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                       SECURITIES AND EXCHANGE COMMISSION
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                             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, 2005

                                       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                 (I.R.S. Employer Identification)
 of incorporation or organization)


49 W. 10th Street, Tracy, California                          95376
----------------------------------------                    ----------
(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 is not required to file reports pursuant to Section 13
or 15(d) of the Securities Exchange Act. [ ]

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]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Securities Excahnge Act). Yes [ ]  No [X]

Revenues of the issuer for the 2005 fiscal year were $9,166,076.

As of March 28, 2006, the aggregate market value of the voting shares held by
non-affiliates of the registrant was approximately $32,212,620.

2,386,239 shares of registrant's common stock were outstanding at March 28,
2006.


                       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 2006 annual meeting of shareholders.

The Index to Exhibits is located at page 74.
<PAGE>

                                      INDEX
               TO SERVICE 1ST BANCORP ANNUAL REPORT ON FORM 10-KSB
                        FOR YEAR ENDED DECEMBER 31, 2005

Part I                                                                      Page

Item 1      Description of Business                                            2
Item 2      Description of Properties                                         15
Item 3      Legal Proceedings                                                 16
Item 4      Submission of Matters to a Vote of Security Holders               16

Part II

Item 5      Market of Common Equity, Related Stockholder Matters and
            Small Business Issuer Purchases of Equity Securities              17
Item 6      Management's Discussion and Analysis or Plan of Operation         18
Item 7      Financial Statements                                              38
Item 8      Changes In and Disagreements with Accountants on Accounting
            and Financial Disclosure                                          67
Item 8A     Controls and Procedures                                           67
Item 8B     Other Information                                                 67

Part III

Item 9      Directors, Executive Officers, Promoters and Control Persons;
            Compliance with Section 16(a) of the Exchange Act                 68
Item 10     Executive Compensation                                            68
Item 11     Security Ownership of Certain Beneficial Owners and Management
            and Related Stockholder Matters                                   68
Item 12     Certain Relationships and Related Transactions                    68
Item 13     Exhibits                                                          68
Item 14     Principal Accountant Fees and Services                            71

Signatures                                                                    72

Exhibit
Index                                                                         74

10.21       Lease Agreement related to 1930 Tienda Drive, Lodi, CA            75
10.22       Shannon Reinard Salary Continuation Agreement dated
            August 8, 2005                                                    87
10.23       Bryan R. Hyzdu First Amendment dated August 8, 2005 to
            Salary Continuation Agreement dated September 10, 2003            97
10.24       Bryan R. Hyzdu Second Amendment dated August 8, 2005 to
            Salary Continuation Agreement dated September 10, 2003            99
10.25       Patrick Carman First Amendment dated August 8, 2005 to
            Salary Continuation Agreement dated September 10, 2003           101
10.26       Patrick Carman Second Amendment dated August 8, 2005 to
            Salary Continuation Agreement dated September 10, 2003           102
10.27       Robert E. Bloch First Amendment dated August 8, 2005
            to Salary Continuation Agreement dated September 10, 2003        103
10.28       Robert E. Bloch Second Amendment dated August 8, 2005 to
            Salary Continuation Agreement dated September 10, 2003           104
23.1        Consent of Vavrinek, Trine, Day & Co., LLP                       105
31.1        Certifications of Chief Executive Officer pursuant to
            Section 302 of the Sarbanes-Oxley Act of 2002                    106
31.2        Certifications of the Chief Financial Officer pursuant to
            Section 302 of the Sarbanes-Oxley Act of 2002                    107
32.1        Certifications of Chief Executive Officer and Chief
            Financial Officer pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002                                       108


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<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

         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" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933,
as amended. Such forward-looking statements may contain words related to future
projections including, but not limited to, words such as "believe," "expect,"
"anticipate," "intend," "may," "will," "should," "could," "would," and
variations of those words and similar words that are subject to risks,
uncertainties and other factors that could cause actual results to differ
materially from those projected. Factors that could cause or contribute to such
differences include, but are not limited to, the following: (1) variances in the
actual versus projected growth in assets; (2) return on assets; (3) loan and
lease losses; (4) expenses; (5) changes in the interest rate environment
including interest rates charged on loans, earned on securities investments and
paid on deposits; (6) competition effects; (7) fee and other noninterest income
earned; (8) general economic conditions nationally, regionally, and in the
operating market areas of the Company and its subsidiaries; (9) changes in the
regulatory environment; (10) changes in business conditions and inflation; (11)
changes in securities markets; (12) data processing problems; (13) a decline in
real estate values in the Company's operating market areas; (14) the effects of
earthquakes, floods, fires and other natural disasters, (15) terrorism, the
threat of terrorism or the impact of the current military conflict in Iraq and
the conduct of the war on terrorism by the United States and its allies, as well
as other factors. Other cautionary statements and information set forth in this
report should be carefully considered and understood as being applicable to all
related forward-looking statements contained in this report, when evaluating the
business prospects of the Company and its subsidiaries.

         Forward-looking statements are not guarantees of performance. By their
nature, they involve risks, uncertainties and assumptions. The future results
and shareholder values may differ significantly from those expressed in these
forward-looking statements. You are cautioned not to put undue reliance on any
forward-looking statement. Any such statement speaks only as of the date of this
report, and in the case of any documents that may be incorporated by reference,
as of the date of those documents. We do not undertake any obligation to update
or release any revisions to any forward-looking statements, to report any new
information, future event or other circumstances after the date of this report
or to reflect the occurrence of unanticipated events, except as required by law.
However, your attention is directed to any further disclosures made on related
subjects in our subsequent reports filed with the Securities and Exchange
Commission on Forms 10-KSB, 10-QSB and 8-K.

GENERAL DEVELOPMENT OF BUSINESS

         Service 1st Bancorp (the "Company") is a California corporation,
incorporated on January 23, 2003 to act as a holding company for Service 1st
Bank (the "Bank"). The Bank became a subsidiary of the Company effective June
26, 2003. 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's administrative office is located at 49 West 10th Street,
Tracy, California 95376.

         The Bank conducts 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 will be closing the loan production office during the
first quarter of 2006. The Bank has received regulatory approval to open a full
service branch at 1901 West Kettleman Lane, Building A, Suite 1A and 1B, Lodi,
California 95242. It is anticipated that this branch will be opened by the third
quarter of 2006. Until the Lodi Branch is available, the Bank will open a
temporary office at 1930 Tienda Drive, Building B, Suite 104, Lodi, California
95242.

                                       2
<PAGE>

         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, Fiserv Solutions, Inc., 20660 Bahama Street, Chatsworth, California
91311, 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.

         As of December 31, 2005, the Bank had total loans of $83,964,728 before
deducting the allowance for loan losses of $1,123,494 and deferred fees of
$308,102. Of the loan total, $18,109,304 were commercial loans, $33,672,659 were
real estate loans, $27,787,719 were construction and land development loans,
$1,964,690 were agriculture loans and $2,430,356 were consumer loans. Total
deposits at December 31, 2005 were $151,141,667. Of the deposit total,
$27,388,426 were non-interest-bearing demand deposits, $85,127,700 were
interest-bearing demand, money market and savings deposits, and $38,625,541 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 63%; (2)
interest on Federal Funds sold 2%; (3) interest on investments 26%; (4) gain on
sale and servicing of loans 2%; (5) referral fees on mortgage loans 1%; (6)
service charges and other fees 4%; (7) earnings on cash surrender value life
insurance 1%; and (8) interest on certificates of deposits with other banks 1%.

Employees

         The Company employed 39 people on a full-time equivalent basis as of
December 31, 2005.

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").

                                       3
<PAGE>

         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.

         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

                                       4
<PAGE>

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
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, 2005, 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

                                       5
<PAGE>

institution's capital. In addition, for a capital restoration plan to be
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, were 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

                                       6
<PAGE>

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, 2005, 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 and an administrative office
located at 49 W. 10th Street, Tracy, 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, 2005, the
Bank's aggregate legal lending limits to a single borrower and such borrower's
related parties were $2,447,437 on an unsecured basis and $4,079,061 on a fully
secured basis based on capital and reserves of $16,316,244.

         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, 2005, there were 106
operating commercial and savings bank offices in San Joaquin County with total
deposits of $57,997,786,000. This was an increase of $21,150,854,000 over the
June 30, 2004 balances. The Bank held a total of $145,058,000 in deposits,
representing approximately .325% of total commercial and savings banks deposits
in San Joaquin County as of June 30, 2005. 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, 2005 grew
$333,483,000 and Service 1st Bank's percentage of deposits would have been
2.26%.

         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. In 2005, Congress adopted the Federal
Deposit Insurance Reform Act of 2005, which will have the effect of merging the
Bank Insurance Fund and the Savings Association Insurance Fund into a new
Deposit Insurance Fund (which is anticipated to occur on or before July 1,

                                       7
<PAGE>

2006). The FDIC has not yet released final regulations, but it is anticipated
that final regulations will be released not later than the fourth quarter of
2006. When released, the final regulations are expected to include, among other
matters, (1) increased premium assessments to banks based on a bank's risk
assessment profile, subject to a one-time assessment credit for banks that paid
premiums prior to December 31, 1996 to offset premium assessments; (2) a
$100,000 deposit account insurance limit until January 1, 2012, subject to
inflation indexing; and (3) increased retirement account insurance limits to
$250,000, until January 1, 2012, subject to inflation indexing. The inflation
indexing is expected to use 2005 as the base year and adjust for inflation on
April 1, 2010 and every five years thereafter on January 1 of the following
year. Until final regulations are released by the FDIC and the Bank is assigned
to a risk category, the precise amount of premium assessment increase cannot be
determined, but it is expected that the Bank's expense for premium assessments
will not increase in an amount that will have a material adverse effect on the
Company's results of operations. Based upon the current risk-based assessment
rate schedule in effect since 1996, the Bank's current capital ratios and levels
of deposits, the Bank does not anticipate a significant increase in operating
expenses due to changes in the assessment rate applicable to it during 2006 from
that in 2005.

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.

                                       8
<PAGE>

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.

         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 repealed 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 removed these restrictions
and substantially eliminated 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.

                                       9
<PAGE>

         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.

         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 were
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. Congress extended the expiration date to permit evaluation of
changes to the Patriot Act and subsequently approved legislation to reauthorize
the Patriot Act with certain civil liberties protections. On March 9, 2006,
President Bush signed the legislation renewing authorization of the Patriot Act.
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:

                                       10
<PAGE>

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

o    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.

o    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.

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

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

o    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:

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

     o   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;

     o   Compliance with applicable governmental laws, rules and regulations;

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

     o   Accountability for adherence to the code.

o    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:

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

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

     o   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;

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

     o   An understanding of audit committee functions.

o    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:

     o   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;

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

                                       11
<PAGE>

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

     o   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 than 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.

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

o    Disclosure of off-balance sheet transactions.

o    A prohibition on certain loans to directors and officers.

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

o    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.

o    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.

o    Accelerated filing requirements for Forms 10-K and 10-Q by public companies
     which qualify as "accelerated filers" are subject to a phased-in reduction
     of the filing deadline for Form 10-K reports.

o    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.

o    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:

     o   Independence standards for members;

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

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

     o   Authority to engage advisers; and

     o   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:

                                       12
<PAGE>

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

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

     o   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;

     o   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;

     o   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;

     o   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

     o   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.

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

o    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.

o    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.

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

     o   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;

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

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

     o   The committee must adopt a written charter; and

     o   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.

o    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.

                                       13
<PAGE>

o    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.

         The effect of the Act upon the Company is uncertain; however, the
Company has incurred, and it is anticipated that the Company will continue to
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:

o    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;

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

o    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;

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

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

o    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

                                       14
<PAGE>

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.

ITEM 2.  DESCRIPTION OF PROPERTIES

         The Company's administrative office located at 49 W. 10th Street,
Tracy, CA 95376 consists of approximately 1,800 square feet on the ground floor
of a one story building located in downtown Tracy and is leased from May 1, 2005
through April 30, 2010. There are no options to renew this lease. The current
monthly lease rate is $2,740, subject to a 4% adjustment on each anniversary of
the commencement of the lease.

         The Bank conducts 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 Bank's Stockton 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
$10,661, subject to a 3% annual adjustment. The monthly rate during the extended
term will e the fair market rental value of the premises at the commencement of
the extended term.

         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 $7,081, 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, 2006. There are five one-year options to extend
the lease term. The current monthly lease rate is $1,360 a month. The Bank does
not plan to renew the lease and will be closing the office during the first
quarter of 2006.

         The Bank has received regulatory approval to open a full service branch
at 1901 West Kettleman Lane, Building A, Suite 1A and 1B, Lodi, California
95242. The lease consists of 9,580 square feet on the first floor of a two story
office building and is leased from January 1, 2006 through December 31, 2015.
there are two five year options to extend the lease. The monthly rental will be
$19,570, subject to a 3% annual adjustment. The monthly rate during the extended
term will be adjusted at the commencement of each extension to the fair market
rental value for comparable buildings in San Joaquin County at the time of such
extension.

         The Bank has received regulatory approval to open a temporary office at
1930 Tienda Drive, Building B, Suite 104, Lodi, California 95242. The Bank will
operate this office until the leasehold improvements have been completed for the
branch at 1901 West Kettleman Lane, Lodi, California. The rent on the temporary
office space will be $2,187. The term of the lease is from February 1, 2006
through July 31, 2006. The Bank has the option to extend the lease on a
month-to-month basis.

         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.

                                       15
<PAGE>

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 2005.



                                       16
<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% stock dividend payable on
April 12, 2004 and a three-for-two stock split payable on September 29, 2005. 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
shown on the following page.

         Calendar Year                                  High        Low
         -------------                                --------   --------
             2005
         First Quarter                                $  11.67   $   7.83
         Second Quarter                               $  15.17   $  11.67
         Third Quarter                                $  19.33   $  15.17
         Fourth Quarter                               $  20.00   $  16.00

             2004
         First Quarter                                $  10.32   $   8.89
         Second Quarter                               $   9.83   $   8.67
         Third Quarter                                $   9.33   $   8.00
         Fourth Quarter                               $  10.33   $   7.83

         The high and low bid quotations for the Company's common stock were
$18.00 and $17.00 as of March 28, 2006.

Holders

         At March 28, 2006, there were approximately 725 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.

                                       17
<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.

         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, 2005, and has not repurchased
shares of its common stock at any time since its incorporation.

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

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

         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" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933,
as amended. Such forward-looking statements may contain words related to future
projections including, but not limited to, words such as "believe," "expect,"
"anticipate," "intend," "may," "will," "should," "could," "would," and
variations of those words and similar words that are subject to risks,
uncertainties and other factors that could cause actual results to differ
materially from those projected. Factors that could cause or contribute to such
differences include, but are not limited to, the following: (1) variances in the
actual versus projected growth in assets; (2) return on assets; (3) loan and
lease losses; (4) expenses; (5) changes in the interest rate environment
including interest rates charged on loans, earned on securities investments and
paid on deposits; (6) competition effects; (7) fee and other noninterest income
earned; (8) general economic conditions nationally, regionally, and in the
operating market areas of the Company and its subsidiaries; (9) changes in the
regulatory environment; (10) changes in business conditions and inflation; (11)
changes in securities markets; (12) data processing problems; (13) a decline in
real estate values in the Company's operating market areas; (14) the effects of
earthquakes, floods, fires and other natural disasters, (15) terrorism, the
threat of terrorism or the impact of the current military conflict in Iraq and
the conduct of the war on terrorism by the United States and its allies, as well
as other factors. Other cautionary statements and information set forth in this
report should be carefully considered and understood as being applicable to all
related forward-looking statements contained in this report, when evaluating the
business prospects of the Company and its subsidiaries.

                                       18
<PAGE>

         Forward-looking statements are not guarantees of performance. By their
nature, they involve risks, uncertainties and assumptions. The future results
and shareholder values may differ significantly from those expressed in these
forward-looking statements. You are cautioned not to put undue reliance on any
forward-looking statement. Any such statement speaks only as of the date of this
report, and in the case of any documents that may be incorporated by reference,
as of the date of those documents. We do not undertake any obligation to update
or release any revisions to any forward-looking statements, to report any new
information, future event or other circumstances after the date of this report
or to reflect the occurrence of unanticipated events, except as required by law.
However, your attention is directed to any further disclosures made on related
subjects in our subsequent reports filed with the Securities and Exchange
Commission on Forms 10-KSB, 10-QSB and 8-K.

                                       19
<PAGE>

BUSINESS ORGANIZATION

         Service 1st Bancorp (the "Company") is a California corporation 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, 2005, the Company maintained its administrative
office in Tracy, San Joaquin County and 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.
<TABLE>
<CAPTION>

SELECTED FINANCIAL DATA

                                                           2005             2004
                                                      -------------    -------------
<S>                                                   <C>              <C>
Interest Income                                       $   8,479,233    $   6,185,694
Interest Expense                                          2,853,899        1,878,809
                                                      -------------    -------------
Net interest Income                                       5,625,334        4,306,885
Provision for loan loss                                     165,000          125,000
                                                      -------------    -------------
Net Interest Income After Provision for Loan Losses       5,460,334        4,181,885
Non-interest Income                                         686,843          981,098
Non-interest Expense                                      4,579,562        3,999,005
                                                      -------------    -------------
Income before Provision for Taxes                         1,567,615        1,163,978
Tax Expense (Credit)                                        144,996         (250,000)
                                                      -------------    -------------
Net Income                                            $   1,422,619    $   1,413,978
                                                      =============    =============
Net Income Per Share - Basic                          $         .60    $         .81
Net Income Per Share - Diluted                        $         .56    $         .78
Return on Average Assets                                        .90%            1.12%
Return on Average Equity                                       9.42%           15.76%
Average Equity to Average Assets                               9.53%            7.13%
Average Loans to Average Deposits                             52.21%           53.68%
Total Assets as of December 31,                       $ 169,329,270    $ 137,172,635
Total Deposits as of December 31,                     $ 151,141,667    $ 122,108,582
Net Interest Margin                                            3.88%            3.74%
</TABLE>

EARNINGS OVERVIEW

         The Company had net income of $1,422,619 for the year ended December
31, 2005, representing an improvement of $8,641 compared to net income of
$1,413,978 in 2004. Basic earnings per share were $.60 and $.81 at December 31,
2005 and 2004, respectively. Diluted earnings per share were $.56 and $.78 for
December 31, 2005 and 2004, respectively.

                                       20
<PAGE>

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 July 2004 and continuing through December
2005, actions by the Federal Reserve Board to raise interest rates resulted in
the prime rate being raised from 4.00% to 7.25%. Historically, the largest
source of income for banks is that which is created by net interest income.
These increases in rates, specifically as it relates to earning assets that
adjust with the prime rate, made it easier to increase the level of the net
interest margin. The net interest margin on average interest earning assets
increased from 3.74% for 2004 to 3.88% for 2005.

         Net interest income before provision for loan loss for 2005 was
$5,625,334 representing an increase of $1,318,449 or 30.61% from $4,306,885 in
2004. The increase in net interest income for 2005 was primarily attributable to
an increase of $29,849,312 in average interest-earning assets from 2004 to 2005.
The average rate earned on interest earning assets increased from 5.37% in 2004
to 5.85% in 2005. Interest income in 2005 was $8,479,233 or $2,293,539 greater
than the $6,185,694 in 2004. The growth in average interest bearing liabilities
was $16,857,939. Interest expense for 2005 was $2,853,899 or $975,090 greater
than the $1,878,809 in 2004. Net interest income in 2005 was $5,625,334 or
$1,318,449 greater than the $4,306,885 in 2004.

                                       21
<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, 2005 and 2004.
<TABLE>
<CAPTION>

                                                       December 31, 2005                              December 31, 2004
                                       --------------------------------------------    -----------------------------------------
                                                                        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             $   2,624,303    $      73,952         2.82%   $     116,762    $       1,578         1.35%
Investments  securities taxable          58,180,384        2,271,855         3.90%      49,637,505        1,728,347         3.48%
Investments  securities non-taxable       3,982,007          149,133         3.75%              --               --          n/a
Federal funds sold                        6,225,953          188,098         3.02%       3,273,068           50,726         1.55%
Loans (1)(2)                             73,978,423        5,796,195         7.83%      62,114,423        4,405,043         7.09%
                                      -------------    -------------                 -------------    -------------
    Total interest-earning assets       144,991,070        8,479,233         5.85%     115,141,758        6,185,694         5.37%

Allowance for loan losses                (1,070,293)                                      (919,509)
Cash and due from banks                   8,283,607                                      6,889,579
Bank premises and equipment                 631,980                                        669,141
Accrued interest receivable                 641,492                                        528,446
Other assets                              4,929,952                                      3,556,869
                                      -------------                                  -------------
    Total assets                      $ 158,407,808                                  $ 125,866,284
                                      =============                                  =============

Interest Bearing Liabilities:
Demand deposits                       $  68,382,714        1,519,486         2.22%   $  60,802,105          953,961         1.57%
Savings & money market accounts          15,745,131          200,799         1.28%      10,562,625           86,999         0.82%
Time Deposits                            29,852,230        1,122,522         3.76%      25,368,950          818,317         3.23%
Other borrowings                            278,821           11,092         3.98%         667,277           19,532         2.93%
                                      -------------    -------------                 -------------    -------------
    Total interest-bearing
     liabilities                        114,258,896        2,853,899         2.50%      97,400,957        1,878,809         1.93%
                                                       -------------                                  -------------
Non-interest bearing demand
  deposits                               27,703,879                                     18,976,237
Other Liabilities                         1,341,828                                        516,162
                                      -------------                                  -------------
    Total liabilities                   143,304,603                                    116,893,356
Shareholders' equity                     15,103,205                                      8,972,928
                                      -------------                                  -------------
Total liabilities and shareholders'
 equity                               $ 158,407,808                                  $ 125,866,284
                                      =============                                  =============

Net interest income                                    $   5,625,334                                  $   4,306,885
                                                       =============                                  =============
Net interest margin on average
 interest earning assets (3)                                                 3.88%                                          3.39%
</TABLE>

1.   Average loan balances include average deferred loan fees of $277,103 and
     $247,048 for the years ending December 31, 2005 and 2004, respectively.
2.   Interest on loans includes fees of $193,744 and $154,148 for the years
     ending December 31, 2005 and 2004, respectively.
3.   Net interest margin is computed by dividing net interest income by total
     average earning assets. All average balances have been computed using daily
     balances.

                                       22
<PAGE>

Rate/Volume Analysis

                                                    2005 over 2004
                                        Increase (decrease) due to change in:
                                     ------------------------------------------
                                       Volume (1)      Rate (2)         Total
                                     ------------------------------------------
Increase (Decrease) in:
Interest Income:
 Interest-bearing deposits in banks  $     68,886   $      3,488   $     72,374
 Investment securities taxable            317,962        225,546        543,508
 Investment securities non-taxable        225,959             --        225,959
   Taxable equivalent adjustment          (76,826)            --        (76,826)
   Federal funds sold                      66,943         70,429        137,372
   Loans                                  897,446        493,706      1,391,152
                                     ------------   ------------   ------------
         Total                          1,500,370        793,169      2,293,539

 Interest Expense:
    Demand, interest-bearing deposits     130,575        434,950        565,525
    Savings deposits                       53,385         60,415        113,800
    Time deposits                         157,705        146,500        304,205
    Borrowings                            (13,892)         5,452         (8,440)
                                     ------------   ------------   ------------
       Total                              327,773        647,317        975,090
                                     ------------   ------------   ------------
Increase (Decrease) in
Net Interest Income                  $  1,172,597   $    145,852   $  1,318,449
                                     ============   ============   ============

1.   Average balances of all categories in each period were included in the
     volume computations.
2.   Average yields and rates in each period were used in rate computations.
3.   Any change attributable to changes in both volume and rate which cannot be
     segregated has been allocated based on the absolute value of each.

                                       23
<PAGE>

OTHER INCOME

         Total other income was $688,843 for 2005 and $981,098 for 2004. During
2005, service charges and fees increased from $300,754 in 2004 to $323,980 in
2005. 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 2005 were $187,902
compared to $407,779 in 2004. The decline in gains on SBA loan sales was due to
the loss of the Bank's SBA loan officer and the Company does not anticipate any
growth in this category until a new officer fills that position. 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 $45,285 for 2005 compared to $149,629 for 2004. The decrease
was a result of a slowdown in the home refinancing market.

         The Company purchased key-man life insurance policies on several of its
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 $123,485 during 2005 compared to
$113,162 during 2004.

         Gains on the sales of investments were $6,191 and $9,774 for the years
ended December 31, 2005 and 2004, respectively.

         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, 2005 and 2004 are listed in the table below.

                                                        2005          2004
                                                     ----------    ----------
Other expenses:
   Salaries & employee benefits                      $2,701,793    $2,262,990
   Occupancy expense                                    329,017       297,813
   Equipment expense                                    185,313       229,460
   Data Processing and other professional services      504,024       430,081
   Office supplies and equipment                        155,880       152,488
   Loan department expense                              105,734       125,556
   Advertising and promotion                            139,902        94,791
   Directors fees and expenses                           93,852        94,155
   Courier expense                                       82,956        44,611
   Other operating expenses                             281,091       267,060
                                                     ----------    ----------
Total other expenses                                 $4,579,562    $3,999,005
                                                     ==========    ==========

Other expense as a percentage of average assets            2.89%         3.18%

Salaries and Employee Benefits

         Salaries and employee benefits expense for 2005 was $2,701,793, an
increase of $438,803 from $2,262,990 in 2004. The primary increase in salaries
and employee benefits was from additional staff required to service the growth
in the Company. Total employees during 2005 were 39 compared to 31 in 2004.
There was a bonus accrual of $120,942 for 2005 and $265,165 for 2004. During May
2003, the Company approved a salary continuation plan for its executive
officers. The accrued expense related to that plan for 2005 was $217,554
compared to $161,327 for 2004.

                                       24
<PAGE>

Occupancy Expense

Occupancy expense was $329,017 in 2005 and $297,813 in 2004. The increase in
expense for 2005 compared to 2004 was primarily from cost of living adjustments
on existing leases, and during April 2005, the Company leased an administrative
office in Tracy, California. The rent on this lease for 2005 was $22,500. There
was no lease expense for this office during 2004.

Equipment Expense

         Equipment expense in 2005 was $185,313 compared to $229,460 in 2004.
The depreciation on equipment expense decreased $19,290 from 2004 to 2005. The
primary reason for the decrease was because certain furniture and equipment are
currently still in use and are fully depreciated. In addition, new computers
have been purchased at a cost less than the computers being replaced. Equipment
rental expense declined $17,055 from 2004 to 2005. The reason for the decline
was because the lease agreement related to the Company's copy machines
terminated during 2004 and the Company purchased new machines.

Data Processing and Other Professional Services

         Data processing and other professional services for 2005 were $504,024
compared to $430,081 in 2004. This increase was a result of the growth in data
processing and item processing to service the growth of the Company.

Office Supplies and Equipment

         Office supplies and equipment expenses were $155,880 in 2005 compared
to $152,488 for 2004.

Loan Department Expense

         Loan department expense for 2005 was $105,734 compared to $125,556 for
2004. The provision for the reserve for loss on undisbursed loans was $10,000
for 2005 compared to $40,000 for 2004. No reserves had been set-up for
undisbursed loans prior to 2004. The Bank has sold the guaranteed portion on
loans to other third parties but continues to service these loans. The loan
servicing expense was $68,436 in 2005 compared to $55,980 in 2004. The increase
is related to the larger volume of loans being serviced.

Advertising and Promotional Expense

         Advertising and promotional expense in 2005 was $139,902 compared to
$94,791 in 2004. The Company increased its marketing budget to promote the
growth of the Bank.


Directors Fees and Expenses

         The Company does not pay director fees to employee directors. Director
fees and expenses for 2005 were $93,852 compared to $94,155 in 2004.

FDIC and State Assessments

         FDIC and California Department of Financial Institutions assessments
were $82,956 in 2005 compared to $44,611 in 2004. The increase in expense is due
to the growth in total deposits.

Other Operating Expense

         Other operating expenses in 2005 were $281,089 compared to $267,060 in
2004. The increase is related to the growth of the Company.

                                       25
<PAGE>

Provision for Income Taxes

         During 2005, the Company utilized all of its remaining net operating
loss carryforwards. Total income tax expense for 2005 was $144,996 compared to a
tax benefit of $250,000 during 2004.

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 $165,000 in 2005 and $125,000 in 2004.

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.

                                                         For the Year Ended
                                                            December 31,
                                                    ---------------------------
                                                        2005           2004
                                                    ------------   ------------
Outstanding Loans:
   Average for the Year                             $ 73,978,423   $ 62,114,423
   End of the Year                                  $ 83,964,728   $ 69,578,484
Allowance For Loan Losses:
Balance at Beginning of Year                        $    963,000   $    838,000
Actual Charge-Offs:
   Commercial                                              4,506             --
   Consumer                                                   --             --
   Real Estate                                                --             --
                                                    ------------   ------------
Total Charge-Offs                                          4,506             --
Less Recoveries:
   Commercial                                                 --             --
   Consumer                                                   --             --
   Real Estate                                                --             --
                                                    ------------   ------------
Total Recoveries                                              --             --
                                                    ------------   ------------
Net Loans Charged-Off                                      4,506             --
Provision for Loan Losses                                165,000        125,000
                                                    ------------   ------------
Balance at End of Year                              $  1,123,494   $    963,000
                                                    ============   ============
Ratios:
Net Loans Charged-Off to Average Loans                       .01%             0%
Allowance for Loan Losses to Total Loans                    1.34%          1.38%
Net Loans Charged-Off to Beginning
   Allowance for Loan Losses                                 .47%             0%
Net Loans Charged-Off to Provision for Loan Losses          2.73%             0%
Allowance for Loan Losses to Nonperforming Loans          363.29%      1,234.62%


         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.

                                       26
<PAGE>

         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>

                                                  2005                         2004
---------------------------------    ---------------------------   ---------------------------
Loan category                           Amount         Percent        Amount        Percent
---------------------------------    ------------   ------------   ------------   ------------
<S>                                  <C>                   <C>     <C>                   <C>
Construction and land development    $        459          40.88%  $        333          22.27%
Real estate                                   312          27.78%           346          50.74%
Commercial                                    315          28.05%           217          21.16%
Agriculture                                    10            .89%             8           2.80%
Consumer                                       27           2.40%            59           3.03%
                                     ------------   ------------   ------------   ------------
   Total gross loans                 $      1,123         100.00%  $        963         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,
                                                                     ---------------------------
                                                                         2005           2004
                                                                     ------------   ------------
<S>                                                                  <C>            <C>
Loans 90 Days Past Due and Still Accruing                            $        255   $         --

Nonaccrual Loans                                                               54             78
                                                                     ------------   ------------
Total Nonperforming Loans                                                     309             78

Other Real Estate Owned                                                        --             --

                                                                     ------------   ------------
Total Nonperforming Assets                                           $        309   $         78
                                                                     ============   ============

Non performing Loans as a Percentage of Total Loans                           .37%           .11%
Allowance for Loan Loss as a Percentage of Nonperforming Loans             363.29%      1,234.62%
Nonperforming Assets as a Percentage of Total Assets                          .18%           .06%
</TABLE>

         Nonaccrual loans are generally past due 90 days or are loans as to
which the principal 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.

         The $309,256 in nonperforming loans held by the Bank at December 31,
2005 consisted of two loans. The Bank does not currently anticipate there will
be any losses associated with the two nonperforming loans.

                                       27
<PAGE>

BALANCE SHEET ANALYSIS

         Total assets of the Company at December 31, 2005 were $169,329,270
compared to $137,172,635 in 2004, representing an increase of 23.4%. 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 consists of the loan
portfolio. Gross loans were $83,964,728 in 2005 and $69,578,484 at December 31,
2004, respectively. Approximately 84.5 % of the gross loans at December 31, 2005
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 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 interest rate floors helped to protect net
income from declining interest rates, but also creates a lag in the repricing of
certain loans as interest rates rise.

         The table below summarizes the composition of the loan portfolio as of
December 31, 2005 and 2004.
<TABLE>
<CAPTION>

                                                            2005                           2004
                                                 ---------------------------   ---------------------------
Loan category                                       Amount         Percent       A mount         Percent
---------------------------------                ------------   ------------   ------------   ------------
<S>                                              <C>                   <C>     <C>                   <C>
Construction and land development                $ 27,787,719          33.09%  $ 15,498,534          22.27%
Real estate                                        33,672,659          40.11%    35,302,346          50.77%
Commercial                                         18,109,304          21.57%    14,721,336          21.16%
Agriculture                                         1,964,690           2.34%     1,951,225           2.80%
Consumer                                            2,430,356           2.89%     2,105,043           3.00%
                                                 ------------   ------------   ------------   ------------
   Total gross loans                             $ 83,964,728         100.00%  $ 69,578,484         100.00%

Deferred loan fees and discounts                     (308,102)                     (293,136)
Reserve for possible loan losses                   (1,123,494)                     (963,000)
                                                 ------------                  ------------
   Total net loans                               $ 82,533,132                  $ 68,322,348
                                                 ============                  ============
<CAPTION>

         The table below summarizes the approximate maturities and sensitivity
to changes in interest rates for the loans at December 31, 2005.

                                                               After One Year
                                                  Due Within     But Within       After
Loan category                                      One Year      Five Years     Five Years       Total
---------------------------------                ------------   ------------   ------------   ------------
<S>                                              <C>            <C>            <C>            <C>
Construction and land development                $ 26,042,295   $  1,745,423   $         --   $ 27,787,719
Real estate                                        18,531,073     12,221,934      2,919,653   $ 33,672,659
Commercial                                         12,220,810      4,363,762      1,524,732   $ 18,109,304
Agriculture                                         1,559,710        171,980        233,000   $  1,964,690
Consumer                                            2,010,901        389,114         30,341   $  2,430,356
                                                 ------------   ------------   ------------   ------------
   Total gross loans                             $ 60,364,789   $ 18,892,213   $  4,707,726   $ 83,964,728
                                                 ============   ============   ============   ============
Interest rate provision
Predetermined rates                              $  5,466,662   $  6,196,963   $  1,311,289   $ 12,974,914
Floating or adjustable rates                       54,898,127     12,695,250      3,396,437   $ 70,989,814
                                                 ------------   ------------   ------------   ------------
                                                 $ 60,364,789   $ 18,892,213   $  4,707,726   $ 83,964,728
                                                 ============   ============   ============   ============
</TABLE>

                                       28
<PAGE>

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 flows 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
73.20% 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 category of
loans.

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 and loans more than 90 days past due at
December 31, 2005 were $309,256 and nonaccrual loans at December 31, 2004 were
$78,000.

         At December 31, 2005, there were two loans totaling $309,256 that were
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, 2005, 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, 2005 and 2004.

                                       29
<PAGE>

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,
                                                     ---------------------------
                                                         2005           2004
                                                     ------------   ------------
Commitments to extend credit:
Revolving lines of credit secured by 1-4 family
   residences                                        $      4,442   $      3,325
Commercial real estate, construction and land
   Development commitments secured by real estate          16,475         11,336
Other commitments:
   Commercial loans                                         7,943          6,027
   Agricultural loans                                       1,939          2,203
   Unsecured consumer lines of credit                       2,501          2,580
                                                     ------------   ------------
Total                                                $     33,300   $     25,471
                                                     ============   ============

Letters of Credit                                    $      1,596   $        828
                                                     ============   ============

         As of December 31, 2005, 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.

         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, 2005 are listed in the table below.

         2006                                        $    497,826
         2007                                             409,814
         2008                                             395,652
         2009                                             363,669
         2010                                             245,800
         Thereafter                                     1,174,200
                                                     ------------
         Total                                       $  3,086,961
                                                     ============

                                       30
<PAGE>

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 $68,809,971 at December 31, 2005
compared to $52,289,125 at December 31, 2004. This represents an increase of
$16,520,846 or 31.6%. 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, 2005.
<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        $ 30,207,518   $         11    $   (550,676)   $ 29,656,853          3.96%
  State and public subdivisions     11,755,328          3,437        (140,036)     11,618,729          3.72%
  Asset backed-securities            8,645,767            276        (161,611)      8,484,432          4.74%
  Mortgage backed-securities        18,488,944          5,762        (380,789)     18,113,917          3.94%
                                  ------------   ------------    ------------    ------------
                                  $ 69,097,557   $      9,486    $ (1,233,112)   $ 67,873,931          4.01%
                                  ============   ============    ============    ============

Held-to-Maturity Securities:
  State and public subdivisions   $    623,646   $     19,382    $         --    $    643,028          4.84%
  Asset backed-securities               82,721            414              --          83,135          7.06%
  Mortgage backed-securities           229,673          3,174            (536)        232,311          5.81%
                                  ------------   ------------    ------------    ------------
                                  $    936,040   $     22,970    $       (536)   $    958,474          5.02%
                                  ============   ============    ============    ============
</TABLE>

                                       31
<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 as of December 31, 2005 (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                $       (154)  $     12,629   $       (397)  $     16,028   $       (551)  $     28,657

State and
Political
Subdivisions                    (141)        10,059             --             --           (141)        10,059

Asset-Backed
Securities                      (111)         6,323            (50)         1,845           (161)         8,168

Mortgage-Backed
Securities                      (117)         7,133           (264)         9,466           (381)        16,599
                        ------------   ------------   ------------   ------------   ------------   ------------

                        $       (523)  $     36,144   $       (711)  $     27,339   $     (1,234)  $     63,483
                        ============   ============   ============   ============   ============   ============
</TABLE>

         As of December 31, 2005, the Company had one hundred ninety three
investment securities where estimated fair value had declined 1.9% from the
Company's amortized cost. Management 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, 2005, no declines in value are deemed to be
other-than-temporary.

         The scheduled maturities of securities available-for-sale and held to
maturity as of December 31, 2005 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                               $    500,000   $    500,000   $         --   $         --
Due from one year to five years                         19,758,784     19,462,434             --             --
Due from five year to ten years                          8,815,032      8,599,215             --             --
Ten years and over                                      21,534,797     21,198,365        706,367        726,163
Mortgage-backed Securities                              18,488,944     18,113,917        229,673        232,311
                                                      ------------   ------------   ------------   ------------

                                                      $ 69,097,557   $ 67,873,931   $    936,040   $    958,474
                                                      ============   ============   ============   ============
</TABLE>

                                       32
<PAGE>

         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         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>

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 $151,141,667 at
December 31, 2005 compared to $122,108,582 at December 31, 2004. This represents
an increase of $29,033,085 or 23.8%. Non-interest bearing demand deposits
increased from $20,958,209 at December 31, 2004 to $27,388,426 at December 31,
2005. Total money market accounts at December 31, 2005 were $15,434,428 compared
to $6,413,624 at December 31, 2004. Certificates of deposit increased from
$25,894,824 at December 31, 2004 to $38,625,541 at December 31, 2005.

         The table below reflects the composition of the deposits including
average balance and the average rate paid for the years ended December 31, 2005
and 2004.
<TABLE>
<CAPTION>

Composition of Deposits

                                                   2005                         2004
                                       ---------------------------   ---------------------------
Deposits                                  Average        Average        Average        Average
                                          Balance         Rate          Balance         Rate
                                       ------------   ------------   ------------   ------------
<S>                                    <C>                    <C>    <C>                    <C>
Non-interest bearing demand            $ 27,703,879           0.00%  $ 18,976,237           0.00%
Interest bearing demand                  68,382,714           2.22%    60,802,105           1.57%
Money market deposit accounts            12,316,407           1.47%     7,590,771           0.89%
Savings accounts                          3,428,724            .57%     2,971,854           0.66%
Certificates of deposit                  29,852,230           3.76%    25,368,950           3.23%
                                       ------------   ------------   ------------   ------------

                                       $141,683,954           2.01%  $115,709,917           1.61%
                                       ============   ============   ============  =============
</TABLE>

                                       33
<PAGE>

         The maturities of time certificates of deposit of $100,000 or more at
December 31, 2005 are summarized as follows:

                                                              December 31, 2005
                                                              -----------------

Three months or less                                          $       3,037,170
Over three months through six months                                  5,751,597
Over six months through twelve months                                 1,653,862
Over one year through three years                                    13,924,582
Over three years                                                        615,195
                                                              -----------------
Total                                                         $      24,982,406
                                                              =================


                                       34
<PAGE>

CAPITAL RESOURCES

         The Company's total shareholders' equity was $15,574,101 at December
31, 2005 compared to $14,101,671 as of December 31, 2004. The increase in
shareholders' equity was primarily from the current year's net income of
$1,422,619 and private placement proceeds of $567,871.

         The Company and the Bank are subject to regulations issued by the Board
of Governors of the Federal Reserve System and the FDIC which require
maintenance of a certain level of capital. Under the regulations, capital
requirements are based upon the composition of an institution's asset base and
the risk factors assigned to those assets. The guidelines characterize an
institution's capital as being "Tier 1" capital (defined to be principally
shareholders' equity less intangible assets) and "Tier 2" capital (defined to be
principally the allowance for loan losses, limited to one and one-fourth percent
of gross risk-weighted assets). The guidelines require the Company and the Bank
to maintain a risk-based capital target ratio of 8%, one-half or more of which
should be in the form of Tier 1 capital.

         The table below presents the capital and leverage ratios of the Company
and the Bank as of December 31, 2005 and 2004.
<TABLE>
<CAPTION>

                                                                                                                  To be
                                                                                                             well-capitalized
                                                                                                               under prompt
                                                                                    For capital              corrective action
                                                            Actual                adequacy purposes              provisions
                                                   ------------------------    ------------------------    -----------------------
                                                     Amount         Ratio        Amount        Ratio         Amount       Ratio
                                                   ----------    ----------    ----------    ----------    ----------   ----------
As of December 31, 2005:
<S>                                                <C>                 <C>     <C>                  <C>    <C>                <C>
Company:
   Total capital (to risk weighted assets)         $   17,404          15.1%   $    9,224           8.0%          N/A          N/A
   Tier 1 capital (to risk weighted assets)        $   16,281          14.1%   $    4,612           4.0%          N/A          N/A
   Tier 1 capital (to average assets)              $   16,281           9.8%   $    6,683           4.0%          N/A          N/A
Bank:
   Total capital (to risk weighted assets)         $   16,304          14.1%   $    9,224           8.0%   $   11,530         10.0%
   Tier 1 capital (to risk weighted assets)        $   15,181          13.2%   $    4,612           4.0%   $    6,918          6.0%
   Tier 1 capital (to average assets)              $   15,181           9.1%   $    6,644           4.0%   $    8,304          5.0%

As of December 31, 2004:

Company:
   Total capital (to risk weighted assets)         $   15,256          16.9%   $    7,221           8.0%          N/A          N/A
   Tier 1 capital (to risk weighted assets)        $   14,293          15.8%   $    3,610           4.0%          N/A          N/A
   Tier 1 capital (to average assets)              $   14,293          10.7%   $    5,363           4.0%          N/A          N/A
Bank:
   Total capital (to risk weighted assets)         $   14,248          15.8%   $    7,221           8.0%   $    9,026         10.0%
   Tier 1 capital (to risk weighted assets)        $   13,245          14.7%   $    3,610           4.0%   $    5,415          6.0%
   Tier 1 capital (to average assets)              $   13,245           9.9%   $    5,363           4.0%   $    6,704          5.0%
</TABLE>


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, 2005, were approximately $34,897,000.
Such loans relate primarily to real estate construction loans and revolving
lines of credit and other commercial loans.

                                       35
<PAGE>

         The Company's sources of liquidity consist of its available-for-sale
securities, cash and due from banks, overnight funds sold, mutual funds, and
short-term borrowing lines. At December 31, 2005, the net ratio of available
liquidity not pledged for collateral and other purposes to deposits and other
short-term borrowings was 31.4 % compared to 27.7 % in 2004. The ratio of gross
loans to deposits, another key liquidity ratio, was 54.0% at year-end 2005
compared to 52.7% at December 31, 2004.

         The Bank has unused borrowing lines from correspondent banks and the
Federal Home Loan Bank of San Francisco totaling $26,970,000.

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, 2005 and 2004.

CRITICAL ACCOUNTING POLICIES

Use of Estimates in the Preparation of Financial Statements

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
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.

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.

                                       36
<PAGE>

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
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.

                                       37
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Independent Auditor's Report                                                  39

Consolidated Balance Sheets                                                   40

Consolidated Statements of Income                                             41

Consolidated Statement of Shareholders' Equity                                42

Consolidated Statements of Cash Flows                                         43

Notes to Financial Statements                                                 44

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.

                                       38
<PAGE>

[GRAPHIC OMITTED]                                             [GRAPHIC OMITTED]
      vtd             Vavrinek, Trine, Day & Co., LLP       VALUE THE DIFFERENCE
               Certified Public Accountants & Consultants


             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, 2005 and 2004, 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, 2005 and 2004, 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.


/s/ VAVRINEK, TRINE, DAY & CO., LLP
-----------------------------------
Laguna Hills, California
January 31, 2006


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

Fresno   o   Laguna Hills   o   Palo Atlo   o   Pleasanton   o  Rancho Cucamonga
--------------------------------------------------------------------------------

                                       39
<PAGE>
<TABLE>
<CAPTION>

                       SERVICE 1ST BANCORP AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2005 and 2004


                                                                    2005            2004
                                                                -------------   -------------
<S>                                                             <C>             <C>
                                     ASSETS
Cash and due from banks                                         $   9,024,556   $   6,670,896
Federal funds sold                                                         --       4,371,469
                                                                -------------   -------------
                              Cash and cash equivalent              9,024,556      11,042,365

Certificates of deposit with other banks                              993,720         345,000
Investment securities available for sale                           67,873,931      51,722,636
Investment securities held to maturity                                936,040         566,489
Loans, net                                                         82,533,132      68,322,348
Bank premises and equipment, net                                      671,450         626,792
Cash surrender value of life insurance                              3,436,150       2,331,308
Accrued interest receivable                                           958,001         539,525
Other assets                                                        2,902,290       1,676,172
                                                                -------------   -------------
                                                                $ 169,329,270   $ 137,172,635
                                                                =============   =============

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
   Noninterest-bearing demand                                   $  27,388,426   $  20,958,209
   Money market, NOW and savings                                   85,127,700      75,255,549
   Time deposits under $100,000                                    13,643,135       5,350,813
   Time deposits $100,000 and over                                 24,982,406      20,544,011
                                                                -------------   -------------
                                        Total deposits            151,141,667     122,108,582

Other borrowings                                                    1,030,000              --
Accrued interest and other liabilities                              1,583,502         962,382
                                                                -------------   -------------
                                     Total liabilities            153,755,169     123,070,964

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, 30,000,000 shares
      authorized;  issued and outstanding, 2,386,239 shares
      at December 31, 2005 and  issued and outstanding,
      1,541,664 shares at December 31, 2004                        15,992,913      15,425,042
   Retained earnings (deficit)                                        299,946      (1,117,844)
   Accumulated other comprehensive income, net of tax                (718,758)       (205,527)
                                                                -------------   -------------
                            Total shareholders' equity             15,574,101      14,101,671
                                                                -------------   -------------
                                                                $ 169,329,270   $ 137,172,635
                                                                =============   =============
</TABLE>

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

                                       40
<PAGE>
<TABLE>
<CAPTION>

                       SERVICE 1ST BANCORP AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                 For the years ended December 31, 2005 and 2004

                                                               2005            2004
                                                           ------------    ------------
<S>                                                        <C>             <C>
Interest income:
   Interest and fees on loans                              $  5,796,195    $  4,405,043
   Interest on investment securities                          2,420,988       1,728,347
   Interest on federal funds sold                               188,098          50,726
   Other interest income                                         73,952           1,578
                                                           ------------    ------------
                                                              8,479,233       6,185,694
Interest expense:
   Interest expense on deposits                               2,842,807       1,859,277
   Other interest expense                                        11,092          19,532
                                                           ------------    ------------
                                                              2,853,899       1,878,809
                                                           ------------    ------------

                                   Net interest income        5,625,334       4,306,885
Provision for loan losses                                       165,000         125,000
                                                           ------------    ------------

   Net interest income after provision for loan losses        5,460,334       4,181,885

Other income:
   Service charges, fees and other income                       323,980         300,754
   Gain on the sale of investment securities                      6,191           9,774
   Gain on sale and servicing of loans                          187,902         407,779
   Referral fees on mortgage loans                               45,285         149,629
   Earnings on cash surrender value life insurance              123,485         113,162
                                                           ------------    ------------
                                                                686,843         981,098
Other expenses:
   Salaries and employee benefits                             2,701,793       2,262,990
   Occupancy expense                                            329,017         297,813
   Equipment expense                                            185,313         229,460
   Data processing and other professional services              504,024         430,081
   Office supplies and equipment                                155,880         152,488
   Loan department expense                                      105,734         125,556
   Advertising and promotion                                    139,902          94,791
   Directors fees and expenses                                   93,852          94,155
   FDIC and state assesments                                     82,956          44,611
   Other operating expenses                                     281,091         267,060
                                                           ------------    ------------
                                                              4,579,562       3,999,005
                                                           ------------    ------------
                        Net income before income taxes        1,567,615       1,163,978
Income taxes (benefit)                                          144,996        (250,000)
                                                           ------------    ------------

                                            Net income     $  1,422,619    $  1,413,978
                                                           ============    ============
Net income per share - basic                               $       0.60    $       0.81
                                                           ============    ============
Net income per share - diluted                             $       0.56    $       0.78
                                                           ============    ============
</TABLE>

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

                                       41
<PAGE>
<TABLE>
<CAPTION>

                       SERVICE 1ST BANCORP AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                 For the years ended December 31, 2005 and 2004


                                                                                                       Accumulated
                                                Common Stock                             Retained         Other           Total
                                        ---------------------------    Comprehensive     Earnings     Comprehensive    Shareholders'
                                          Shares          Amount          Income         (Deficit)        Income          Equity
                                       ------------    ------------    ------------    ------------    ------------    ------------
<S>                                       <C>          <C>                <C>          <C>             <C>             <C>
Balance at January 1, 2004                1,155,105    $ 10,915,069                    $ (2,529,737)   $   (102,561)   $  8,282,771

Cash paid for fractional shares                (149)                                         (2,085)                         (2,085)

Common stock sold, net of
  costs of $7,964                           376,208       4,412,480                                                       4,412,480

Stock options exercised                      10,500          97,493                                                          97,493

Comprehensive Income:
  Net income                                                           $  1,413,978       1,413,978                       1,413,978
  Unrealized losses on
    securities, net of 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

Common stock sold, net of
  costs of $11,086                           49,273         567,871                                                         567,871

Three for two stock split
  including cash for
  fractional shares                         795,302                                          (4,829)                         (4,829)

Comprehensive Income:
  Net income                                                           $  1,422,619       1,422,619                       1,422,619
  Unrealized loses on
    securities net of taxes of
    $357,867                                                               (509,594)                       (509,594)       (509,594)
  Reclassification adjustment
    for gains included in net
    income, net of tax of $2,554                                             (3,637)                         (3,637)         (3,637)
                                                                       ------------

           Comprehensive Income                                        $    909,388
                                                                       ============
                                       ------------    ------------                    ------------    ------------    ------------

Balance at December 31, 2005              2,386,239    $ 15,992,913                    $    299,946    $   (718,758)   $ 15,574,101
                                       ============    ============                    ============    ============    ============
</TABLE>

The accompanying notes are an integral part of these consolidated statements

                                       42
<PAGE>
<TABLE>
<CAPTION>

                       SERVICE 1ST BANCORP AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 For the years ended December 31, 2005 and 2004

                                                                              2005           2004
                                                                          ------------   ------------
<S>                                                                       <C>            <C>
Cash flows from operating activities:
   Net income                                                             $  1,422,619   $  1,413,978
   Adjustments to reconcile net income to net cash
     Provided by operating activities:
       Provision for loan losses                                               165,000        125,000
       Depreciation and amortization                                           168,002        186,937
       Gain on sale of securities                                               (6,191)        (9,774)
       Gain on sale of loans                                                   (67,226)      (316,032)
            Loans originated for sale                                         (887,997)    (3,025,798)
            Proceeds from loans sales                                          955,223      3,341,830
       Amortization and accretion on securities                                310,400        431,095
       Earnings on cash surrender value life insurance, net                   (104,842)       (98,262)
       (Increase) decrease in accrued interest                                (418,476)        32,393
       Increase in other assets                                               (892,512)      (869,697)
       Increase in accrued interest and other liabilities                      621,119        586,516
                                                                          ------------   ------------

Net cash provided by operating activities                                    1,265,119      1,798,186

Cash flows from investing activities:
   Purchases of securities available for sale                              (34,617,974)   (41,530,276)
   Proceeds from sales of securities available for sale                      1,396,477        995,156
   Proceeds from maturities and calls of securities available for sale      15,919,158     33,687,830
   Purchases of securities held to maturity                                   (619,838)            --
   Proceeds from maturities and calls of securities held to maturity           250,286      1,092,744
   Increase in loans                                                       (14,375,784)   (15,946,940)
   Purchase of certificates of deposit at other banks                         (648,720)      (345,000)
   Purchase of bank owned life insurance                                    (1,000,000)            --
   Purchases of premises and equipment                                        (212,660)       (96,204)
                                                                          ------------   ------------
Net cash used by investing activities                                      (33,909,055)   (22,142,690)

Cash flows from financing activities:
   Net increase in demand, interest-bearing deposits, and savings           16,302,368     21,507,920
   Net increase in time deposits                                            12,730,717     (1,020,415)
   Cash paid for fractional shares                                              (4,829)        (2,085)
   Proceeds from sale of common stock, net of costs                            567,871      4,412,480
   Stock options exercised                                                          --         97,493
   Net change in other borrowings                                            1,030,000       (248,061)
                                                                          ------------   ------------
Net cash from financing activities                                          30,626,127     24,747,332

Net increase (decrease) in cash and cash equivalents                        (2,017,809)     4,402,828
Cash and cash equivalents at beginning of year                              11,042,365      6,639,537
                                                                          ------------   ------------

Cash and cash equivalents at end of year                                  $  9,024,556   $ 11,042,365
                                                                          ============   ============

Supplemental disclosures of cash flow information:
   Interest                                                               $  2,735,722   $  1,849,330
   Income taxes                                                           $    325,000   $         --
</TABLE>

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

                                       43
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2005 and 2004


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 plans to
close the Castro Valley loan production office during the first quarter of 2006.
The Company will be opening a temporary branch in Lodi during the first quarter
of 2006 and the permanent branch will be opened around the end of the second
quarter of 2006. 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.

Investment Securities
---------------------

         Bonds, notes, and debentures for which the Company has the positive
intent and ability to hold to maturity are reported at cost, adjusted for
premiums and discounts that are recognized in interest income using the interest
method over the period to maturity. Declines in the fair value of individual
held-to-maturity and available-for-sale securities below their cost that are
other-than-temporary result in write-downs of the individual securities to their
fair value. The related write-downs are included in earnings as realized losses.
In estimating other-than-temporary impairment losses, management considers the
length of time and the extent to which the fair value has been less than cost,
the financial condition and near-term prospects of the issuer, and the intent
and ability of the Bank to retain its investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in fair value.

                                       44
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Loans
-----

         Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or payoff are reported at their
outstanding unpaid principal balances reduced by any charge-offs or specific
valuation accounts and net of any deferred fees or costs on originated loans, or
unamortized premiums or discounts on purchased loans.

         Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related loan.
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. Servicing assets are amortized over an estimated
life using a method that is in proportion to the estimated future servicing
income; 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 servicing fees in
excess of the contractual servicing fees is reflected as interest-only (I/O)
strips receivable, which are classified as available for sale and are carried at
fair value.

                                       45
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Loans Held for Sale
-------------------

         Mortgage loans and SBA loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated market value in
the aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to income.

         The only loans originated by the Company for sale in the secondary
market are government guaranteed loans such as SBA loans. The Bank retains the
unguaranteed portion of the loan on its books and intends to hold that portion
of the loan to maturity. The guaranteed portion of the loan is immediately sold
in the secondary market for which the Company receives a premium and servicing
revenue that will be recognized on these sold loans. The Company doesn't
inventory these loans on its books for subsequent sales. There were no unsold
guaranteed loans available for sale at December 31, 2005 or 2004. The guaranteed
portion of the loans sold were sold without recourse.

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.

                                       46
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

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 share (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.

         Weighted average shares outstanding used in the computation of basic
earning per share were 2,381,219 and 1,749,998 in 2005 and 2004, respectively.
Weighted average shares outstanding used in the computation of diluted earning
per share were 2,531,586 and 1,819,989 in 2005 and 2004, respectively. The
weighted average shares used to compute earnings per share in 2004 have been
retroactively adjusted for a three-for-two stock split payable to shareholders
of record on September 29, 2005.

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, 2005 is unrealized loss on investment securities available for sale
of $1,223,626, less taxes of $504,868. 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.

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.

                                       47
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

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.

                                       48
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

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>

                                                                    2005            2004
                                                               -------------    -------------
<S>                                                            <C>              <C>
Net Income:
   As Reported                                                 $   1,422,619    $   1,413,978
   Stock-Based Compensation using the Intrinsic Value Method              --               --
   Stock-Based Compensation that would have been reported
       using the Fair Value Method of SFAS 123                      (119,000)          (8,153)
                                                               -------------    -------------

   Pro Forma                                                   $   1,303,619    $   1,405,825
                                                               =============    =============
Net income per share - basic
   As reported                                                 $         .60    $         .81
   Pro forma                                                   $         .55    $         .80

Net income per share - diluted
   As reported                                                 $         .56    $         .78
   Pro forma                                                   $         .52    $         .77
</TABLE>

                                       49
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

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

         In December 2004, the FASB issued Statement 123 (revised 2004),
"Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R is a revision of SFAS No.
123, "Accounting for Stock Based Compensation," supersedes APB 25 and amends
FASB Statement No. 95, "Statement of Cash Flows." SFAS No. 123R established
standards for the accounting for transactions in which an entity (i) exchanges
its equity instruments for goods or services or (ii) incurs liabilities in
exchange for goods or services that are based on the fair value of the entity's
equity instruments or that may be settled by the issuance of the equity
instruments. SFAS No. 123R eliminates the ability to account for stock-based
compensation using APB 25 and requires that such transactions be recognized as
compensation cost in the income statement based on their fair values on the date
of the grant.

         The statement also requires that the benefits of tax deductions in
excess of recognized compensation expense be reported as a financing cash flow,
rather than as an operating cash flow as required under existing accounting
rules. In April 2005, the Securities and Exchange Commission ("SEC") delayed the
required effective date of SFAS No. 123R to the beginning of the first annual
period beginning after June 15, 2005. The Company will adopt SFAS No. 123R on
January 1, 2006 using the modified prospective method. Under the modified
prospective method, compensation cost will be recognized in the financial
statements beginning January 1, 2006 based on the requirements of SFAS No. 123R
for all share-based payments granted after that date, and based on the
requirements of SFAS No. 123 for all unvested awards granted prior to 2006.

         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.

                                       50
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

NOTE 3 - SECURITIES

         The amortized cost and estimated fair values of securities as of
December 31, 2005 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        $ 30,207,518   $         11   $   (550,676)  $ 29,656,853
  State and public subdivisions     11,755,328          3,437       (140,036)    11,618,729
  Asset backed-securities            8,645,767            276       (161,611)     8,484,432
  Mortgage backed-securities        18,488,944          5,762       (380,789)    18,113,917
                                  ------------   ------------   ------------   ------------
                                  $ 69,097,557   $      9,486   $ (1,233,112)  $ 67,873,931
                                  ============   ============   ============   ============

Held-to-Maturity Securities:
  State and public subdivisions   $    623,646   $     19,382   $         --   $    643,028
  Asset backed-securities               82,721            414         83,135
  Mortgage backed-securities           229,673          3,174           (536)       232,311
                                  ------------   ------------   ------------   ------------
                                  $    936,040   $     22,970   $       (536)  $    958,474
                                  ============   ============   ============   ============
<CAPTION>

         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):

                                     Less than Twelve Months        Twelve Months or More               Total
                                  ----------------------------   ---------------------------   ---------------------------
                                      Gross                         Gross                        Gross        Estimated
                                   Unrealized     Estimated       Unrealized    Estimated      Unrealized       Fair
                                     Losses       Fair Value        Losses      Fair Value       Losses         Value
                                  ------------   ------------   ------------   ------------   ------------   ------------
<S>                               <C>            <C>            <C>            <C>            <C>            <C>
US Government Agencies            $       (154)  $     12,629   $       (397)  $     16,028   $       (551)  $     28,657
State and Political Subdivisions          (141)        10,059             --             --           (141)        10,059
Asset-Backed Securities                   (111)         6,323            (50)         1,845           (161)         8,168
Mortgage-Backed Securities                (117)         7,133           (264)         9,466           (381)        16,599
                                  ------------   ------------   ------------   ------------   ------------   ------------

                                  $       (523)  $     36,144   $       (711)  $     27,339   $     (1,234)  $     63,483
                                  ============   ============   ============   ============   ============   ============
</TABLE>

                                       51
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

NOTE 3 - SECURITIES - CONTINUED

         As of December 31, 2005, the Company had one hundred ninety two
investment securities where estimated fair value had declined 1.9% from the
Company's amortized cost. Management 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
recovered in fair value. As of December 31, 2005, no declines in value are
deemed to be other-than-temporary.

         The scheduled maturities of securities available for sale as of
December 31, 2005 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           $    500,000   $    500,000   $         --   $         --
Due from one year to five years     19,758,784     19,462,434             --             --
Due from five year to ten years      8,815,032      8,599,215             --             --
Ten years and over                  21,534,797     21,198,365        706,367        726,163
Mortgage-backed Securities          18,488,944     18,113,917        229,673        232,311
                                  ------------   ------------   ------------   ------------

                                  $ 69,097,557   $ 67,873,931   $    936,040   $    958,474
                                  ============   ============   ============   ============
</TABLE>

         Proceeds for the sale of available-for-sale securities were $1,396,477
for 2005. Gross gains of $6,191 were realized on sales of securities during
2005.

         Securities carried at approximately $38,531,000 and $31,116,000 at
December 31, 2005 and 2004, respectively, were pledged to secure deposits of
public funds and borrowing arrangements.

                                       52
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

NOTE 3 - SECURITIES - CONTINUED

         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
                                       ============   ============   ============   ============
<CAPTION>

         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.

         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).

                                        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                         (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.

                                       53
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

NOTE 4 - LOANS

         The Company's customers are primarily located in San Joaquin County. At
December 31, 2005, approximately 73% of the Company's loans are for real estate
and construction and approximately 22% 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 2%. Generally, real estate loans are collateralized by
real property while commercial and other loans are collateralized by funds on
deposit, business or personal assets.


                                       54
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

NOTE 4 - LOANS - CONTINUED

         Loans at December 31, 2005 and 2004 consisted of the following:

                                                     2005           2004
                                                 ------------   ------------

Construction and land development loans          $ 27,787,719   $ 15,498,534
Real estate loans                                  33,672,659     35,302,346
Commercial loans                                   18,109,304     14,721,336
Agricultural loans                                  1,964,690      1,951,225
Consumer loans                                      2,430,356      2,105,043
                                                 ------------   ------------
                                                   83,964,728     69,578,484
Deferred loan fees and costs, net                    (308,102)      (293,136)
Allowance for loan losses                          (1,123,494)      (963,000)
                                                 ------------   ------------

                                                 $ 82,533,132   $ 68,322,348
                                                 ============   ============

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

                                                     2005           2004
                                                 ------------   ------------
Balance, beginning of year                       $    963,000   $    838,000
Provision for loan losses                             165,000        125,000
                                                 ------------   ------------
                                                    1,128,000        963,000

Less net charge-offs                                    4,506             --
                                                 ------------   ------------

Balance, end of year                             $  1,123,494   $    963,000
                                                 ============   ============

         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:

                                                     2005           2004
                                                 ------------   ------------
Recorded Investment in Impaired Loans            $    309,256   $     78,000
Related Allowance for Loan Losses                $     92,305   $     78,000
Average Recorded Investment in Impaired Loans    $    129,591   $    205,000

Interest Income Recognized for Cash Payments     $         --   $     31,000
Total Loan on Nonaccrual                         $     54,020   $     78,000
Total Loans Past Due 90 Days or More
 and Still Accruing                              $    255,237   $         --

                                       55
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

NOTE 4 - LOANS - CONTINUED

         The Bank also originated mortgage and SBA loans and under its Section
7a program and sales the guaranteed portions of those loans to institutional
investors. Funding for the Section 7a program depends on annual appropriations
by the U.S. Congress.

         At December 31, 2005 and 2004, the Bank was servicing approximately
$12,593,000 and $12,272,000, respectively, in loans previously sold. A summary
of the changes in the related servicing assets and interest-only strips
receivable are as follows:

                                                       Servicing Assets
                                                 ---------------------------
                                                     2005           2004
                                                 ------------   ------------

Balance at beginning of year                     $    137,960   $     93,185
Increase from loan sales                               15,677         74,922
Amortization charged to income                        (32,379)       (30,147)
Change in valuation allowance                              --             --
                                                 ------------   ------------

Balance at end of year                           $    121,258   $    137,960
                                                 ============   ============

                                                       Interest-Only
                                                           Strips
                                                         Receivable
                                                 ---------------------------
                                                     2005           2004
                                                 ------------   ------------
Balance at beginning of year                     $    180,262   $     70,946
Increase from loan sales                                   --        135,150
Amortization charged to income                        (36,056)       (25,834)
Writedowns                                                 --             --
                                                 ------------   ------------

Balance at end of year                           $    144,206   $    180,262
                                                 ============   ============

         The estimated fair value of the servicing assets approximated the
carrying amount at December 31, 2005 and 2004. Fair value is estimated by
discounting estimated future cash flows from the servicing assets using discount
rates that approximate current market rates over the expected lives of the loans
being serviced. Management has estimated the expected life of these loans to be
approximately 25% to 30% of the remaining life at the time of sale. For purposes
of measuring impairment, the Bank has identified each servicing asset with the
underlying loan being serviced. A valuation allowance is recorded where the fair
value is below the carrying amount of the asset. At December 31, 2005 and 2004,
the Bank had no valuation allowances.

         The Bank may also receive a portion of subsequent interest collections
on loans sold that exceed the contractual servicing fee. In that case the Bank
records an interest-only strip based on the relative fair market value of it and
the other components of the loan. At December 31, 2005 and 2004, the Bank had
interest-only strips of $144,206 and $180,262, respectively, which approximates
fair value. Fair value is estimated by discounting estimated future cash flows
from the interest-only strips using assumptions similar to those used in valuing
servicing assets.

                                       56
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

NOTE 5 - PREMISES AND EQUIPMENT

         Major classifications of premises and equipment are summarized as
follows:

                                                     2005           2004
                                                 ------------   ------------
Leasehold improvements                           $    555,774   $    544,216
Furniture, fixtures and equipment                     909,140        991,815
                                                 ------------   ------------
                                                    1,464,914      1,536,031

Less accumulated depreciation and amortization       (793,464)      (909,239)
                                                 ------------   ------------

                                                 $    671,450   $    626,792
                                                 ============   ============

         Depreciation and amortization expense on premises and equipment was
$168,002 and $186,937 for the years ended December 31, 2005 and 2004,
respectively.

         The Company leases its premises under noncancelable operating leases
with initial terms expiring in 2007, 2009 and 2015. 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 $248,693 and $218,384 in 2005 and 2004, respectively. The
table includes the operating lease for the Company's new branch in Lodi,
California which is anticipated to open around the end of the second quarter of
2006 and the lease for the temporary branch in Lodi, which will be opened during
the first quarter of 2006.

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

         2006                                    $    497,826
         2007                                         409,814
         2008                                         395,652
         2009                                         363,669
         2010                                         245,800
         Thereafter                                 1,174,200
                                                 ------------
         Total                                   $  3,086,961
                                                 ============


                                       57
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004


NOTE 6 - TIME DEPOSITS

         Time deposits issued and their remaining maturities as of December 31,
2005 are as follows:

              Twelve months or less                      $ 21,695,598
              One year to three years                      15,953,684
              Greater than three years                        976,259
                                                         ------------

                                Total                    $ 38,625,541
                                                         ============

NOTE 7 - BORROWING ARRANGEMENTS

         The Company has unsecured borrowing lines available with correspondent
banks totaling $16,000,000 and secured borrowing lines totaling $12,000,000.
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, 2005, there was $1,030,000 outstanding on these lines. As of
December 31, 2004, the Company had no borrowings under these lines. The 2005
advances were repaid in early 2006.

NOTE 8 - INCOME TAXES

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

                                                     2005           2004
                                                 ------------   ------------
Current:
   Federal                                       $    337,964   $         --
   State                                               19,032          1,600
                                                 ------------   ------------
                                                      356,996          1,600
Deferred                                             (212,000)      (251,600)
                                                 ------------   ------------

                                                 $    144,996   $   (250,000)
                                                 ============   ============

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

                                                             2005                         2004
                                                 ---------------------------   ---------------------------
                                                    Amount          Rate          Amount         Rate
                                                 ------------   ------------   ------------   ------------
<S>                                              <C>                    <C>    <C>                    <C>
Statutory federal tax                            $    533,000           34.0%  $    396,000           34.0%
State franchise tax, net of federal benefit            93,000            6.0%        65,000            6.0%
Reduction in valuation allowance                     (414,000)         (27.0%)     (675,000)         (58.0%)
Nontaxable income                                     (82,000)          (5.0%)      (33,000)          (3.0%)
Other items, net                                       14,996            1.0%        (3,000)          (1.0%)
                                                 ------------   ------------   ------------   ------------

Actual tax expense                               $    144,996            9.0%  $   (250,000)         (22.0%)
                                                 ============   ============   ============   ============
</TABLE>

                                       58
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

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:

                                                     2005           2004
                                                 ------------   ------------
Deferred tax assets:
   Allowance for loan losses                     $    448,000   $    375,000
   Net operating loss carryforward                         --        320,000
   Unrealized loss on investment securities           505,000        144,000
   Deferred compensation                              191,000        111,000
   Other items                                          9,000          7,000
                                                 ------------   ------------
                                                    1,153,000        957,000

Deferred tax liabilities:
   Deferred loan costs                               (102,000)       (72,000)
   Other items                                        (69,000)       (62,000)
                                                 ------------   ------------
                                                     (171,000)      (134,000)

Total deferred income tax asset                       982,000        823,000

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

Net deferred income tax assets                   $    982,000   $    409,000
                                                 ============   ============

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.

                                       59
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004


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:

                                                      2005          2004
                                                 ------------   ------------
Undisbursed loan commitments                     $ 33,301,000   $ 25,471,000
Standby letters of credit                           1,596,000        828,000
                                                 ------------   ------------

                                                 $ 34,897,000   $ 26,299,000
                                                 ============   ============

         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:

                                                      2005          2004
                                                 ------------   ------------
Balance at the beginning of the year             $  1,971,000   $  1,798,000
New loans and renewals                              2,708,000      1,000,000
Repayments and renewals                            (1,149,000)      (827,000)
                                                 ------------   ------------

Balance at the end of the year                   $  3,530,000   $  1,971,000
                                                 ============   ============

         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, 2005 and 2004 was approximately $1,198,000 and $936,000,
respectively.

                                       60
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

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 year ended
December 2005, the Company made a contribution of $20,254. There were no
contributions during 2004.

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 253,500 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 2005: no expected dividends, a
volatility rate of 41%; risk-free interest rates of 3.92% and an expected life
of 7 years.

         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 7 years.

                                       61
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004


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, 2005 and 2004 is presented below:
<TABLE>
<CAPTION>

                                                  2005                           2004
                                       ---------------------------   ---------------------------
                                                         Weighted-                     Weighted-
                                                         Average                       Average
                                                         Exercise                      Exercise
                                          Shares          Price          Shares         Price
                                       ------------   ------------   ------------   ------------
<S>                                         <C>       <C>                 <C>       <C>
Outstanding at beginning of year            276,675   $       6.67        265,388   $       6.29
Granted                                     161,500   $      12.81         34,125   $       9.30
Forfeited                                   (19,687)  $       6.16         (7,088)  $       6.03
Exercised                                        --             --        (15,750)  $       6.19
                                       ------------                  ------------

Outstanding at end of year                  418,488   $       9.06        276,675   $       6.67
                                       ============                  ============

Options exercisable at year end             234,238   $       6.46        238,612   $       6.31

Weighted-average fair value of
   options granted during the year                    $       3.04                  $       2.44

<CAPTION>

         The following is a summary of the options outstanding and exercisable
as of December 31, 2005:

                             Options Outstanding                    Options Exercisable
                   ----------------------------------------    ----------------------------
                                   Weighted-      Weighted-                      Weighted-
                                    Average       Average                        Average
 Exercise              Number      Remaining      Exercise         Number         Exercise
  Price             Outstanding      Life          Price        Exercisable        Price
--------------     ------------   ----------     ----------    -------------   ------------
<C>                      <C>      <C>            <C>                  <C>      <C>
$ 6.03                   23,625   5.15 years     $     6.03           23,625   $       6.03
$ 6.35                  199,238   4.12 years     $     6.35          199,238   $       6.35
$ 9.30                   34,125   8.74 years     $     9.30           11,375   $       9.30
$11.67                   11,250   9.22 years     $    11.67               --   $      11.67
$12.33                  135,000   9.38 years     $    12.33               --   $      12.33
$16.33                    5,250   9.63 years     $    16.33               --   $      16.33
$18.67                   10,000   9.72 years     $    18.67               --   $      18.67
                   ------------                                -------------

                        418,488   6.59 years     $     9.06          234,238   $       6.46
                   ============                                 ============
</TABLE>

                                       62
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

NOTE 13 - DEFERRED COMPENSATION AGREEMENTS

         During 2004 and 2005, 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 $133,000 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, 2005 and 2004 totaled $217,554 and $161,327, 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).

                                       63
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

NOTE 15 - REGULATORY MATTERS - CONTINUED

         The Bank's primary federal regulator is the Federal Deposit Insurance
Corporation (FDIC). As of December 31, 2005, 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-capitalized
                                                                                                                  under prompt
                                                                                      For capital               corrective action
                                                          Actual                   adequacy purposes              provisions
                                                 ------------------------     ------------------------     ------------------------
                                                    Amount        Ratio         Amount          Ratio        Amount         Ratio
                                                 ----------     ---------     ----------      --------     ----------      --------
<S>                                              <C>                 <C>      <C>                  <C>     <C>                 <C>
As of December 31, 2005:

Company:
   Total capital (to risk weighted assets)       $   17,404          15.1%    $    9,224           8.0%           N/A           N/A
   Tier 1 capital (to risk weighted assets)      $   16,281          14.1%    $    4,612           4.0%           N/A           N/A
   Tier 1 capital (to average assets)            $   16,281           9.8%    $    6,683           4.0%           N/A           N/A

Bank:
   Total capital (to risk weighted assets)       $   16,304          14.1%    $    9,224           8.0%    $   11,530          10.0%
   Tier 1 capital (to risk weighted assets)      $   15,181          13.2%    $    4,612           4.0%    $    6,918           6.0%
   Tier 1 capital (to average assets)            $   15,181           9.1%    $    6,644           4.0%    $    8,304           5.0%

As of December 31, 2004:

Company:
   Total capital (to risk weighted assets)       $   15,256          16.9%    $    7,221           8.0%           N/A           N/A
   Tier 1 capital (to risk weighted assets)      $   14,293          15.8%    $    3,610           4.0%           N/A           N/A
   Tier 1 capital (to average assets)            $   14,293          10.7%    $    5,363           4.0%           N/A           N/A
Bank:
   Total capital (to risk weighted assets)       $   14,248          15.8%    $    7,221           8.0%    $    9,026          10.0%
   Tier 1 capital (to risk weighted assets)      $   13,245          14.7%    $    3,610           4.0%    $    5,415           6.0%
   Tier 1 capital (to average assets)            $   13,245           9.9%    $    5,363           4.0%    $    6,704           5.0%

</TABLE>

                                       64
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004

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.


                                       65
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2005 and 2004


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,
                                            ---------------------------------------------------------
                                                       2005                          2004
                                            ---------------------------   ---------------------------
                                              Carrying        Fair           Carrying       Fair
                                               Value          Value           Value         Value
                                            ------------   ------------   ------------   ------------
<S>                                         <C>            <C>            <C>            <C>
Financial Assets:
   Cash and due from banks                  $      9,025   $      9,025   $      6,671   $      6,671
   Federal funds sold                                 --             --          4,371          4,371
   Certificates of deposit                           994            994            345            345
   Investment securities                          68,810         68,832         52,289         52,303
   Loans, net                                     82,533         82,115         68,322         68,258
   Cash surrender value of life
      insurance                                    3,436          3,436          2,331          2,331
   Accrued interest receivable                       958            958            539            539

Financial Liabilities:
   Deposits                                      151,142        154,165        122,109        122,443
   Other borrowings                                1,030          1,030             --             --
   Accrued interest and other liabilities          1,584          1,584            962            962
</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 September 15, 2005 the Company declared a three-for-two stock split
stock dividend to shareholders of record on September 29, 2005. The split was
paid on October 18, 2005. Each shareholder entitled to the split received a
stock certificate equal to 50% 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 three-for-two stock split.

                                       66
<PAGE>

                                     PART II

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 Securities Exchange Act of 1934 ("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, 2005, was
carried out under the supervision and with the participation of the Company's
Chief Executive Officer, Chief Financial Officer and other members of the
Company's senior management. The Company's Chief Executive Officer and Chief
Financial Officer concluded that no change identified in connection with such
evaluation has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.

ITEM 8B. OTHER INFORMATION

         None

                                       67
<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
2006 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
2006 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
2006 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
2006 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, as amended, incorporated
                           by reference from the Registrant's Form 10-QSB for
                           the quarter ended September 30, 2005, filed with the
                           Securities and Exchange Commission on November 10,
                           2005.

                  (3.2)    Bylaws, as amended, incorporated by reference from
                           the Registrant's Form 10-KSB for the year ended
                           December 31, 2004, filed with the Securities and
                           Exchange Commission on March 31, 2005.

                  (4.1)    Specimen form of certificate for Service 1st Bancorp
                           common stock incorporated by reference from
                           Registrant's Form 10-QSB for the quarter ended
                           September 30, 2003, filed with the Securities and
                           Exchange Commission on November 14, 2003.

                  (10.1)   Lease agreement dated May 3, 2002, related to 2800
                           West March Lane, Suite 120, Stockton, CA 95219
                           incorporated by reference from the Registrant's Form
                           S-4EF, Registration No. 333-104244, filed with the
                           Securities and Exchange Commission on April 1, 2003.

                                       68
<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, CA 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.

                                       69
<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 quarter 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 quarter 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 quarter 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 quarter ended September 30,
                           2004, filed with the Securities and Exchange
                           Commission on November 15, 2004.

                  (10.18)  Fiserv Solutions, Inc. Agreement dated October 7,
                           2004, for service bureau, data processing, and item
                           processing, incorporated by reference from the
                           Registrant's Form 10-KSB for the year ended December
                           31, 2004, filed with the Securities and Exchange
                           Commission on June 30, 2005.

                  (10.19)  Lease agreement dated May 1, 2005, related to 49 W.
                           10th Street, Tracy, CA 95378 incorporated by
                           reference from the Registrant's Form 10-QSB for the
                           quarter ended September 30, 2005, filed with the
                           Securities and Exchange Commission on November 10,
                           2005.

                  (10.20)  Lease agreement dated October 3, 2005, related to
                           1901 W. Kettleman Lane, Building A, Suite 1A and 1B,
                           Lodi, CA 95242 incorporated by reference from the
                           Registrant's form 10-QSB for the quarter ended
                           September 30, 2005, filed with the Securities and
                           Exchange Commission on November 10, 2005.

                  (10.21)  Lease agreement dated January 13, 2006, related to
                           1930 Tienda Drive, Building B, Suite 104, Lodi, CA
                           95242.

                  (10.22)* Shannon Reinard Salary Continuation Agreement dated
                           August 8, 2005.

                  (10.23)* Bryan R. Hyzdu First Amendment dated August 8, 2005
                           to Salary Continuation Agreement dated September 10,
                           2003.

                  (10.24)* Bryan R. Hyzdu Second Amendment dated August 8, 2005
                           to Salary Continuation Agreement dated September 10,
                           2003.

                  (10.25)* Patrick Carman First Amendment dated August 8, 2005
                           to Salary Continuation Agreement dated September 10,
                           2003.

                  (10.26)* Patrick Carman Second Amendment dated August 8, 2005
                           to Salary Continuation Agreement dated September 10,
                           2003.

                                       70
<PAGE>
                  (10.27)* Robert E. Bloch First Amendment dated August 8, 2005
                           to Salary Continuation Agreement dated September 10,
                           2003.

                  (10.28)* Robert E. Bloch Second Amendment dated August 8, 2005
                           to Salary Continuation Agreement dated September 10,
                           2003.

                  (14.1)   Code of Ethics, incorporated by reference from the
                           Registrant's Form 10-KSB for the year ended December
                           31, 2003, filed with the Securities and Exchange
                           Commission on March 30, 2004.

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

                  (23.1)   Consent of Vavrinek, Tine, 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
2006 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.

                                       71
<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 28, 2006                   By: /s/ JOHN O. BROOKS
                                           -------------------------------------
                                           John O. Brooks
                                           Chief Executive Officer
                                           (Principal Executive Officer)


Date: March 28, 2006                   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 28, 2006
---------------------------------
John O. Brooks


/s/ EUGENE C. GINI                        Director                March 28, 2006
---------------------------------
Eugene C. Gini


/s/ BRYAN R. HYZDU                        Director                March 28, 2006
---------------------------------
Bryan R. Hyzdu


/s/ ROBERT D. LAWARENCE                   Director                March 28, 2006
---------------------------------
Robert D. Lawrence


/s/ FRANCES C. MIZUNO                     Director                March 28, 2006
---------------------------------
Frances C. Mizuno


/s/ RICHARD R. PAULSEN                    Director                March 28, 2006
---------------------------------
Richard R. Paulsen


/s/ TONI MARIE RAYMUS                     Director                March 28, 2006
---------------------------------
Toni Marie Raymus

                                       72
<PAGE>


/s/ MICHAEL K. REPETTO                    Director                March 28, 2006
---------------------------------
Michael K. Repetto


/s/ ANTHONY F. SOUZA                      Director                March 28, 2006
---------------------------------
Anthony F. Souza


/s/ ALBERT VAN VELDHUIZEN                 Director                March 28, 2006
---------------------------------
Albert Van Veldhuizen


/s/ DONALD L. WALTERS                     Director                March 28, 2006
---------------------------------
Donald L. Walters

                                       73
<PAGE>

                                  EXHIBIT INDEX
                                  -------------
                                                                      Sequential
Exhibit                                                                  Page
 Number                        Description                              Number
-------  ------------------------------------------------------------- --------

10.21    Lease agreement for 1930 Tienda Drive, Building B,
         Suite 104, Lodi, California 95242                                 75

10.22    Shannon Reinard Salary Continuation Agreement dated
         August 8, 2005                                                    87

10.23    Bryan R. Hyzdu First Amendment dated August 8, 2005 to
         Salary Continuation Agreement dated September 10, 2003            97


10.24    Bryan R. Hyzdu Second Amendment dated August 8, 2005 to
         Salary Continuation Agreement dated September 10, 2003            99


10.25    Patrick Carman First Amendment dated August 8, 2005 to
         Salary Continuation Agreement dated September 10, 2003           101

10.26    Patrick Carman Second Amendment dated August 8, 2005 to
         Salary Continuation Agreement dated September 10, 2003           102

10.27    Robert E. Bloch First Amendment dated August 8, 2005 to
         Salary Continuation Agreement dated September 10, 2003           103

10.28    Robert E. Bloch Second Amendment dated August 8, 2005 to
         Salary  Continuation Agreement dated September 10, 2003          104

23.1     Consent of Vavrinek, Trine, Day & Co., LLP                       105

31.1     Certification of Chief Executive Officer pursuant to
         Section 302 of the Sarbanes-Oxley Act of 2002                    106

31.2     Certification of Chief Financial Officer pursuant to
         Section 302 of the Sarbanes-Oxley Act of 2002                    107

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        108

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