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