Document:

Exhibit 10.13

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (this “Agreement”) is made and entered
into as of            
  , 2005, by and between 1st Pacific Bank of California, a California state
bank (the “Bank”), and                  ,
[an officer][a director] of the Bank (“Indemnitee”).

RECITALS

A.                                   The Bank and Indemnitee are aware of the
substantial growth in the number of lawsuits filed against corporate directors
and officers in connection with their activities in such capacities and by reason
of their status as such;

B.                                     The Bank and Indemnitee recognize that
the cost of defending against such lawsuits, whether or not meritorious, is
typically beyond the financial resources of most of the Bank’s directors and
officers;

C.                                     The Bank and Indemnitee recognize that
the legal risks and potential liabilities associated with proceedings filed
against the Bank’s directors and officers bear no reasonable relationship to
the amount of compensation received by the Bank’s directors and officers;

D.                                    The Bank, after reasonable investigation
prior to the date hereof, has determined that the liability insurance coverage
available to the Bank as of the date hereof is inadequate, unreasonably
expensive or both.  The Bank believes,
therefore, that the interest of the Bank’s shareholders would be best served by
a combination of (i) such insurance as the Bank may obtain pursuant to the
Bank’s obligations hereunder and (ii) a contract with its directors and
certain officers, including Indemnitee, to indemnify such individuals pursuant
to Section 317 of the California Corporations Code (the “Code”) against
personal liability for actions taken in the performance of their duties to the
Bank;

E.                                      Section 317 of the Code empowers
California corporations to indemnify their directors and officers;

F.                                      The Board of Directors of the Bank (the “Board”)
has concluded that, to retain and attract talented and experienced individuals
to serve as the Bank’s directors and officers and to encourage such individuals
to take the business risks necessary for the success of the Bank, it is
necessary for the Bank to contractually indemnify its directors and certain
officers, and to assume for itself liability for expenses and damages in
connection with claims against such directors and officers with respect to
their service to the Bank, and has further concluded that the failure to
provide such contractual indemnification could result in great harm to the Bank
and its shareholders;

G.                                     The Bank desires and has requested
Indemnitee to serve or continue to serve as a director or officer of the Bank,
free from undue concern for the risks and potential liabilities associated with
such services to the Bank; and

H.                                    Indemnitee is willing to serve, or
continue to serve, the Bank, provided, and on the expressed condition, that he
is furnished with the indemnification provided for herein.

AGREEMENT

NOW, THEREFORE, for valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Bank and
Indemnitee agree as follows:

1.                                                                                       Definitions.

(a)                                  “Expenses” means all direct and indirect
costs of any type or nature whatsoever (including, without limitation, any fees
and disbursements of Indemnitee’s counsel, accountants and other experts and
other out-of-pocket costs) actually and reasonably incurred by Indemnitee in
connection with the investigation, preparation, defense or appeal of a
Proceeding; provided, however, that Expenses shall not include judgments,
fines, penalties or amounts paid in settlement of a Proceeding.

 1
 

(b)                                 “Proceeding” means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (including an action brought by or in the right
of the Bank) in which Indemnitee may be or may have been involved as a party or
otherwise, by reason of the fact that Indemnitee is or was a director or
officer of the Bank, by reason of any action taken by Indemnitee or of any
inaction on his part while acting as such director or officer or by reason of
the fact that he is or was serving at the request of the Bank as a director,
officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or was a director and/or
officer of the foreign or domestic corporation which was a predecessor
corporation to the Bank or of another enterprise at the request of such
predecessor corporation, whether or not he is serving in such capacity at the
time any liability or Expense is incurred for which indemnification or
reimbursement can be provided under this Agreement.

2.                                                                                       Indemnification.

(a)                                  Third Party Proceedings. 
The Bank shall indemnify Indemnitee against Expenses, judgments, fines,
penalties or amounts paid in settlement actually and reasonably incurred by
Indemnitee in connection with a Proceeding (other than a Proceeding by or in
the right of the Bank) provided Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in the best interests of the Bank and its
shareholders, and with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee’s conduct was unlawful.  The termination of any Proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee reasonably believed to
be in the best interests of the Bank, or, with respect to any criminal
Proceeding, had no reasonable cause to believe that Indemnitee’s conduct was
unlawful.

(b)                                 Proceedings by or in the Right of the
Bank.  The Bank shall indemnify Indemnitee against
Expenses and amounts paid in settlement, actually and reasonably incurred by
Indemnitee, in connection with a Proceeding by or in the right of the Bank to
procure a judgment in its favor if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in the best interests of the Bank
and its shareholders.  Notwithstanding
the foregoing, no indemnification shall be made in respect of (i) any claim,
issue or matter as to which Indemnitee shall have been adjudged liable to the
Bank in the performance of Indemnitee’s duty to the Bank and its shareholders
unless the court in which such action or proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for Expenses and then
only to the extent that such court shall determine; (ii) any amounts paid
by Indemnitee in settling or otherwise disposing of a pending action without
court approval; and (iii) Expenses incurred in defending a pending action
which is settled or otherwise disposed of without court approval.

3.                                                                                       Limitations on Indemnification. 
Notwithstanding any other provision herein to the contrary, the Bank
shall not be obligated pursuant to the terms of this Agreement:

(a)                                  Excluded Acts. 
To indemnify Indemnitee for any acts or omissions or transactions from
which a director or officer may not be relieved of liability under
Section 204 of the Code or for expenses, penalties, or other payments
incurred in an administrative proceeding or action instituted by an appropriate
bank regulatory agency which proceeding or action results in a final order
assessing civil money penalties or requiring affirmative action by an
individual or individuals in the form of payments to the Bank.

(b)                                 Claims Initiated by Indemnitee. 
To indemnify or advance Expenses to Indemnitee with respect to
Proceedings or claims initiated or brought voluntarily by Indemnitee and not by
way of defense, except with respect to Proceedings brought to establish or
enforce a right to indemnification under this Agreement or any other statute or
law or otherwise as required under Section 317 of the Code, but such
indemnification or advancement of Expenses may be provided by the Bank in
specific cases if the Board has approved the initiation or bringing of such
Proceeding.

(c)                                  Lack of Good Faith. 
To indemnify Indemnitee for any Expenses incurred by Indemnitee with
respect to any Proceeding instituted by Indemnitee to enforce or interpret this
Agreement, if a court of competent jurisdiction determines that each of the
material assertions made by Indemnitee in such Proceeding was not made in good
faith or was frivolous.

 2
 

(d)                                 Insured Claims. 
To indemnify Indemnitee for Expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties, and amounts paid in settlement) which have been paid directly to
or on behalf of Indemnitee by an insurance carrier under a policy of directors’
and officers’ liability insurance (“D&O Insurance”) maintained by the Bank
or any other policy of insurance maintained by the Bank or Indemnitee.

(e)                                  Claims Under Section 16(b). 
To indemnify Indemnitee for Expenses and the payment of profits arising
from the purchase and sale by Indemnitee of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended, or
any similar successor statute.

(f)                                    Regulatory Limitations. 
Notwithstanding any other provisions contained herein, this Agreement is
subject to the requirements and limitations set forth in state and federal
laws, rules, regulations and orders regarding indemnification and prepayment of
legal expenses and liabilities, including Section 18(k) of the Federal Deposit
Insurance Act and Part 359 of the Federal Deposit Insurance Corporation’s Rules
and Regulations and any successor regulations thereto.  To the extent that there is any conflict
between state and federal law, federal law shall supersede and control.

4.                                                                                       Determination of Right to Indemnification. 
Upon receipt of a written claim addressed to the Board for
indemnification pursuant to Section 2, the Bank shall determine by any of
the methods set forth in Section 317(e) of the Code whether
Indemnitee has met the applicable standards of conduct which makes it
permissible under applicable law to indemnify Indemnitee.  If a claim under Section 2 is not paid
in full by the Bank within ninety (90) days after such written claim has been
received by the Bank, Indemnitee may at any time thereafter bring suit against
the Bank to recover the unpaid amount of the claim and, unless such action is
dismissed by the court as frivolous or brought in bad faith, Indemnitee shall
be entitled to be paid also the expense of prosecuting such claim.  Neither the failure of the Bank (including
its Board, independent legal counsel or shareholders) to make a determination
prior to the commencement of such action that indemnification of Indemnitee is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct under applicable law, nor an actual determination by the Bank
(including its Board, independent legal counsel or shareholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has not met the applicable standard of
conduct.  The court in which such action
is brought shall determine whether Indemnitee or the Bank shall have the burden
of proof concerning whether Indemnitee has or has not met the applicable
standard of conduct.

5.                                                                                       Advancement and Repayment of Expenses. 
The Expenses incurred by Indemnitee in defending and investigating any
Proceeding shall be paid by the Bank in advance of the final disposition of
such Proceeding within thirty (30) days after receiving from Indemnitee the
copies of invoices presented to Indemnitee for such Expenses, if Indemnitee
shall provide an undertaking to the Bank to repay such amount to the extent it
is ultimately determined that Indemnitee is not entitled to
indemnification.  In determining whether
or not to make an advance hereunder, the ability of Indemnitee to repay shall
not be a factor.  Notwithstanding the
foregoing, in a proceeding brought by the Bank directly, in its own right (as
distinguished from an action brought derivatively or by any receiver or
trustee), the Bank shall not be required to make the advances called for hereby
if the Board determines, in its sole discretion, that it does not appear that
Indemnitee has met the standards of conduct which may it permissible under
applicable law to indemnify Indemnitee and the advancement of Expenses would
not be in the best interests of the Bank and its shareholders.

6.                                                                                       Partial Indemnification. 
If Indemnitee is entitled under any provision of this Agreement to
indemnification or advancement by the Bank of some or a portion of any Expenses
or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, penalties, and amounts paid in settlement) incurred by
Indemnitee in the investigation, defense, settlement or appeal of a Proceeding,
but is not entitled to indemnification or advancement of the total amount
thereof, the Bank shall nevertheless indemnify or pay advancements to the
Indemnitee for the portion of such Expenses or liabilities to which the
Indemnitee is entitled.

7.                                                                                       Notice to Bank by Indemnitee. 
Indemnitee shall notify the Bank in writing of any matter with respect
to which Indemnitee intends to seek indemnification hereunder as soon as
reasonably practicable following the receipt by Indemnitee of written notice
thereof, provided that any delay in so notifying Bank shall not constitute a
waiver by Indemnitee of his rights hereunder. 
Such written notification to the Bank shall be addressed to the

 3
 

Board and shall include a description of the nature of the Proceeding
and the facts underlying the Proceeding and be accompanied by copies of any
documents filed with the court in which the Proceeding is pending.  In addition, Indemnitee shall give the Bank
such information and cooperation as it may reasonably require and as shall be
within Indemnitee’s power.

8.                                                                                       Maintenance of Liability Insurance.

(a)                                  The Bank hereby agrees that so long as
Indemnitee shall continue to serve as a director or officer of the Bank and
thereafter so long as Indemnitee shall be subject to any possible Proceeding,
the Bank, subject to Section 8(b), shall use its best efforts to obtain
and maintain in full force and effect D&O Insurance which provides Indemnitee
the same rights and benefits as are accorded to the most favorably insured of
the Bank’s directors or officers, as the case may be.

(b)                                 Notwithstanding the foregoing, the Bank
shall have no obligation to obtain or maintain D&O Insurance if the Bank
determines in good faith that such insurance is not reasonably available, the
premium costs for such insurance are disproportionate to the amount of coverage
provided, the coverage provided by such insurance is limited by exclusions so
as to provide an insufficient benefit, or the Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Bank.

(c)                                  If, at the time of the receipt of a
notice of a claim pursuant to Section 7, the Bank has D&O Insurance in
effect, the Bank shall give prompt notice of the commencement of such
Proceeding to the insurers in accordance with the procedures set forth in the
respective policies.  The Bank shall
thereafter take all necessary or desirable action to cause such insurers to
pay, on behalf of Indemnitee, all amounts payable as a result of such
Proceeding in accordance with the terms of such policies.

9.                                                                                       Defense of Claim. 
In the event that the Bank shall be obligated under Section 5 to
pay the Expenses of any Proceeding against Indemnitee, the Bank, if appropriate,
shall be entitled to assume the defense of such Proceeding, with counsel
approved by Indemnitee, which approval shall not be unreasonably withheld, upon
the delivery to Indemnitee of written notice of its election to do so.  After delivery of such notice, approval of
such counsel by Indemnitee and the retention of such counsel by the Bank, the
Bank will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by Indemnitee with respect to the same Proceeding.
 Indemnitee shall have the right to
employ his counsel in any such Proceeding at Indemnitee’s expense and if the
employment of counsel by Indemnitee has been previously authorized by the Bank,
or Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Bank and the Indemnitee in the conduct of such defense, or
the Bank shall not, in fact, have employed counsel to assume the defense of
such Proceeding, then the fees and expenses of Indemnitee’s counsel shall be at
the expense of the Bank.

10.                                                                                 Attorneys’ Fees. 
In the event that Indemnitee or the Bank institutes an action to enforce
or interpret any terms of this Agreement, the Bank shall reimburse Indemnitee
for all of the Indemnitee’s reasonable fees and expenses in bringing and
pursuing such action or defense, unless as part of such action or defense, a
court of competent jurisdiction determines that the material assertions made by
Indemnitee as a basis for such action or defense were not made in good faith or
were frivolous.

11.                                                                                 Continuation of Obligations. 
All agreements and obligations of the Bank contained herein shall
continue during the period the Indemnitee is a director or officer of the Bank,
or is or was serving at the request of the Bank as a director, officer,
fiduciary, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, and shall continue thereafter so long as
the Indemnitee shall be subject to any possible Proceeding by reason of the
fact that Indemnitee served in any capacity referred to herein.

12.                                                                                 Successors and Assigns. 
This Agreement establishes contract rights that shall be binding upon,
and shall inure to the benefit of, the successors, assigns, heirs and legal
representatives of the parties hereto.

 4
 

13.                                                                                 Non-exclusivity.

(a)                                  The provisions for indemnification and
advancement of Expenses set forth in this Agreement shall not be deemed to be
exclusive of any other rights that the Indemnitee may have under any provision
of law, the Bank’s Articles of Incorporation or Bylaws, the vote of the
Bank’s shareholders or disinterested directors, other agreements or otherwise,
both as to action in his official capacity and action in another capacity while
occupying his position as a director or officer of the Bank.

(b)                                 In the event of any changes in any
applicable law, statute or rule which narrow the right of a California
corporation to indemnify a director or officer, such changes, to the extent not
otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties rights and
obligations hereunder.

14.                                                                                 Effectiveness of Agreement. 
To the extent that the indemnification permitted under the terms of
certain provisions of this Agreement exceeds the scope of the indemnification
provided for in the Code, such provisions shall not be effective unless and
until the Bank’s Articles of Incorporation authorize such additional
rights of indemnification.  In all other
respects, the balance of this Agreement shall be effective as of the date set
forth on the first page and may apply to acts or omissions of Indemnitee which
occurred prior to such date if Indemnitee was a director, officer, employee or
other agent of the Bank, or was serving at the request of the Bank as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, at the time such act or omission occurred.

15.                                                                                 Severability. 
Nothing in this Agreement is intended to require or shall be construed
as requiring the Bank to do or fail to do any act in violation of applicable
law.  The Bank’s inability, pursuant to
court order, to perform its obligations under this Agreement shall not
constitute a breach of this Agreement. 
The provisions of this Agreement shall be severable as provided in this
Section 15.  If this Agreement or
any portion hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Bank shall nevertheless indemnify Indemnitee to the full
extent permitted by any applicable portion of this Agreement that shall not
have been invalidated, and the balance of this Agreement not so invalidated
shall be enforceable in accordance with its terms.

16.                                                                                 Governing Law. 
This Agreement shall be interpreted and enforced in accordance with the
laws of the State of California and applicable federal law.  To the extent permitted by applicable law,
the parties hereby waive any provisions of law which render any provision of
this Agreement unenforceable in any respect.

17.                                                                                 Notice.  Unless otherwise specifically permitted by
this Agreement, all notices or other communications required or permitted under
this Agreement shall be in writing, and shall be personally delivered or sent
by registered or certified mail, postage prepaid return receipt requested and
shall be deemed received: (i) if personally delivered, upon the date of
delivery to the address of the person to receive such notice, (ii) if
mailed in accordance with the provisions of this paragraph, two (2) business
days after the date placed in the United States mail, or (iii) if mailed
other than in accordance with the provisions of this paragraph or mailed from outside the United States, upon
the date of delivery to the address of the person to receive such notice.  Notices shall be given at the following
addresses:

	
  If to the Bank: 

  	
   

  	
  If to Indemitee: 

  
	
   

  	
   

  	
   

  
	
  1st Pacific Bank of California

  Attn: Chairman of the Board of Directors

  7728 Regents Road, Suite 503

  San Diego, CA 92122

  	
   

  	
  To Indemnitee’s last known address as set forth in
  the

  personnel records of the Bank.

  
	
   

  	
   

  	
   

  
	
  With a copy to: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Kurt L.
  Kicklighter, Esq.

  Luce, Forward, Hamilton & Scripps LLP

  600 West Broadway, Suite 2600

  San Diego, CA 92101

  	
   

  	
   

  

 

 5
 

The relevant party may change the address for delivery of notices by
giving notice of such change in accordance with this paragraph.

18.                                                                                 Mutual Acknowledgment. 
Both the Bank and Indemnitee acknowledge that in certain instances,
federal law or applicable public policy may prohibit the Bank from indemnifying
its directors and officers under this Agreement or otherwise.  Indemnitee understands and acknowledges that
the Bank has undertaken or may be required in the future to undertake with the
Federal Reserve Board or other regulators of the Bank to submit the question of
indemnification to a court in certain circumstances for a determination of the
Bank’s right under public policy to indemnify Indemnitee.

19.                                                                                 Counterparts. 
This Agreement may be executed in one or more counterparts and by
facsimile, each of which shall constitute an original.

20.                                                                                 Amendment and Termination. 
No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.

 6
 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year set forth above.

	
  BANK:  

  	
   

  	
  INDEMNITEE:

  
	
   

  	
   

  	
   

  
	
  1st Pacific Bank of California, a California
  state bank

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [Insert Name]

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Title:

  	
     James
  G. Knight, M.D., Chairman of the 

     Board of Directors

  	
   

  	
   

  

 

 

 7Exhibit 10.14

January 26,
2005

1st
PACIFIC BANK OF CALIFORNIA

INCENTIVE
COMPENSATION PLAN

SENIOR
MANAGEMENT

Purpose

1st Pacific Bank
of California (“Bank”) is desirous of establishing an incentive compensation
program to reward senior management for productivity, high performance and
implementing the business plan and vision of Bank.  The program is also a tool to assure that
Bank meets ROE and ROA goals for the subject year and for future years.  Bank is unique to the community banking
environment due to a primary focus on business and along with strong community
ties. Bank is relatively young in age, having opened for business in late 2000.
As Bank has been able to generate annual net income in 2003 and 2004 and build
it’s banking foundation, it is now in a position to create an incentive
compensation program for senior management that will be tied to profitability
of Bank and other factors that are important to the Board of Directors. If Bank
reorganizes into a bank holding company then the program will become a bank
holding company program.

Who is Eligible?

The program is
initially available to no more than five members of Senior Management, as
identified in the organizational chart for Bank. The composition of the Senior
Management grouping shall be determined by the President/ CEO, subject to
ratification by the Personnel Committee of the Board of Directors. The initial
group shall be comprised of three individuals (CEO, CCO and CFO). It is
possible that the number of participants in the program may increase as Bank’s
total assets increase and the organizational structure changes.

How Does the Plan
Work?

The program is an
incentive compensation program that shares rewards between the shareholders and
plan participants.  The participants in
this program are not entitled to participate in the TEAM SHARE Program, which
is available to the other employees of Bank. Plan participants would not be
rewarded with additional compensation unless Bank achieves a minimum level of
performance. Each plan participants base salary is based upon a minimum level
of financial performance. Under the program in 2005, no incentive compensation
would be provided until Bank achieved at a minimum eight percent (8%)
shareholder return on average equity (“ROAE”), before the payment of incentive
compensation under this incentive compensation program. ROAE is based upon the
generally accepted accounting principles definition of shareholder equity and
does not include trust preferred securities or any debt instrument. In 2006 the
minimum ROAE shall be increased to nine percent (9%) and in 2007 the minimum
ROAE shall be increased to ten percent (10%).

Earnings Before
Incentive Compensation (EBIC”) 

In 2005, if EBIC
is greater than a 8% ROAE, the excess amount attributable to EBIC would be divided
as follows:

	
  EBIC/ ROAE

  	
  8% to 10%

  
	
  Shareholders

  	
  80.0%

  
	
  Senior Management

  	
  20.0%

  

 

 1
 

 

	
  EBIC/ ROAE

  	
  10% to 12%

  
	
  Shareholders

  	
  75.0%

  
	
  Senior Management

  	
  25.0%

  
	
   

  	
   

  
	
  EBIC/ ROAE

  	
  12% to 15%

  
	
  Shareholders

  	
  70.0%

  
	
  Senior Management

  	
  30.0%

  
	
   

  	
   

  
	
  EBIC/ROAE

  	
  15% +

  
	
  Shareholders

  	
  65%

  
	
  Senior Management

  	
  35%

  

 

	
  In 2006 the minimum ROAE is increased to 9%. If
  EBIC is greater than a 9% ROAE, the excess amount attributable to EBIC would
  be divided as follows:

  

 

	
  EBIC/ ROAE

  	
  9% to 11%

  
	
  Shareholders

  	
  80.0%

  
	
  Senior Management

  	
  20.0%

  
	
   

  	
   

  
	
  EBIC/ ROAE

  	
  11% to 13%

  
	
  Shareholders

  	
  75.0%

  
	
  Senior Management

  	
  25.0%

  
	
   

  	
   

  
	
  EBIC/ ROAE

  	
  13% to 16%

  
	
  Shareholders

  	
  70.0%

  
	
  Senior Management

  	
  30.0%

  
	
   

  	
   

  
	
  EBIC/ROAE

  	
  16% +

  
	
  Shareholders

  	
  65%

  
	
  Senior Management

  	
  35%

  

 

In 2007 the
minimum ROAE is increased to 10%. If EBIC is greater than a 10% ROAE, the
excess amount attributable to EBIC would be divided as follows:

	
  EBIC/ ROAE

  	
  10% to 12%

  
	
  Shareholders

  	
  80.0%

  
	
  Senior Management

  	
  20.0%

  
	
   

  	
   

  
	
  EBIC/ ROAE

  	
  12% to 14%

  
	
  Shareholders

  	
  75.0%

  
	
  Senior Management

  	
  25.0%

  
	
   

  	
   

  
	
  EBIC/ ROAE

  	
  14% to 17%

  
	
  Shareholders

  	
  70.0%

  
	
  Senior Management

  	
  30.0%

  

 

 2
 

 

	
  EBIC/ ROAE

  	
  17% +

  
	
  Shareholders

  	
  65%

  
	
  Senior Management

  	
  35%

  

 

The
minimum ROAE levels are stair steps and the increased percentage distribution
payable to Senior Management applies only to the amounts over the minimum ROAE
levels and not retroactive to the base amount.

Illustration #1

Assume
Bank had average equity during 2005 of $20,800,000. Also assume that EBIC was
$2,500,000 for 2005. The incentive compensation would be as follows:

	
  Base amount – 8% EBIC/ ROAE

  	
   

  	
   

  	
   

  	
  $

  	
  1,664,000

  	
   

  
	
  EBIC/ ROAE – 8%
  to 10%

  	
   

  	
   

  	
   

  	
  $

  	
  416,000

  	
   

  
	
  Senior Management – 20%

  	
   

  	
  $

  	
  83,200

  	
   

  	
   

  	
   

  
	
  EBIC/ ROAE – 10%
  to 12%

  	
   

  	
   

  	
   

  	
  $

  	
  416,000

  	
   

  
	
  Senior Management – 25%

  	
   

  	
  $

  	
  104,000

  	
   

  	
   

  	
   

  
	
  EBIC/ROAE – 13%
  +

  	
   

  	
   

  	
   

  	
  $

  	
  8,000

  	
   

  
	
  Senior
  Management – 30%

  	
   

  	
  $

  	
  2,400

  	
   

  	
   

  	
   

  

 

If
Bank achieved a $2,500,000 EBIC then Senior Management would be entitled to
incentive compensation under this program of $189,600. Assuming that Bank had a
thirty eight percent tax rate, the net earnings after tax for Bank would be
$2,382,400 ($2,500,000 less that tax effected payment of $117,600) or a ROAE of
11.45%.

Illustration #2

Assume
Bank had average equity during 2006 of $23,400,000. Also assume that EBIC was
$3,500,000 for 2006. The incentive compensation would be as follows:

	
  Base amount – 9% EBIC/ ROAE

  	
   

  	
   

  	
   

  	
  $

  	
  2,106,000

  	
   

  
	
  EBIC/ ROAE – 9%
  to 11%

  	
   

  	
   

  	
   

  	
  $

  	
  468,000

  	
   

  
	
  Senior Management – 20%

  	
   

  	
  $

  	
  93,600

  	
   

  	
   

  	
   

  
	
  EBIC/ ROAE – 11%
  to 13%

  	
   

  	
   

  	
   

  	
  $

  	
  468,000

  	
   

  
	
  Senior Management – 25%

  	
   

  	
  $

  	
  117,000

  	
   

  	
   

  	
   

  
	
  EBIC/ROAE – 13%
  +

  	
   

  	
   

  	
   

  	
  $

  	
  458,000

  	
   

  
	
  Senior
  Management – 30%

  	
   

  	
  $

  	
  137,400

  	
   

  	
   

  	
   

  

 

If
Bank achieved a $3,500,000 EBIC then Senior Management would be entitled to incentive
compensation under this program of $348,000. Assuming that Bank had a thirty
eight percent tax rate, the net earnings after tax for Bank would be $3,284,000
($3,500,000 less that tax effected payment of $216,000) or a ROAE of 14.03%.

Illustration #3

Assume
Bank had average equity during 2007 of $26,500,000. Assume that the Board
increased the minimum base amount to 10%. Also assume that EBIC was $4,400,000
for 2007. The incentive compensation would be as follows:

 3
 

 

	
  Base amount – 10% EBIC/ ROAE

  	
   

  	
   

  	
   

  	
  $

  	
  2,650,000

  	
   

  
	
  EBIC/ ROAE – 10%
  to 12.0%

  	
   

  	
   

  	
   

  	
  $

  	
  530,000

  	
   

  
	
  Senior Management – 20%

  	
   

  	
  $

  	
  106,000

  	
   

  	
   

  	
   

  
	
  EBIC/ ROAE – 12%
  to 14%

  	
   

  	
   

  	
   

  	
  $

  	
  530,000

  	
   

  
	
  Senior Management – 25%

  	
   

  	
  $

  	
  132,500

  	
   

  	
   

  	
   

  
	
  EBIC/ ROAE – 14%
  to 17%

  	
   

  	
   

  	
   

  	
  $

  	
  530,000

  	
   

  
	
  Senior Management – 30%

  	
   

  	
  $

  	
  159,000

  	
   

  	
   

  	
   

  
	
  EBIC/ROAE – 17%
  +

  	
   

  	
   

  	
   

  	
  $

  	
  160,000

  	
   

  
	
  Senior
  Management – 35%

  	
   

  	
  $

  	
  56,000

  	
   

  	
   

  	
   

  

 

If
Bank achieved a $4,400,000 EBIC then Senior Management would be entitled to
incentive compensation under this program of $453,500. Assuming that Bank had a
thirty eight percent tax rate, the net earnings after tax for Bank would be
$4,118,700 ($4,400,000 less that tax effected payment of $281,300) or a ROAE of
15.54%.

Merger,
acquisitions or significant activity that impacts the five year strategic plan
of Bank will require modification to the plan numbers in a given year.

The calculation of
additional compensation will be based upon audited financial statements and
shall be performed by the certified public accountants for Bank.

Additional
Criteria

For Senior Management
to receive the additional compensation under this program, the following
additional criteria must be met:

Loan Quality
B Loan quality for Bank must remain satisfactory, as determined by external and
internal loan review.

Loan Losses
B Net Loan Losses for Bank (on a consolidated basis) for the subject year shall
not exceed .50 percent of beginning gross loans for that year. Bank’s loan loss
reserves will be adequately funded.

Regulatory
Examination Bank shall receive a composite CAMELS rating from
its federal banking regulator of a “1” or “2” for the condition of Bank. In
addition Bank will be not be operating under a memorandum of understanding or
formal enforcement order from a federal regulator concerning the safety and
soundness of Bank.

Payout

To assure the
continued performance of Bank, a portion of the payout shall be deferred. The
payment of the additional compensation to plan participants is as follows:

Senior Management

B                                        75
percent payment within five days of confirmation by the outside auditors to the
Audit Committee of the financial statements for the fiscal year.

B                                        25
percent payment within five days of confirmation by the outside auditors to the
Audit Committee of the financial statements for the following fiscal year.

Payout Conditions

The payout for the
initial portion is subject to the condition that any individual who is entitled
to additional compensation must be employed by Bank upon the receipt of the
audited financial statements or March 31, whichever is earlier.

 4
 

The payout for the
deferred portions in the second year is subject to the following conditions:

B                                        Criteria
to receive final 25 percent is:

ROAE
Bank shall have achieved an EBIC/ ROAE of at least nine percent (9%) for the
following year.

Regulatory
Examination and Condition Bank shall receive a composite
CAMELS rating from their federal regulator of a “1” or “2” and Bank shall not
be operating under a memorandum of understanding or formal enforcement order
from a federal regulator concerning the safety and soundness of Bank.

Failure to achieve
these criteria will return the deferred portions of the additional compensation
to Bank.

The
payout of the deferred portion to individual plan participants in the Senior
Management grouping is conditioned upon the continued employment with
Bank.  If an individual plan participant
in the Senior Management grouping is terminated for cause or resigns
voluntarily from Bank, such individual plan participant shall lose all interest
in the current year as well as all deferred portions of the additional
compensation for the previous year.  If
such individual plan participant in the Senior Management grouping is
terminated without cause after June 30 or that such individual dies or become
disabled after June 30, such individual plan participant, or their estate,
shall be entitled a pro rata portion of the current year if Bank achieves the
current year criteria. The formula to determine the pro rata portion shall be
the number of months the individual plan participant worked during the year
divided by 12, with such payout to take place within five days of confirmation
by the outside auditors to the Audit Committee of the financial statements for
the fiscal year. If such individual plan participant in the Senior Management
grouping is terminated without cause or that such individual dies or become
disabled they are only entitled to the deferred compensation tied to the
previous year’s performance subject to the attainment of the additional
criteria and payout conditions previously described. Therefore if an individual
plan participant is terminated without cause in August of a plan year such
individual plan participant would be entitled to 8/12ths of the current year
(subject to Bank achieving the current year criteria) plus any deferred portion
from the previous year (subject to Bank achieving the deferred payout criteria)
with such payouts to take place within five days of confirmation by the outside
auditors to the Audit Committee of the financial statements for the fiscal
year. In such case the individual plan participant is not entitled to any
deferred portion for the year such individual was terminated without cause or
that individual died or became disabled. The definition of “cause”, “without
cause” and “disability” shall be the same as the definitions contained in the
employment agreement between Bank and the plan participant and in the event
there is no employment agreement between Bank and the plan participant, the
definitions shall be as set forth in Exhibit A, attached hereto.

In the event of
the sale of Bank or a merger of Bank where Bank shareholders do not own at
least 50% of the surviving entity, the deferred portions shall be paid
immediately upon the consummation of such event.

Participant’s
Distribution

The CEO is
entitled to up to 40%. No Participant shall be entitled to more than 40%
without the approval of the Board of Directors of Bank. The CEO shall be
authorized to determine the breakdown of participation by each
Participant.  The Personnel Committee of
the Board has the authority to review the breakdowns.

 5

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