10QSB 1 service_3q05.txt FORM 10-QSB -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION -------------------------------------------------------------------------------- Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2005 ------------------ [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE For the transition period from____________ to ____________ Commission file number 000-50323 ----------- SERVICE 1ST BANCORP ----------------------------------------------------------------- (Exact name of small business Issuer as specified in its Charter) State of California 32-0061893 ------------------------------- ------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2800 West March Lane, Suite 120, Stockton, California 95219 ----------------------------------------------------------- (Address of principal executive offices) (209) 956-7800 ------------------------------------------------ (Issuer's Telephone Number, Including Area Code) --------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: 2,386,239 shares of registrant's common stock were outstanding at November 9, 2005. The Index to Exhibits is located at page 25. Page 1 of 68
PART I - FINANCIAL INFORMATION ITEM 1. Financial statements SERVICE 1ST BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS For the periods ended (Unaudited) ASSETS 09/30/05 12/31/04 ------------- ------------- Cash & due from banks $ 8,829,272 $ 6,670,896 Fed Funds sold 17,678,483 4,371,469 ------------- ------------- Cash and cash equivalents 26,507,755 11,042,365 Certificates of deposits with other banks 1,198,799 345,000 Securities available-for-sale 67,050,378 51,722,636 Securities held-to-maturity 357,508 566,489 Loans, net 75,401,414 68,322,348 Bank premises and equipment, net 643,877 626,792 Bank owned life insurance 3,404,092 2,331,308 Accrued interest and other assets 3,264,025 2,215,697 ------------- ------------- Total assets $ 177,827,848 $ 137,172,635 ============= ============= LIABILITIES & SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing DDA $ 43,177,486 $ 20,958,209 Interest-bearing DDA 69,032,298 66,230,759 Money market deposit accounts 13,896,189 6,413,624 Savings accounts 3,477,234 2,611,166 Certificates of deposit 31,459,872 25,894,824 ------------- ------------- Total deposits 161,043,079 122,108,582 Other liabilities 1,328,736 962,382 ------------- ------------- Total liabilities 162,371,815 123,070,964 Shareholders' equity: Common stock 15,992,913 15,425,042 Accumulated deficit (168,009) (1,117,844) Accumulated other comprehensive income net of tax (368,871) (205,527) ------------- ------------- Total shareholders' equity 15,456,033 14,101,671 ------------- ------------- Total liabilities and shareholders' equity $ 177,827,848 $ 137,172,635 ============= =============
The accompanying notes are an integral part of these consolidated statements. 2 of 68
SERVICE 1ST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME For the periods ended (Unaudited) For the three months ended For the nine months ended -------------------------- -------------------------- 09/30/05 09/30/04 09/30/05 09/30/04 ----------- ----------- ----------- ----------- Interest income: Interest & fees on loans $ 1,513,858 $ 1,175,010 $ 4,112,345 $ 3,238,520 Interest on investments 619,313 423,664 1,729,099 1,276,690 Interest on cds other banks 37,320 378 70,293 378 Interest on federal funds sold 48,891 4,413 156,902 15,701 ----------- ----------- ----------- ----------- Total interest income 2,219,382 1,603,465 6,068,639 4,531,289 Interest expense: Interest expense on deposits 747,603 472,079 1,983,999 1,344,872 Interest on borrowings 249 8,396 1,278 15,849 ----------- ----------- ----------- ----------- 747,852 480,475 1,985,277 1,360,721 ----------- ----------- ----------- ----------- Net interest income before provision for loan losses 1,471,530 1,122,990 4,083,362 3,170,568 Provision for loan losses -- 20,000 140,000 125,000 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 1,471,530 1,102,990 3,943,362 3,045,568 Gain on sale of securities 2,998 9,774 6,191 9,774 Other income 164,009 278,583 513,935 720,527 General & administrative expenses: Salaries & benefits 698,042 605,320 1,911,333 1,655,977 Occupancy & equipment 136,282 139,057 386,857 408,580 Other operating 357,034 308,305 975,638 908,403 ----------- ----------- ----------- ----------- Total G & A expenses 1,191,358 1,052,682 3,273,828 2,972,960 ----------- ----------- ----------- ----------- Income before income taxes 447,179 328,891 1,189,660 802,909 Income tax 17,590 (150,000) 234,996 (250,000) ----------- ----------- ----------- ----------- Net income $ 429,589 $ 478,891 $ 954,664 $ 1,052,909 =========== =========== =========== =========== Net income per share - basic $ 0.18 $ 0.27 $ 0.40 $ 0.60 =========== =========== =========== =========== Net income per share - diluted $ 0.18 $ 0.25 $ 0.38 $ 0.58 =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements. 3 of 68
SERVICE 1ST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited) Accumulated Common Stock Other Total --------------------------- Comprehensive Accumulated Comprehensive Shareholders' Shares Amount Income Deficit Income Equity ----------- ------------ ----------- ------------ ----------- ------------ Balance January 1, 2004 1,155,105 $ 10,915,069 $ (2,529,737) $ (102,561) $ 8,282,771 Cash paid for fractional shares (149) $ (2,085) (2,085) Common stock sold, net of costs of $7,964 376,208 4,412,480 4,412,480 Stock options exercised 10,500 97,493 97,493 Comprehensive income: Net income $ 1,413,978 1,413,978 -- 1,413,978 Unrealized losses on securities net of taxes of $68,325 (97,199) -- (97,199) (97,199) Reclassification adjustment for gains included in net income, net of tax of $4,007 (5,767) -- (5,767) (5,767) ----------- Comprehensive income $ 1,311,012 =========== ----------- ------------ ------------ ----------- ------------ Balance December 31, 2004 1,541,664 15,425,042 (1,117,844) (205,527) 14,101,671 Common stock sold, net of costs of $11,086 49,273 567,871 567,871 Three for two stock split including cash for fractional shares 795,302 (4,829) (4,829) Comprehensive income Net income $ 954,664 954,664 954,664 Unrealized losses on securities net of taxes of $117,482 $ (166,978) (166,978) (166,978) Reclassification adjustment for gains included in net income, net of tax of $2,557 3,634 3,634 3,634 ----------- Comprehensive income $ 791,320 =========== ----------- ------------ ------------ ----------- ------------ Balances September 31, 2005 2,386,239 $ 15,992,913 $ (168,009) $ (368,871) $ 15,456,033 =========== ============ ============ =========== ============
The accompanying notes are an integral part of the financial statements. 4 of 68
SERVICE 1ST BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, (Unaudited) 2005 2004 ------------ ------------ Operating activities: Net income $ 854,664 $ 1,052,909 Adjustments to reconcile net income to net cash from operating activities: Provision for loan losses 140,000 125,000 Depreciation 130,460 140,481 Amortization and accretion on securities 233,349 353,713 Earnings on cash surrender value life insurance, net (72,784) (70,282) Gain on sale of loans (67,226) (223,861) Gain on sale of securities, net (6,191) (9,774) Decrease (Increase) in accrued interest (292,586) 34,915 Increase in other assets (666,452) (727,523) Increase in accrued expenses and other liabilities 466,354 335,587 ------------ ------------ Net cash provided by operating activities 719,588 1,011,165 Investing activities: Purchases of securities available-for-sale (30,661,032) (23,826,315) Proceeds from sales of available-for-sale securities 1,396,477 995,156 Proceeds from payments, maturities and calls of available- for-sale securities 13,457,021 23,781,203 Proceeds from payments, maturities and calls of held-to- maturity securities 208,981 1,010,400 Net increase in loans (8,107,063) (15,312,781) Proceeds from sales of loans 955,223 2,369,389 Certificates of deposit with other banks (853,799) (285,000) Purchase of Bank Owned Life Insurance (1,000,000) -- Purchases of premises and equipment (147,545) (52,625) ------------ ------------ Net cash used by investing activities (24,751,737) (11,320,573) Financing activities: Net increase in demand and interest-bearing deposits, and savings 33,369,449 17,654,595 Net increase in time deposits 5,565,048 (1,756,892) Cash paid in lieu of stock splits and dividends (4,829) (2,085) Net proceeds from sale of stock 567,871 Options exercised -- 97,493 Net change in borrowings -- (17,113) ------------ ------------ Net cash provided by financing activities 39,497,539 15,975,998 ------------ ------------ Net increase in cash and cash equivalents 15,465,390 5,666,590 Cash and cash equivalents at beginning of period 11,042,365 6,639,537 ------------ ------------ Cash and cash equivalents at end of period $ 26,507,755 $ 12,306,127 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 1,979,746 $ 1,384,328 Income taxes $ 120,000 $ 1,600
The accompanying notes are an integral part of the financial statements. 5 of 68 SERVICE 1ST BANCORP NOTES TO UNAUDITED CONSOLIDATED 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, 2004. 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, 2005 and the Company's income statement for the three months and nine months ended September 30, 2005 and 2004, and the statement of cash flows for the nine months ended September 30, 2005 and 2004. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. The balance sheet as of December 31, 2004, has been derived from the audited balance sheet as of that date. Reclassifications Certain reclassifications were made to prior periods presentations to conform to the current year. These reclassifications are of a normal recurring nature. 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 on the following page. 6 of 68
For the three months ended For the nine months ended --------------------------- --------------------------- 09/30/05 09/30/04 09/30/05 09/30/04 ------------ ------------ ------------ ------------ Net Income: As reported Stock-Based Compensation using the Intrinsic Value Method $ 429,589 $ 478,891 $ 954,664 $ 1,052,909 Stock-Based Compensation that would have been reported using the Fair Value Method of SFAS No. 123 (42,942) (2,689) (69,116) (8,067) ------------ ------------ ------------ ------------ Pro Forma $ 386,647 $ 476,202 $ 885,548 $ 1,044,842 ============ ============ ============ ============ Net income per share - basic As reported $ 0.18 $ 0.27 $ 0.40 $ 0.60 Pro Forma $ 0.18 $ 0.26 $ 0.37 $ 0.60 Net income per share - diluted As reported $ 0.18 $ 0.25 $ 0.38 $ 0.58 Pro Forma $ 0.18 $ 0.25 $ 0.35 $ 0.57
In December 2004, FASB revised SFAS 123(R) and issued it under its new name, "Share-Based Payment". This statement eliminates the alternative to use Opinion 25's intrinsic value method of accounting discussed in the previous paragraph. Instead, this Statement generally requires entities to recognize the cost of employee services received in exchange for awards of stock options, or other equity instruments, based on the grant-date fair value of those awards. The Company must adopt this Statement in 2006 for all new stock option awards as well as any existing awards that are modified, repurchased or cancelled. In addition, the unvested portion of previously awarded options will also be recognized as expense in the year of vesting. The Company is unable to estimate the impact of this Statement on its financial condition and results of operations as the decision to grant option awards is made annually on a case-by-case basis and, accordingly, the Company cannot estimate the amount of stock awards that will be made in 2006. However, options that are outstanding currently and vest in 2006 and 2007 will create net compensation cost of approximately $171,768 in 2006 and $165,715 in 2007, ignoring any forfeitures or cancellations. 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, 2005 and 2004. Weighted average shares outstanding used in the computation of basic earnings per share were 2,381,219 and 1,748,184 in 2005 and 2004, respectively. Weighted average shares outstanding used in the computation of diluted earnings per share were 2,506,302 and 1,819,221 in 2005 and 2004, respectively. All earnings per share data have been retroactively adjusted for the 3 for 2 stock split declared on September 15, 2005 for shareholders of record on September 29, 2005. 7 of 68 NOTE 3 - 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 shareholders' equity. Any gains or losses on sales of investments are computed on a specific identification basis. The amortized cost and estimated fair values of securities as of September 30, 2005 are as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ------------ ------------ ------------ Available-for-Sale Securities: Obligations of U.S. Government Agencies $ 29,485,614 $ 2,632 $ (283,326) $ 29,204,920 State and public subdivisions 8,814,513 4,464 (54,841) 8,764,136 Asset backed-securities 9,212,862 2,448 (78,153) 9,137,157 Mortgage backed-securities 20,165,360 9,910 (231,105) 19,944,165 ------------ ------------ ------------ ------------ $ 67,678,349 $ 19,454 $ (647,425) $ 67,050,378 ============ ============ ============ ============
The amortized cost and fair values of investment securities held-to-maturity at September 30, 2005 were: Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ------------ ------------ ------------ Held-to-Maturity Securities: Asset backed-securities $ 110,333 $ 1,694 $ -- $ 112,027 Mortgage backed-securities 247,175 4,970 (325) 251,820 ------------ ------------ ------------ ------------ $ 357,508 $ 6,664 $ (325) $ 363,847 ============ ============ ============ ============
Securities carried at approximately $41,754,000 were pledged to secure deposits of public funds and borrowing arrangements. 8 of 68
NOTE 3 - SECURITIES cont'd The tables below reflect the composition of investment securities, amortized cost, unrealized gains and losses and estimated fair values as of December 31, 2004. Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ------------ ------------ ------------ Available-for-Sale Securities: U.S. Government Agencies $ 21,835,011 $ 10,294 $ (212,572) $ 21,632,733 State and Political Subdivisions 125,000 2,614 -- 127,614 Asset-Backed Securities 6,473,191 20,379 (30,259) 6,463,311 Mortgage-Backed Securities 23,639,408 27,507 (167,937) 23,498,978 ------------ ------------ ------------ ------------ $ 52,072,610 $ 60,794 $ (410,768) $ 51,722,636 ============ ============ ============ ============ Held-to-Maturity Securities: Asset-Backed Securities $ 244,040 $ 3,140 $ -- $ 247,180 Mortgage-Backed Securities 322,449 10,858 (297) 333,010 ------------ ------------ ------------ ------------ $ 566,489 $ 13,998 $ (297) $ 580,190 ============ ============ ============ ============
NOTE 4 - LOANS Service 1st Bank's customers are primarily located in San Joaquin County. At September 30, 2005, approximately 73% 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 3%. 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: 9/30/2005 12/31/2004 ------------ ------------ Construction and land development loans $ 25,366,861 $ 15,498,534 Real estate loans 30,890,610 35,302,346 Commercial loans 16,277,690 14,721,336 Agricultural loans 2,223,688 1,951,225 Consumer loans 2,014,333 2,105,043 ------------ ------------ 76,773,182 69,578,484 Deferred loan fees and costs (273,274) (293,136) Allowance for loan losses (1,098,494) (963,000) ------------ ------------ $ 75,401,414 $ 68,322,348 ============ ============
9 of 68 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; (5) changes in the regulatory environment; (6) changes in business conditions and inflation; (7) changes in securities markets; (8) data processing 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 2004, 2005 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 ORGANIZATION Service 1st Bancorp (the "Company") is a California corporation, headquartered in Stockton, California, and was incorporated on January 23, 2003 to act as a holding company for Service 1st Bank (the "Bank"). The Bank became a subsidiary of the Company effective June 26, 2003. As of December 31, 2004, the Bank operated two full-service offices in the cities of Stockton and Tracy in San Joaquin County, and a loan production office in Castro Valley, Alameda County. The Bank offers a full range of commercial banking services to individuals, small and medium sized businesses, municipalities and professionals in San Joaquin County and the surrounding communities. 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, 2004. 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 matters described below are critical accounting policies. 10 of 68 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 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. Beginning in 2006, the Company will adopt SFAS No. 123(R) "Share-Based Payment". See Note 1, "Stock-Based Compensation" on page 6 for additional information. Summary of Financial Condition The Company's total consolidated assets increased 29.6% from December 31, 2004 to September 30, 2005. As of September 30, 2005, total consolidated assets were $177,827,848 compared to $137,172,635 as of December 31, 2004 and $127,921,587 at September 30, 2004. The increase in growth was primarily from an increase in noninterest-bearing DDA, interest bearing DDA, and money market deposit accounts. Total net loans at September 30, 2005 were $75,401,414 compared to $68,322,348 at December 31, 2004 and $65,542,661 at September 30, 2004. This represents an increase in net loans of 10.4% from December 31, 2004. Total investment securities at September 30, 2005 were $67,407,886 compared to $52,289,125 at December 31, 2004 and $44,876,888 at September 30, 2004. Federal Funds sold at September 30, 2005 were $17,678,483 compared to $4,371,469 at December 31, 2004. The increase in investment securities and Federal Funds sold was a result of the $38,934,497 increase in deposits for the first nine months of the year. Total deposits were $161,043,079 at September 30, 2005 compared to $122,108,582 at December 31, 2004, and $117,518,780 at September 30, 2004. Noninterest-bearing DDA accounts increased from $20,958,209 at December 31, 2004 to $43,177,486 at September 30, 2005. Of the $43,177,486, approximately $21,700,000 is attributable to a single customer, which will be reduced by withdrawals anticipated before the end of the year. Interest-bearing DDA accounts increased to $69,032,298 at September 30, 2005 from $66,230,759 at December 31, 2004. Money market deposit accounts increased from $6,413,624 at December 31, 2004 to $13,896,189 at September 30, 2005. Results of Operations Net income for the three months ended September 30, 2005 was $429,589 compared to $478,891 for the third quarter of 2004. Net income for the nine months ended September 30, 2005 was $954,664 compared to $1,052,909 for September 30, 2004. Income before taxes for the three months ended September 30, 2005 was $447,179 compared to $328,891 for the same quarter of 2004. Income before taxes for the nine months ended September 30, 2005 was $1,189,660 compared to $802,909 for the same period of 2004. The Company will recapture all of its initial net operating loss carryforwards during 2005. Consequently, the Company will sustain an increased tax burden and requirement to accrue income tax expense during 2005. Income tax expense for the third quarter of 2005 was $17,590 compared to a $150,000 tax benefit for the same period of 2004. 11 of 68 Income tax expense for the nine months ended September 30, 2005 was $234,996 compared to a $250,000 tax benefit for the same period of 2004. The favorable improvement in the Company's pre-tax operations for the three months and nine months ended September 30, 2005 reflects the income that the Bank has been able to generate from an increase in loans and investments. Other income declined to $164,009 for the three months ended September 30, 2005 from $278,583 at September 30, 2004. Other income declined to $513,935 for the nine months ended September 30, 2005 from $720,527 at September 30, 2004. The decline in other income was primarily due to a decrease in premiums received on loans sold, loan servicing fees, and referral fees on mortgage loans. 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 following pages. 12 of 68
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, 2005 and 2004. September 30, 2005 September 30, 2004 ------------------------------------------ ------------------------------------------- Average Average Average Income/ Yield or Average Income/ Yield or Balance Expense Rate Paid Balance Expense Rate Paid ------------- ----------- ----------- ------------- ----------- ------------ Interest-earning assets: Interest-bearing deposits $ 4,931,168 $ 37,320 3.00% $ 111,521 $ 378 1.34% Investment securities 64,021,749 619,313 3.84% 46,754,686 423,664 3.60% Federal funds sold 5,761,044 48,891 3.37% 1,158,419 4,413 1.51% Loans (1) (2) 75,151,683 1,513,858 7.99% 66,640,395 1,175,010 7.00% ------------- ----------- ------------- ----------- Total interest-earning 149,865,644 2,219,382 5.88% 114,665,021 1,603,465 5.55% assets Allowance for possible loan losses (1,102,855) (957,073) Cash and due from banks 8,303,313 7,426,860 Bank premises and equipment 630,808 656,850 Accrued interest receivable 571,664 531,169 Other assets 5,218,142 3,964,838 ------------- ------------- Total assets $ 163,486,716 $ 126,287,665 ============= ============= Interest-Bearing Liabilities: Demand deposits $ 68,549,822 408,574 2.36% $ 64,185,376 246,085 1.52% Savings & money market accounts 16,946,875 55,874 1.31% 7,717,465 14,408 0.74% Time Deposits 29,515,291 283,155 3.81% 24,691,164 211,586 3.40% Other borrowings 29,007 249 3.41% 1,660,666 8,396 2.01% ------------- ----------- ------------- ----------- Total interest-bearing liabilities 115,040,995 747,852 2.58% 98,254,671 480,475 1.94% ----------- Non-interest bearing demand deposits 31,058,139 18,431,810 Other Liabilities 2,104,601 936,000 ------------- ------------- Total liabilities 148,203,735 117,622,481 Shareholders' equity 15,282,981 8,665,184 ------------- ------------- Total liabilities and shareholders' equity $ 163,486,716 $ 126,287,665 ============= ============= ----------- ----------- Net interest income $ 1,471,530 $ 1,122,990 =========== =========== Net interest margin on average interest earning assets (3) 3.90% 3.89%
1. Average loan balances include average deferred loan fees of $257,718 and $233,090 for the three month periods ending September 30, 2005 and 2004, respectively. 2. Interest on loans includes fees of $58,391 and $30,219 for the three month periods ending September 30, 2005 and 2004, 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. 13 of 68
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, 2005 and 2004. September 30, 2005 September 30, 2004 -------------------------------------- ---------------------------------------- Average Average Average Income/ Yield or Average Income/ Yield or Balance Expense Rate Paid Balance Expense Rate Paid ------------- ---------- --------- ------------- ---------- --------- Interest-earning assets: Interest-bearing deposits $ 3,078,635 $ 70,293 3.05% $ 37,445 $ 378 1.35% Investments 60,000,199 1,729,099 3.85% 49,584,363 1,276,690 3.44% Federal funds sold 7,368,731 156,902 2.85% 1,887,465 15,701 1.11% Loans (1) (2) 71,767,514 4,112,345 7.66% 61,226,057 3,238,520 7.07% ------------- ---------- ------------- ---------- Total interest-earning assets 142,215,079 6,068,639 5.71% 112,735,330 4,531,289 5.37% Allowance for possible loan losses (1,055,112) (904,906) Cash and due from banks 8,333,333 6,561,585 Bank premises and equipment 634,898 683,693 Accrued interest receivable 580,627 528,928 Other assets 4,598,125 3,668,655 ------------- ------------- Total assets $ 155,306,950 $ 123,273,285 ============= ============= Interest Bearing Liabilities: Demand deposits $ 68,856,056 1,081,281 2.10% $ 59,426,555 681,291 1.53% Savings & money market accounts 15,359,741 129,676 1.13% 10,712,051 65,971 0.82% Time Deposits 27,843,439 773,042 3.71% 25,179,411 597,610 3.17% Other Borrowings 53,643 1,278 3.19% 806,457 15,849 2.63% ------------- ---------- ------------- ---------- Total interest-bearing liabilities 112,112,879 1,985,277 2.37% 96,124,474 1,360,721 1.89% ---------- ------------- ---------- Non-interest bearing demand deposits 26,976,900 17,823,384 Other Liabilities 1,281,344 636,263 ------------- ------------- Total liabilities 140,371,123 114,584,121 Shareholders' equity 14,935,827 8,689,164 ------------- ------------- Total liabilities and shareholders' equity $ 155,306,950 $ 123,273,285 ============= ============= ---------- ---------- Net interest income $4,083,362 $3,170,568 ========== ========== Net interest margin on average interest earning assets (3) 3.84% 3.73%
1. Average loan balances include average deferred loan fees of $265,947 and $235,050 for the nine months ending September 30, 2005 and 2004, respectively. 2. Interest on loans includes fees of $149,251 and $109,278 for the nine months ending September 30, 2005 and 2004, 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. 14 of 68 Net interest income for the three months ended September 30, 2005 was $1,471,530 compared to $1,122,990 for 2004. Net interest income for the nine months ended September 30, 2005 was $4,083,362 compared to $3,170,568 for 2004. Average interest-earning assets for the three months ended September 30, 2005 was $149,865,644 compared to $114,665,021 during the same three months of 2004. The yield earned on average interest-earning assets during the third quarter of 2005 was 5.88% compared to 5.55% during the third quarter of 2004. The average rate paid on interest bearing-liabilities increased from 1.94% for the third quarter of 2004 to 2.58% during the third quarter of 2005. Average interest-earning assets for the nine months ended September 30, 2005 was $142,215,079 compared to $112,735,330 during the same nine months of 2004 The yield earned on average interest-earning assets during the nine months ended September 30, 2005 was 5.71% compared to 5.37% during the same period of 2004. The average rate paid on interest bearing-liabilities increased from 1.89% for the nine months ended September 30, 2004 to 2.37% during the same period for 2005. The increase in interest rates earned on loans, investments, and paid on deposits was a result of the Federal Reserve Bank raising interest rates eleven times from July 1, 2004 through September 30, 2005. 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 73.2% of total loans outstanding at September 30, 2005. 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, 2005 was $0 compared to $20,000 during the same quarter of 2004. The provision for loan losses for the nine months ended September 30, 2005 was $140,000 compared to $125,000 during the same period of 2004. At September 30, 2005, the allowance for loan losses was $1,098,494 compared to $963,000 at December 31, 2004. The ratio of allowance for loan losses to gross loans was 1.43% at September 30, 2005 compared to 1.38% at December 31, 2004. The 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. 15 of 68 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, ----------------------------- 2005 2004 ------------ ------------ Outstanding Loans: Average for the Period $ 71,767,514 $ 61,226,057 End of the Period $ 76,773,182 $ 66,757,930 Allowance For Loan Losses: Balance at Beginning of Year $ 963,000 $ 838,000 Actual Charge-Offs: Commercial -- -- Consumer (4,506) -- Real Estate -- -- ------------ ------------ Total Charge-Offs (4,506) -- ------------ ------------ Less Recoveries: Commercial -- -- Consumer -- -- Real Estate -- -- ------------ ------------ Total Recoveries -- -- ------------ ------------ Net Loans Charged-Off (4,506) -- Provision for Loan Losses 140,000 125,000 ------------ ------------ Balance at End of Period $ 1,098,494 $ 963,000 ============ ============ Ratios: Net Loans Charged-Off to Average Loans 0.01% .0% Allowance for Loan Losses to Total Loans 1.43% 1.44% Net Loans Charged-Off to Beginning Allowance for Loan Losses 0.47% 0% Net Loans Charged-Off to Provision for Loan Losses 3.22% 0% Allowance for Loan Losses to Nonperforming Loans 1,838.95% 1,162.96% 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 $59,735 at September 30, 2005 and $82,806 at September 30, 2004 and $78,000 at December 31, 2004. At September 30, 2005 there were loans totaling $59,735 that were considered impaired or troubled debt restructurings compared to $82,806 at September 30, 2004 and $78,000 at December 31, 2004. 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, 2005 or December 31, 2004. Management is not aware of any potential problem loans, which were accruing and current at September 30, 2005 or December 31, 2004, 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, 2005 and December 31, 2004. 16 of 68 Other Income Other income for the three months ended September 30, 2005 was $164,009 compared to $278,583 for the same period during 2004. Other income for the nine months ended September 30, 2005 was $513,935 compared to $720,527 for the same period during 2004. The Bank offers loans on single family homes through a third party lender. The Bank receives fees for the packaging of the loans provided to the third party lender. The loans are funded by and become assets of the third party lender. The fees on residential first trust deeds for the three months ended September 30, 2005 were $12,074 compared to $40,082 in 2004. The fees on residential first trust deeds for the nine months ended September 30, 2005 were $36,508 compared to $116,338 in 2004. The activity in the refinance market for loans declined 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, 2005 were $31,214 compared to $113,685 during the same period in 2004. Gains on loans sold in the secondary market and the servicing of these loans for the nine months ended September 30, 2005 were $157,901 compared to $287,706 during the same period in 2004. The decline in the gain on the guaranteed portion of loans sold for 2005 was related to a lower volume of guaranteed loans being originated in 2005. Other Expense Salaries and employee benefits for the three months ended September 30, 2005 was $698,042 compared to $605,320 for the three months ended September 30, 2004. Salaries and employee benefits for the nine months ended September 30, 2005 were $1,911,333 compared to $1,655,977 for the nine months ended September 30, 2004. The increase in salaries and employee benefits during 2005 was a result of an increase in the number of employees in anticipation of an increase in growth for loan production and for branch activities. There were 37 employees at September 30, 2005 compared to 30 at September 30, 2004. The increase in salaries and employee benefits also includes an increase in salaries for a cost of living adjustment. Occupancy and equipment expense was $136,282 for the three months ended September 30, 2005 compared to $139,057 for the same period during 2004. Occupancy and equipment expense was $386,857 for the nine months ended September 30, 2005 compared to $408,580 for the same period during 2004. Other operating expenses, primarily comprised of marketing, data processing, professional fees, and other expenses, for the three months ended September 30, 2005 were $357,034 compared to $308,305 for the three months ended September 30, 2004. Other operating expenses, primarily comprised of marketing, data processing, professional fees, and other expenses, for the nine months ended September 30, 2005 were $975,638 compared to $908,403 for the nine months ended September 30, 2004. The increase in other expenses was commensurate with the growth of the Bank. Capital Resources Total shareholders' equity at September 30, 2005 was $15,456,033 compared to $14,101,671 at December 31, 2004. The increase was primarily from the net income for the nine months ended September 30, 2005 of $954,664 and the receipt of $567,871 from a private placement of 49,273 shares of common stock. 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 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. 17 of 68 The following table shows the Company's and the Bank's actual capital amounts and ratios at September 30, 2005 and December 31, 2004 as well as the minimum capital ratios for capital adequacy under the regulatory framework.
(dollar amounts in thousands) To Be Categorized Well Capitalized Under For Capital Prompt Corrective Actual: Adequacy Purposes: Action Provisions: ----------------------- ----------------------- ----------------------- Amount Ratio Amount Ratio Amount Ratio ---------- ---------- ---------- ---------- ---------- ---------- As of September 30, 2005 Company: Total capital (to risk weighted assets) $ 16,910 15.4% $ 8,812 8.0% N/A N/A Tier 1 capital (to risk weighted assets) $ 15,812 14.4% $ 4,406 4.0% N/A N/A Tier 1 capital (to average assets) $ 15,812 9.8% $ 6,516 4.0% N/A N/A Bank: Total capital (to risk weighted assets) $ 15,812 14.4% $ 8,812 8.0% $ 11,015 10.0% Tier 1 capital (to risk weighted assets) $ 14,669 13.3% $ 4,406 4.0% $ 6,609 6.0% Tier 1 capital (to average assets) $ 14,669 9.1% $ 6,451 4.0% $ 8,063 5.0% As of December 31, 2004 Company: Total capital (to risk weighted assets) $ 15,256 16.9% $ 7,221 8.0% N/A N/A Tier 1 capital (to risk weighted assets) $ 14,293 15.8% $ 3,610 4.0% N/A N/A Tier 1 capital (to average assets) $ 14,293 10.7% $ 5,363 4.0% N/A N/A Bank: Total capital (to risk weighted assets) $ 14,248 15.8% $ 7,221 8.0% $ 9,026 10.0% Tier 1 capital (to risk weighted assets) $ 13,245 14.7% $ 3,610 4.0% $ 5,415 6.0% Tier 1 capital (to average assets) $ 13,245 9.9% $ 5,363 4.0% $ 6,704 5.0%
The Bank meets the "well capitalized" capital ratio measures at both September 30, 2005 and December 31, 2004. 18 of 68 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 the Federal Home Loan Bank of San Francisco totaling $28,000,000. 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 results of operations during the periods ending September 30, 2005 and 2004. Off-Balance Sheet Items As of September 30, 2005 and December 31, 2004, 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 $31,680,000 and $26,299,000 at September 30, 2005 and December 31, 2004, respectively. As a percentage of gross loans these off-balance sheet items represent 41.3% and 37.8%, 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. Such 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 SEC through a link to the Edgar reporting system maintained by the SEC. To obtain 19 of 68 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, 2005. 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, 2005, 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 Proceedings None Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None 20 of 68 Item 5. Other Information None 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, as amended. (3.2) Bylaws, as amended incorporated by reference from the Registrant's Form 10-KSB for the year ended December 31, 2004, filed with the Securities and Exchange Commission on June 30, 2005. (4.1) Specimen form of certificate for Service 1st Bancorp common stock incorporated by reference from Registrant's Form 10-QSB for the quarterly period ended September 30, 2003, filed with the Securities and Exchange Commission on November 14, 2003. (10.1) Lease agreement dated May 3, 2002, related to 2800 West March Lane, Suite 120, Stockton,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 West 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) 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 for the year ended December 31, 2003, filed with the Securities and Exchange Commission on March 30, 2004. 21 of 68 (10.8)* John O. Brooks Salary Continuation Agreement dated September 10, 2003, incorporated by reference from the Registrant's Form 10-KSB for the year ended December 31, 2003, filed with the Securities and Exchange Commission on March 30, 2004. (10.9)* Bryan R. Hyzdu Salary Continuation Agreement dated September 10, 2003, incorporated by reference from the Registrant's Form 10-KSB for the year ended December 31, 2003, filed with the Securities and Exchange Commission on March 30, 2004. (10.10)* Robert E. Bloch Salary Continuation Agreement dated September 10, 2003, incorporated by reference from the Registrant's Form 10-KSB for the year ended December 31, 2003, filed with the Securities and Exchange Commission on March 30, 2004. (10.11)* Patrick Carman Salary Continuation Agreement dated September 10, 2003, incorporated by reference from the Registrant's Form 10-KSB for the year ended December 31, 2003, filed with the Securities and Exchange Commission on March 30, 2004. (10.12)* 2004 Stock Option Plan and Forms of Incentive and Nonstatutory Stock Option Agreements, incorporated by reference from the Registrant's Form S-8, Registration No. 333-116818, filed with the Securities and Exchange Commission on June 24, 2004. (10.13)* John O. Brooks Employment Agreement dated July 15, 2004, incorporated by reference from the Registrant's Form 10-QSB, for the quarterly period ended September 30, 2004, filed with the Securities and Exchange Commission on November 15, 2004. (10.14)* Bryan R. Hyzdu Employment Agreement dated July 15, 2004, incorporated by reference from the Registrant's Form 10-QSB, for the quarterly period ended September 30, 2004, filed with the Securities and Exchange Commission on November 15, 2004. (10.15)* Robert E. Bloch Employment Agreement dated July 15, 2004, incorporated by reference from the Registrant's Form 10-QSB, for the quarterly period ended September 30, 2004, filed with the Securities and Exchange Commission on November 15, 2004. (10.16)* Patrick Carman Employment Agreement dated July 15, 2004, incorporated by reference from the Registrant's form 10-QSB, for the quarterly period ended September 30, 2004, filed with the Securities and Exchange Commission on November 15, 2004. (10.17)* Shannon Reinard Employment Agreement dated July 15, 2004, incorporated by reference from the Registrant's Form 10-QSB, for the quarterly period ended September 30, 2004, filed with the Securities and Exchange Commission on November 15, 2004. (10.18) Fiserv Solutions, Inc. Agreement dated October 7, 2004, for service bureau, data processing, and item processing, incorporated by reference from the Registrant's Form 10-KSB for the year ended December 31, 2004, filed with the Securities and Exchange Commission on June 30, 2005. 22 of 68 (10.19) Lease agreement dated May 1, 2005 related to 49 W. 10th Street, Tracy, CA 95376. (10.20) Lease agreement dated October 3, 2005, related to 1901 W. Kettleman Lane, Building A, Suite 1A and 1B, Lodi, CA 95242. (14.1) Code of Ethics, incorporated by reference from the Registrant's Form 10-KSB for the year ended December 31, 2003, filed with the Securities and Exchange Commission on March 30, 2004. (21.1) Registrant's only subsidiary is Service 1st Bank. (31.1) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (31.1) Certification 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. 23 of 68 SIGNATURES Pursuant to the requirements of Section 13 or 15d) 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 9, 2005 By: /s/ JOHN O. BROOKS ------------------------------------- John O. Brooks Chief Executive Officer (Principal Executive Officer) Date: November 9, 2005 By: /s/ ROBERT E. BLOCH ------------------------------------- Robert E. Bloch Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 24 of 68 EXHIBIT INDEX ------------- Exhibit Sequential Number Description Page Number ------ ----------- ----------- 3.1 Articles of Incorporation as amended 26 10.19 Lease agreement for 49 W. 10th Street, Tracy, CA 29 10.20 Lease agreement for 1901 W. Kettleman Lane, Lodi, CA 47 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 66 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 67 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. 68 25 of 68