upon subparagraphs (1), (4) or (11, to the extent of Bank's breach) below shall Executive be entitled to receive severance payments and continuation of group insurance benefits based upon automatic termination pursuant to paragraph 16 (d) of this Agreement: (1) The occurrence of circumstances that make it impossible or impractical for Bancorp and Bank to conduct or continue business. (2) The death of Executive. (3) The loss by Executive of legal capacity. (4) The loss by Bancorp and Bank of legal capacity to contract. (5) The willful and material breach or the habitual and continued neglect by the Executive of his employment responsibilities and duties; (6) The continuous mental or physical incapacity of the Executive, subject to disability rights under this Agreement; (7) The Executive's willful violation of any federal banking or securities laws, or of the bylaws, rules, policies or resolutions of Bancorp or Bank, or the rules or regulations of the BGFRS, CDFI, FDIC, or other regulatory agency or governmental authority having jurisdiction over Bancorp or Bank, which has an adverse effect upon the Bancorp or Bank; (8) The written determination by a state or federal banking agency or governmental authority having jurisdiction over the Bancorp or Bank that Executive is not suitable to act in the capacity for which he is employed by Bank; (9) The Executive's conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Executive's willful commission of a fraudulent or dishonest act; or Page 67 of 87 (10) The Executive's willful disclosure, without authority, of any secret or confidential information concerning Bancorp or Bank and their respective affiliates or subsidiaries, or taking any action which Bank's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Bancorp or Bank, or their respective affiliates or subsidiaries. (11) Bank or Executive materially breaches the terms or provisions of this Agreement. (b) Termination by Bank. Bank may, at its election and in its sole discretion, terminate this Agreement at any time for any reason, or for no reason, without prejudice to any other remedy to which Bank may be entitled either at law, in equity or under this Agreement. Upon such termination, Executive shall immediately cease performing and discharging the duties and responsibilities of his position with Bank and remove himself and his personal belongings from Bank's premises. All rights and obligations accruing to Executive under this Agreement shall cease at such termination, except that such termination shall not prejudice Executive's rights regarding employment benefits which shall have accrued prior to such termination, including the right to receive the severance pay and benefits specified in paragraph 16 (d) below, and any other remedy which Executive may have at law, in equity or under this Agreement, which remedy accrued prior to such termination. (c) Termination by Executive. This Agreement may be terminated at any time by Executive for any reason, or no reason, by giving not less than thirty (30) days' prior written notice of termination to Bank. Upon such termination, all rights and obligations accruing to Executive under this Agreement shall cease, except that such termination shall not prejudice Executive's rights regarding employment benefits which shall have accrued prior to such termination and any other remedy which Executive may have at law, in equity or under this Agreement, which remedy accrued prior to such termination. (d) Severance Pay and Insurance Continuation Benefits - Termination by Bank. In the event of termination by Bank pursuant to paragraph 16 (b) or automatic termination based upon paragraph 16 (a) (1), (4) or (11, to the extent of Bank's breach) of this Agreement, Executive shall be entitled to receive severance pay (in addition to any base salary, incentive compensation, or other payments, if any, due Executive) equal to six (6) months base salary, payable by Bank in substantially equal installments on the fifteenth and last days of each month commencing with the month immediately following such termination. Executive shall also be entitled to receive continuation of group insurance coverages in effect at the date of termination for Executive and his dependents, at the expense of Bank for a period of one hundred eighty (180) days from the date of termination. Notwithstanding the foregoing, in the event of a "change in control" as defined in subparagraph (e) below, Executive shall not be entitled to severance pay or continuation of group insurance coverages pursuant to this subparagraph (d) and any rights of Executive to severance pay or other benefits shall be limited to such rights and benefits as are specified in subparagraph (e) below. Executive acknowledges and agrees that severance pay and continuation of group insurance coverages pursuant to this subparagraph (d) is in lieu of all damages, payments and liabilities on account of the early termination of this Agreement and the sole and exclusive Page 68 of 87 remedy for Executive terminated at the will of Bank pursuant to paragraph 16 (b) or pursuant to certain provisions of paragraph 16 (a) described herein. (e) Severance Pay - Change in Control. In the event of a "change in control" as defined herein and within a period of twenty-four (24) months following consummation of such a change in control (i) Executive's employment is terminated; or (ii) any adverse change occurs in the nature and scope of Executive's position, responsibilities, duties, base salary, benefits or location of employment; or (iii) any event occurs which reasonably constitutes a demotion, significant diminution or constructive termination (by resignation or otherwise) of Executive's employment, Executive shall be entitled to receive severance pay in addition to any bonus or incentive compensation payments due Executive. Any such severance pay due Executive shall be in an amount equal to twelve (12) months of Executive's base salary at the rate in effect immediately prior to termination. Executive shall also be entitled to receive continuation of group insurance coverages in effect at the date of termination for Executive and his dependents, at the expense of Bank for a period of one hundred eighty (180) days from the date of termination. Notwithstanding the foregoing provisions of paragraph 16 (e), Executive may resign his position at any time during the period commencing on the expiration of six (6) months following a "change in control" through the expiration of twelve (12) months following a "change in control" and upon such resignation receive the severance pay specified in paragraph 16 (e) above without regard to whether an event described in paragraph 16 (e) (i), (ii) or (iii) has occurred; provided, however, that Executive shall deliver a letter of resignation that clearly states the intention to resign as of a date specified therein and such date of resignation shall be at least thirty (30) days after the date of receipt of the resignation letter by Executive's employer following such "change in control." Any such severance shall be payable in lump sum by Bank within thirty (30) days following the occurrence of an event described in paragraph 16 (e). Such severance payments, if any, shall be in lieu of all damages, payments and liabilities on account of the events described above for which such severance payments, if any, may be due Executive and any severance payment rights of Executive under paragraph 16 (d) of this Agreement. This paragraph 16 (e) shall be binding upon and inure to the benefit of the parties and any successors or assigns of the parties or any "person" as defined herein. Notwithstanding the foregoing, Executive shall not be entitled to receive nor shall Bank, their respective successors, assigns or any "person" as defined herein be obligated to pay severance payments pursuant to this paragraph 16 (e) in the event of an occurrence described in paragraph 16 (a) (5), (7) (8), (9), (10), or (11, to the extent of Executive's breach), or in the event Executive terminates employment in accordance with paragraph 16 (c) and the termination is not a result of or based upon the occurrence of any event described in paragraph 16 (e) (ii) or (iii) above. 17. Change in Control Definition. The term "change in control" shall mean the first to occur of any of the following events with respect to Bancorp or Bank: Page 69 of 87 (a) Any "person" (as such term is used in sections 13 and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes the beneficial owner (as that term is used in section 13(d) of the Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of Bancorp's or Bank's capital stock, other than a group of two or more persons not (i) acting in concert for the purpose of acquiring, holding or disposing of such stock or (ii) otherwise required to file any form or report with any governmental agency or regulatory authority having jurisdiction over Bancorp or Bank which requires the reporting of any change in control; (b) During any period of not more than two (2) consecutive years, not including any period prior to the date of this Agreement, individuals who, at the beginning of such period, constitute the Board of Directors of Bancorp or Bank, cease for any reason to constitute at least a majority thereof; (c) The effective date of any consolidation or merger of Bancorp or Bank (after all requisite shareholder, applicable regulatory and other approvals and consents have been obtained), other than a consolidation or merger of Bancorp or Bank in which the holders of the voting capital stock of Bancorp or Bank immediately prior to the consolidation or merger hold more than fifty percent (50%) of the voting capital stock of the surviving entity immediately after the consolidation or merger; (d) The shareholders of Bancorp or Bank approve any plan or proposal for the liquidation or dissolution of Bancorp or Bank; or (e) The shareholders of Bancorp or Bank approve the sale or transfer of substantially all of Bancorp's or Bank's assets to parties that are not within a "controlled group of corporations" (as that term is defined in section 1563 of the Code) in which Bancorp or, as applicable Bank, is a member. Notwithstanding the foregoing or anything else contained herein to the contrary, there shall not be a "change in control" for purposes of this Agreement if the event which would otherwise come within the meaning of the term "change in control" involves (i) an Employee Stock Ownership Plan sponsored by the Bancorp, which Plan is the party that acquires "control" or is the principal participant in the transaction constituting a "change in control," as described above, or (ii) a reorganization in which the Bank or any bank subsidiary of Bancorp is merged with and into another bank subsidiary of Bancorp to consolidate operations under the charter of such other bank subsidiary. 18. Notices. Any notices to be given hereunder by a party to another party shall be in writing and may be transmitted by personal delivery or by U.S. mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses listed as follows: Bank: Principal place of business address. Executive: Principal residence address as shown in Bancorp's Personnel Records and Executive's personal file. Page 70 of 87 Each party may change the address for receipt of notices by written notice in accordance with this paragraph 18. Notices delivered personally shall be deemed communicated as of the date of actual receipt; mailed notices shall be deemed communicated as of three (3) days after the date of mailing. 19. Arbitration. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Bank in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc., San Francisco, California ("JAMS"), in accordance with the rules and procedures of JAMS then in effect. In the event JAMS is unable or unwilling to conduct such arbitration, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association, San Francisco, California ("AAA"), shall conduct such binding arbitration in accordance with the rules and procedures of the AAA then in effect. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Stockton, California, unless otherwise agreed to by the parties. 20. Attorneys' Fees and Costs. In the event of litigation, arbitration or any other action or proceeding between the parties to interpret or enforce this Agreement or any part thereof or otherwise arising out of or relating to this Agreement, the prevailing party shall be entitled to recover its costs related to any such action or proceeding and its reasonable fees of attorneys, accountants and expert witnesses incurred by such party in connection with any such action or proceeding. The prevailing party shall be deemed to be the party which obtains substantially the relief sought by final resolution, compromise or settlement, or as may otherwise be determined by order of a court of competent jurisdiction in the event of litigation, an award or decision of one or more arbitrators in the event of arbitration, or a decision of a comparable official in the event of any other action or proceeding. Every obligation to indemnify under this Agreement includes the obligation to pay reasonable fees of attorneys, accountants and expert witnesses incurred by the indemnified party in connection with matters subject to indemnification. 21. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the employment of Executive hereunder and contains all of the covenants and agreements between the parties with respect to the employment of Executive hereunder. Each party to this Agreement acknowledges that no other representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on a party. Page 71 of 87 22. Modifications. Any modification of this Agreement will be effective only if it is in writing and signed by a party or its authorized representative. 23. Waiver. The failure of any party to insist on strict compliance with any of the terms, provisions, covenants, or conditions of this Agreement by the other party shall not be deemed a waiver of any term, provision, covenant, or condition, individually or in the aggregate, unless such waiver is in writing, nor shall any waiver or relinquishment of any right or power at any one time or times be deemed a waiver or relinquishment of that right or power for all or any other times. 24. Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way. 25. Advice of Counsel and Advisors. Executive acknowledges and agrees that he has read and understands the terms and provisions of this Agreement and prior to signing this Agreement, he has had the advice of counsel and such other advisors as he deemed appropriate in connection with his review and analysis of such terms and provisions of this Agreement. 26. Governing Law and Venue. The laws of the State of California, other than those laws denominated choice of law rules, shall govern the validity, construction and effect of this Agreement. Any action which in any way involves the rights, duties and obligations of the parties hereunder and is not resolved by arbitration as set forth in paragraph 19 of this Agreement shall be brought in the courts of the State of California and venue for any action or proceeding shall be in San Joaquin County or in the United States District Court for the Eastern District of California, and the parties hereby submit to the personal jurisdiction of said courts. 27. Payments Due Deceased Executive. If Executive dies prior to the expiration of the term of his employment, any payments that may be due Executive under this Agreement as of the date of death shall be paid to Executive's executors, administrators, heirs, personal representatives, successors, or assigns. 28. Regulatory Approval. Bank and Executive agree to cooperate in obtaining any required regulatory approvals of this Agreement from the BGFRS, CDFI, FDIC or other governmental or regulatory authority having jurisdiction over Bancorp or Bank at the earliest practicable date. Notwithstanding any other term or provision of this Agreement, Bank and Executive further agree that no benefits, rights or obligations shall accrue to the parties hereunder in the absence of obtaining any such required regulatory approvals and in the event that any such governmental or regulatory authority shall disapprove any provision of this Agreement, then the parties hereto will use their best efforts, acting in good faith, to amend this Agreement in a manner that will be acceptable to the parties and to such governmental or regulatory authorities. Page 72 of 87 IN WITNESS WHEREOF, the parties have executed this Agreement in Stockton, California, as of the date set forth above. BANK: EXECUTIVE: Service 1st Bank By: ------------------ ----------------- John O. Brooks Patrick J. Carman Chairman Page 73 of 87 EX-10.18 6 ex10_18.txt EXHIBIT 10.18 EXHIBIT 10.18 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made and entered into as of July 15, 2004, by and between Service 1st Bank ("Bank") and Shannon Reinard ("Executive"). RECITALS WHEREAS, Bank is a California state-chartered banking corporation, subject to the supervision and regulation of the California Department of Financial Institutions ("CDFI") and the Federal Deposit Insurance Corporation ("FDIC"); WHEREAS, Bank is a wholly-owned subsidiary of Service 1st Bancorp, a California corporation and bank holding company registered under the Bank Holding Company Act of 1956, as amended ("Bancorp"), subject to the supervision and regulation of the Board of Governors of the Federal Reserve System ("BGFRS"); and WHEREAS, Bank and Executive desire to enter into an employment agreement for the purposes of engaging the services of Executive and to delineate the rights, obligations and responsibilities of Bank and Executive. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Bank and Executive agree as follows: AGREEMENT 1. Term of Employment. Bank hereby employs Executive in the position with Bank as hereinafter set forth, and Executive hereby accepts employment with Bank upon the terms and conditions hereinafter set forth, for a period of three (3) years from the date hereof, subject to the termination provisions of paragraph 15 and any required regulatory approvals as specified in paragraph 28 of this Agreement. Upon the occurrence of the third annual anniversary of the date of this Agreement, and on each annual anniversary date thereafter, the term of this Agreement shall be deemed automatically extended for an additional one (1) year term, subject to the termination provisions of paragraph 15. 2. Duties and Obligations of Executive. Executive shall serve as the Executive Vice President and Operations Manager of Bank and shall perform the duties of such positions as set forth in the position description approved by resolutions adopted by the Board of Directors of Bank, which shall be attached to this Agreement as an addendum, and such additional duties as may from time to time be reasonably requested of her by the Board of Directors of Bank. 3. Devotion to Bank's Business. (a) Executive shall devote her business time, ability, and attention to the business of Bank during the term of this Agreement and shall not during the term of this Agreement engage in any other business activities, duties, or pursuits whatsoever, or directly or indirectly render any services of a business, commercial, or professional nature to any other person or organization, whether for compensation or otherwise, without the prior written consent of Bank's Board of Directors. Page 74 of 87 (b) The expenditure of reasonable amounts of time for educational, charitable, or professional activities shall not be deemed a breach of this Agreement if those activities do not materially interfere with the services required of Executive under this Agreement. It is expressly understood and agreed that Executive may continue to participate in any such activities in which Executive participated prior to the date of this Agreement with the knowledge of Bank. Nothing in this Agreement shall be interpreted to prohibit Executive from making passive personal investments; provided that, except for ownership interests in businesses acquired prior to the date of this Agreement which represent in each case less than three percent (3%) of the total ownership of each such business, Executive shall not directly or indirectly acquire, hold, or retain any ownership interest in any financial institution, including its affiliated companies, or any other business competing with or similar in nature to the business of Bancorp or Bank, or their respective subsidiaries or affiliates, which conducts business or operations in San Joaquin County. (c) Executive agrees to conduct herself at all times with due regard to public conventions and morals. Executive further agrees not to do or commit any act that will reasonably tend to shock or offend the community and have an adverse effect upon Bancorp or Bank. (d) Executive hereby represents and agrees that the services to be performed under the terms of this Agreement are of a special, unique, unusual, extraordinary, and intellectual character that gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law. Executive therefore expressly agrees that in addition to any other rights or remedies that Bank may possess, it shall be entitled to injunctive and other equitable relief to prevent or remedy a breach of this Agreement by Executive. 4. Noncompetition by Executive. Executive shall not, during the term of this Agreement, directly or indirectly, either as a consultant, agent, principal, stockholder (except as permitted in paragraph 3(b) of this Agreement), officer, director, or in any other individual or representative capacity, engage, assist, consult or participate in any other banking or financial services business without the prior written consent of the Board of Directors of Bank. Following the termination of this Agreement and during any period when Executive is receiving severance payments from Bancorp or Bank pursuant to or related to this Agreement, Executive shall be subject to the foregoing noncompetition restrictions only with respect to banking or financial services businesses which conduct business or operations in San Joaquin County. This paragraph 4 shall survive the expiration or termination of this Agreement. 5. Indemnification. (a) Executive shall indemnify and hold Bancorp and Bank, and their respective affiliates and subsidiaries, harmless from all liability for loss, damage, or injury to persons or property resulting from the gross negligence or intentional misconduct of Executive. Page 75 of 87 (b) To the fullest extent permitted by law and applicable regulations of the BGFRS, CDFI and FDIC, Bank shall indemnify Executive if she was or is a party or is threatened to be made a party in any action brought by a third party against Executive (whether or not Bank is joined as a party defendant) against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with said action if Executive acted in good faith and in a manner Executive reasonably believed to be in the best interests of Bank (and with respect to a criminal proceeding if Executive had no reasonable cause to believe her conduct was unlawful), provided that the alleged conduct of Executive arose out of and was within the course and scope of her employment as an officer or executive of Bank. 6. Disclosure of Information. Executive shall not, either before or after termination of this Agreement, without the prior written consent of Bank's Board of Directors or except as required by law to comply with legal process including, without limitation, by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process, disclose to anyone any financial information, trade or business secrets, customer lists, computer software or other information not otherwise publicly available concerning the business or operations of Bancorp or Bank and their respective affiliates and subsidiaries. Executive further recognizes and acknowledges that any financial information concerning any customers of Bancorp or Bank and their respective affiliates or subsidiaries, as it may exist from time to time, is strictly confidential and is a valuable, special and unique asset of Bancorp's and Bank's business. Executive shall not, either before or after termination of this Agreement, without such consent or except as required by law, disclose to anyone said financial information or any part thereof, for any reason or purpose whatsoever. In the event Executive is required by law to disclose such information described in this paragraph 6, Executive will provide Bank and its counsel with immediate notice of such request so that they may consider seeking a protective order. If in the absence of a protective order or the receipt of a waiver hereunder Executive is nonetheless, in the written opinion of knowledgeable counsel, compelled to disclose any of such information to any tribunal or any other party or else stand liable for contempt or suffer other material censure or material penalty, then Executive may disclose (on an "as needed" basis only) such information to such tribunal or other party without liability hereunder. Notwithstanding the foregoing, Executive may disclose such information concerning the business or operations of Bancorp or Bank and their respective affiliates and subsidiaries as may be required by the BGFRS, CDFI, FDIC or other regulatory agency having jurisdiction over the operations of Bancorp or Bank in connection with an examination of Bancorp or Bank or other proceeding conducted by such regulatory agency. This paragraph 6 shall survive the expiration or termination of this Agreement. 7. Written, Printed or Electronic Material. All written, printed or electronic material, notebooks and records including, without limitation, computer disks used by Executive in performing duties for Bancorp or Bank, other than Executive's personal notes and diaries, are and shall remain the sole property of Bank. Upon termination of employment, Executive shall promptly return all such material (including all copies, extracts and summaries thereof) to Bank. This paragraph 7 shall survive the expiration or termination of this Agreement. 8. Surety Bond. Executive agrees that she will furnish all information and take any other steps necessary from time to time to enable Bank to obtain or maintain a fidelity bond conditional on the rendering of a Page 76 of 87 true account by Executive of all monies, goods, or other property which may come into the custody, charge, or possession of Executive during the term of her employment. The surety company issuing the bond and the amount of the bond must be acceptable to Bank. All premiums on the bond shall be paid by Bank. Bank shall have no obligation to pay severance benefits to Executive in accordance with paragraph 15 (d) of this Agreement in the event that the Executive's employment is terminated in connection with the Executive's failure to qualify for a surety bond at any time during the term of this Agreement and such failure to qualify results from an occurrence described in paragraph 15(a) (5), (6), (7), (8), (9), or (11, to the extent of an Executive breach). 9. Base Salary. In consideration for the services to be performed hereunder, Bank shall pay to Executive a base salary at the rate of Seventy Three Thousand Dollars ($73,000) per annum, payable in substantially equal installments during the term of this Agreement of approximately Three Thousand Forty One Dollars and Sixty Seven Cents ($3,041.67) on the fifteenth and last days of each month, subject to applicable adjustments for withholding taxes and prorations for any partial employment period. Executive shall receive such annual adjustments in base salary, if any, as may be determined by Bank's Board of Directors, in its sole discretion. 10. Salary Continuation During Disability. If Executive for any reason (except as expressly provided below) becomes temporarily or permanently disabled so that she is unable to perform the duties under this Agreement, Bank agrees to pay Executive the base salary otherwise payable to Executive pursuant to paragraph 9 of this Agreement reduced by the amounts received by Executive from state disability insurance, or worker's compensation or other similar insurance benefits through policies provided by Bancorp or Bank, for a period of six (6) months from the date of disability. For purposes of this paragraph 10, "disability" shall be defined as provided in any disability insurance coverage provided by Bancorp or Bank to Executive or as may otherwise be defined in any disability insurance program of Bancorp or Bank. Notwithstanding anything herein to the contrary, Bank shall have no obligation to make payments for a disability resulting from the deliberate, intentional actions of Executive, such as, but not limited to, attempted suicide or chemical dependence of Executive. 11. Incentive Compensation. Executive shall be entitled to receive an annual incentive compensation payment as determined by the Board of Directors of Bank based upon the implementation of Bancorp's strategic plan for each year and the profitability of Bancorp for each year during the term of this Agreement. Notwithstanding the foregoing, no incentive compensation payments shall be prorated for a partial year and Executive shall not be entitled to receive incentive compensation payments based upon the increased profitability described above for any year during the term of this Agreement in which Executive was not employed by Bank for the full fiscal year. Any incentive compensation payable to Executive shall be distributed to Executive following review by Bank's Board of Directors of the final audited consolidated financial results of operations for the immediately preceding fiscal year of Bancorp. Page 77 of 87 12. Other Benefits. Executive shall be entitled to those benefits adopted by Bancorp or Bank for all executive officers of Bancorp or Bank, subject to applicable qualification requirements and regulatory approval requirements, if any. Executive shall be further entitled to the following additional benefits which shall supplement or replace, to the extent duplicative of any part or all of the general benefits available for executive officers of Bancorp or Bank, the benefits otherwise provided to Executive: (a) Vacation. Executive shall be entitled to annual vacation leave, the duration of which shall be equal to an aggregate of four (4) weeks. The vacation leave shall be paid by Bank based on Executive's then existing rate of base salary each year during the term of this Agreement. Executive may be absent from her employment for vacation as long as such leave is reasonable and does not jeopardize her responsibilities and duties specified in this Agreement. The length of vacation should not exceed two (2) weeks without the approval of Bank's Board of Directors, but at least two (2) consecutive weeks of vacation must be taken each year during the term of this Agreement. Vacation time will accrue in accordance with Bank's personnel policies. (c) Insurance. Bank shall provide during the term of this Agreement group life, health (including medical, dental and hospitalization), accident and disability insurance coverage for Executive and her dependents through a policy or policies provided by the California Bankers Association group insurance program or similarly equivalent program. The cost of such insurance shall be paid by Bank. 13. Annual Physical Examination. Bank shall pay or reimburse Executive for the cost of an annual physical examination conducted by a California licensed physician selected by Executive and reasonably acceptable to Bank. 14. Business Expenses. Executive shall be reimbursed for all ordinary and necessary expenses incurred by Executive in connection with her employment. Executive shall also be reimbursed for expenses incurred in activities associated with promoting the business of Bancorp or Bank, including expenses for club memberships, entertainment, travel and other expenses for attendance at conventions and education programs, and similar items. Bank will pay for or will reimburse Executive for such expenses upon presentation by Executive from time to time of receipts or other appropriate evidence of such expenditures in form and content reasonably acceptable to Bank. Any club memberships shall be approved in advance of purchase by Bank's Boards of Directors. 15. Termination of Agreement. (a) Automatic Termination. This Agreement shall terminate automatically without further act of the parties and immediately upon the occurrence of any one of the following events, subject to a party's right, without any obligation whatsoever, to waive an event reasonably susceptible of waiver which otherwise benefits the waiving party, and the obligation of Bank to pay the amounts which would otherwise be payable to Executive under this Agreement through the end of the month in which the event occurs, except that only in the event of termination based upon subparagraphs (1), (4) or (11, to the extent of Bank's breach) below shall Executive be entitled to receive severance payments and continuation of group insurance benefits based upon automatic termination pursuant to paragraph 15 (d) of this Agreement: Page 78 of 87 (1) The occurrence of circumstances that make it impossible or impractical for Bancorp and Bank to conduct or continue business. (2) The death of Executive. (3) The loss by Executive of legal capacity. (4) The loss by Bancorp and Bank of legal capacity to contract. (5) The willful and material breach or the habitual and continued neglect by the Executive of her employment responsibilities and duties; (6) The continuous mental or physical incapacity of the Executive, subject to disability rights under this Agreement; (7) The Executive's willful violation of any federal banking or securities laws, or of the bylaws, rules, policies or resolutions of Bancorp or Bank, or the rules or regulations of the BGFRS, CDFI, FDIC, or other regulatory agency or governmental authority having jurisdiction over Bancorp or Bank, which has an adverse effect upon the Bancorp or Bank; (8) The written determination by a state or federal banking agency or governmental authority having jurisdiction over the Bancorp or Bank that Executive is not suitable to act in the capacity for which she is employed by Bank; (9) The Executive's conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Executive's willful commission of a fraudulent or dishonest act; or (10) The Executive's willful disclosure, without authority, of any secret or confidential information concerning Bancorp or Bank and their respective affiliates or subsidiaries, or taking any action which Bank's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Bancorp or Bank, or their respective affiliates or subsidiaries. (11) Bank or Executive materially breaches the terms or provisions of this Agreement. (b) Termination by Bank. Bank may, at its election and in its sole discretion, terminate this Agreement at any time for any reason, or for no reason, without prejudice to any other remedy to which Bank may be entitled either at law, in equity or under this Agreement. Upon such Page 79 of 87 termination, Executive shall immediately cease performing and discharging the duties and responsibilities of her position with Bank and remove herself and her personal belongings from Bank's premises. All rights and obligations accruing to Executive under this Agreement shall cease at such termination, except that such termination shall not prejudice Executive's rights regarding employment benefits which shall have accrued prior to such termination, including the right to receive the severance pay and benefits specified in paragraph 15 (d) below, and any other remedy which Executive may have at law, in equity or under this Agreement, which remedy accrued prior to such termination. (c) Termination by Executive. This Agreement may be terminated at any time by Executive for any reason, or no reason, by giving not less than thirty (30) days' prior written notice of termination to Bank. Upon such termination, all rights and obligations accruing to Executive under this Agreement shall cease, except that such termination shall not prejudice Executive's rights regarding employment benefits which shall have accrued prior to such termination and any other remedy which Executive may have at law, in equity or under this Agreement, which remedy accrued prior to such termination. (d) Severance Pay and Insurance Continuation Benefits - Termination by Bank. In the event of termination by Bank pursuant to paragraph 15 (b) or automatic termination based upon paragraph 15 (a) (1), (4) or (11, to the extent of Bank's breach) of this Agreement, Executive shall be entitled to receive severance pay (in addition to any base salary, incentive compensation, or other payments, if any, due Executive) equal to six (6) months base salary, payable by Bank in substantially equal installments on the fifteenth and last days of each month commencing with the month immediately following such termination. Executive shall also be entitled to receive continuation of group insurance coverages in effect at the date of termination for Executive and her dependents, at the expense of Bank for a period of one hundred eighty (180) days from the date of termination. Notwithstanding the foregoing, in the event of a "change in control" as defined in subparagraph (e) below, Executive shall not be entitled to severance pay or continuation of group insurance coverages pursuant to this subparagraph (d) and any rights of Executive to severance pay or other benefits shall be limited to such rights and benefits as are specified in subparagraph (e) below. Executive acknowledges and agrees that severance pay and continuation of group insurance coverages pursuant to this subparagraph (d) is in lieu of all damages, payments and liabilities on account of the early termination of this Agreement and the sole and exclusive remedy for Executive terminated at the will of Bank pursuant to paragraph 15 (b) or pursuant to certain provisions of paragraph 15 (a) described herein. (e) Severance Pay - Change in Control. In the event of a "change in control" as defined herein and within a period of twenty-four (24) months following consummation of such a change in control (i) Executive's employment is terminated; or (ii) any adverse change occurs in the nature and scope of Executive's position, responsibilities, duties, base salary, benefits or location of employment; or (iii) any event occurs which reasonably constitutes a demotion, significant diminution or constructive termination (by resignation or otherwise) of Executive's employment, Executive shall be entitled to receive severance pay in addition to any bonus or incentive compensation payments due Executive. Any such severance pay due Executive shall be in an amount equal to twelve (12) months of Executive's base salary at the rate in effect immediately prior to termination. Executive shall also be entitled to receive continuation of group insurance coverages in effect at the date of termination for Executive and his dependents, at the expense of Bank for a period of one hundred eighty (180) days from the date of termination. Page 80 of 87 Notwithstanding the foregoing provisions of paragraph 15 (e), Executive may resign his position at any time during the period commencing on the expiration of six (6) months following a "change in control" through the expiration of twelve (12) months following a "change in control" and upon such resignation receive the severance pay specified in paragraph 15 (e) above without regard to whether an event described in paragraph 15 (e) (i), (ii) or (iii) has occurred; provided, however, that Executive shall deliver a letter of resignation that clearly states the intention to resign as of a date specified therein and such date of resignation shall be at least thirty (30) days after the date of receipt of the resignation letter by Executive's employer following such "change in control." Any such severance shall be payable in lump sum by Bank within thirty (30) days following the occurrence of an event described in paragraph 15 (e). Such severance payments, if any, shall be in lieu of all damages, payments and liabilities on account of the events described above for which such severance payments, if any, may be due Executive and any severance payment rights of Executive under paragraph 15 (d) of this Agreement. This paragraph 15 (e) shall be binding upon and inure to the benefit of the parties and any successors or assigns of the parties or any "person" as defined herein. Notwithstanding the foregoing, Executive shall not be entitled to receive nor shall Bank, their respective successors, assigns or any "person" as defined herein be obligated to pay severance payments pursuant to this paragraph 15 (e) in the event of an occurrence described in paragraph 15 (a) (5), (7) (8), (9), (10), or (11, to the extent of Executive's breach), or in the event Executive terminates employment in accordance with paragraph 15 (c) and the termination is not a result of or based upon the occurrence of any event described in paragraph 16 (e) (ii) or (iii) above. 16. Change in Control Definition. The term "change in control" shall mean the first to occur of any of the following events with respect to Bancorp or Bank: (a) Any "person" (as such term is used in sections 13 and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes the beneficial owner (as that term is used in section 13(d) of the Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of Bancorp's or Bank's capital stock, other than a group of two or more persons not (i) acting in concert for the purpose of acquiring, holding or disposing of such stock or (ii) otherwise required to file any form or report with any governmental agency or regulatory authority having jurisdiction over Bancorp or Bank which requires the reporting of any change in control; (b) During any period of not more than two (2) consecutive years, not including any period prior to the date of this Agreement, individuals who, at the beginning of such period, constitute the Board of Directors of Bancorp or Bank, cease for any reason to constitute at least a majority thereof; (c) The effective date of any consolidation or merger of Bancorp or Bank (after all requisite shareholder, applicable regulatory and other approvals and consents have been obtained), other than a consolidation Page 81 of 87 or merger of Bancorp or Bank in which the holders of the voting capital stock of Bancorp or Bank immediately prior to the consolidation or merger hold more than fifty percent (50%) of the voting capital stock of the surviving entity immediately after the consolidation or merger; (d) The shareholders of Bancorp or Bank approve any plan or proposal for the liquidation or dissolution of Bancorp or Bank; or (e) The shareholders of Bancorp or Bank approve the sale or transfer of substantially all of Bancorp's or Bank's assets to parties that are not within a "controlled group of corporations" (as that term is defined in section 1563 of the Code) in which Bancorp or, as applicable Bank, is a member. Notwithstanding the foregoing or anything else contained herein to the contrary, there shall not be a "change in control" for purposes of this Agreement if the event which would otherwise come within the meaning of the term "change in control" involves (i) an Employee Stock Ownership Plan sponsored by the Bancorp, which Plan is the party that acquires "control" or is the principal participant in the transaction constituting a "change in control," as described above, or (ii) a reorganization in which the Bank or any bank subsidiary of Bancorp is merged with and into another bank subsidiary of Bancorp to consolidate operations under the charter of such other bank subsidiary. 17. Notices. Any notices to be given hereunder by a party to another party shall be in writing and may be transmitted by personal delivery or by U.S. mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses listed as follows: Bank: Principal place of business address. Executive: Principal residence address as shown in Bancorp's Personnel Records and Executive's personal file. Each party may change the address for receipt of notices by written notice in accordance with this paragraph 18. Notices delivered personally shall be deemed communicated as of the date of actual receipt; mailed notices shall be deemed communicated as of three (3) days after the date of mailing. 18. Arbitration. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Bank in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc., San Francisco, California ("JAMS"), in accordance with the rules and procedures of JAMS then in effect. In the event JAMS is unable or unwilling to conduct such arbitration, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association, San Francisco, California ("AAA"), shall conduct such binding arbitration in accordance with the rules and procedures of the AAA then in effect. Notice of the demand for arbitration Page 82 of 87 shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Stockton, California, unless otherwise agreed to by the parties. 19. Attorneys' Fees and Costs. In the event of litigation, arbitration or any other action or proceeding between the parties to interpret or enforce this Agreement or any part thereof or otherwise arising out of or relating to this Agreement, the prevailing party shall be entitled to recover its costs related to any such action or proceeding and its reasonable fees of attorneys, accountants and expert witnesses incurred by such party in connection with any such action or proceeding. The prevailing party shall be deemed to be the party which obtains substantially the relief sought by final resolution, compromise or settlement, or as may otherwise be determined by order of a court of competent jurisdiction in the event of litigation, an award or decision of one or more arbitrators in the event of arbitration, or a decision of a comparable official in the event of any other action or proceeding. Every obligation to indemnify under this Agreement includes the obligation to pay reasonable fees of attorneys, accountants and expert witnesses incurred by the indemnified party in connection with matters subject to indemnification. 20. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the employment of Executive hereunder and contains all of the covenants and agreements between the parties with respect to the employment of Executive hereunder. Each party to this Agreement acknowledges that no other representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on a party. 21. Modifications. Any modification of this Agreement will be effective only if it is in writing and signed by a party or its authorized representative. 22. Waiver. The failure of any party to insist on strict compliance with any of the terms, provisions, covenants, or conditions of this Agreement by the other party shall not be deemed a waiver of any term, provision, covenant, or condition, individually or in the aggregate, unless such waiver is in writing, nor shall any waiver or relinquishment of any right or power at any one time or times be deemed a waiver or relinquishment of that right or power for all or any other times. 23. Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way. Page 83 of 87 24. Advice of Counsel and Advisors. Executive acknowledges and agrees that she has read and understands the terms and provisions of this Agreement and prior to signing this Agreement, she has had the advice of counsel and such other advisors as she deemed appropriate in connection with her review and analysis of such terms and provisions of this Agreement. 25. Governing Law and Venue. The laws of the State of California, other than those laws denominated choice of law rules, shall govern the validity, construction and effect of this Agreement. Any action which in any way involves the rights, duties and obligations of the parties hereunder and is not resolved by arbitration as set forth in paragraph 19 of this Agreement shall be brought in the courts of the State of California and venue for any action or proceeding shall be in San Joaquin County or in the United States District Court for the Eastern District of California, and the parties hereby submit to the personal jurisdiction of said courts. 26. Payments Due Deceased Executive. If Executive dies prior to the expiration of the term of her employment, any payments that may be due Executive under this Agreement as of the date of death shall be paid to Executive's executors, administrators, heirs, personal representatives, successors, or assigns. 27. Regulatory Approval. Bank and Executive agree to cooperate in obtaining any required regulatory approvals of this Agreement from the BGFRS, CDFI, FDIC or other governmental or regulatory authority having jurisdiction over Bancorp or Bank at the earliest practicable date. Notwithstanding any other term or provision of this Agreement, Bank and Executive further agree that no benefits, rights or obligations shall accrue to the parties hereunder in the absence of obtaining any such required regulatory approvals and in the event that any such governmental or regulatory authority shall disapprove any provision of this Agreement, then the parties hereto will use their best efforts, acting in good faith, to amend this Agreement in a manner that will be acceptable to the parties and to such governmental or regulatory authorities. IN WITNESS WHEREOF, the parties have executed this Agreement in Stockton, California, as of the date set forth above. BANK: EXECUTIVE: Service 1st Bank By: ------------------ --------------- John O. Brooks Shannon Reinard Chairman Page 84 of 87 EX-31.1 7 ex31_1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATIONS UNDER SECTION 302 OF THE SARBANES-OXLEY ACT of 2002 REGARDING QUARTERLY REPORTS ON FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2004 I, John O. Brooks, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Service 1st Bancorp; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 12, 2004 /s/ JOHN O. BROOKS ------------------------------------------- John O. Brooks, Chief Executive Officer Page 85 of 87 EX-31.2 8 ex31_2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATIONS UNDER SECTION 302 OF THE SARBANES-OXLEY ACT of 2002 REGARDING QUARTERLY REPORTS ON FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2004 I, Robert E. Bloch, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Service 1st Bancorp; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 12, 2004 /s/ ROBERT E. BLOCH ---------------------------------------- Robert E. Bloch, Chief Financial Officer Page 86 of 87 EX-32.1 9 ex32_1.txt EXHIBIT 32.1 EXHIBIT 32.1 Certification of Service 1st Bancorp pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 regarding Quarterly Report on Form 10-QSB for the quarter ended September 30, 2004 Pursuant to Section 906 of the Sarbanes-Oxley Act of (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Service 1st Bancorp, a California corporation (the "Company"), does hereby certify that: 1. The Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 2004 (the "Form 10-QSB") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. Information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 12, 2004 /s/ JOHN O. BROOKS -------------------------------- John O. Brooks Chief Executive Officer Dated: November 12, 2004 /s/ ROBERT E. BLOCH -------------------------------- Robert E. Bloch Executive Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Service 1st Bancorp and will be retained by Service 1st Bancorp and furnished to the Securities and Exchange Commission or its staff upon request. Page 87 of 87 -----END PRIVACY-ENHANCED MESSAGE-----