SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934
     For the fiscal year ended December 31, 2004

                                       OR

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     For the transition period from____________ to ____________

                          Commission File No. 000-50323

                               SERVICE 1ST BANCORP
                 ----------------------------------------------
                 (Name of Small Business Issuer in its Charter)

      State of California                               32-0061893
--------------------------------             --------------------------------
(State or other jurisdiction of              (I.R.S. Employer Identification)
 incorporation or organization)

2800 West March Lane, Suite 120, Stockton, California          95219
-----------------------------------------------------        ----------
(Address of Principal Executive Offices)                     (Zip Code)

Issuer's Telephone Number, Including Area Code: (209) 956-7800

Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
                               Title of Each Class
                           ---------------------------
                           Common Stock (No Par Value)

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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

Revenues of the issuer for the 2004 fiscal year were $7,166,792.

As of March 22, 2005, the aggregate market value of the voting shares held by
non-affiliates of the registrant was approximately $21,476,950.

1,590,937 shares of registrant's common stock were outstanding at March 22,
2005.

                       DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference into this Form 10-KSB:
Part III, Items 9 through 12 and 14 from registrant's definitive proxy statement
for the 2005 annual meeting of shareholders.

The Index to Exhibits is located at page 67.

<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL DEVELOPMENT OF BUSINESS

Certain matters discussed or incorporated by reference in this Annual Report on
Form 10-KSB including, but not limited to, matters described in "Item 6 -
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 Annual Report 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.

Service 1st Bancorp (the "Company") is a California corporation, incorporated on
January 23, 2004 to act as a holding company for Service 1st Bank (the "Bank").
The Bank became a subsidiary of the Company effective June 26, 2004. The Bank is
locally owned and operated and serves the individuals, small and medium-sized
businesses, municipalities and professionals located in and adjacent to the
cities of Stockton and Tracy and adjacent communities in San Joaquin County. The
Bank also has a loan production office in Castro Valley, California.

The Company and the Bank conduct operations at offices located at 2800 West
March Lane, Suite 120, Stockton, California 95219 and at 60 West 10th Street,
Tracy, California 95376. These offices are open from 9:00 a.m. to 5:00 p.m.,
Monday through Thursday and from 9:00 a.m. to 6:00 p.m. on Friday. The Bank also
operates a loan production office located at 3533 Jamison Way, Castro Valley,
California 94546.

The Bank offers a full range of commercial banking services including acceptance
of demand, savings and time deposits, and the making of commercial, real estate
(including residential mortgage, construction and land development), and
consumer loans. The Bank sells cashier's checks, traveler's checks and money
orders. The Bank also offers night depository, notary services, telephone and
wire transfers, and federal tax depository services. The Bank does not offer
trust or international banking services, but will arrange for such services
through a correspondent bank.

The Bank's data processing operations are provided through an outside vendor,
Jack Henry Associates, Inc., located in Sun Valley, California, which provides
processing of the Bank's deposits, loans and financial accounting.

The Bank obtains market penetration from the services referred to above and by
the personal solicitation of the Bank's officers, directors and shareholders.
The Bank's deposits are attracted primarily from individuals, small and
medium-sized businesses, municipalities and professionals in its market area.
The Bank's deposits are not received from a single depositor or group of
affiliated depositors, the loss of any one of which would have a materially
adverse effect on the business of the Bank, nor is a material portion of the
Bank's deposits concentrated within a single industry or group of related
industries.

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As of December 31, 2004, the Bank had total loans of $69,578,484 net of
allowance for loan losses of $963,000 and deferred fees of $293,136. Of the loan
total, $14,721,336 were commercial loans, $35,302,346 were real estate loans,
$15,498,534 were construction and land development loans, $1,951,225 were
agriculture loans and $2,105,043 were consumer loans. Total deposits at December
31, 2004 were $122,108,582. Of the deposit total, $20,958,209 were
non-interest-bearing demand deposits, $75,255,549 were interest-bearing demand,
money market and savings deposits, and $25,894,824 were interest-bearing time
deposits.

The principal source of the Company's revenues reflected as a percentage of
total revenues are: (1) interest and fees on loans 61%; (2) interest on Federal
Funds sold 1%; (3) interest on investments 24%; (4) gain on sale and servicing
of loans 6%; (5) referral fees on mortgage loans 2%; (6) service charges and
other fees 4%; and (7) earnings on cash surrender value life insurance 2%.

EMPLOYEES

The Company employed 31 people on a full-time equivalent basis as of December
31, 2004.

WEBSITE ACCESS

Information regarding the Company and the Bank may be obtained from the
Company's website at www.service1stbank.com. Copies of the Company's annual
report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form
8-K, and Section 16 reports by Company insiders, including exhibits and
amendments thereto, are available free of charge on the Company's website as
soon as they are published by the Securities and Exchange Commission through a
link to the Edgar reporting system maintained by the Securities and Exchange
Commission. To access Company filings, select the "Go to Service 1st Bancorp"
menu item on the Company website, then select either "Click here to view Service
1st Bancorp SEC Filings," followed by selecting "Continue to view SEC Filings"
to view or download copies of reports including Form 10-KSB, 10-QSB or 8-K, or
select "Click here to view Section 16 Reports," followed by selecting "Continue
to view Section 16 Reports," to view or download reports on Forms 3, 4 or 5 of
insider transactions in Company securities.

SUPERVISION AND REGULATION

GENERAL

The common stock of the Company is subject to the registration requirements of
the Securities Act of 1933, as amended, and the qualification requirements of
the California Corporate Securities Law of 1968, as amended. The Company is also
subject to the periodic reporting requirements of Section 13 of the Securities
Exchange Act of 1934, as amended, which include, but are not limited to, annual,
quarterly and other current reports with the Securities and Exchange Commission
(the "SEC").

The Bank is licensed by the California Commissioner of Financial Institutions
("Commissioner"), its deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to the applicable legal limits, and it has chosen not to
become a member of the Federal Reserve System. Consequently, the Bank is subject
to the supervision of, and is regularly examined by, the Commissioner and the
FDIC. The supervision and regulation includes comprehensive reviews of all major
aspects of the Bank's business and condition, including its capital ratios,
allowance for possible loan losses and other factors. However, no inference
should be drawn that such authorities have approved any such factors. The
Company and the Bank are required to file reports with the Board of Governors of
the Federal Reserve System ("Board of Governors"), the Commissioner, and the
FDIC and provide the additional information that the Board of Governors,
Commissioner, and FDIC may require.

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The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"), and is
registered as such with, and subject to the supervision of, the Board of
Governors. The Company is required to obtain the approval of the Board of
Governors before it may acquire all or substantially all of the assets of any
bank, or ownership or control of the voting shares of any bank if, after giving
effect to such acquisition of shares, the Company would own or control more than
5% of the voting shares of such bank. The Bank Holding Company Act prohibits the
Company from acquiring any voting shares of, or interest in, all or
substantially all of the assets of, a bank located outside the State of
California unless such an acquisition is specifically authorized by the laws of
the state in which such bank is located. Any such interstate acquisition is also
subject to the provisions of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994.

The Company, and any subsidiaries which it may acquire or organize, are deemed
to be "affiliates" within the meaning of that term as defined in the Federal
Reserve Act. This means, for example, that there are limitations (a) on loans by
the Bank to affiliates, and (b) on investments by the Bank in affiliates' stock
as collateral for loans to any borrower. The Company and its subsidiaries are
also subject to certain restrictions with respect to engaging in the
underwriting, public sale and distribution of securities.

In addition, regulations of the Board of Governors under the Federal Reserve Act
require that reserves be maintained by the Bank in conjunction with any
liability of the Company under any obligation (promissory note, acknowledgement
of advance, banker's acceptance or similar obligation) with a weighted average
maturity of less than seven (7) years to the extent that the proceeds of such
obligations are used for the purpose of supplying funds to the Bank for use in
its banking business, or to maintain the availability of such funds.

CAPITAL STANDARDS

The Board of Governors and the FDIC have adopted risk-based capital guidelines
for evaluating the capital adequacy of bank holding companies and banks. The
guidelines are designed to make capital requirements sensitive to differences in
risk profiles among banking organizations, to take into account off-balance
sheet exposures and to aid in making the definition of bank capital uniform
internationally. Under the guidelines, the Company and the Bank are required to
maintain capital equal to at least 8.0% of its assets and commitments to extend
credit, weighted by risk, of which at least 4.0% must consist primarily of
common equity (including retained earnings) and the remainder may consist of
subordinated debt, cumulative preferred stock, or a limited amount of loan loss
reserves.

Assets, commitments to extend credit, and off-balance sheet items are
categorized according to risk and certain assets considered to present less risk
than others permit maintenance of capital at less than the 8% ratio. For
example, most home mortgage loans are placed in a 50% risk category and
therefore require maintenance of capital equal to 4% of those loans, while
commercial loans are placed in a 100% risk category and therefore require
maintenance of capital equal to 8% of those loans.

Under the risk-based capital guidelines, assets reported on an institution's
balance sheet and certain off-balance sheet items are assigned to risk
categories, each of which has an assigned risk weight. Capital ratios are
calculated by dividing the institution's qualifying capital by its period-end
risk-weighted assets. The guidelines establish two categories of qualifying
capital: Tier 1 capital (defined to include common shareholders' equity and
noncumulative perpetual preferred stock) and Tier 2 capital which includes,
among other items, limited life (and in the case of banks, cumulative) preferred
stock, mandatory convertible securities, subordinated debt and a limited amount
of reserve for credit losses. Tier 2 capital may also include up to 45% of the
pretax net unrealized gains on certain available-for-sale equity securities
having readily determinable fair values (i.e. the excess, if any, of fair market
value over the book value or historical cost of the investment security). The
federal regulatory agencies reserve the right to exclude all or a portion of the
unrealized gains upon a determination that the equity securities are not
prudently valued. Unrealized gains and losses on other types of assets, such as
bank premises and available-for-sale debt securities, are not included in Tier 2
capital, but may be taken into account in the evaluation of overall capital

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adequacy and net unrealized losses on available-for-sale equity securities will
continue to be deducted from Tier 1 capital as a cushion against risk. Each
institution is required to maintain a minimum risk-based capital ratio
(including Tier 1 and Tier 2 capital) of 8%, of which at least half must be Tier
1 capital.

A leverage capital standard was adopted as a supplement to the risk-weighted
capital guidelines. Under the leverage capital standard, an institution is
required to maintain a minimum ratio of Tier 1 capital to the sum of its
quarterly average total assets and quarterly average reserve for loan losses,
less intangible assets not included in Tier 1 capital. Period-end assets may be
used in place of quarterly average total assets on a case-by-case basis. The
Board of Governors and the FDIC have also adopted a minimum leverage ratio for
bank holding companies as a supplement to the risk-weighted capital guidelines.
The leverage ratio establishes a minimum Tier 1 ratio of 3% (Tier 1 capital to
total assets) for the highest rated bank holding companies or those that have
implemented the risk-based capital market risk measure. All other bank holding
companies must maintain a minimum Tier 1 leverage ratio of 4% with higher
leverage capital ratios required for bank holding companies that have
significant financial and/or operational weakness, a high risk profile, or are
undergoing or anticipating rapid growth.

At December 31, 2004, the Company and the Bank were in compliance with the
risk-weighted capital and leverage ratio guidelines.

PROMPT CORRECTIVE ACTION

The Board of Governors and FDIC have adopted regulations implementing a system
of prompt corrective action pursuant to Section 38 of the Federal Deposit
Insurance Act and Section 131 of the FDIC Improvement Act of 1991 ("FDICIA").
The regulations establish five capital categories with the following
characteristics: (1) "Well capitalized" - consisting of institutions with a
total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital
ratio of 6% or greater and a leverage ratio of 5% or greater, and the
institution is not subject to an order, written agreement, capital directive or
prompt corrective action directive; (2) "Adequately capitalized" - consisting of
institutions with a total risk-based capital ratio of 8% or greater, a Tier 1
risk-based capital ratio of 4% or greater and a leverage ratio of 4% or greater,
and the institution does not meet the definition of a "well capitalized"
institution; (3) "Undercapitalized" - consisting of institutions with a total
risk-based capital ratio less than 8%, a Tier 1 risk-based capital ratio of less
than 4%, or a leverage ratio of less than 4%; (4) "Significantly
undercapitalized" - consisting of institutions with a total risk-based capital
ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a
leverage ratio of less than 3%; (5) "Critically undercapitalized" - consisting
of an institution with a ratio of tangible equity to total assets that is equal
to or less than 2%.

The regulations established procedures for classification of financial
institutions within the capital categories, filing and reviewing capital
restoration plans required under the regulations and procedures for issuance of
directives by the appropriate regulatory agency, among other matters. The
regulations impose restrictions upon all institutions to refrain from certain
actions which would cause an institution to be classified within any one of the
three "undercapitalized" categories, such as declaration of dividends or other
capital distributions or payment of management fees, if following the
distribution or payment the institution would be classified within one of the
"undercapitalized" categories. In addition, institutions which are classified in
one of the three "undercapitalized" categories are subject to certain mandatory
and discretionary supervisory actions. Mandatory supervisory actions include (1)
increased monitoring and review by the appropriate federal banking agency; (2)
implementation of a capital restoration plan; (3) total asset growth
restrictions; and (4) limitations upon acquisitions, branch expansion, and new
business activities without prior approval of the appropriate federal banking
agency. Discretionary supervisory actions may include (1) requirements to
augment capital; (2) restrictions upon affiliate transactions; (3) restrictions
upon deposit gathering activities and interest rates paid; (4) replacement of
senior executive officers and directors; (5) restrictions upon activities of the
institution and its affiliates; (6) requiring divestiture or sale of the
institution; and (7) any other supervisory action that the appropriate federal
banking agency determines is necessary to further the purposes of the
regulations. Further, the federal banking agencies may not accept a capital
restoration plan without determining, among other things, that the plan is based
on realistic assumptions and is likely to succeed in restoring the depository
institution's capital. In addition, for a capital restoration plan to be

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acceptable, the depository institution's parent holding company must guarantee
that the institution will comply with such capital restoration plan. The
aggregate liability of the parent holding company under the guaranty is limited
to the lesser of (i) an amount equal to 5 percent of the depository
institution's total assets at the time it became undercapitalized, and (ii) the
amount that is necessary (or would have been necessary) to bring the institution
into compliance with all capital standards applicable with respect to such
institution as of the time it fails to comply with the plan. If a depository
institution fails to submit an acceptable plan, it is treated as if it were
"significantly undercapitalized." FDICIA also restricts the solicitation and
acceptance of and interest rates payable on brokered deposits by insured
depository institutions that are not "well capitalized." An "undercapitalized"
institution is not allowed to solicit deposits by offering rates of interest
that are significantly higher than the prevailing rates of interest on insured
deposits in the particular institution's normal market areas or in the market
areas in which such deposits would otherwise be accepted.

Any financial institution which is classified as "critically undercapitalized"
must be placed in conservatorship or receivership within 90 days of such
determination unless it is also determined that some other course of action
would better serve the purposes of the regulations. Critically undercapitalized
institutions are also prohibited from making (but not accruing) any payment of
principal or interest on subordinated debt without prior regulatory approval and
regulators must prohibit a critically undercapitalized institution from taking
certain other actions without prior approval, including (1) entering into any
material transaction other than in the usual course of business, including
investment expansion, acquisition, sale of assets or other similar actions; (2)
extending credit for any highly leveraged transaction; (3) amending articles or
bylaws unless required to do so to comply with any law, regulation or order; (4)
making any material change in accounting methods; (5) engaging in certain
affiliate transactions; (6) paying excessive compensation or bonuses; and (7)
paying interest on new or renewed liabilities at rates which would increase the
weighted average costs of funds beyond prevailing rates in the institution's
normal market areas.

ADDITIONAL REGULATIONS

Under the FDICIA, the federal financial institution agencies have adopted
regulations which require institutions to establish and maintain comprehensive
written real estate policies which address certain lending considerations,
including loan-to-value limits, loan administrative policies, portfolio
diversification standards, and documentation, approval and reporting
requirements. The FDICIA further generally prohibits an insured state bank from
engaging as a principal in any activity that is impermissible for a national
bank, absent FDIC determination that the activity would not pose a significant
risk to the Bank Insurance Fund, and that the bank is, and will continue to be,
within applicable capital standards.

The Federal Financial Institution Examination Counsel ("FFIEC") utilizes the
Uniform Financial Institutions Rating System ("UFIRS") commonly referred to as
"CAMELS" to classify and evaluate the soundness of financial institutions. Bank
examiners use the CAMELS measurements to evaluate capital adequacy, asset
quality, management, earnings, liquidity and sensitivity to market risk.
Effective January 1, 2005, bank holding companies such as the Company, will be
subject to evaluation and examination under a revised bank holding company
rating system. The so-called BOPEC rating system implemented in 1979 was
primarily focused on financial condition, consolidated capital and consolidated
earnings. The new rating system reflects the change toward analysis of risk
management (as reflected in bank examination under the CAMELS measurements), in
addition to financial factors and the potential impact of nondepository
subsidiaries upon depository institution subsidiaries.

The federal financial institution agencies have established bases for analysis
and standards for assessing a financial institution's capital adequacy in
conjunction with the risk-based capital guidelines including analysis of
interest rate risk, concentrations of credit risk, risk posed by non-traditional
activities, and factors affecting overall safety and soundness. The safety and
soundness standards for insured financial institutions include analysis of (1)
internal controls, information systems and internal audit systems; (2) loan
documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset
growth; (6) compensation, fees and benefits; and (7) excessive compensation for
executive officers, directors or principal shareholders which could lead to
material financial loss. If an agency determines that an institution fails to
meet any standard, the agency may require the financial institution to submit to
the agency an acceptable plan to achieve compliance with the standard. If the
agency requires submission of a compliance plan and the institution fails to
timely submit an acceptable plan or to implement an accepted plan, the agency

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must require the institution to correct the deficiency. The agencies may elect
to initiate enforcement action in certain cases rather than rely on an existing
plan particularly where failure to meet one or more of the standards could
threaten the safe and sound operation of the institution.

Community Reinvestment Act ("CRA") regulations evaluate banks' lending to low
and moderate income individuals and businesses across a four-point scale from
"outstanding" to "substantial noncompliance," and are a factor in regulatory
review of applications to merge, establish new branches or form bank holding
companies. In addition, any bank rated in "substantial noncompliance" with the
CRA regulations may be subject to enforcement proceedings. The Bank currently
has a rating of "satisfactory" for CRA compliance.

LIMITATIONS ON DIVIDENDS

The Company's ability to pay cash dividends is subject to restrictions set forth
in the California General Corporation Law. Funds for payment of any cash
dividends by the Company would be obtained from its investments as well as
dividends and/or management fees from its subsidiaries. The payment of cash
dividends and/or management fees by the Bank is subject to restrictions set
forth in the California Financial Code, as well as restrictions established by
the FDIC. See Item 5. "Market for Common Equity, Related Stockholder Matters and
Small Business Issuer Purchases of Equity Securities" for more information
regarding cash dividends.

COMPETITION

COMPETITIVE DATA

At June 30, 2004, based on the most recent "Data Book Summary of Deposits in
FDIC Insured Commercial and Savings Banks" report at that date, the competing
commercial and savings banks had 66 offices in the cities of Tracy and Stockton,
California, where the Bank has two offices. The Bank also operates a loan
production office in Castro Valley, California. Additionally, the Bank competes
with thrifts and, to a lesser extent, credit unions, finance companies and other
financial service providers for deposit and loan customers. Larger banks may
have a competitive advantage because of higher lending limits and major
advertising and marketing campaigns. They also perform services, such as trust
services, international banking, discount brokerage and insurance services,
which the Bank is not authorized nor prepared to offer currently. The Bank has
made arrangements with its correspondent banks and with others to provide some
of these services for its customers. For borrowers requiring loans in excess of
the Bank's legal lending limits, the Bank has offered, and intends to offer in
the future, such loans on a participating basis with its correspondent banks and
with other community banks, retaining the portion of such loans which is within
its lending limits. As of December 31, 2004, the Bank's aggregate legal lending
limits to a single borrower and such borrower's related parties were $2,133,322
on an unsecured basis and $3,555,537 on a fully secured basis based on capital
and reserves of $14,222,147.

The Bank's business is concentrated in its service area, which primarily
encompasses San Joaquin County. The economy of the Bank's service area is
dependent upon government, manufacturing, residential construction, tourism,
retail sales, population growth and smaller service oriented businesses.

Based upon the most recent "Data Book Summary of Deposits in FDIC Insured
Commercial and Savings Banks" report dated June 30, 2004, there were 107
operating commercial and savings bank offices in San Joaquin County with total
deposits of $36,846,932,000. This was an increase of $23,353,594,000 over the
June 30, 2003 balances. The Bank held a total of $114,295,000 in deposits,
representing approximately .31% of total commercial and savings banks deposits
in San Joaquin County as of June 30, 2004. The large growth in deposits for the
San Joaquin County was as a result of a major financial institution being
included in the San Joaquin County totals. Excluding this one institution,
deposits in San Joaquin County for the 12 months ended June 30, 2004 grew
$496,181,000 and Service 1st Bank's percentage of deposits would have been 2.9%.

In 1996, pursuant to Congressional mandate, the FDIC reduced bank deposit
insurance assessment rates to a range from $0 to $0.27 per $100 of deposits,
dependent upon a bank's risk. Based upon the risk-based assessment rate
schedule, the Bank's current capital ratios and levels of deposits, the Bank
anticipates no change in the assessment rate applicable to it during 2005 from
that in 2004.

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GENERAL COMPETITIVE FACTORS

In order to compete with the major financial institutions in their primary
service areas, the Bank uses to the fullest extent possible the flexibility
which is accorded by its community bank status. This includes an emphasis on
specialized services, local promotional activity, and personal contacts by their
respective officers, directors and employees. The Bank also seeks to provide
special services and programs for individuals in its primary service area who
are employed in the agricultural, professional and business fields, such as
loans for equipment, furniture, tools of the trade or expansion of practices or
businesses. In the event there are customers whose loan demands exceed their
respective lending limits, the Bank seeks to arrange for such loans on a
participation basis with other financial institutions. The Bank also assists
those customers requiring services not offered by the Bank to obtain such
services from correspondent banks.

Commercial banks compete with savings and loan associations, credit unions,
other financial institutions and other entities for funds. For instance, yields
on corporate and government debt securities and other commercial paper affect
the ability of commercial banks to attract and hold deposits. Commercial banks
also compete for loans with savings and loan associations, credit unions,
consumer finance companies, mortgage companies and other lending institutions.

Banking is a business that depends on interest rate differentials. In general,
the difference between the interest rate paid by a bank to obtain their deposits
and other borrowings and the interest rate received by a bank on loans extended
to customers and on securities held in a bank's portfolio comprise the major
portion of a bank's earnings.

The interest rate differentials of a bank, and therefore its earnings, are
affected not only by general economic conditions, both domestic and foreign, but
also by the monetary and fiscal policies of the United States as set by statutes
and as implemented by federal agencies, particularly the Federal Reserve Board.
The Federal Reserve Board can and does implement national monetary policy, such
as seeking to curb inflation and combat recession, by its open market operations
in United States government securities, adjustments in the amount of interest
free reserves that banks and other financial institutions are required to
maintain, and adjustments to the discount rates applicable to borrowing by banks
from the Federal Reserve Board. These activities influence the growth of bank
loans, investments and deposits and also affect interest rates charged on loans
and paid on deposits. The nature and timing of any future changes in monetary
policies and their impact on the Company and the Bank is not predictable.

IMPACT OF LEGISLATIVE AND REGULATORY PROPOSALS

Since 1996, California law implementing certain provisions of prior federal law
has (1) permitted interstate merger transactions; (2) prohibited interstate
branching through the acquisition of a branch business unit located in
California without acquisition of the whole business unit of the California
bank; and (3) prohibited interstate branching through de novo establishment of
California branch offices. Initial entry into California by an out-of-state
institution must be accomplished by acquisition of or merger with an existing
whole bank which has been in existence for at least five years.

The federal financial institution agencies, especially the Office of the
Comptroller of the Currency ("OCC") and the Board of Governors, have taken steps
to increase the types of activities in which national banks and bank holding
companies can engage, and to make it easier to engage in such activities. The
OCC has issued regulations permitting national banks to engage in a wider range
of activities through subsidiaries. "Eligible institutions" (those national
banks that are well capitalized, have a high overall rating and a satisfactory
CRA rating, and are not subject to an enforcement order) may engage in
activities related to banking through operating subsidiaries subject to an
expedited application process. In addition, a national bank may apply to the OCC
to engage in an activity through a subsidiary in which the Bank itself may not
engage.

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In 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was signed into law. The GLB
Act eliminates most of the remaining depression-era "firewalls" between banks,
securities firms and insurance companies which was established by The Banking
Act of 1933, also known as the Glass-Steagall Act ("Glass-Steagall").
Glass-Steagall sought to insulate banks as depository institutions from the
perceived risks of securities dealing and underwriting, and related activities.
The GLB Act repeals Section 20 of Glass-Steagall which prohibited banks from
affiliating with securities firms. Bank holding companies that can qualify as
"financial holding companies" can now acquire securities firms or create them as
subsidiaries, and securities firms can now acquire banks or start banking
activities through a financial holding company. The GLB Act includes provisions
which permit national banks to conduct financial activities through a subsidiary
that are permissible for a national bank to engage in directly, as well as
certain activities authorized by statute, or that are financial in nature or
incidental to financial activities to the same extent as permitted to a
"financial holding company" or its affiliates. This liberalization of United
States banking and financial services regulation applies both to domestic
institutions and foreign institutions conducting business in the United States.
Consequently, the common ownership of banks, securities firms and insurance
firms is now possible, as is the conduct of commercial banking, merchant
banking, investment management, securities underwriting and insurance within a
single financial institution using a "financial holding company" structure
authorized by the GLB Act.

Prior to the GLB Act, significant restrictions existed on the affiliation of
banks with securities firms and on the direct conduct by banks of securities
dealing and underwriting and related securities activities. Banks were also
(with minor exceptions) prohibited from engaging in insurance activities or
affiliating with insurers. The GLB Act removes these restrictions and
substantially eliminates the prohibitions under the Bank Holding Company Act on
affiliations between banks and insurance companies. Bank holding companies which
qualify as financial holding companies can now insure, guarantee, or indemnify
against loss, harm, damage, illness, disability, or death; issue annuities; and
act as a principal, agent, or broker regarding such insurance services.

In order for a commercial bank to affiliate with a securities firm or an
insurance company pursuant to the GLB Act, its bank holding company must qualify
as a financial holding company. A bank holding company will qualify if (1) its
banking subsidiaries are "well capitalized" and "well managed" and (2) it files
with the Board of Governors a certification to such effect and a declaration
that it elects to become a financial holding company. The amendment of the Bank
Holding Company Act now permits financial holding companies to engage in
activities, and acquire companies engaged in activities, that are financial in
nature or incidental to such financial activities. Financial holding companies
are also permitted to engage in activities that are complementary to financial
activities if the Board of Governors determines that the activity does not pose
a substantial risk to the safety or soundness of depository institutions or the
financial system in general. These standards expand upon the list of activities
"closely related to banking" which have to date, defined the permissible
activities of bank holding companies under the Bank Holding Company Act.

One further effect of the GLB Act is to require that federal financial
institution and securities regulatory agencies prescribe regulations to
implement the policy that financial institutions must respect the privacy of
their customers and protect the security and confidentiality of customers'
non-public personal information. These regulations require, in general, that
financial institutions (1) may not disclose non-public personal information of
customers to non-affiliated third parties without notice to their customers, who
must have the opportunity to direct that such information not be disclosed; (2)
may not disclose customer account numbers except to consumer reporting agencies;
and (3) must give prior disclosure of their privacy policies before establishing
new customer relationships.

Neither the Company nor the Bank have determined whether or when they may seek
to acquire and exercise powers or activities under the GLB Act, and the extent
to which competition will change among financial institutions affected by the
GLB Act has not yet become clear.

                                        8
<PAGE>

On October 26, 2001, President Bush signed the USA Patriot Act (the "Patriot
Act"), which includes provisions pertaining to domestic security, surveillance
procedures, border protection, and terrorism laws to be administered by the
Secretary of the Treasury. Title III of the Patriot Act entitled, "International
Money Laundering Abatement and Anti-Terrorist Financing Act of 2001" includes
amendments to the Bank Secrecy Act which expand the responsibilities of
financial institutions in regard to anti-money laundering activities with
particular emphasis upon international money laundering and terrorism financing
activities through designated correspondent and private banking accounts.

Effective December 25, 2001, Section 313(a) of the Patriot Act prohibits any
insured financial institution such as the Bank, from providing correspondent
accounts to foreign banks which do not have a physical presence in any country
(designated as "shell banks"), subject to certain exceptions for regulated
affiliates of foreign banks. Section 313(a) also requires financial institutions
to take reasonable steps to ensure that foreign bank correspondent accounts are
not being used to indirectly provide banking services to foreign shell banks,
and Section 319(b) requires financial institutions to maintain records of the
owners and agent for service of process of any such foreign banks with whom
correspondent accounts have been established.

Effective July 23, 2002, Section 312 of the Patriot Act created a requirement
for special due diligence for correspondent accounts and private banking
accounts. Under Section 312, each financial institution that establishes,
maintains, administers, or manages a private banking account or a correspondent
account in the United States for a non-United States person, including a foreign
individual visiting the United States, or a representative of a non-United
States person shall establish appropriate, specific, and, where necessary,
enhanced, due diligence policies, procedures, and controls that are reasonably
designed to detect and record instances of money laundering through those
accounts.

The Company and the Bank are not currently aware of any account relationships
between the Bank and any foreign bank or other person or entity as described
above under Sections 313(a) or 312 of the Patriot Act. The terrorist attacks on
September 11, 2001 have realigned national security priorities of the United
States and it is reasonable to anticipate that the United States Congress may
enact additional legislation in the future to combat terrorism including
modifications to existing laws such as the Patriot Act to expand powers as
deemed necessary. Certain surveillance provisions of the Patriot Act are
scheduled to expire on December 31, 2005, and actions to restrict the use of the
Patriot Act surveillance provisions have been filed by the ACLU and other
organizations. It is not clear whether the provisions that are scheduled to
expire will expire as scheduled, or be replaced or superseded by alternative
provisions. The effects which the Patriot Act and any additional legislation
enacted by Congress may have upon financial institutions is uncertain; however,
such legislation could increase compliance costs and thereby potentially may
have an adverse effect upon the Company's results of operations.

On July 30, 2002, President George W. Bush signed into law the Sarbanes-Oxley
Act of 2002 (the "Act"), which responds to recent issues in corporate governance
and accountability. Among other matters, key provisions of the Act and rules
promulgated by the Securities and Exchange Commission pursuant to the Act
include the following:

     .    Expanded oversight of the accounting profession by creating a new
          independent public company oversight board to be monitored by the SEC.

     .    Revised rules on auditor independence to restrict the nature of
          non-audit services provided to audit clients and to require all
          services provided by the independent auditor to be pre-approved by the
          audit committee.

     .    Improved corporate responsibility through mandatory listing standards
          relating to audit committees, certifications of periodic reports by
          the CEO and CFO and making issuer interference with an audit a crime.

     .    Enhanced financial disclosures, including periodic reviews for largest
          issuers and real time disclosure of material company information.

     .    Enhanced criminal penalties for a broad array of white-collar crimes
          and increases in the statute of limitations for securities fraud
          lawsuits.

                                        9
<PAGE>

     .    Disclosure of whether a company has adopted a code of ethics that
          applies to the company's principal executive officer, principal
          financial officer, principal accounting officer or controller, or
          persons performing similar functions, and disclosure of any amendments
          or waivers to such code of ethics. The ethics code must contain
          written standards that are reasonably designed to deter wrongdoing and
          to promote:

          .    Honest and ethical conduct, including the ethical handling of
               actual or apparent conflicts of interest between personal and
               professional relationships;

          .    Full, fair, accurate, timely, and understandable disclosure in
               reports and documents that a registrant files with, or submits
               to, the Securities and Exchange Commission and in other public
               communications made by the registrant;

          .    Compliance with applicable governmental laws, rules and
               regulations;

          .    The prompt internal reporting to an appropriate person or persons
               identified in the code of violations of the code; and

          .    Accountability for adherence to the code.

     .    Disclosure of whether a company's audit committee of its board of
          directors has a member of the audit committee who qualifies as an
          "audit committee financial expert." To qualify as an "audit committee
          financial expert," a person must have:

          .    An understanding of generally accepted accounting principles and
               financial statements;

          .    The ability to assess the general application of such principles
               in connection with the accounting for estimates, accruals and
               reserves;

          .    Experience preparing, auditing, analyzing or evaluating financial
               statements that present a breadth and level of complexity of
               accounting issues that are generally comparable to the breadth
               and complexity of issues that can reasonably be expected to be
               raised by the registrant's financial statements, or experience
               actively supervising one or more persons engaged in such
               activities;

          .    An understanding of internal controls and procedures for
               financial reporting; and

          .    An understanding of audit committee functions.

     A person must have acquired the above listed attributes to be deemed to
     qualify as an "audit committee financial expert" through any one or more of
     the following:

          .    Education and experience as a principal financial officer,
               principal accounting officer, controller, public accountant or
               auditor or experience in one or more positions that involve the
               performance of similar functions;

          .    Experience actively supervising a principal financial officer,
               principal accounting officer, controller, public accountant,
               auditor or person performing similar functions;

          .    Experience overseeing or assessing the performance of companies
               or public accountants with respect to the preparation, auditing
               or evaluation of financial statements; or

          .    Other relevant experience.

     The rule contains a specific safe harbor provision to clarify that the
     designation of a person as an "audit committee financial expert" does not
     cause that person to be deemed to be an "expert" for any purpose under
     Section 11 of the Securities Act of 1933, as amended, or impose on such
     person any duties, obligations or liability greater that the duties,
     obligations and liability imposed on such person as a member of the audit
     committee and the board of directors, absent such designation. Such a
     designation also does not affect the duties, obligations or liability of
     any other member of the audit committee or board of directors.

                                       10
<PAGE>

     .    A prohibition on insider trading during pension plan blackout periods.

     .    Disclosure of off-balance sheet transactions.

     .    A prohibition on certain loans to directors and officers.

     .    Conditions on the use of non-GAAP (generally accepted accounting
          principles) financial measures.

     .    Standards on professional conduct for attorneys requiring attorneys
          having an attorney-client relationship with a company, among other
          matters, to report "up the ladder" to the audit committee, another
          board committee or the entire board of directors certain material
          violations.

     .    Expedited filing requirements for Form 4 reports of changes in
          beneficial ownership of securities reducing the filing deadline to
          within 2 business days of the date a transaction triggers an
          obligation to report.

     .    Accelerated filing requirements for Forms 10-K and 10-Q by public
          companies which qualify as "accelerated filers" to be phased-in
          reducing the filing deadline for Form 10-K reports from 75 days
          currently (formerly 90 days) after the fiscal year end to 60 days and
          Form 10-Q reports from 40 days currently (formerly 45 days) after the
          fiscal quarter end to 35 days, in each case to be effective for the
          respective reports filed for fiscal years ending on or after December
          15, 2005.

     .    Disclosure concerning website access to reports on Forms 10-K, 10-Q
          and 8-K, and any amendments to those reports, by "accelerated filers"
          as soon as reasonably practicable after such reports and material are
          filed with or furnished to the Securities and Exchange Commission.

     .    Rules requiring national securities exchanges and national securities
          associations to prohibit the listing of any security whose issuer does
          not meet audit committee standards established pursuant to the Act
          including:

          .    Independence standards for members;

          .    Responsibility for selecting and overseeing the issuer's
               independent accountant;

          .    Responsibility for handling complaints regarding the issuer's
               accounting practices;

          .    Authority to engage advisers; and

          .    Funding requirements for the independent auditor and outside
               advisers engaged by the audit committee.

On November 4, 2003, the Securities and Exchange Commission adopted changes to
the standards for the listing of issuer securities by the New York Stock
Exchange and Nasdaq Stock Market. The revised standards for listing conform to
and supplement Rule 10A-3 under the Securities Exchange Act of 1934, as amended,
which the Securities and Exchange Commission adopted in April 2003 pursuant to
the Act.

The Company's securities are not currently listed on the Nasdaq Stock Market and
are reported on the OTC Bulletin Board. Consequently, the Company is not
currently required to comply with Nasdaq listing rules set forth below. However,
if the Company lists its common stock on the Nasdaq Stock Market in the future,
the Company would be required to comply with Nasdaq listing rules in effect at
that time, which may include the rules set forth below, in addition to the rules
promulgated by the Securities and Exchange Commission pursuant to the Act.
Generally, Nasdaq listed companies were required to comply with the revised
listing standards by the first annual meeting of shareholders following January
15, 2004. The revised Nasdaq listing standards include the following:

     .    A majority of directors of a listed company must be "independent",
          which excludes:

          .    Any director who is, or at any time in the past three years was,
               employed by a listed company, its parent or a subsidiary;

          .    Any director or any family member who received payments in excess
               of $60,000 in the current year or prior three years from a listed
               company, its parent or a subsidiary;

                                       11
<PAGE>

          .    Any director whose family member is employed or during the last
               three years was employed as an executive officer of a listed
               company, its parent or a subsidiary;

          .    Any director or any family member who is a partner, controlling
               shareholder or executive officer of an organization to which a
               listed company made payments or from which a listed company
               received payments, for services or property, in the current year
               or prior three years in excess of the greater of $200,000 or 5%
               of the recipient's consolidated gross revenues in the year of
               payment;

          .    Any director or any family member who is employed as an executive
               officer of another organization where during the current year or
               prior three years an executive officer of a listed company served
               on the compensation committee of such organization; and

          .    Any director or any family member who is a partner of the outside
               auditor of a listed company or was a partner or employee of the
               listed company's auditor and worked on the company's audit in the
               prior three years.

     .    Independent directors of a listed company must meet alone in executive
          sessions at least two times annually.

     .    Listed companies must certify adoption of a resolution or written
          charter dealing with nominations of directors and select nominees for
          election as directors either by determination of a majority of
          independent directors or by a nominating committee consisting solely
          of independent directors, with certain exceptions.

     .    Compensation of a listed company's chief executive officer must be
          determined either by a majority of independent directors or by a
          compensation committee consisting solely of independent directors,
          with certain exceptions.

     .    The audit committee of a listed company, subject to certain
          exceptions, must comply with requirements that include:

          .    The committee be comprised of at least three independent
               directors who have not participated in the preparation of
               financial statements for the company, its parent or subsidiaries
               during the last three years;

          .    Each director must be able to read and understand financial
               statements;

          .    At least one director must meet the "financial sophistication"
               criteria which the company must certify;

          .    The committee must adopt a written charter; and

          .    The committee is responsible for the review and approval of all
               related-party transactions, except those approved by another
               board committee comprised of independent directors.

     .    The adoption or amendment of any equity compensation arrangement after
          June 30, 2003, such as a stock option plan, requires shareholder
          approval, subject to certain exemptions.

     .    A code of conduct had to be adopted by May 4, 2004 that (i) complies
          with the code of ethics requirements of the Act and the Nasdaq
          Marketplace Rules; (ii) covers all directors, officers and employees;
          (iii) includes an enforcement mechanism; and (iv) permits only the
          board of directors to grant waivers from or changes to the code of
          conduct affecting directors and executive officers and requires prompt
          disclosure thereof on a Form 8-K filing with the Securities and
          Exchange Commission.

                                       12
<PAGE>

The effect of the Act upon the Company is uncertain; however, it is likely that
the Company will incur increased costs to comply with the Act and the rules and
regulations promulgated pursuant to the Act by the Securities and Exchange
Commission and other regulatory agencies having jurisdiction over the Company or
the issuance and listing of its securities. The Company does not currently
anticipate, however, that compliance with the Act and such rules and regulations
will have a material adverse effect upon its financial position or results of
its operations or its cash flows.

On September 28, 2002, California Governor Gray Davis signed into law the
California Corporate Disclosure Act (the "CCD Act"), which became effective
January 1, 2003. The CCD Act requires publicly traded corporations incorporated
or qualified to do business in California to disclose information about their
past history, auditors, directors and officers. The CCD Act requires the Company
to disclose:

     .    The name of the a company's independent auditor and a description of
          services, if any, performed for the company during the previous 24
          months;

     .    The annual compensation paid to each director and executive officer,
          including stock or stock options not otherwise available to other
          company employees;

     .    A description of any loans made to a director at a "preferential" loan
          rate during the previous 24 months, including the amount and terms of
          the loans;

     .    Whether any bankruptcy was filed by a company or any of its directors
          or executive officers within the previous 10 years;

     .    Whether any director or executive officer of a company has been
          convicted of fraud during the previous 10 years; and

     .    Whether a company violated any federal securities laws or any
          securities or banking provisions of California law during the previous
          10 years for which the company was found liable or fined more than
          $10,000.

The Company does not currently anticipate that compliance with the CCD Act will
have a material adverse effect upon its financial position or results of its
operations or its cash flows.

The Check Clearing for the 21st Century Act (commonly referred to as "Check 21")
was signed into law in 2003 and became effective on October 28, 2004. The law
facilitates check truncation by creating a new negotiable instrument called a
"substitute check" which permits banks to truncate original checks, to process
check information electronically and to deliver "substitute checks" to banks
that want to continue receiving paper checks. Check 21 is intended to reduce the
dependence of the check payment system on physical transportation networks
(which can be disrupted by terrorist attacks of the type which occurred on
September 11, 2001) and to streamline the collection and return process. The law
does not require banks to accept checks in electronic form nor does it require
banks to use the new authority granted by the Act to create "substitute checks."
The Company does not currently anticipate that compliance with the Act will have
a material effect upon its financial position or results of its operations or
its cash flows.

Certain legislative and regulatory proposals that could affect the Company, the
Bank and the banking business in general are periodically introduced before the
United States Congress, the California State Legislature and Federal and state
government agencies. It is not known to what extent, if any, legislative
proposals will be enacted and what effect such legislation would have on the
structure, regulation and competitive relationships of financial institutions.
In addition to legislative changes, the various Federal and state financial
institution regulatory agencies frequently propose rules and regulations to
implement and enforce already existing legislation. It cannot be predicted
whether or in what form any such rules or regulations will be enacted or the
effect that such regulations may have on the Company and the Bank. It is likely,
however, that such legislation and regulation could subject the Company and the
Bank to increased regulation, disclosure and reporting requirements,
competition, and costs of doing business.

                                       13
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTIES

The Company and the Bank conduct operations at offices located at 2800 West
March Lane, Suite 120, Stockton, California 95219 and at 60 West 10th Street,
Tracy, California 95376. The Bank also operates a loan production office at 3533
Jamison Way, Castro Valley, California 94546.

The main office consists of approximately 4,715 square feet on the ground floor
of an office building located adjacent to Interstate Highway 5 and is leased
from October 1, 2002 to September 30, 2009. There are two five-year options to
extend the lease term. The current monthly lease rate is $10,549.

The Bank's Tracy office consists of approximately 12,188 square feet of space on
the ground floor and second floor of a two story building located in downtown
Tracy and is leased from February 15, 2000 to February 28, 2007, with two
five-year options to extend the lease term. The current monthly lease rate is
$6,932, subject to CPI adjustment on each anniversary of the commencement date.
The monthly rate during the extended term is the greater of the existing rent,
as adjusted by the CPI, or the fair market rental value of the premises at the
commencement of the extended term.

The Bank's Castro Valley Loan Production Office is approximately 840 square feet
on the 1st floor of a two story commercial building, leased from April 1, 2003
through March 31, 2005. There are five one-year options to extend the lease
term. The current monthly lease rate is $1,260 a month.

Management believes that the facilities are appropriate and adequate for the
operation of the business as it is currently structured. The foregoing lease
descriptions are qualified in their entirety by reference to the lease
agreements filed as exhibits to this Annual Report on Form 10-KSB.

ITEM 3.  LEGAL PROCEEDINGS

The Bank is not a party to any pending legal or administrative proceedings other
than ordinary routine litigation incidental to the Bank's business involving the
Bank or any of its property, and no such proceedings are known to be
contemplated.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 2004.

                                       14
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
         BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

There is limited trading in and no established public trading market for the
Company's common stock. The Company's common stock is not listed on any exchange
and is not quoted by The Nasdaq Stock Market. The Company's common stock is
quoted on the OTC Bulletin Board under the symbol "SVCF." The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. Total shares and price per share have been
adjusted retroactively to reflect a 5% dividend payable on April 12, 2004. As of
March 15, 2005, there were 1,590,937 shares of the Company's common stock
outstanding. The Company's common stock was registered under Section 12(g) of
the Securities Exchange Act of 1934, by the filing of the Company's registration
statement on Form 8-A with the SEC on June 26, 2003. Vanguard Capital and Wells
Fargo Van Kasper have facilitated trades in the Company's common stock. The high
and low bid quotations for the Company's common stock for each full quarterly
period of the Company's operations for the last two years is listed in the chart
below.

               Calendar Year                   High       Low
               --------------                --------   --------
                   2004
               First Quarter                 $  15.48   $  13.33
               Second Quarter                $  14.50   $  13.00
               Third Quarter                 $  14.40   $  12.00
               Fourth Quarter                $  15.50   $  13.05

                   2003
               First Quarter                 $  10.48   $   9.05
               Second Quarter                $  14.29   $   9.05
               Third Quarter                 $  14.29   $  10.95
               Fourth Quarter                $  14.52   $  11.62

The high and low bid quotations for the Company's common stock were $16.75 and
$17.50 as of March 22, 2005.

HOLDERS

At March 22, 2005, there were approximately 675 shareholders of the Company's
common stock. There are no other classes of equity shares of the Company
outstanding.

DIVIDENDS

The Company's shareholders are entitled to receive dividends when and as
declared by its Board of Directors, out of funds legally available therefore,
subject to the restrictions set forth in the California General Corporation Law
(the "Corporation Law"). The Corporation Law provides that a corporation may
make a distribution to its shareholders if the corporation's retained earnings
equal at least the amount of the proposed distribution. The Corporation Law
further provides that, in the event that sufficient retained earnings are not
available for the proposed distribution, a corporation may nevertheless make a
distribution to its shareholders if it meets two conditions, which generally
stated are as follows: (1) the corporation's assets equal at least 1-1/4 times
its liabilities; and (2) the corporation's current assets equal at least its
current liabilities or, if the average of the corporation's earnings before
taxes on income and before interest expenses for the two preceding fiscal years
was less than the average of the corporation's interest expenses for such fiscal
years, then the corporation's current assets must equal at least 1-1/4 times its
current liabilities. Funds for payment of any cash dividends by the Company
would be obtained from its investments as well as dividends and/or management
fees from the Bank.

                                       15
<PAGE>

The payment of cash dividends by the Bank is subject to restrictions set forth
in the California Financial Code (the "Financial Code") which may include
obtaining the consent of the California Commissioner of Financial Institutions
(the "Commissioner") under certain circumstances described below.

The Financial Code provides that a bank may not make a cash distribution to its
shareholders in excess of the lesser of (a) the bank's retained earnings; or (b)
the bank's net income for its last three fiscal years, less the amount of any
distributions made by the bank or by any majority-owned subsidiary of the bank
to the shareholders of the bank during such period. However, a bank may, with
the approval of the Commissioner, make a distribution to its shareholders in an
amount not exceeding the greater of (a) its retained earnings; (b) its net
income for its last fiscal year; or (c) its net income for its current fiscal
year. In the event that the Commissioner determines that the shareholders'
equity of a bank is inadequate or that the making of a distribution by the bank
would be unsafe or unsound, the Commissioner may order the bank to refrain from
making a proposed distribution. In addition to the foregoing restrictions upon
dividend payments by the Bank, at December 31, 2004, the Bank had accumulated
deficit retained earnings of $655,945. Under the Financial Code requirements for
the payment of dividends, the Bank is restricted from paying dividends to the
Company without the prior consent of the Commissioner until the deficit retained
earnings are eliminated.

The FDIC may also restrict the payment of dividends if such payment would be
deemed unsafe or unsound or if after the payment of such dividends, a bank would
be included in one of the "undercapitalized" categories for capital adequacy
purposes pursuant to the Federal Deposit Insurance Corporation Improvement Act
of 1991. Additionally, while the Board of Governors has no general restriction
with respect to the payment of cash dividends by an adequately capitalized bank
to its parent holding company, the Board of Governors might, under certain
circumstances, place restrictions on the ability of a particular bank to pay
dividends based upon peer group averages and the performance and maturity of the
particular bank, or object to management fees on the basis that such fees cannot
be supported by the value of the services rendered or are not the result of an
arm's length transaction.

To date, the Company has not paid a cash dividend and presently does not intend
to pay cash dividends in the foreseeable future. The Company declared a five
percent stock dividend in February 2004 payable in April 2004. Payment of
dividends in the future will be determined by the Board of Directors after
consideration of various factors including the profitability and capital
adequacy of the Company and the Bank.

STOCK REPURCHASES

The Company did not repurchase shares of its common stock during the fourth
quarter of the year ended December 31, 2004, and has not repurchased shares of
its common stock at any time since its incorporation.

                                       16
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Certain matters discussed or incorporated by reference in this Annual Report on
Form 10-KSB including, but not limited to, matters described in "Item 6 -
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 Annual Report 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.

                                       17
<PAGE>

BUSINESS ORGANIZATION

Service 1st Bancorp (the "Company") is a California corporation, headquartered
in Stockton, California, and was incorporated on January 23, 2004 to act as a
holding company for Service 1st Bank (the "Bank"). The Bank became a subsidiary
of the Company effective June 26, 2004. 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 enhance the reader's understanding of the
Bank's financial condition and the results of its operations as reported in the
Financial Statements included in this Annual Report. Reference should be made to
those statements and the Selected Financial Data presented elsewhere in this
report for additional detailed information.

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                           2004                2003
                                                     ----------------    ----------------
<S>                                                  <C>                 <C>
Interest Income                                      $      6,185,694    $      4,657,728
Interest Expense                                            1,878,809           1,586,583
                                                     ----------------    ----------------
Net interest Income                                         4,306,885           3,071,145
Provision for loan loss                                       125,000             250,000
                                                     ----------------    ----------------
Net Interest Income After Provision for Loan Losses         4,181,885           2,821,145
Non-interest Income                                           981,098             777,308
Non-interest Expense                                        3,999,005           3,223,611
                                                     ----------------    ----------------
Income before Provision for Taxes                           1,163,978             374,842
Tax Expense (Credit)                                         (250,000)              1,600
                                                     ----------------    ----------------
Net Income                                           $      1,413,978    $        373,242
                                                     ================    ================
Net Income Per Share - Basic                         $           1.21    $            .32
Net Income Per Share - Diluted                       $           1.17    $            .32
Return on Average Assets                                         1.12%                .38%
Return on Average Equity                                        15.76%               4.59%
Average Equity to Average Assets                                 7.13%               8.39%
Average Loans to Average Deposits                               53.68%              55.00%
Total Assets as of December 31,                      $    137,172,635    $    110,527,776
Total Deposits as of December 31,                    $    122,108,582    $    101,621,077
Net Interest Margin                                              3.74%               3.39%
</TABLE>

EARNINGS OVERVIEW

The Company had net income of $1,413,978 for the year ended December 31, 2004,
representing an improvement of $1,040,736 compared to net income of $373,242 in
2003. Basic earnings per share were $1.21, and $.32 at December 31, 2004 and
2003, respectively. Fully diluted earnings per share were $1.17 and $.32 for
December 31, 2004 and 2003, respectively.

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income refers to the difference between the interest paid on
deposits and borrowings, and the interest earned on loans and investments. It is
the primary component of the net earnings of a financial institution. The
primary factors to consider in analyzing the net interest income are the
composition and volume of earning assets and interest bearing liabilities, the
amount of noninterest bearing liabilities and nonaccrual loans, and changes in
market interest rates. Beginning in January 2001 and continuing through December
2004, actions by the Federal Reserve Board to cut interest rates resulted in the
prime rate being cut from 9.50% to 4.00%. Historically, the largest source of
income for banks is that which is created by net interest income. These
reductions in rates, specifically as it relates to earning assets that adjust
with the prime rate, made it very difficult to maintain the level

                                       18
<PAGE>

of the net interest margin that the Company had experienced in the past. In
2004, the Company's net interest margin began to improve. The net interest
margin on average interest earning assets increased from 3.39% for 2003 to 3.74%
for 2004.

Net interest income before provision for loan loss for 2004 was $4,306,585
representing an increase of $1,235,740 or 40.24% from $3,071,145 in 2003. The
increase in net interest income for 2004 was primarily attributable to an
increase of $24,526,642 in average interest-earning assets from 2003 to 2004.
The average rate earned on interest earning assets increased from 5.14% in 2003
to 5.37% in 2004. Interest income in 2004 was $6,185,694 or $1,527,966 greater
than 2003. The growth in average interest bearing liabilities was $24,460,111.
Interest expense for 2004 was $1,878,809 or $292,226 greater than 2003. Net
interest income in 2004 was $3,071,145 or $309,345 greater than the $2,761,800
in 2003.

                                       19
<PAGE>

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 years ended December 31, 2004 and 2003.

<TABLE>
<CAPTION>
                                                    December 31, 2004                           December 31, 2003
                                        -----------------------------------------   ------------------------------------------
                                                                         Average                                      Average
                                            Average        Income/      Yield or        Average          Income/     Yield or
                                            Balance        Expense      Rate Paid       Balance          Expense     Rate Paid
                                        --------------  ------------   ----------   ---------------   ------------  ----------
<S>                                     <C>             <C>                  <C>    <C>               <C>                 <C>
Interest-earning assets:
Interest-bearing deposits               $      116,762  $      1,578         1.35%  $             -   $          -        0.00%
Investments                                 49,637,505     1,728,347         3.48%       36,323,503      1,061,603        2.92%
Federal funds sold                           3,273,068        50,726         1.55%        5,630,625         63,042        1.12%
Loans (1)(2)                                62,114,423     4,405,043         7.09%       48,660,988      3,533,083        7.26%
                                        --------------  ------------                ---------------   ------------
   Total interest-earning assets           115,141,758     6,185,694         5.37%       90,615,116      4,657,728        5.14%

Allowance for loan losses                     (919,509)                                    (690,630)
Cash and due from banks                      6,889,579                                    5,436,670
Bank premises and equipment                    669,141                                      763,297
Accrued interest receivable                    528,446                                      380,384
Other assets                                 3,556,869                                      451,022
                                        --------------                              ---------------
   Total assets                         $  125,866,284                              $    96,955,859
                                        ==============                              ===============

Interest  Bearing Liabilities:
Demand deposits                         $   60,802,105       953,961         1.57%  $    38,428,236        737,710        1.92%
Savings & money market accounts             10,562,625        86,999         0.82%       11,116,120        115,046        1.03%
Time Deposits                               25,368,950       818,317         3.23%       23,336,284        731,262        3.13%
Other borrowings                               667,277        19,532         2.93%           60,206          2,565        4.26%
                                        --------------  ------------                ---------------   ------------
   Total interest-bearing liabilities       97,400,957     1,878,809         1.93%       72,940,846      1,586,583        2.18%
                                                        ------------                ---------------   ------------

Non-interest bearing demand
 deposits                                   18,976,237                                   15,599,045
Other Liabilities                           516,162.00                                      280,135
                                        --------------                              ---------------
   Total liabilities                       116,893,356                                   88,820,026
Shareholders' equity                         8,972,928                                    8,135,833
                                        --------------                              ---------------
   Total liabilities and shareholders'
    equity                              $  125,866,284                              $    96,955,859
                                        ==============                              ===============

Net interest income                                     $  4,306,885                                  $  3,071,145
                                                        ============                                  ============
Net interest margin on average
 interest earning assets (3)                                                 3.74%                                        3.39%
</TABLE>

1.  Average loan balances include average deferred loan fees of $247,048 and
    $158,423 for the years ending December 31, 2004 and 2003, respectively.

2.  Interest on loans includes fees of $154,148 and $118,246 for the years
    ending December 31, 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.

                                       20
<PAGE>

Rate/Volume Analysis

<TABLE>
<CAPTION>
                                                     2004 over 2003
                                          Increase (decrease) due to change in:
                                       ------------------------------------------
                                           Volume          Rate          Total
                                       --------------   -----------   -----------
<S>                                    <C>              <C>           <C>
Increase (Decrease) in:
Interest Income:
  Interest-bearing deposits in banks   $        1,578   $         -   $     1,578
  Investment securities                       438,042       228,702       666,744
  Federal funds sold                          (31,684)       19,368       (12,316)
  Loans                                       955,854       (83,894)      871,960
                                       --------------   -----------   -----------
Total                                       1,363,790       164,176     1,527,966

Interest Expense:
  Demand, interest-bearing                    369,782      (153,530)      216,252
  Savings                                      (5,499)      (22,549)      (28,048)
  Time                                         65,095        21,960        87,055
  Borrowings                                   18,014        (1,047)       16,967
                                       --------------   -----------   -----------
Total                                          47,392      (155,166)       92,226
                                       --------------   -----------   -----------
Increase (Decrease) in
 Net Interest Income                   $      916,398   $   319,342   $ 1,235,740
                                       ==============   ===========   ===========
</TABLE>

Average balances of all categories in each period were included in the volume
computations.

Average yields and rates in each period were used in rate computations.

Any change attributable to changes in both volume and rate which cannot be
segregated has been allocated based on the absolute value of each.

                                       21
<PAGE>

OTHER INCOME

Total other income was $981,098 for 2004 and $777,308 for 2003. During 2004,
service charges and fees increased from $244,772 in 2003 to $300,754 in 2004.
The increase was a result of the growth in the total deposits of the Bank.
During 2002, the Bank established a Small Business Administration ("SBA")
Department. The Government guarantees a portion of each SBA loan. The guaranteed
portion of each SBA loan can be sold in the secondary market and the Bank
receives a premium on these sales and servicing revenue. Gains on sales and
servicing of the guaranteed portion of SBA loans during 2004 were $407,779
compared to $284,708 in 2003. The Bank offers loans on single family homes
through third party lenders. The Bank receives fees for packaging of the loans
provided to the third party lenders. The loans are funded by and become assets
of the third party lenders. The referral fees on mortgage loans was $149,629 for
2004 compared to $182,143 for 2003. The decrease was a result of a slowdown in
the home refinancing market.

During July 2003, the Company purchased life insurance policies on several of
its key officers. The proceeds received from these policies will fund retirement
benefits for executive officers of the Company and the Bank. The earnings on the
cash surrender value of life insurance were $113,162 during 2004 compared to
$45,544 during 2003.

Gains on the sales of investments were $9,774 and $20,141 for the years ended
December 31, 2004 and 2003, respectively.

OTHER EXPENSES

Other expenses consist of salary and other compensation, occupancy and equipment
and other expense. The major components of other expense for the years ended
December 31, 2004 and 2003 are listed in the table below.

<TABLE>
<CAPTION>
                                                           2004                2003
                                                     ----------------    ----------------
<S>                                                  <C>                 <C>
Other expenses:
  Salaries & employee benefits                       $      2,262,990    $      1,766,568
  Occupancy expense                                           297,813             282,386
  Equipment expense                                           229,460             232,406
  Data Processing and other professional services             430,081             430,327
  Office supplies and equipment                               152,488             148,660
  Loan department expense                                     125,556              37,038
  Advertising and promotion                                    94,791              61,669
  Directors fees and expenses                                  94,155              41,138
  Courier expense                                              47,355              49,099
  Other operating expenses                                    264,316             174,320
                                                     ----------------    ----------------
Total other expenses                                 $      3,999,005    $      3,223,611
                                                     ================    ================
Other expense as a percentage of average assets                  3.18%               3.32%
</TABLE>

SALARIES AND EMPLOYEE BENEFITS

Salaries and employee benefits expense for 2004 was $2,262,990, an increase of
$496,422 from $1,766,568 in 2003. Total employees during 2004 were 31 compared
to 28 in 2003. The increase in expense in 2004 compared to 2003 was also from
increased commission expense for loan officers related to SBA sales and mortgage
originations. There was a bonus accrual of $265,165 for 2004. No bonuses were
accrued in 2003. During May 2003, the Company approved a salary continuation
plan for its executive officers. The accrued expense related to that plan for
2004 was $161,327 compared to $86,291 for 2003.

                                       22
<PAGE>

OCCUPANCY EXPENSE

Occupancy expense was $297,813 in 2004 and $282,386 in 2003. The increase in
expense for 2004 compared to 2003 was primarily from cost of living adjustments
on existing leases. Also, the Bank leases an office in Castro Valley for its
loan production office. This office opened during April of 2004. The current
year includes 12 months of lease payments for this facility compared to nine
months for 2003.

EQUIPMENT EXPENSE

Equipment expense in 2004 was $229,460 compared to $232,406 in 2003.

DATA PROCESSING AND OTHER PROFESSIONAL SERVICES

Data processing and other professional services for 2004 was $430,081 compared
to $430,327 in 2003.

OFFICE SUPPLIES AND EQUIPMENT

Office supplies and equipment expenses were $152,488 in 2004 compared to
$148,660 for 2003.

ADVERTISING AND PROMOTIONAL EXPENSE

Advertising and promotional expense in 2004 was $94,791 compared to $61,669 in
2003. The Company increased its marketing budget to assist in the growth of the
Bank.

COURIER EXPENSE

Courier expense in 2004 was $47,355 compared to $49,099 in 2003. The increase in
courier expense was primarily the result of the use of couriers as part of
marketing efforts to attract new customers. As new customers are added, the cost
associated with the courier service has increased.

DIRECTORS FEES AND EXPENSES

The Company does not pay director fees to employee directors. Director fees and
expenses for 2004 were $94,155 compared to $41,138 in 2003. The Company did not
begin paying director fees until July 2003. The increase in expense for 2004 was
because the director fees in 2004 were paid for 12 months versus only six months
in 2003.

LOAN DEPARTMENT EXPENSE

Loan department expense for 2004 was $125,556 compared to $37,038 for 2003.
During 2004, a $40,000 reserve for loss on undisbursed loans was established.
There was no expense for this in 2003. The Bank has sold the guaranteed portion
on loans to other third parties but continues to service these loans. The loan
servicing expense for was $55,980 in 2004 compared to $18,320 in 2003. The
increase is related to the larger volume of loans being serviced.

OTHER OPERATING EXPENSE

Other operating expenses in 2004 were $264,316 compared to $174,320 in 2003. The
increase is related to the growth of the Company.

                                       23
<PAGE>

PROVISION FOR INCOME TAXES

The Company recognized a tax benefit of $251,600 related to the recognition of
prior net operating loss carryforwards. The Company did not recognize any
benefit for loss carryforwards in prior years because it was not certain that
all of the remaining loss carryforwards could be utilized. The tax expense paid
for 2004 and for 2003 was $1,600, which represents the minimum state tax
expense. The Company has approximately $435,000 of operating loss carryforwards
for federal and $1,200,000 for state income tax purposes. Net operating loss
carryforwards will expire in 2021 for federal income tax purposes and in 2013
for state income tax purposes, if not previously utilized.

PROVISION AND 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.

The allowance for loan losses is maintained at a level that is considered
adequate to provide for the loan losses inherent in the Company's loans. The
provision for loan losses was $125,000 in 2004 and $250,000 in 2003.

SUMMARY OF LOAN LOSS EXPERIENCE

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.

<TABLE>
<CAPTION>
                                                       For the Year Ended December 31,
                                                     ------------------------------------
                                                           2004                2003
                                                     ----------------    ----------------
<S>                                                  <C>                 <C>
OUTSTANDING LOANS:
   Average for the Year                              $     62,114,423    $     48,660,988
   End of the Year                                   $     69,578,484    $     53,545,301
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                                               -              10,000
Provision for Loan Losses                                     125,000             250,000
                                                     ----------------    ----------------
Balance at End of Year                               $        963,000    $        838,000
                                                     ================    ================
RATIOS:
Net Loans Charged-Off to Average Loans                              0%                .02%
Allowance for Loan Losses to Total Loans                         1.38%               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%               4.00%
Allowance for Loan Losses to Nonperforming Loans             1,234.62%             119.89%
</TABLE>

                                       24
<PAGE>

Management believes that the allowance for loan losses is adequate. Quarterly
detailed reviews are performed to identify the risks inherent in the loan
portfolio, assess the overall quality of the loan portfolio and to determine the
adequacy of the allowance for loan losses and the related provision for loan
losses to be charged to expense. These systematic reviews follow the methodology
set forth by the FDIC in its 1993 policy statement on the allowance for loan
losses.

The following table summarizes the allocation of the allowance for loan losses
by loan type for the years indicated and the percent of loans in each category
to total loans (dollars amounts in thousands):

<TABLE>
<CAPTION>
Loan category                            Amount       Percent      Amount      Percent
-----------------------------------    ----------    ---------   ----------   ---------
<S>                                    <C>              <C>      <C>             <C>
Construction and land development      $      333        22.27%  $      342       20.56%
Real estate                                   346        50.74%         315       49.59%
Commercial                                    217        21.16%         147       21.15%
Agriculture                                     8         2.80%           6        5.36%
Consumer                                       59         3.03%          28        3.34%
                                       ----------    ---------   ----------   ---------
   Total gross loans                   $      963       100.00%  $      838      100.00%
                                       ----------    ---------   ----------   ---------
</TABLE>

The Company's current policy is to cease accruing interest when a loan becomes
90 days past due as to principal or interest, when the full timely collection of
interest or principal becomes uncertain or when a portion of the principal
balance has been charged off, unless the loan is well secured and in the process
of collection. When a loan is placed on nonaccrual status, the accrued and
uncollected interest receivable is reversed and the loan is accounted for on the
cash or cost recovery method thereafter, until qualifying for return to accrual
status. Generally, a loan may be returned to accrual status when all delinquent
interest and principal become current in accordance with the terms of the loan
agreement or when the loan is both well secured and in the process of
collection.

NONPERFORMING ASSETS

The following table provides information with respect to the components of our
nonperforming assets at the dates indicated (dollars in thousands):

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                 --------------------------------
                                                                      2004              2003
                                                                 --------------    --------------
<S>                                                              <C>               <C>
Loans 90 Days Past Due and Still Accruing                        $            -    $            -
Nonaccrual Loans                                                             78               699
                                                                 --------------    --------------
Total Nonperforming Loans                                                    78               699
Other Real Estate Owned                                                       -                 -
                                                                 --------------    --------------
Total Nonperforming Assets                                       $           78    $          699
                                                                 ==============    ==============
Non performing Loans as a Percentage of Total Loans                         .11%             1.31%
Allowance for Loan Loss as a Percentage of Nonperforming Loans          1234.62%           119.89%
Nonperforming Assets as a Percentage of Total Assets                        .06%              .63%
</TABLE>

Nonaccrual loans are generally past due 90 days or are loans that the interest
on which may not be collectible. Loans past due 90 days will continue to accrue
interest only when the loan is both well secured and in the process of
collection.

                                       25
<PAGE>

The $699,000 in nonperforming loans held by the Bank at December 31, 2003
consisted of one loan which was paid in full and there was no loss associated
with this loan. In addition to the full recovery of all of the principal, the
Bank was also able to collect all delinquent interest associated with this loan.

BALANCE SHEET ANALYSIS

Total assets of the Company at December 31, 2004 were $137,172,635 compared to
$110,527,776 in 2003, representing an increase of 24.1%. The growth of the
Company was a result of an aggressive action plan to gain market share and from
increased market recognition.

LOANS

A significant portion of the Company's assets is the loan portfolio. Gross loans
were $69,578,484 in 2004 and $53,545,301 at December 31, 2003, respectively.
Approximately 77.7 % of the gross loans at December 31, 2004 are adjustable rate
loans. Nearly all of the adjustable rate loans are tied to the prime rate. To
mitigate the negative effect on earnings from declining interest rates, the Bank
has included interest rate floors on some of its loans. Once the interest rate
on a loan reaches the interest rate floor, the interest rate cannot decline
further. The floors helped to protect the net income from declining interest
rates, but there will be lag in the repricing of certain loans as interest rates
rise. As of December 31, 2004, $33,089,952 of the Bank's variable loans will not
immediately reprice as interest rates rise because the calculated interest
coupon is less than the interest rate floor. The interest rate on these loans
will not increase until interest rates rise further. If interest rates rise an
additional 1.0%, $14,152,565 more loans will then equal or exceed their interest
rate floor and participate in future interest rate increases. Management
anticipates that a 1.00% increase in the prime rate would increase net interest
income by approximately $28,000 a year and a 1.00% decrease in the prime rate
would decrease net interest income approximately $73,000.

The table below summarizes the composition of the loan portfolio as of
December 31, 2004 and 2003.

<TABLE>
<CAPTION>
                                                  2004                          2003
                                       ---------------------------    --------------------------
Loan category                              Amount         Percent        Amount         Percent
----------------------------------     --------------   ----------    -------------   ----------
<S>                                    <C>                  <C>       <C>                 <C>
Construction and land development      $   15,498,534        22.27%   $  11,006,774        20.56%
Real estate                                35,302,346        50.77%      26,557,578        49.59%
Commercial                                 14,721,336        21.16%      11,325,842        21.15%
Agriculture                                 1,951,225         2.80%       2,869,187         5.36%
Consumer                                    2,105,043         3.00%       1,785,920         3.34%
                                       --------------   ----------    -------------   ----------
   Total gross loans                   $   69,578,484       100.00%   $  53,545,301       100.00%

Deferred loan fees and discounts             (293,136)                     (206,893)
Reserve for possible loan losses             (963,000)                     (838,000)
                                       --------------                 -------------
   Total net loans                     $   68,322,348                 $  52,500,408
                                       ==============                 =============
</TABLE>

                                       26
<PAGE>

The table below summarizes the approximate maturities and sensitivity to change
in interest rates for the loans at December 31, 2004.

<TABLE>
<CAPTION>
                                                      After One Year
                                      Due Within        But Within       After Five
Loan category                          One Year         Five Years          Years            Total
---------------------------------   -------------    ---------------    -------------    -------------
<S>                                 <C>              <C>                <C>              <C>
Construction and land development   $  14,878,534    $             -    $     620,000    $  15,498,534
Real estate                            17,174,921         10,425,809        7,701,616       35,302,346
Commercial                              7,484,504          5,529,909        1,706,923       14,721,336
Agriculture                             1,511,174            440,051                -        1,951,225
Consumer                                1,428,214            617,723           59,106        2,105,043
                                    -------------    ---------------    -------------    -------------
   Total gross loans                $  42,477,347    $    17,013,492    $  10,087,645    $  69,578,484
                                    =============    ===============    =============    =============
Interest rate provision
Predetermined rates                 $   9,316,084    $     4,952,932    $   1,233,387    $  15,502,403
Floating or adjustable rates           33,161,263         12,060,560        8,854,258       54,076,081
                                    -------------    ---------------    -------------    -------------
                                    $  42,477,347    $    17,013,492    $  10,087,645    $  69,578,484
                                    =============    ===============    =============    =============
</TABLE>

RISK ELEMENTS

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 Company 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 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 Company 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 Company'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, personal property, plant and
equipment, income-producing properties, residences and other real property.

California's economy has not been as robust as in prior years. Construction
loans and other real estate secured loans comprise approximately 73.01% of total
loans outstanding, which management believes represents a concentration in the
loan portfolio. 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.

Management believes that its lending policies and underwriting standards will
tend to minimize losses in an economic downturn; however, there is no assurance
that losses will not occur under such circumstances. The Company's loan policies
and underwriting standards include, but are not limited to, the following: (1)
maintaining a thorough understanding of the Company's service area and limiting
investments outside this area; (2) maintaining a thorough understanding of
borrowers' knowledge and capacity in their field of expertise; (3) basing real
estate construction loan approval not only on the prospects for sale of the
project, but also within the original projected time period; and (4) maintaining
conforming and prudent loan to value and loan to cost ratios based on
independent outside appraisals and ongoing inspection and analysis by the
Company's construction lending officers. In addition, the Company strives to
diversify the risk inherent in the construction portfolio by avoiding
concentrations to individual borrowers and on any one project types.

                                       27
<PAGE>

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. Total nonaccrual loans at December 31, 2004 were $78,000 and
nonaccrual loans at December 31, 2003 were $699,000. The $699,000 in
nonperforming loans held by the Bank at December 31, 2003 consisted of one loan
which was paid in full and there was no loss associated with this loan. In
addition to the full recovery of all of the principal, the Bank was also able to
collect all delinquent interest associated with this loan.

At December 31, 2004, there was one loan totaling $78,000 that was considered
impaired. There were no loans that were considered troubled debt restructurings.
Management is not aware of any potential problem loans, which were accruing and
current at 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 December 31, 2004 and 2003.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business in order to meet the financing needs of its
customers and to reduce its exposure to fluctuations in interest rates. These
financial instruments consist of commitments to extend credit and letters of
credit. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized on the balance sheet.

The Company's exposure to credit loss in the event of nonperformance by the
other party for commitments to extend credit and letters of credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments and letters of credit as it does for
loans included on the consolidated balance sheet.

The following financial instruments represent off-balance-sheet credit risk
(dollars in thousands):

                                                             December 31,
                                                     ---------------------------
                                                         2004           2003
                                                     ------------   ------------
Commitments to extend credit:
Revolving lines of credit secured by 1-4 family
 residences                                          $      3,325   $      2,288
Commercial real estate, construction and land
 Development commitments secured by real estate            11,336          9,549
Other commitments:
   Commercial loans                                         6,027          4,140
   Agricultural loans                                       2,203          2,708
   Unsecured consumer lines of credit                       2,580          1,736
                                                     ------------   ------------
Total                                                $     25,471   $     20,421
                                                     ============   ============
Letters of Credit                                    $        828   $        137
                                                     ============   ============

As of 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. Real estate commitments are generally
secured by property with a loan-to-value ratio of 65% to 80%. In addition, the
majority of the Company's commitments have variable interest rates.

                                       28
<PAGE>

Certain financial institutions have elected to use special purpose vehicles
("SPV") to dispose of problem assets. The 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 does not use
those vehicles or any other structures to dispose of problem assets.

CONTRACTUAL OBLIGATIONS

The Company leases certain facilities at which it conducts its operations.
Future minimum lease commitments under non-cancelable operating leases as of
December 31, 2004 are listed in the table below.

                  2005                   $  244,348
                  2006                      234,588
                  2007                      166,695
                  2008                      156,152
                  2009                      199,448
                                         ----------
                  Total                  $  921,231
                                         ==========

INVESTMENT SECURITIES

Other earning assets are comprised of Federal Funds sold (funds loaned on a
short-term basis to other banks), investment securities, mutual funds,
commercial paper, and short-term interest bearing deposits at other financial
institutions. These assets are maintained for short-term liquidity needs of the
Company, collateralization of public deposits, and diversification of the
earning asset mix.

Investment securities increased to $52,289,125 at December 31, 2004 compared to
$47,119,345 at December 31, 2003. This represents an increase of approximately
$5,169,780 or 10.97%. The increase in investments is needed for liquidity and
pledging purposes.

The tables below reflect the composition of investment securities, amortized
cost, unrealized gains and losses and estimated fair values as of December 31,
2004.

<TABLE>
<CAPTION>
                                                          Gross           Gross          Estimated
                                        Amortized       Unrealized      Unrealized         Fair          Average
                                           Cost           Gains           Losses           Value          Yields
                                      --------------   ------------    ------------    --------------   ----------
<S>                                   <C>              <C>             <C>             <C>                    <C>
Available-for-Sale Securities:
  U.S. Government Agencies            $   21,835,011   $     10,294    $   (212,572)   $   21,632,733         3.56%
  State and Political Subdivisions           125,000          2,614               -           127,614         6.82%
  Asset-Backed Securities                  6,473,191         20,379         (30,259)        6,463,311         4.45%
  Mortgage-Backed Securities              23,639,408         27,507        (167,937)       23,498,978         3.47%
                                      --------------   ------------    ------------    --------------
                                      $   52,072,610   $     60,794    $   (410,768)   $   51,722,636         3.64%
                                      ==============   ============    ============    ==============
Held-to-Maturity Securities:
  Asset-Backed Securities             $      244,040   $      3,140    $          -    $      247,180         6.68%
  Mortgage-Backed Securities                 322,449         10,858            (297)          333,010         5.85%
                                      --------------   ------------    ------------    --------------
                                      $      566,489   $     13,998    $       (297)   $      580,190         6.08%
                                      ==============   ============    ============    ==============
</TABLE>

                                       29
<PAGE>

The following sets forth the total gross unrealized losses and estimated fair
values of investment securities with continuous losses less than twelve months,
those with continuous losses for twelve months or more and total losses (dollar
amounts in thousands).

<TABLE>
<CAPTION>
                               Less than Twelve Months        Twelve Months or More                 Total
                             ---------------------------   ---------------------------   ---------------------------
                                Gross         Estimated       Gross         Estimated       Gross         Estimated
                              Unrealized        Fair        Unrealized        Fair        Unrealized        Fair
                                Losses          Value          Losses         Value         Losses          Value
                             ------------   ------------   ------------   ------------   ------------   ------------
<S>                          <C>            <C>            <C>            <C>            <C>            <C>
US government Agencies       $       (107)  $     15,839   $       (106)  $      4,042   $       (213)  $     19,881
Asset-Backed Securities               (88)         3,511              -              -            (88)         3,511
Mortgage-Backed Securities            (30)        11,955            (80)         4,659           (110)        16,614
                             ------------   ------------   ------------   ------------   ------------   ------------
                             $       (225)  $     60,794   $       (186)  $      8,701   $       (411)  $     40,006
                             ============   ============   ============   ============   ============   ============
</TABLE>

The Company evaluates investment securities for other-than-temporary impairment
taking into consideration the extent and length of time the fair value has been
less than cost, the financial condition of the issuer and whether the Company
has the intent and ability to retain the investment for a period of time
sufficient to allow for any anticipated recovery in fair value. As of December
31, 2004, no declines are deemed to be other than temporary.

The scheduled maturities of securities available-for-sale and held to maturity
as of December 31, 2004 are shown below. Actual maturities may differ from
contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                          Available for Sale                  Held to Maturity
                                  ---------------------------------   ---------------------------------
                                     Amortized           Fair            Amortized           Fair
                                       Cost              Value             Cost              Value
                                  ---------------   ---------------   ---------------   ---------------
<S>                               <C>               <C>               <C>               <C>
Due in one year or less           $       171,188   $       174,437   $             -   $             -
Due from one year to five years        13,186,839        13,096,520                 -                 -
Due from five year to ten years         7,624,244         7,516,793                 -                 -
Ten years and over                      7,450,931         7,435,908           244,040           247,180
Mortgage-backed Securities             23,639,408        23,498,978           322,449           333,010
                                  ---------------   ---------------   ---------------   ---------------
                                  $    52,072,610   $    51,722,636   $       566,489   $       580,190
                                  ===============   ===============   ===============   ===============
</TABLE>

                                       30
<PAGE>

The amortized cost and estimated fair values of securities as of December 31,
2003 are as follows:

<TABLE>
<CAPTION>
                                                        Gross          Gross         Estimated
                                        Amortized     Unrealized     Unrealized        Fair
                                           Cost          Gains         Losses          Value
                                      ------------   ------------   ------------   ------------
<S>                                   <C>            <C>            <C>            <C>
Available-for-sale securities:
  U.S. Government Agencies            $ 23,242,829   $     55,351   $   (199,082)  $ 23,099,098
  State and Political Subdivisions         374,732         15,059                       389,791
  Asset-Backed Securities                4,572,272         37,874         (1,304)     4,608,842
  Mortgage-Backed Securities            17,444,883         41,398       (123,900)    17,362,381
                                      ------------   ------------   ------------   ------------
                                      $ 45,634,716   $    149,682   $   (324,286)  $ 45,460,112
                                      ============   ============   ============   ============
Held-to-Maturity securities:
  U.S. Government Agencies            $    601,682   $        204   $     (3,521)  $    598,365
  Asset-Backed Securities                  566,754          9,495              -        576,249
  Mortgage-Backed Securities               490,797         15,840         (1,250)       505,387
                                      ------------   ------------   ------------   ------------
                                      $  1,659,233   $     25,539   $     (4,771)  $  1,680,001
                                      ============   ============   ============   ============
</TABLE>

DEPOSITS

Deposits represent the Company's principal source of funds for loans and
investments. Deposits are primarily generated from local businesses, government
agencies and individuals. Total deposits were $122,108,582 at December 31, 2004
compared to $101,621,077 at December 31, 2003. This represents an increase of
$20,487,505 or 20.2%. Non-interest bearing demand deposits increased from
$13,588,553 at December 31, 2003 to $20,958,209 at December 31, 2004. The
Company has been very successful in obtaining new clients with its high yield
checking accounts "Liquid Gold" and "Municipal Investment Account." Liquid Gold
deposit totals increased from $34,975,926 at December 31, 2003 to $38,991,668 at
December 31, 2004. Municipal Investment Accounts were $24,500,447 at December
31, 2004 compared to $9,050,875 at December 31, 2003. Money Market accounts
declined by $5,159,203 from December 31, 2003 to December 31, 2004.

The table below reflects the composition of the deposits including average
balance and the average rate paid for the years ended December 31, 2004 and
2003.

                                       31
<PAGE>

COMPOSITION OF DEPOSITS

<TABLE>
<CAPTION>
                                            2004                          2003
                                 --------------------------    --------------------------
                                    Average        Average        Average        Average
Deposits                            Balance         Rate          Balance         Rate
------------------------------   --------------   ---------    --------------   ---------
<S>                              <C>                   <C>     <C>                   <C>
Non-interest bearing demand      $   18,976,237        0.00%   $   15,599,045        0.00%
Interest bearing demand              60,802,105        1.57%       38,428,236        1.92%
Money market deposit accounts         7,590,771        0.89%        7,994,904        1.07%
Savings accounts                      2,971,854        0.66%        3,121,216         .95%
Certificates of deposit              25,368,950        3.23%       23,336,284        3.13%
                                 --------------                --------------
                                 $  115,709,917        1.61%   $   88,479,685        1.79%
                                 ==============                ==============
</TABLE>

The maturities of time certificates of deposit of $100,000 or more at December
31, 2004 are summarized as follows:

                                          December 31, 2004
                                         ------------------
Three months or less                     $        2,032,624
Over three months through six months              4,412,685
Over six months through twelve months             1,253,799
Over one year through three years                12,339,771
Over three years                                    505,132
                                         ------------------
Total                                    $       20,544,011
                                         ==================

                                       32
<PAGE>

CAPITAL RESOURCES

The Company's total shareholders' equity was $14,101,671 at December 31, 2004
compared to $8,282,771 as of December 31, 2003. The increase in shareholders'
equity was primarily from the partial proceeds from the closing of a private
placement of 386,708 shares of the Company's common stock. As of December 31,
2004, net proceeds of $4,412,480 for 376,208 shares were received. The proceeds
for the remaining 49,273 shares were received on January 5, 2005. Also,
contributing to the growth in total shareholders' equity was net earnings of
$1,413,978.

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 institutions 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 table below presents the capital and leverage ratios of the Company and the
Bank as of December 31, 2004 and 2003.

<TABLE>
<CAPTION>
                                                                                                           To be
                                                                                                      well-capitalized
                                                                                                        under prompt
                                                                          For capital adequacy       corrective action
                                                       Actual                  purposes                  provisions
                                              -----------------------   -----------------------   -----------------------
                                                Amount       Ratio        Amount       Ratio        Amount       Ratio
                                              ----------   ----------   ----------   ----------   ----------   ----------
<S>                                           <C>                <C>    <C>                 <C>   <C>                <C>
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%

As of December 31, 2003:

Company:
   Total capital (to risk weighted assets)    $    9,214         13.0%  $    5,686          8.0%         N/A          N/A
   Tier 1 capital (to risk weighted assets)   $    8,376         11.8%  $    2,843          4.0%         N/A          N/A
   Tier 1 capital (to average assets)         $    8,376          7.4%  $    4,541          4.0%         N/A          N/A
Bank:
   Total capital (to risk weighted assets)    $    9,182         12.9%  $    5,686          8.0%  $    7,107         10.0%
   Tier 1 capital (to risk weighted assets)   $    8,344         11.7%  $    2,843          4.0%  $    4,264          6.0%
   Tier 1 capital (to average assets)         $    8,344          7.4%  $    4,541          4.0%  $    5,677          5.0%
</TABLE>

                                       33
<PAGE>

LIQUIDITY

Liquidity management refers to the Company's ability to provide funds on an
ongoing basis to meet fluctuations in deposit levels as well as the credit needs
and requirements of its customers. Both assets and liabilities contribute to the
company's liquidity position. Federal Funds lines, short-term investments and
securities, and loan repayments contribute to liquidity, along with deposit
increases, while loan funding and deposit withdrawals decrease liquidity.
Commitments to fund loans at December 31, 2004, were approximately $20,558,000.
Such loans relate primarily to real estate construction loans and revolving
lines of credit and other commercial loans.

The Company's sources of liquidity consist of its available-for-sale securities,
cash and due from banks, overnight funds sold, and mutual funds. At December 31,
2004, the net ratio of liquid assets not pledged for collateral and other
purposes to deposits and other borrowings was 65.4 % compared to 36.6 % in 2003.
The ratio of gross loans to deposits, another key liquidity ratio, was 52.7% at
year-end 2004 compared to 60.3% at December 31, 2003.

The Bank has borrowing lines from correspondent banks and the Federal Home Loan
Bank of San Francisco totaling $36,587,000.

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 indirectly through its effect on market rates of interest,
and thus the ability of the Company 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 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 of the Company. The effects of
inflation were not material to the Company's results of operations during the
years ended December 31, 2004 and 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 Bank'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.

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 in 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.

                                       34
<PAGE>

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. See note 1 to the
consolidated financial statements for more information.

FINANCIAL ASSETS AND LIABILITIES

The Company has adopted SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". The Statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. Under this Statement, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and liabilities it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities when
extinguished.

To calculate the gain (loss) on sale of loans, the Company's investment in the
loan is allocated among the retained portion of the loan, the servicing
retained, the interest-only strip and the sold portion of the loan, based on the
relative fair market value of each portion. The gain (loss) on the sold portion
of the loan is recognized at the time of sale based on the difference between
the sale proceeds and the allocated investment. As a result of the relative fair
value allocation, the carrying value of the retained portion is discounted, with
the discount accreted to interest income over the life of the loan. That portion
of the excess servicing fees that represent contractually specified servicing
fees (contractual servicing) are reflected as a servicing asset which is
amortized over an estimated life using a method approximating the level yield
method; in the event future prepayments exceed Management's estimates and future
expected cash flows are inadequate to cover the unamortized servicing asset,
additional amortization would be recognized. The portion of excess servicing
fees in excess of the contractual servicing fees is reflected as interest-only
(I/O) strips receivable, which are classified as interest-only strips receivable
available for sale and are carried at fair value.

INCOME TAXES

The Company recognizes deferred tax assets and liabilities based on differences
between the financial reporting and tax bases of assets and liabilities using
the enacted tax rates and laws that are expected to be in effect when the
differences are expected to be covered. The Company provides a valuation
allowance for deferred tax assets for which it does not consider realization of
such assets to be more likely than not.

OTHER MATTERS

EFFECTS OF TERRORISM

The terrorist actions on September 11, 2001 and thereafter and the military
conflicts in Iraq and elsewhere 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 Company, increasing nonperforming loans and the amounts
reserved for loan and lease losses, and causing a decline in the Company's stock
price.

                                       35
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

                          INDEX TO FINANCIAL STATEMENTS

                                                                           Page
                                                                           ----
     Independent Auditor's Report                                            37

     Consolidated Balance Sheets                                             38

     Consolidated Statements of Income                                       39

     Consolidated Statement of Shareholders' Equity                          40

     Consolidated Statements of Cash Flows                                   41

     Notes to Financial Statements                                           42

Schedules have been omitted since the required information is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the Financial Statements or notes thereto.

                                       36
<PAGE>

                         VAVRINEK, TRINE, DAY & CO., LLP
                   Certified Public Accountants & Consultants

[LOGO OF VTD]                                               VALUE THE DIFFERENCE

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Service 1st Bancorp

We have audited the accompanying consolidated balance sheets of Service 1st
Bancorp and Subsidiary as of December 31, 2004 and 2003, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Service 1st Bancorp
and Subsidiary as of December 31, 2004 and 2003, and the results of its
operations and cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.

Vavrinek, Trine, Day & Co., LLP

Laguna Hills, California
February 23, 2005

 25231 Paseo De Alicia, Suite 100   Laguna Hills, CA 92653   Tel: 949.768.0833
                        Fax: 949.768.8408   www.vtdcpa.com

        FRESNO . LAGUNA HILLS . PLEASANTON . RANCHO CUCAMONGA . SAN JOSE

                                       37
<PAGE>

                       SERVICE 1ST BANCORP AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                     2004              2003
                                                               ---------------   ---------------
<S>                                                            <C>               <C>
                           ASSETS
Cash and due from banks                                        $     6,670,896   $     6,484,537
Federal funds sold                                                   4,371,469           155,000
                                                               ---------------   ---------------
      Cash and cash equivalents                                     11,042,365         6,639,537
Certificates of deposit with other banks                               345,000                 -
Investment securities available for sale                            51,722,636        45,460,112
Investment securities held to maturity                                 566,489         1,659,233
Loans, net                                                          68,322,348        52,500,408
Bank premises and equipment, net                                       626,792           717,526
Cash surrender value of life insurance                               2,331,308         2,233,046
Accrued interest receivable                                            539,525           571,918
Other assets                                                         1,676,172           745,996
                                                               ---------------   ---------------
                                                               $   137,172,635   $   110,527,776
                                                               ===============   ===============
            LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
   Noninterest-bearing demand                                  $    20,958,209   $    13,588,553
   Money market, NOW and savings                                    75,255,549        61,117,285
   Time deposits under $100,000                                      5,350,813         6,781,696
   Time deposits $100,000 and over                                  20,544,011        20,133,543
                                                               ---------------   ---------------
      Total deposits                                               122,108,582       101,621,077
Other borrowings                                                             -           248,061
Accrued interest and other liabilities                                 962,382           375,867
                                                               ---------------   ---------------
      Total liabilities                                            123,070,964       102,245,005

Commitments and contingencies - Notes 5 and 9                                -                 -
Shareholders' equity:
   Preferred stock, no par value, 10,000,000 shares
    authorized, none issued or outstanding                                   -                 -
   Common stock, no par value, 20,000,000 shares
    authorized;  issued and outstanding, 1,541,664 shares
    at December 31, 2004 and  issued and outstanding,
    1,155,105 shares at December 31, 2003                           15,425,042        10,915,069
   Accumulated deficit                                              (1,117,844)       (2,529,737)
   Accumulated other comprehensive income, net of tax                 (205,527)         (102,561)
                                                               ---------------   ---------------
      Total shareholders' equity                                    14,101,671         8,282,771
                                                               ---------------   ---------------
                                                               $   137,172,635   $   110,527,776
                                                               ===============   ===============
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

                                       38
<PAGE>

                       SERVICE 1ST BANCORP AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                     2004              2003
                                                               ---------------   ---------------
<S>                                                            <C>               <C>
Interest income:
   Interest and fees on loans                                  $     4,405,043   $     3,533,083
   Interest on investment securities                                 1,728,347         1,061,603
   Interest on federal funds sold                                       50,726            63,042
   Other interest income                                                 1,578                 -
                                                               ---------------   ---------------
                                                                     6,185,694         4,657,728
Interest expense:
   Interest expense on deposits                                      1,859,277         1,584,018
   Other interest expense                                               19,532             2,565
                                                               ---------------   ---------------
                                                                     1,878,809         1,586,583
                                                               ---------------   ---------------
      Net interest income                                            4,306,885         3,071,145
Provision for loan losses                                              125,000           250,000
                                                               ---------------   ---------------
Net interest income after provision for loan losses                  4,181,885         2,821,145

Other income:
   Service charges, fees and other income                              300,754           244,772
   Gain on the sale of investment securities                             9,774            20,141
   Gain on sale and servicing of loans                                 407,779           284,708
   Referral fees on mortgage loans                                     149,629           182,143
   Earnings on cash surrender value life insurance                     113,162            45,544
                                                               ---------------   ---------------
                                                                       981,098           777,308
Other expenses:
   Salaries and employee benefits                                    2,262,990         1,766,568
   Occupancy expense                                                   297,813           282,386
   Equipment expense                                                   229,460           232,406
   Data processing and other professional services                     430,081           430,327
   Office supplies and equipment                                       152,488           148,660
   Loan department expense                                             125,556            37,038
   Advertising and promotion                                            94,791            61,669
   Directors fees and expenses                                          94,155            41,138
   Courier expense                                                      47,355            49,099
   Other operating expenses                                            264,316           174,320
                                                               ---------------   ---------------
                                                                     3,999,005         3,223,611
                                                               ---------------   ---------------
      Net income before income taxes                                 1,163,978           374,842
Income taxes (benefit)                                                (250,000)            1,600
                                                               ---------------   ---------------
      Net income                                               $     1,413,978   $       373,242
                                                               ===============   ===============
Net income per share - basic                                   $          1.21   $          0.32
                                                               ===============   ===============
Net income per share - diluted                                 $          1.17   $          0.32
                                                               ===============   ===============
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

                                       39
<PAGE>

                       SERVICE 1ST BANCORP AND SUBSIDIARY

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                                                       Accumulated
                                              Common Stock                                                Other          Total
                                      -----------------------------   Comprehensive    Accumulated    Comprehensive   Shareholders'
                                         Shares          Amount          Income          Deficit         Income          Equity
                                      -------------   -------------   -------------   -------------   -------------   -------------
<S>                                       <C>         <C>             <C>             <C>             <C>             <C>
Balance at January 1, 2003                1,155,105   $  10,915,069                   $  (2,902,979)  $     108,307   $   8,120,397

COMPREHENSIVE INCOME:
  Net income                                                          $     373,242         373,242                         373,242
  Unrealized losses on
   securities, net of tax of
   $139,860                                                                (198,985)                       (198,985)       (198,985)
  Reclassification adjustment
   for gains included in net
   income net of tax of $8,258                                              (11,883)                        (11,883)        (11,883)
                                                                      -------------
    Comprehensive Income                                              $     162,374
                                                                      =============
                                      -------------   -------------                   -------------   -------------   -------------
Balance at December 31, 2003              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 tax 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 at December 31, 2004              1,541,664   $  15,425,042                   $  (1,117,844)  $    (205,527)  $  14,101,671
                                      =============   =============                   =============   =============   =============
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

                                       40
<PAGE>

                       SERVICE 1ST BANCORP AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                               2004             2003
                                                                         ---------------   ---------------
<S>                                                                      <C>               <C>
Cash flows from operating activities:
   Net income                                                            $     1,413,978   $       373,242
   Adjustments to reconcile net income to net cash
    provided by operating activities:
       Provision for loan losses                                                 125,000           250,000
       Depreciation and amortization                                             186,937           172,319
       Gain on sale of securities                                                 (9,774)          (20,141)
       Gain on sale of loans                                                    (316,032)         (238,160)
       Amortization and accretion on securities                                  431,095           566,713
       Earnings on cash surrender value life insurance, net                      (98,262)          (39,046)
       Decrease (increase) in accrued interest                                    32,393          (214,488)
       Increase in other assets                                                 (869,697)         (252,144)
       Increase in accrued interest and other liabilities                        586,516          (164,714)
                                                                         ---------------   ---------------
         Net cash provided by operating activities                             1,482,154           433,581

Cash flows from investing activities:
   Purchases of securities available for sale                                (41,530,276)      (56,851,387)
   Proceeds from sales of securities available for sale                          995,156         4,087,407
   Proceeds from maturities and calls of securities available for sale        33,687,830        31,201,766
   Purchases of securities held to maturity                                            -          (605,119)
   Proceeds from maturities and calls of securities held to maturity           1,092,744         1,659,233
   Increase in loans                                                         (18,972,738)      (11,120,111)
   Proceeds from sales of loans                                                3,341,830         2,901,471
   Purchase of certificates of deposit at other banks                           (345,000)                -
   Purchase of bank owned life insurance                                               -        (2,194,000)
   Purchases of premises and equipment                                           (96,204)         (105,718)
                                                                         ---------------   ---------------
         Net cash used by investing activities                               (21,826,658)      (31,026,458)

Cash flows from financing activities:
   Net increase in demand, interest-bearing deposits, and savings             21,507,920        20,299,521
   Net increase in time deposits                                              (1,020,415)        6,600,132
   Cash paid for fractional shares                                                (2,085)                -
   Proceeds from sale of common stock, net of costs                            4,412,480                 -
   Stock options exercised                                                        97,493                 -
   Net change in other borrowings                                               (248,061)          248,061
                                                                         ---------------   ---------------
         Net cash from financing activities                                   24,747,332        27,147,714
                                                                         ---------------   ---------------
Net increase (decrease) in cash and cash equivalents                           4,402,828        (3,445,163)
Cash and cash equivalents at beginning of year                                 6,639,537        10,084,700
                                                                         ---------------   ---------------
Cash and cash equivalents at end of year                                 $    11,042,365   $     6,639,537
                                                                         ===============   ===============
Supplemental disclosures of cash flow information:
   Interest                                                              $     1,849,330   $     1,550,306
   Income taxes                                                          $             -   $        33,594
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

                                       41
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows:

Principles of Consolidation
---------------------------

The financial statements include the accounts of Service 1st Bancorp and its
subsidiary, Service 1st Bank ("the Bank"), collectively referred to herein as
the "Company". All significant intercompany transactions have been eliminated.

Nature of operations
--------------------

The Company has been organized as a single operating segment and operates
full-service branch offices in Stockton and Tracy, California as well as a loan
production office in Castro Valley California. The Company's primary source of
revenue is providing loans to customers, who are predominately small and
middle-market businesses and individuals.

Use of estimates
----------------

In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Cash and cash equivalents
-------------------------

For purposes of the statement of cash flows, the Company considers cash, due
from banks, certificates of deposit with maturities of three months or less and
federal funds sold to be cash equivalents.

Securities available for sale
-----------------------------

Available-for-sale securities consist of bonds, notes, short-term mutual funds,
commercial paper and debentures not classified as trading securities or
held-to-maturity securities. These securities are carried at estimated fair
value with unrealized holding gains and losses, net of tax, reported as a
separate component of stockholders' equity, accumulated other comprehensive
income, until realized. Gains and losses on the sale of available-for-sale
securities are determined using the specific identification method. The
amortization of premiums and accretion of discounts are recognized as
adjustments to interest income over the period to maturity.

                                       42
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Loans
-----

Loans are reported at the principal amount outstanding, net of any deferred loan
origination fee income and deferred direct loan origination costs, and net of
any unearned interest on discounted loans. Deferred loan origination fee income
and direct loan origination costs are amortized to interest income over the life
of the loan using the interest method. Interest on loans is accrued to income
daily based upon the outstanding principal balances.

Loans for which the accrual of interest has been discontinued are designated as
nonaccrual loans. Accrual of interest on such loans is discontinued when there
exists a reasonable doubt as to the full and timely collection of either
principal or interest or when principal or interest is past due 90 days, based
on the contractual terms of the loan. Income on such loans is then only
recognized to the extent that cash is received and where the future collection
of principal is probable. Accrual of interest is resumed only when principal and
interest are brought fully current and when such loans are considered to be
collectible as to both principal and interest.

For impairment recognized in accordance with Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118,
the entire change in the present value of expected cash flows is reported as
either provision for credit losses in the same manner in which impairment
initially was recognized, or as a reduction in the amount of provision for
credit losses that otherwise would be reported.

The Company has adopted SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". The Statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. Under this Statement, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and liabilities it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities when
extinguished.

To calculate the gain (loss) on sale of loans, the Company's investment in the
loan is allocated among the retained portion of the loan, the servicing
retained, the interest-only strip and the sold portion of the loan, based on the
relative fair market value of each portion. The gain (loss) on the sold portion
of the loan is recognized at the time of sale based on the difference between
the sale proceeds and the allocated investment. As a result of the relative fair
value allocation, the carrying value of the retained portion is discounted, with
the discount accreted to interest income over the life of the loan. That portion
of the excess servicing fees that represent contractually specified servicing
fees (contractual servicing) are reflected as a servicing asset which is
amortized over an estimated life using a method approximating the level yield
method; in the event future prepayments exceed Management's estimates and future
expected cash flows are inadequate to cover the unamortized servicing asset,
additional amortization would be recognized. The portion of excess servicing
fees in excess of the contractual servicing fees is reflected as interest-only
(I/O) strips receivable, which are classified as interest-only strips receivable
available for sale and are carried at fair value.

                                       43
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

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 in 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.

Premises and equipment
----------------------

Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives using the straight-line basis. The estimated lives used
in determining depreciation are:

          Equipment                         3 - 5 years
          Furniture and fixtures            5 - 7 years
          Leasehold improvements            5 - 15 years

Leasehold improvements are amortized over the lesser of the useful life of the
asset or the term of the lease. The straight-line method of depreciation is
followed for all assets for financial reporting purposes, but accelerated
methods are used for tax purposes. Deferred income taxes have been provided for
the resulting temporary differences.

Advertising Costs
-----------------

The Company expenses the costs of advertising in the year incurred.

Income taxes
------------

The Company recognizes deferred tax assets and liabilities based on differences
between the financial reporting and tax bases of assets and liabilities using
the enacted tax rates and laws that are expected to be in effect when the
differences are expected to be covered. The Company provides a valuation
allowance for deferred tax assets for which it does not consider realization of
such assets to be more likely than not.

Earnings per shares (EPS)
-------------------------

Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
options 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 the earnings of the entity.

                                       44
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Earnings per shares (EPS) - continued
-------------------------------------

Weighted average shares outstanding used in the computation of basic earning per
share were 1,166,665 and 1,155,105 in 2004 and 2003, respectively. Weighted
average shares outstanding used in the computation of diluted earning per share
were 1,213,326 and 1,183,345 in 2004 and 2003, respectively.

Comprehensive income
--------------------

Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", requires the disclosure of comprehensive income and its
components. Included in accumulated other comprehensive income at December 31,
2004 is unrealized loss on investment securities available for sale of $349,974,
less taxes of $144,447. Included in accumulated other comprehensive income at
December 31, 2003 is unrealized loss on investment securities available for sale
of $174,604, less taxes of $72,043.

Financial instruments
---------------------

In the ordinary course of business, the Company has entered into off-balance
sheet financial instruments consisting of commitments to extend credit,
commercial letters of credit, and standby letters of credit as described in Note
9. Such financial instruments are recorded in the financial statements when they
are funded or related fees are incurred or received.

Fair values of financial instruments
------------------------------------

SFAS No. 107 specifies the disclosure of the estimated fair value of financial
instruments. The Company's estimated fair value amounts have been determined by
the Company using available market information and appropriate valuation
methodologies.

However, considerable judgment is required to develop the estimates of fair
value. Accordingly, the estimates are not necessarily indicative of the amounts
the Company could have realized in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.

Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since the balance sheet date
and, therefore, current estimates of fair value may differ significantly from
the amounts presented in the accompanying Notes.

Reclassifications
-----------------

Certain reclassifications were made to prior years' presentations to conform to
the current year. These reclassifications are of a normal recurring nature.

                                       45
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

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
such as the Company to continue until 2006 to account for employee stock options
under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees." The Company will continue to use the method prescribed by
APB Opinion No. 25, which recognizes compensation cost 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. Beginning in 2006, the
Company will adopt SFAS No.123.

The exercise price of each option is greater than or equal to the fair market
value of the Company's 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 Company's net income and income per share
would have been decreased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                     2004              2003
                                                               ---------------   ---------------
<S>                                                            <C>               <C>
Net Income:
   As Reported                                                 $     1,413,978   $       373,242
   Stock-Based Compensation using the Intrinsic Value Method                 -                 -
   Stock-Based Compensation that would have been reported
    using the Fair Value Method of SFAS 123                             (8,153)          (91,748)
                                                               ---------------   ---------------
   Pro Forma                                                   $     1,405,825   $       281,494
                                                               ===============   ===============
Net income per share - basic
   As reported                                                 $          1.21   $          0.32
   Pro forma                                                   $          1.20   $          0.24

Net income per share - diluted
   As reported                                                 $          1.17   $          0.32
   Pro forma                                                   $          1.16   $          0.24
</TABLE>

Current accounting pronouncements
---------------------------------

In December 2004, FASB revised SFAS 123 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.

                                       46
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Current accounting pronouncements - continued
---------------------------------------------

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 in 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 $28,000 in 2006 and $23,000 in 2007, ignoring any forfeitures or
cancellations.

NOTE 2 - CASH AND DUE FROM BANKS

Cash and due from banks includes balances with the Federal Reserve and other
correspondent banks. The Company is required to maintain specified reserves by
the Federal Reserve Bank. The average reserve requirements are based on a
percentage of the Company's deposit liabilities. In addition, the Federal
Reserve requires the Company to maintain a certain minimum balance at all times.

The Company maintains amounts due from banks, which exceed federally insured
limits. The Company has not experienced any losses in such accounts.

NOTE 3 - SECURITIES

The amortized cost and estimated fair values of securities as of December 31,
2004 are as follows:

<TABLE>
<CAPTION>
                                                             Gross             Gross           Estimated
                                         Amortized        Unrealized        Unrealized           Fair
                                           Cost              Gains            Losses             Value
                                      ---------------   ---------------   ---------------   ---------------
<S>                                   <C>               <C>               <C>               <C>
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
                                      ===============   ===============   ===============   ===============
</TABLE>

                                       47
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 3 - SECURITIES - CONTINUED

The following sets forth the total gross unrealized losses and estimated fair
values of investment securities with continuous losses less than twelve months,
those with continuous losses for twelve months or more and total losses (dollar
amounts in thousands):

<TABLE>
<CAPTION>
                               Less than Twelve Months        Twelve Months or More                 Total
                             ---------------------------   ---------------------------   ---------------------------
                                Gross        Estimated        Gross        Estimated        Gross        Estimated
                              Unrealized       Fair         Unrealized       Fair         Unrealized       Fair
                                Losses         Value          Losses         Value          Losses         Value
                             ------------   ------------   ------------   ------------   ------------   ------------
<S>                          <C>            <C>            <C>            <C>            <C>            <C>
U.S. Government Agencies     $       (107)  $     15,839   $       (106)  $      4,042   $       (213)  $     19,881
Asset-Backed Securities               (30)         3,511              -              -            (30)         3,511
Mortgage-Backed Securities            (88)        11,955            (80)         4,659           (168)        16,614
                             ------------   ------------   ------------   ------------   ------------   ------------
                             $       (225)  $     31,305   $       (186)  $      8,701   $       (411)  $     40,006
                             ============   ============   ============   ============   ============   ============
</TABLE>

The Company evaluates investment securities for other-than-temporary impairment
taking into consideration the extent and length of time the fair value has been
less than cost, the financial condition of the issuer and whether the Company
has the intent and ability to retain the investment for a period of time
sufficient to allow for any anticipated recovery in fair value. As of December
31, 2004, no declines are deemed to be other than temporary.

The scheduled maturities of securities available for sale as of December 31,
2004 are shown below. Actual maturities may differ from contractual maturities
because borrowers have the right to call or prepay obligations with or without
call or prepayment penalties.

<TABLE>
<CAPTION>
                                              Available for Sale                   Held to Maturity
                                      ---------------------------------   ---------------------------------
                                         Amortized           Fair            Amortized           Fair
                                            Cost             Value              Cost             Value
                                      ---------------   ---------------   ---------------   ---------------
<S>                                   <C>               <C>               <C>               <C>
Due in one year or less               $       171,188   $       174,437   $             -   $             -
Due from one year to five years            13,186,839        13,096,520                 -                 -
Due from five year to ten years             7,624,244         7,516,793                 -                 -
Ten years and over                          7,450,931         7,435,908           244,040           247,180
Mortgage-backed securities                 23,639,408        23,498,978           322,449           333,010
                                      ---------------   ---------------   ---------------   ---------------
                                      $    52,072,610   $    51,722,636   $       566,489   $       580,190
                                      ===============   ===============   ===============   ===============
</TABLE>

                                       48
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 3 - SECURITIES - CONTINUED

Proceeds for the sale of available-for-sale securities were $995,156 for 2004.
Gross gains of $9,774 were realized on sales of securities during 2004.

Securities carried at approximately $31,116,000 and $16,779,000 at December 31,
2004 and 2003, respectively, were pledged to secure deposits of public funds and
borrowing arrangements.

The amortized cost and estimated fair values of securities as of December 31,
2003 are as follows:

<TABLE>
<CAPTION>
                                                            Gross             Gross            Estimated
                                         Amortized        Unrealized        Unrealized           Fair
                                           Cost             Gains             Losses             Value
                                      ---------------   ---------------   ---------------   ---------------
<S>                                   <C>               <C>               <C>               <C>
Available-for-Sale Securities:
   U.S. Government Agencies           $    23,242,829   $        55,351   $      (199,082)  $    23,099,098
   State and Political Subdivisions           374,732            15,059                 -           389,791
   Asset-Backed Securities                  4,572,272            37,874            (1,304)        4,608,842
   Mortgage-Backed Securities              17,444,883            41,398          (123,900)       17,362,381
                                      ---------------   ---------------   ---------------   ---------------
                                      $    45,634,716   $       149,682   $      (324,286)  $    45,460,112
                                      ===============   ===============   ===============   ===============
Held-to-Maturity Securities:
   U.S. Government Agencies           $       601,682   $           204   $        (3,521)  $       598,365
   Asset-Backed Securities                    566,754             9,495                 -           576,249
   Mortgage-Backed Securities                 490,797            15,840            (1,250)          505,387
                                      ---------------   ---------------   ---------------   ---------------
                                      $     1,659,233   $        25,539   $        (4,771)  $     1,680,001
                                      ===============   ===============   ===============   ===============
</TABLE>

Proceeds for the sale of available-for-sale securities were $4,087,407 for 2003.
Gross gains of $20,141 were realized on sales of securities during 2003.

NOTE 4 - LOANS

The Company's customers are primarily located in San Joaquin County. At December
31, 2004, approximately 73% of the Company's loans are for real estate and
construction and approximately 21% of the Company's loans are for general
commercial uses 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 collaterized by funds on
deposit, business or personal assets.

                                       49
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 4 - LOANS - CONTINUED

Loans at December 31, 2004 and 2003 consisted of the following:

                                                    2004           2003
                                                ------------   ------------
Construction and land development loans         $ 15,498,534   $ 11,006,774
Real estate loans                                 35,302,346     26,557,578
Commercial loans                                  14,721,336     11,325,842
Agricultural loans                                 1,951,225      2,869,187
Consumer loans                                     2,105,043      1,785,920
                                                ------------   ------------
                                                  69,578,484     53,545,301
Deferred loan fees and costs, net                   (293,136)      (206,893)
Allowance for loan losses                           (963,000)      (838,000)
                                                ------------   ------------
                                                $ 68,322,348   $ 52,500,408
                                                ============   ============

A summary of activity in the allowance for loan losses is as follows:

                                                    2004           2003
                                                ------------   ------------
Balance, beginning of year                      $    838,000   $    598,000
Provision for loan losses                            125,000        250,000
                                                ------------   ------------
                                                     963,000        848,000
Less charge-offs                                           -        (10,000)
                                                ------------   ------------
Balance, end of year                            $    963,000   $    838,000
                                                ============   ============

The following is a summary of the investment in impaired loans, the related
allowance for loan losses, and income recognized thereon and information
pertaining to loans on nonaccrual and certain past due loans as of December 31:

                                                    2004           2003
                                                ------------   ------------
Recorded Investment in Impaired Loans           $     78,000   $    699,000
Related Allowance for Loan Losses               $     78,000   $     19,000
Average Recorded Investment in Impaired Loans   $    205,000   $  1,022,000
Interest Income Recognized for Cash Payments    $     31,000   $     75,000
Total Loan on Nonaccrual                        $     78,000   $    699,000
Total Loans Past Due 90 Days or More and
 Still Accruing                                 $          -   $          -

At December 31, 2004 and 2003, the company was servicing approximately
$3,694,000 and $2,687,000, respectively, in SBA loans previously sold. The Bank
has recorded servicing assets related to these loans totaling $137,960 and
$93,184 at December 31, 2004 and 2003, respectively. The estimated fair value of
the servicing assets approximated the carrying amount at December 31, 2004 and
2003.

                                       50
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 4 - LOANS - CONTINUED

The Company may also receive a portion of subsequent interest collections on
loans sold that exceed the contractual servicing fee. In that case the Company
records an interest-only strip based on the relative fair market value of it and
the other components of the loan. The Company had interest-only strips totaling
$180,262 and $70,496 at December 31, 2004 and 2003, respectively, which
approximated fair value.

NOTE 5 - PREMISES AND EQUIPMENT

Major classifications of premises and equipment are summarized as follows:

                                                    2004           2003
                                                ------------   ------------
Leasehold improvements                          $    544,216   $    524,497
Furniture, fixtures and equipment                    991,815        915,331
                                                ------------   ------------
                                                   1,536,031      1,439,828
Less accumulated depreciation and amortization      (909,239)      (722,302)
                                                ------------   ------------
                                                $    626,792   $    717,526
                                                ============   ============

Depreciation and amortization expense on premises and equipment was $186,937 and
$172,319 for the years ended December 31, 2004 and 2003, respectively.

The Company leases its premises under noncancelable operating leases with
initial terms expiring in 2007 and 2009. Certain of these contain renewal
options with escalation clauses that provide for increased lease payments. The
Company recognized rent expense, including common area costs and equipment
rentals, of $218,384 and $206,634 in 2004 and 2003, respectively.

The future minimum commitments under these operating leases are as follows:

                            2005     $   244,348
                            2006         234,588
                            2007         166,695
                            2008         156,152
                            2009         119,448
                                     -----------
                                     $   921,231
                                     ===========

                                       51
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 6 - TIME DEPOSITS

Time deposits issued and their remaining maturities as of December 31, 2004 are
as follows:

                  2005                     $  10,404,722
                  2006 through 2007           14,721,998
                  2008 through 2009              768,104
                                           -------------
                  Total                    $  25,894,824
                                           =============

NOTE 7 - BORROWING ARRANGEMENTS

The Company has unsecured borrowing lines available with correspondent banks
totaling $17,300,000 and secured borrowing lines totaling $9,700,000. Management
uses these borrowing lines for short-term funding needs and usually repays the
lines within a week. The interest rate charged on these lines is approximately
the prevailing federal funds rate plus 20 to 100 basis points. As of December
31, 2004, there were no balances outstanding on these lines. As of December 31,
2003, the Company had borrowed $248,061 under these lines. The 2003 advances
were repaid in early 2004.

NOTE 8 - INCOME TAXES

Income taxes included in the consolidated statements of income consist of the
following:

                                                    2004           2003
                                                ------------   ------------
Current:
   Federal                                      $          -   $          -
   State                                               1,600          1,600
                                                ------------   ------------
                                                       1,600          1,600
Deferred                                            (251,600)             -
                                                ------------   ------------
                                                $   (250,000)  $      1,600
                                                ============   ============

A comparison of the federal statutory income tax rates to the Company's
effective income tax rates follow:

<TABLE>
<CAPTION>
                                                           2004                            2003
                                                ---------------------------    ---------------------------
                                                   Amount          Rate           Amount          Rate
                                                ------------   ------------    ------------   ------------
<S>                                             <C>                   <C>      <C>                   <C>
Statutory federal tax                           $    396,000           34.0%   $    127,000           34.0%
State franchise tax, net of federal benefit           65,000            6.0%         10,000            3.0%
Reduction in valuation allowance                    (675,000)         (58.0)%      (118,000)         (32.0)%
Nontaxable life insurance earnings                   (33,000)          (3.0)%       (15,000)          (4.0)%
Other items, net                                      (3,000)          (1.0)%        (2,400)          (1.0)%
                                                ------------   ------------    ------------   ------------
Actual tax expense                              $   (250,000)         (22.0)%  $      1,600              -
                                                ============   ============    ============   ============
</TABLE>

                                       52
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 8 - INCOME TAXES - CONTINUED

Deferred income taxes reflect the effect of temporary differences between the
tax basis of assets and liabilities and the reported amounts of those assets and
liabilities for financial reporting purposes. Deferred income taxes also reflect
the value of net operating losses and an offsetting valuation allowance. The
Company's deferred tax assets, liabilities and corresponding valuation allowance
consist of the following:

                                                    2004           2003
                                                ------------   ------------
Deferred tax assets:
   Allowance for loan losses                    $    375,000   $    308,000
   Organization and start up costs                         -         68,000
   Net operating loss carryforward                   239,000        868,000
   Unrealized loss on investment securities          144,000         72,000
   Other items                                       104,000         34,000
                                                ------------   ------------
                                                     862,000      1,350,000

Deferred tax liabilities:
   Accrual to cash basis                             (39,000)      (174,000)
                                                ------------   ------------
                                                     (39,000)      (174,000)

Total deferred income tax asset                      823,000      1,176,000

Valuation allowance                                 (414,000)    (1,089,000)
                                                ------------   ------------

Net deferred income tax liability               $    409,000   $     87,000
                                                ============   ============

The amounts above include a valuation allowance relating to tax assets for net
operating loss carryforwards and other future deductible items, which may not be
utilized. The Company has net operating loss carryforwards of approximately
$435,000 for federal and $1.2 million for state income tax purposes. Net
operating loss carryforwards will expire in 2021 for federal income tax purposes
and in 2013 for state income tax purposes, if not previously utilized.

NOTE 9 - FINANCIAL INSTRUMENTS

The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit in the form of
loans. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheet. The
contract amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.

                                       53
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 9 - FINANCIAL INSTRUMENTS - CONTINUED

The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitment to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.

Financial instruments at December 31, whose contract amounts represent credit
risk are as follows:

                                                    2004           2003
                                                ------------   ------------
Undisbursed loan commitments                    $ 25,471,000   $ 20,421,000
Standby letters of credit                            828,000        137,000
                                                ------------   ------------
                                                $ 26,299,000   $ 20,558,000
                                                ============   ============

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, and income-producing
commercial properties.

NOTE 10 - RELATED PARTY TRANSACTIONS

In the ordinary course of business, the Company has granted loans to certain
officers and directors and the companies with which they are associated. In the
Company's opinion, all loans and loan commitments to such parties are made on
substantially the same terms including interest rates and collateral, as those
prevailing at the time of comparable transactions with other persons. The
following is a summary of the activity in these loans:

                                                    2004           2003
                                                ------------   ------------
Balance at the beginning of the year            $  1,798,000   $  1,923,000
New loans and renewals                             1,000,000      1,697,000
Repayments and renewals                             (827,000)    (1,822,000)
                                                ------------   ------------
Balance at the end of the year                  $  1,971,000   $  1,798,000
                                                ============   ============

Also in the ordinary course of business, certain officers and directors of the
Company have deposits with the Bank. In the Bank's opinion, all deposit
relationships with such parties are made on substantially the same terms
including interest rates and maturities, as those prevailing at the time of
comparable transactions with other persons. The balance of these deposits at
December 31, 2004 and 2003 was approximately $936,000 and $3,096,000,
respectively.

                                       54
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 11 - COMPANY SAVINGS PLAN

In October 2001, the Company elected to establish a deferred compensation plan
for those employees employed as of this date or for all employees who have
completed at least 1,000 hours of service during a twelve consecutive month
period. The employees may defer a portion of their compensation subject to
certain limits based on federal tax laws. The Company may elect to make matching
contributions to the plan. Matching contributions vest to the employee equally
over a five-year period. For the years ended December 2004 and 2003, the Company
did not make any contributions to the plan.

NOTE 12 - STOCK OPTION PLAN

During 1999, the Company's Board of Directors approved a fixed stock option plan
under which incentive and non-qualified stock options may be granted to key,
full-time salaried officers, employees and directors of the Company. The shares
of stock initially subject to options authorized to be granted under the Plan
consist of 252,000 shares of the authorized and unissued common stock of the
Company. All options are granted at an exercise price equal to the fair market
value of the shares on the date of grant and have an exercise period of not
longer than ten years from the date of grant. The Plan was ratified by the
shareholders at the Company's annual meeting in May 2001. These options vest
equally over a three-year period. All of the unissued options in this plan were
canceled with the adoption of the 2004 stock option plan.

During 2004, the Company's Board of Directors approved a fixed stock option plan
under which incentive and non-qualified stock options may be granted to key,
full-time salaried officers, employees and directors of the Company. The shares
of stock initially subject to options authorized to be granted under the Plan
consist of 169,000 shares of the authorized and unissued common stock of the
Company. All options are granted at an exercise price equal to the fair market
value of the shares on the date of grant and have an exercise period of not
longer than ten years from the date of grant. The Plan was ratified by the
shareholders at the Company's annual meeting in May 2004. These options vest
equally over a three-year period.

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 2004: no expected dividends, a volatility rate of
27%; risk-free interest rates of 3.90% and an expected life of 8 years.

                                       55
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 12 - STOCK OPTION PLAN - CONTINUED

A summary of the status of the Company's fixed stock option plan for the years
ended December 31, 2004 and 2003 is presented below:

<TABLE>
<CAPTION>
                                                2004                    2003
                                       ----------------------   ----------------------
                                                    Weighted-                Weighted-
                                                     Average                  Average
                                                    Exercise                 Exercise
                                        Shares       Price       Shares        Price
                                       --------    ----------   --------    ----------
<S>                                     <C>        <C>           <C>         <C>
Outstanding at beginning of year        176,925    $     9.43    179,550    $     9.44
Granted                                  22,750    $    13.95          -    $        -
Forfeited                                (4,725)   $     9.05     (2,625)   $     9.52
Exercised                               (10,500)   $     9.29          -    $        -
                                       --------                 --------
Outstanding at end of year              184,450    $    10.01    176,925    $     9.43
                                       ========                 ========
Options exercisable at year end         159,075    $     9.46    160,475    $     9.47

Weighted-average fair value of
 options granted during the year                   $     3.66                      N/A
</TABLE>

The following is a summary of the options outstanding and exercisable as of
December 31, 2004:

                       Options Outstanding               Options Exercisable
              --------------------------------------   -----------------------
                               Weighted-   Weighted-                 Weighted-
                                Average     Average                   Average
 Exercise         Number       Remaining   Exercise      Number      Exercise
  Price        Outstanding       Life        Price     Exercisable     Price
----------    --------------   ---------   ---------   -----------   ---------
 $    9.05            23,625   6.6 years   $    9.05        21,000   $    9.05

 $    9.52           138,075   5.2 years   $    9.52       138,075   $    9.52

 $   13.95            22,750   9.8 years   $   13.95             -   $       -
              --------------                           -----------
                     184,450   5.9 years   $   10.01       159,075   $    9.46
              ==============                           ===========

                                       56
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 13 - DEFERRED COMPENSATION AGREEMENTS

During 2003, the Company entered into deferred compensation agreements with
certain executive officers. Under these agreements, the Company is obligated to
provide, upon retirement, annual benefit for the officers ranging from $40,000
to $75,000 for 15 years. The estimated present value of future benefits to be
paid is being accrued over the period from the effective date of the agreements
until the expected retirement dates of the participants. The expense incurred
and amount accrued for this plan for the years ended December 31, 2004 and 2003
totaled $161,327 and $86,291, respectively. The Company is a beneficiary of the
life insurance policies that have been purchased as a method of financing the
benefits under the agreements.

NOTE 14 - RESTRICTION ON RETAINED EARNINGS

With certain exceptions, a California corporation may not pay a dividend to its
shareholders unless its retained earnings equal at least the amount of the
proposed dividend.

NOTE 15 - REGULATORY MATTERS

The Company (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory -
and possibly additional discretionary - actions by regulators that, if
undertaken, could have a direct material effect on the Company's and the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures of the Company's
and Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined).

                                       57
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 15 - REGULATORY MATTERS - CONTINUED

The Bank's primary federal regulator is the Federal Deposit Insurance
Corporation (FDIC). As of December 31, 2004, the most recent notification from
the FDIC categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. There are no events or conditions since
notification that management believes have changed the Bank's category. To be
categorized as well capitalized the Bank must maintain minimum total risk-based,
Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following
table. The Company's and the Bank's actual capital amounts and ratios are
presented in the following table (dollar amounts are in thousands).

<TABLE>
<CAPTION>
                                                                                                  To be well-
                                                                           For capital         capitalized under
                                                                            adequacy           prompt corrective
                                                      Actual                purposes           action provisions:
                                                -------------------    -------------------    -------------------
                                                 Amount     Ratio       Amount     Ratio       Amount     Ratio
                                                --------   --------    --------   --------    --------   --------
<S>                                             <C>            <C>     <C>             <C>    <C>            <C>
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%

As of December 31, 2003:

Company:
  Total capital (to risk weighted assets)       $  9,214       13.0%   $  5,686        8.0%        N/A        N/A
  Tier 1 capital (to risk weighted assets)      $  8,376       11.8%   $  2,843        4.0%        N/A        N/A
  Tier 1 capital (to average assets)            $  8,376        7.4%   $  4,541        4.0%        N/A        N/A
Bank:
  Total capital (to risk weighted assets)       $  9,182       12.9%   $  5,686        8.0%   $  7,107       10.0%
  Tier 1 capital (to risk weighted assets)      $  8,344       11.7%   $  2,843        4.0%   $  4,264        6.0%
  Tier 1 capital (to average assets)            $  8,344        7.4%   $  4,541        4.0%   $  5,677        5.0%
</TABLE>

                                       58
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount at which the asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the entire
holdings of a particular financial instrument. Because no market value exists
for a significant portion of the financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature, involve uncertainties and
matters of judgment and, therefore, cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.

Fair value estimates are based on financial instruments both on and off the
balance sheet without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Additionally, tax consequences related to the realization
of the unrealized gains and losses can have a potential effect on fair value
estimates and have not been considered in many of the estimates.

The following methods and assumptions were used to estimate the fair value of
significant financial instruments:

Financial Assets

The carrying amounts of cash, short-term investments, due from customers on
acceptances, and Bank acceptances outstanding are considered to approximate fair
value. Short-term investments include federal funds sold, securities purchased
under agreements to resell, commercial paper and interest bearing deposits with
Banks. The fair values of investment securities, including available-for-sale,
are generally based on quoted market prices. The fair value of loans are
estimated using a combination of techniques, including discounting estimated
future cash flows and quoted market prices of similar instruments where
available.

Financial Liabilities

The carrying amounts of deposit liabilities payable on demand, commercial paper,
and other borrowed funds are considered to approximate fair value. For fixed
maturity deposits, fair value is estimated by discounting estimated future cash
flows using currently offered rates for deposits of similar remaining
maturities. The fair value of long-term debt is based on rates currently
available to the Company for debt with similar terms and remaining maturities.

Off-Balance Sheet Financial Instruments

The fair value of commitments to extend credit and standby letters of credit is
estimated using the fees currently charged to enter into similar agreements. The
fair value of these financial instruments is not material.

                                       59
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           DECEMBER 31, 2004 AND 2003

NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED

The estimated fair value of financial instruments is summarized as follows:
(dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                   December 31,
                                                -------------------------------------------------
                                                         2004                      2003
                                                -----------------------   -----------------------
                                                 Carrying      Fair        Carrying      Fair
                                                  Value        Value        Value        Value
                                                ----------   ----------   ----------   ----------
<S>                                             <C>          <C>          <C>          <C>
FINANCIAL ASSETS:
   Cash and due from banks                      $    6,671   $    6,671   $    6,485   $    6,485
   Federal funds sold                                4,371        4,371          155          155
   Certificates of deposit                             345          345            -            -
   Investment securities                            52,289       52,303       47,119       47,140
   Loans, net                                       68,322       68,258       52,500       52,560
   Cash surrender value of life
    insurance                                        2,331        2,331        2,233        2,233
   Accrued interest receivable                         539          539          572          572

FINANCIAL LIABILITIES:
   Deposits                                        122,109      122,443      101,621      102,491
   Other borrowings                                      -            -          248          248
   Accrued interest and other liabilities              962          962          376          376
</TABLE>

NOTE 17 - FORMATION OF SERVICE 1ST BANCORP

On June 26, 2003, Service 1st Bancorp acquired Service 1st Bank by issuing
1,155,105 shares of common stock in exchange for the surrender of all
outstanding shares of the Bank's common stock. There was no cash involved in
this transaction. The acquisition was accounted for like a pooling of interests
and the consolidated financial statements contained herein have been restated to
give full effect to this transaction.

Service 1st Bancorp has no significant business activity other than its
investment in Service 1st Bank. Accordingly, no separate financial information
on the Company is provided.

NOTE 18 - STOCK SPLIT

On February 27, 2004, the Company declared a 5% stock dividend to shareholders
of record on March 10, 2004. The dividend was paid on April 12, 2004. Each
shareholder entitled to the dividend received a stock certificate equal to 5% of
the shares held by the shareholder rounded down to the nearest whole share with
fractional shares paid in cash.

All of the per share data in the financial statements have been retroactively
adjusted to reflect this 5% stock dividend.

                                       60
<PAGE>

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

          None.

ITEM 8A.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

An evaluation of the Company's disclosure controls and procedures (as defined in
the 1934 Securities and Exchange Act ("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 period covered by this
annual report on Form 10-KSB. The Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures as 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 Securities and
Exchange Commission's rules and forms.

CHANGES IN INTERNAL CONTROLS

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 December 31, 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.

ITEM 8B.  OTHER INFORMATION

          None

                                       61
<PAGE>

                                    PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The information required by Item 9 of Form 10-KSB is incorporated by reference
to the information contained in the Company's Proxy Statement for the 2005
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A.

ITEM 10.  EXECUTIVE COMPENSATION

The information required by Item 10 of Form 10-KSB is incorporated by reference
to the information contained in the Company's Proxy Statement for the 2005
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

The information required by Item 11 of Form 10-KSB is incorporated by reference
to the information contained in the Company's Proxy Statement for the 2005
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 12 of Form 10-KSB is incorporated by reference
to the information contained in the Company's Proxy Statement for the 2005
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A.

ITEM 13.  EXHIBITS

          (a)(1)  Financial Statements. Listed and included in Part II, Item 7.

             (3)  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, as amended.

                  (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, 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.

                                       62
<PAGE>

                  (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.

                  (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.

                                       63
<PAGE>

                  (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

                  (14.1)    Code of Ethics, incorporated by reference from the
                            Registrant's Form 10-KSB for the year ended December
                            31, 2003, Registration No. 000-50323, filed with the
                            Securities and Exchange Commission on March 30,
                            2004.

                  (21.1)    Registrant's only subsidiary is Service 1st Bank.

                  (23.1)    Consent of Vavrinek, Trine, Day & Co., LLP.

                  (31.1)    Certification of Chief Executive Officer pursuant to
                            Section 302 of the Sarbanes-Oxley Act of 2002.

                  (31.2)    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.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 of Form 10-KSB is incorporated by reference
to the information contained in the Company's Proxy Statement for the 2005
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A.

                                       64
<PAGE>

                                   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: March 30, 2005                        By:  /s/ JOHN O. BROOKS
                                                 -------------------------------
                                                 John O. Brooks
                                                 Chief Executive Officer
                                                 (Principal Executive Officer)


Date: March 30, 2005                        By:  /s/ ROBERT E. BLOCH
                                                 -------------------------------
                                                 Robert E. Bloch
                                                 Executive Vice President and
                                                 Chief financial Officer
                                                 (Principal Financial and
                                                 Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934 this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.

          Signature                       Title                    Date
------------------------------       ----------------       ------------------


/s/ JOHN O. BROOKS                       Chairman             March 30, 2005
------------------------------
John O. Brooks


/s/ EUGENE C. GINI                       Director             March 30, 2005
------------------------------
Eugene C. Gini


/s/ BRYAN R. HYZDU                       Director             March 30, 2005
------------------------------
Bryan R. Hyzdu


/s/ ROBERT D. LAWRENCE                   Director             March 30, 2005
------------------------------
Robert D. Lawrence


/s/ FRANCES C. MIZUNO                    Director             March 30, 2005
------------------------------
Frances C. Mizuno


/s/ RICHARD R. PAULSEN                   Director             March 30, 2005
------------------------------
Richard R. Paulsen


/s/ TONI MARIE RAYMUS                    Director             March 30, 2005
------------------------------
Toni Marie Raymus

                                       65
<PAGE>


/s/ MICHAEL K. REPETTO                   Director             March 30, 2005
------------------------------
Michael K. Repetto


/s/ ANTHONY F. SOUZA                     Director             March 30, 2005
------------------------------
Anthony F. Souza


/s/ ALBERT VAN VELDHUIZEN                Director             March 30, 2005
------------------------------
Albert Van Veldhuizen


/s/ DONALD L. WALTERS                    Director             March 30, 2005
------------------------------
Donald L. Walters

                                       66
<PAGE>

                       EXHIBIT INDEX

Exhibit
Number    Description                                                     Page
-------   ------------------------------------------------------          ------
 3.2      Bylaws, as amended                                                68

 10.18    Agreement with Fiserv Solutions, Inc.                             91

 23.1     Consent of Vavrinek, Trine, Day & Co., LLP                       100

 31.1     Certification of Chief Executive Officer pursuant                101
          to Section 302 of the Sarbanes-Oxley Act of 2002

 31.2     Certification of Chief Financial Officer pursuant                102
          to Section 302 of the Sarbanes-Oxley Act of 2002

 32.1     Certification of Service 1st Bancorp by its Chief.               103
          Executive Officer and Chief Financial Officer pursuant
          to Section 906 of the Sarbanes-Oxley Act of 2002

                                       67