SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Three Months Ended September 30, 1997
0-25932
(Commission File Number)
VRB BANCORP
(Exact name of registrant as specified in its charter)
OREGON 93-0892559
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
110 Pine Street, Rogue River, Oregon 97537
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (541) 582-3216
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) to the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 13, 1997
Common Stock, No par value 8,188,090
<PAGE>
VRB Bancorp
Form 10-Q
September 30, 1997
Table of Contents
<TABLE>
<S> <C>
Page
Part I Financial Information Number
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996...................... 1
Consolidated Statements of Income
for the Nine Months Ended September 30, 1997 and 1996......... 2
Consolidated Statements of Income
for the Three Months Ended September 30, 1997 and 1996........ 3
Consolidated Statements of Changes in Shareholders' Equity
For the Period December 31, 1995 through September 30, 1997... 4
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1997 and 1996 ........ 5
Notes to Consolidated Financial Statements.................... 6
Item 2. Management's discussion and analysis of financial
condition and results of operations........................... 7
Part II Other Information
Item 2. Changes in securities ........................................ 13
Item 5. Other information ............................................ 13
Item 6. Exhibits and reports on Form 8-K ............................. 13
Signatures................................................................... 15
</TABLE>
<PAGE>
Part I - Financial Information
Item 1 -- Financial Statements
VRB BANCORP CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
------------ ------------
1997 1996
------------ ------------
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 9,842,597 $ 17,916,909
Federal funds sold 20,000,000 11,300,000
------------ ------------
Total cash and cash equivalents 29,842,597 29,216,909
------------ ------------
Investments
U.S. Treasury and agencies 20,059,531 20,092,813
States and political subdivisions 18,416,531 18,635,932
Corporate and other investments 1,244,799 1,555,949
Federal Home Loan Bank stock 1,184,200 1,119,500
Loans, net of allowance for loan losses
and unearned income 113,162,333 99,775,802
Premises and equipment, net 4,446,951 4,093,669
Other real estate owned -- --
Accrued interest and other assets 2,676,320 2,616,093
------------ ------------
TOTAL ASSETS $191,033,262 $177,106,667
============ ============
LIABILITIES
Deposits
Demand deposits $ 48,079,094 $ 41,746,175
Interest bearing demand deposits 76,475,552 69,082,274
Savings deposits 14,438,686 15,447,644
Time deposits 27,484,596 29,292,364
------------ ------------
Total deposits 166,477,928 155,568,457
Accrued interest and other liabilities 2,507,224 1,350,076
------------ ------------
Total liabilities 168,985,152 156,918,533
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, voting, $5 par value;
5,000,000 shares authorized and unissued
Preferred stock, nonvoting, $5 par value;
5,000,000 shares authorized and unissued
Common stock, no par value, 10,000,000 shares
authorized with 7,188,090 and 7,149,364,
issued and outstanding at September 30, 1997
and December 31, 1996, respectively 9,576,121 9,480,330
Unrealized gain on available for sale securities 36,184 55,789
Retained earnings 12,435,805 10,652,015
------------ ------------
Total shareholders' equity 22,048,110 20,188,134
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $191,033,262 $177,106,667
============ ============
</TABLE>
<PAGE>
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1997 1996
----------- -----------
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans 8,434,695 7,481,408
Interest on investment securities:
U.S. Treasury and agencies 999,529 884,350
States and political subdivisions 707,396 717,931
Corporate and other investments 126,283 135,944
Federal funds sold 656,042 464,259
----------- -----------
Total interest income 10,923,946 9,683,892
----------- -----------
INTEREST EXPENSE
Interest bearing demand deposits 1,725,695 1,463,141
Savings deposits 251,103 285,396
Time deposits 965,116 934,149
Borrowed funds -- --
----------- -----------
Total interest expense 2,941,914 2,682,686
----------- -----------
Net interest income 7,982,032 7,001,206
PROVISION FOR LOAN LOSSES -- --
----------- -----------
Net interest income after provision for
loan losses 7,982,032 7,001,206
----------- -----------
NONINTEREST INCOME
Service charges on deposit accounts 774,622 736,847
Other operating income 328,449 303,458
Securities transactions 7,139 --
----------- -----------
Total noninterest income 1,110,210 1,040,305
----------- -----------
NONINTEREST EXPENSES
Salaries and benefits 3,042,752 2,727,833
Net occupancy 564,289 474,711
Communications 178,176 168,573
Data processing 133,065 105,536
FDIC insurance premium 13,515 1,500
Supplies 149,637 124,896
Professional fees 127,270 108,523
Other real estate expense 1,166 --
Other expenses 780,250 664,189
----------- -----------
Total noninterest expenses 4,990,119 4,375,761
----------- -----------
INCOME BEFORE INCOME TAXES 4,102,123 3,665,750
PROVISION FOR INCOME TAXES 1,312,000 1,220,000
----------- -----------
NET INCOME 2,790,123 2,445,750
=========== ===========
NET INCOME PER SHARE OF COMMON STOCK 0.39 0.35
=========== ===========
</TABLE>
<PAGE>
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended
September 30,
----------------------------
1997 1996
----------------------------
(Unaudited) (Unaudited)
----------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans 2,914,088 2,607,236
Interest on investment securities:
U.S. Treasury and agencies 336,187 315,275
States and political subdivisions 236,669 253,693
Corporate and other investments 42,116 44,607
Federal funds sold 243,048 165,725
----------- -----------
Total interest income 3,772,108 3,386,536
----------- -----------
INTEREST EXPENSE
Interest bearing demand deposits 621,640 508,743
Savings deposits 84,266 93,756
Time deposits 327,586 302,691
Borrowed funds -- --
----------- -----------
Total interest expense 1,033,492 905,190
----------- -----------
Net interest income 2,738,616 2,481,346
PROVISION FOR LOAN LOSSES -- --
----------- -----------
Net interest income after provision for loan losses 2,738,616 2,481,346
----------- -----------
NONINTEREST INCOME
Service charges on deposit accounts 256,696 247,827
Other operating income 128,236 94,632
Securities transactions -- --
----------- -----------
Total noninterest income 380,932 342,459
----------- -----------
NONINTEREST EXPENSES
Salaries and benefits 1,011,086 926,179
Net occupancy 201,119 155,398
Communications 63,063 55,610
Data processing 45,151 34,027
FDIC insurance premium 4,706 500
Supplies 44,801 41,653
Professional fees 50,403 32,517
Other real estate expen -- --
Other expenses 289,795 251,182
----------- -----------
Total noninterest expenses 1,710,124 1,497,066
----------- -----------
INCOME BEFORE INCOME TAXES 1,409,424 1,326,737
PROVISION FOR INCOME TAXES 396,000 448,000
----------- -----------
NET INCOME 1,013,424 878,737
=========== ===========
NET INCOME PER SHARE OF COMMON STOCK 0.14 0.12
</TABLE>
=========== ===========
<PAGE>
VRB BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER EQUITY
<TABLE>
<CAPTION>
Net Unrealized Gain
(Loss) on Total
Common Stock Retained Available-for-sale Shareholders'
Shares Amount Earnings Secirotoes Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31,
1995 (Audited) $ 2,333,019 $ 9,085,013 $ 8,355,113 $ 29,619 $ 17,469,745
Stock options exercised
(January 1 to
October 30, 1996) 50,180 304,054 -- -- 304,054
Income tax benefits from
exercise of stock option -- 91,263 -- -- 91,263
Cash dividend ($.40 per
share, paid November 20,
1996) -- -- (953,280) -- (953,280)
3 for 2 stock split
(November 20, 1996) 1,191,483 -- -- -- --
Payments for fractional
shares related to stock -- -- (1,088) -- (1,088)
Net income -- -- 3,251,270 -- 3,251,270
Changes in net unrealized
gain on available-for-sale
securities, net of taxes -- -- -- 26,170 26,170
------------ ------------ ------------ ------------ ------------
BALANCE, December 31,
1996 (Audited) 3,574,682 9,480,330 10,652,015 55,789 20,188,134
Stock options exercised
(January 1, 1997 to
September 10, 1997) 17,475 85,230 -- -- 85,230
2 for 1 stock split
(September 10, 1997) 3,592,157 --
Stock options exercised
(September 11, 1997 to
September 30, 1997) 3,776 10,561 -- -- 10,561
Cash dividend Declared
($.14 per share) (1,006,333) (1,006,333)
Net income -- -- 2,790,123 -- 2,790,123
Changes in net unrealized
(loss) on available-for
-sale securities, net
of taxes -- -- -- (19,605) (19,605)
------------ ------------ ------------ ------------ ------------
BALANCE, September 30,
1997 (Unaudited) 7,188,090 $ 9,576,121 $ 12,435,805 $ 36,184 $ 22,048,110
============ ============ ============ ============ ============
</TABLE>
<PAGE>
VRB BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1997 1996
------------ ------------
(Unaudited) (Unaudited)
CASH FLOWS RELATING TO OPERATING ACTIVITIES
<S> <C> <C>
Net income 2,790,123 2,445,750
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 375,064 345,935
FHLB stock dividend (64,700) (63,264)
Gain on sale of securities (7,139) --
Change in cash due to changes in certain assets:
Decrease in accrued interest and other assets (142,951) (254,142)
Decrease in accrued interest and other liabilities 176,135 (202,188)
------------ ------------
Net cash provided by operating activities 3,126,532 2,272,091
------------ ------------
CASH FLOWS RELATING TO INVESTING ACTIVITIES
Proceeds from the sale of available-for-sale securities
Proceeds from the maturity and principal payments of
available-for-sale securities 3,316,427 5,597,287
Proceeds form the maturity and principal payments of
held-to-maturity securities 215,000 940,000
Purchases of available-for-sale securities (3,000,000) (9,990,625)
Purchases of held-to-maturity securities -- (4,702,623)
Net increase in loans (13,386,531) (7,552,982)
Purchase of premises and equipment (635,782) (374,504)
------------ ------------
Net cash used in investing activities (13,490,886) (16,083,447)
------------ ------------
CASH FLOWS RELATING TO FINANCING ACTIVITIES
Net increase in deposits 10,909,471 13,411,890
Cash received from exercise of common stock options 80,571 153,466
------------ ------------
Net cash provided by financing activities 10,990,042 13,565,356
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 625,688 (246,000)
CASH AND CASH EQUIVALENTS, beginning of period 29,216,909 18,099,620
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 29,842,597 $ 17,853,620
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 2,939,358 $ 2,714,469
Cash paid for taxes $ 895,994 $ 1,029,018
SCHEDULE OF NONCASH ACTIVITIES
Changes in unrealized loss on available-for-sale
securities, net of tax $ (19,605) $ (345,206)
</TABLE>
<PAGE>
VRB BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
The accompanying financial statements reflect the operations of VRB Bancorp and
its wholly owned subsidiary, Valley of the Rogue Bank (collectively, the
"Company").
NOTE 2 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
information, and in compliance with instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Adjustments to the interim financial statements are of a normal
recurring nature and include all adjustments that, in the opinion of management,
are necessary to the fair presentation of the financial position and operating
results for the interim periods. The consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's 1996 Annual
Report to Shareholders. The operating results for the nine months ended
September 30, 1997, are not necessarily indicative of the results that may be
expected for the entire fiscal year ending December 31, 1997, or any other
future interim period.
NOTE 3 -- ACCOUNTING CHANGES
In February of 1997, the Financial Accounting Standards Board issues Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128) which
is effective for financial statements issued for periods ending after December
15, 1997, including interim periods. SFAS No. 128 replaces current standards for
computing and presenting earnings per share and requires a dual presentation of
basic and diluted earnings per share. Basic earnings per share excludes dilution
and is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflect the potential dilution that could occur if common
shares were issued pursuant to the exercise of options under the Company's stock
option plan(s).
Pro forma amounts for basic and diluted earnings per share assuming SFAS 128 had
been in effect are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------- ----------------------------------------
1997 1996 1997 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Basic Earnings Per Share $ 0.14 $ 0.12 $ 0.39 $ 0.35
Diluted Earnings Per Share $ 0.14 $ 0.12 $ 0.38 $ 0.34
</TABLE>
NOTE 4 -- SUBSEQUENT EVENTS
On November 12, 1997, the Company sold 1.0 million shares of newly issued common
stock in a public stock offering registered with Securities and Exchange
Commission. The shares were sold to the public at $8.50 per share and resulted
in estimated net proceeds of $7,655,000, after deducting $845,000 for
underwriting disclounts, commissions and other offering expenses.
<PAGE>
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended September 30, 1997
The Company's 1997 third quarter earnings totaled $1,013,000, or $.14 per common
share outstanding. The results represented a $134,000 or 15.2% increase over
1996 third quarter earnings of $879,000, or $.12 per common share outstanding.
Nine Months Ended September 30, 1997
Earnings for the nine months ended September 30, 1997 were $2,790,000, or $.39
per share compared to $2,446,000, or $.35 per share for the nine months ended
September 30, 1996. The Company's annualized return on average shareholder
equity was 17.41% and 17.61% for the periods ended September 30, 1997 and 1996
respectively. For the same periods, the Company's annualized return on average
outstanding assets was 2.07% and 2.03%, respectively.
Net Interest Income
Three Months Ended September 30, 1997
The Company's net interest income for the three months ended September 30, 1997,
after adjusting tax exempt income to reflect a tax equivalent basis, increased
$249,000 or 9.5% to $2,861,000, compared to $2,612,000 for the comparable
quarter in 1996. The net interest margin (net interest income as a percentage of
net average earning assets) was 6.68% and 6.89% for the periods ended September
30, 1997 and 1996, respectively.
Nine Months Ended September 30, 1997
The Company's net interest income after adjusting tax exempt income to reflect a
tax equivalent basis, increased from $7371,000 to $8,318,000, an increase of
$947,000 or 12.8% for the first nine months of 1997 compared to the first nine
months of 1996. The net interest margin increased to 6.73% to 6.71% when
comparing the periods ended September 30, 1997, and 1996, respectively.
Total earning assets averaged $164,736,000 and $146,409,000 for the nine month
periods ended September 30, 1997 and 1996, respectively. The average yield on
earning assets decreased to 9.11% in 1997 compared to 9.16% in 1996. Loan yields
have declined as the Company's variable rate loans have repriced at rates below
those prevailing throughout 1996.
Interest-bearing liabilities averaged $112,224,000 and $101,868,000 during the
first nine months of 1997 and 1996, respectively. The average cost of these
liabilities decreased slightly to 3.50% in 1997 from $3.51 in 1996. The average
cost of total interest bearing liabilities and non-interest bearing deposits
declined to 2.49% during the first nine months of 1997 from 2.54% during the
first nine months of 1996.
<PAGE>
The following table presents average balances and interest income or interest
expense with the resulting average yield or rates by category of average earning
asset or interest bearing liability:
<TABLE>
<CAPTION>
For the nine months ended For the nine months ended
September 30, 1997 September 30, 1997
---------------------------------------- ----------------------------------------
(in thousands) Average Inc/Exp Rate Average Inc/Exp Rate
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans* $ 107,445 $ 8,406 10.43% $ 93,625 $ 7,481 10.65%
Investment securities
Taxable securities 22,510 1,126 6.67 21,984 1,020 6.19%
Nontaxable securities** 18,501 1,072 7.73 19,032 1,088 7.62%
Federal funds sold 16,280 656 5.37 11,768 464 5.26%
------------ ------------ ------------ ------------ ------------ ------------
Total interest earning
assets 164,736 11,260 9.11 146,409 10,053 9.16%
------------ ------------ ------------ ------------ ------------ ------------
Cash and due from banks 9,969 8,998
Fixed assets 4,396 3,922
Loan loss allowance (1,613) (1,397)
Other assets 2,449 2,389
Total Assets $ 179,937 $ 160,321
============ ============
Interest-bearing liabilities:
Interest-bearing checking
accounts $ 70,836 $ 1,726 3.25% $ 60,521 $ 1,463 3.22%
Savings accounts 14,641 251 2.29% 16,423 285 2.31%
Time deposits 26,747 965 4.81% 24,924 934 5.00%
Borrowed funds -- -- --% -- -- 0.00%
------------ ------------ ------------ ------------ ------------ ------------
Total interest-bearing
liabilitise l12,224 2,942 3.50% 101,868 2,682 3.51%
Noninterest-bearing
deposits 45,048 -- -- 38,815 -- --
------------ ------------ ------------ ------------ ------------ ------------
Total deposits and
borrowed funds 157,272 2,942 2.49% 140,683 2,682 2.54%
------------ ------------ ------------ ------------ ------------ ------------
Other liabilities 1,296 1,116
------------ ------------
Total liabilities 158,568 171,799
Shareholders' equity 21,369 18,522
------------ ------------
Total liabilities and
shareholders'
equity $ 179,937 $ 160,321
------------ ------------
Net interest income $ 8,318 $ 7,371
============ ============
Net interest margin 6.73% 6.71%
============ ============
</TABLE>
* Nonaccrual loans are included in the average balance.
** Tax-exempt income has been adjusted to a tax equivalent basis at 34%.
<PAGE>
The following table shows the increase (decrease) in the Company's consolidated
interest income and expense for the nine months ended September 30, 1997 when
compared to the same period for the previous year. The table attributes such
amounts to changes in volume as well as changes in rates:
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1977
Increase (Decrease) Due to
(in thousands) Volume Rate Net Change
Interest-earning assets:
<S> <C> <C> <C>
Loans $ 1,081 $ ($56) $ 925
------------ ------------ ------------
Investment securities
Taxable securities 26 80 106
Nontaxable securities** (31) 15 (16)
Federal funds sold 182 10 192
------------ ------------ ------------
Total 1,258 (51) 1,207
------------ ------------ ------------
Interest-bearing liabilities:
Interest bearing checking 251 12 263
Savings accounts (31) (3) (34)
Time deposits 6 (35) 31
Borrowed funds -- -- --
------------ ------------ ------------
Total $ 286 $ (26) $ 260
------------ ------------ ------------
Net increase (decrease) in
net interest income $ 972 $ (25) $ 947
============ ============ ============
Financial Condition
The table below provides summary balance sheets at September 30, 1997 and
December 31, 1996, showing the changes that have occurred in the major financial
categories:
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
---------------------------
1977 1976 $ Change % Change
-------- -------- -------- --------
(in thousands)
ASSETS
<S> <C> <C> <C> <C>
Loans $113,162 $ 99,776 $ 13,386 13.42%
Investments 40,905 41,404 (499) (1.21%)
Federal funds sold 20,000 11,300 8,700 76.99%
Other Assets 16,966 24,627 (7,661) (31.11%)
-------- -------- -------- --------
Total assets $191,033 $177,107 $ 13,926 7.86%
======== ======== ======== ========
LIABILITIES AND EQUITY
Noninterest bearing deposits $ 48,079 $ 41,746 $ 6,333 15.17%
Interest bearing deposits 118,399 113,822 4,577 4.02%
-------- -------- -------- --------
Total Deposits 166,478 155,568 10,910 7.01%
Other Liabilities 2,507 1,351 1,156 85.57%
-------- -------- -------- --------
Total Liabilities 168,985 156,919 12,066 7.69%
-------- -------- -------- --------
Total Capital 22,048 20,188 1,860 9.21%
-------- -------- -------- --------
Total Liabilities and Capital $191,033 $177,107 $ 13,926 7.86%
======== ======== ======== ========
</TABLE>
Loans
The Company provides a broad range of commercial and real estate lending
services. Credit is extended principally to small to medium sized businesses in
the local area. Outstanding loans totaled $113,162,000 at September 30, 1997,
<PAGE>
representing a $13,386,000 or 13.42% increase when compared to loans of
$99,776,000 as of December 31, 1996. Loan commitments, principally real estate
construction notes and commercial lines of credit, grew to $20.1 million at
September 30, 1997 compared with commitments of $16.2 million at December 31,
1996.
Reflective of the Company's customer base, as well as trends within the local
economy, 65.29% of the Company's loan portfolio resides in real estate mortgage
loans. Of the $73.9 million in real estate mortgage loans outstanding as of
September 30, 1997, approximately $49.2 million were made to commercial
customers where the collateral for the loans includes the real estate occupied
by the customers' businesses. An additional $15.9 million represented loans for
construction and land development. In total, 88% of loans characterized as real
estate mortgage loans could be characterized as commercial and construction
loans that are secured by real estate.
The following table presents the composition of the Company's loan portfolio at
the dates indicated:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------------ -----------------------
Amount Percentage Amount Percentage
---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Commercial $ 12,690 11.21% $ 13,181 13.21%
Real estate construction 15,925 14.07% 9,112 9.13%
Real estate mortgage 73,886 65.29% 66,210 66.36%
Consumer and other 12,211 10.79% 12,906 12.93%
---------- ---------- ---------- ----------
114,712 101.37% 101,409 101.64%
Allowance for loan losses (1,550) (1.37%) (1,633) (1.64%)
---------- ---------- ---------- ----------
Net loans $ 113,162 100.00% $ 99,776 100.00%
---------- ---------- ---------- ----------
</TABLE>
Loan Loss Reserve
The reserve for loan losses represents management's estimate of the Company's
exposure to credit loss when evaluating the asset quality of the loan portfolio.
The reserve is based primarily on management's evaluation of the overall risk
characteristics of the Company's loan portfolio, which is influenced by
nonperforming loans, value of collateral, general and local economic conditions
and historical loan loss experience. Management seeks to mitigate credit losses
by maintaining strong underwriting standards and closely monitoring the
financial condition of the borrower. As of September 30, 1997, the Company's
loan loss reserve was $1,550,000 and is believed to be adequate to absorb
potential credit losses.
Three Months Ended September 30, 1997
The Company did not record a provision for loan losses in the third quarters of
1997 or 1996. Charge-offs totaled $60,000 and $3,000 for the three months ended
September 30, 1997 and 1996, respectively, and recoveries were $6,000 and
$5,000, respectively, for the same periods.
Nine Months Ended September 30, 1997
Management did not adjust the Company's loan loss reserve for the nine months
ended September 30, 1997 or for the comparable period in 1996. Charge-offs
totaled $107,000 up $82,000 compared with charge-offs of $25,000 for the
comparable period in 1996. Recoveries totaled $25,000 and $11,000 for the nine
month periods ended September 30, 1997 and 1996, respectively.
The following table presents information with respect to nonperforming assets:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
(in thousands) ------------------ -----------------
<S> <C> <C>
Loans on nonaccrual status $ 357 $ 58
Loans past due greater than 90 days
but not on nonaccrual status 58 12
Other real estate owned -- --
------------ -------------
Total nonperforming assets $ 415 $ 70
============ =============
Percentage of nonperforming assets
to total assets 0.22% 0.04%
============ =============
</TABLE>
<PAGE>
Investment Portfolio
Investment securities are purchased for managing liquidity and generating after
tax profits consistent with the risk guidelines established by management and
the Board of Directors. As of September 30, 1997, the Company's portfolio of
investment securities (including FHLB stock) totaled $40,905,000, a decrease of
$499,000 or 1.21% when compared to the balance of the portfolio at December 31,
1996 of $41,404,000. Investments in federal funds sold totaled $20,000,000 as of
September 30, 1997, compared to the $11,300,000 invested as of December 31,
1996.
The following table provides the book value of the Company's portfolio of
investment securities as of June 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
(in thousands) September 30, 1997 December 31, 1996
------------------ -----------------
Investment available-for-sale
<S> <C> <C>
U.S. Treasury and agencies $ 20,060 $ 20,093
States and political subdivisions -- --
Corporate and other investments 1,245 1,555
-------- --------
$ 21,305 $ 21,649
======== ========
Investment held-in-maturity
U.S. Treasury and agencies $ -- $ --
States and political subdivisions 18,417 18,636
Corporate and other investments -- --
-------- --------
$ 18,417 $ 18,636
======== ========
</TABLE>
Deposits
Deposits are the Company's major source of funds available for lending and other
investment opportunities. Deposit inflows and outflows are influenced
significantly by general interest rates and market conditions. Substantially all
of the Company's depositors are residents of southern Oregon. Deposits have
grown $10,910,000, or 7.01% over the last nine months to a total balance of
$166,478,000 as of September 30, 1997 as compared to total deposits of
$155,568,000 as of December 31, 1996. The growth in deposit accounts has
primarily been in Money Market and Non-Interest Bearing Checking accounts. These
two categories have increased 20.6% and 15.2%, respectively, when compared to
their respective deposit balances as December 31, 1996. Non-interest bearing
deposits continue to be a reliable and substantial portion of our deposit base
accounting for 28.9% of total deposits at September 30, 1997.
Shareholders' Equity
Shareholder equity at September 30,1 997 amounted to $22,048,000 compared to
$20,188,000 at December 31, 1996. The increase in equity reflects consolidated
earnings of $2,790,123 and the proceeds from the exercise of stock options
(38,726 shares for a total increase of $95,791). These additions to equity were
partially offset by a change in the value of the "available for sale" portion of
our investment portfolio. The "unrealized gain/loss" on this portion of the
portfolio is reflected in shareholder equity. The current value of this segment
of the Company's investment portfolio declined $19,605, net of tax, when
comparing December 31, 1996 to September 30, 1997.
The Company is required to maintain minimum amounts of capital to "risk
weighted" assets, as defined by banking regulators. At September 30, 1997, the
Company was required to have Tier 1 and Total Capital ratios of 4.0% and 8.0%,
respectively. The Company's actual ratios at that date were 15.63% and 16.77%,
respectively.
Liquidity and Capital Resources
The Company must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments , and to take advantage of investment
opportunities. With the recent growth in loans and loan commitments, as well as
the impending acquisition of Colonial Banking Company, management has become
increasingly conscious of the importance of maintaining a position of strong
liquidity. As of September 30, 1997, the Company had cash and cash equivalents
of $29.8 million, or 15.6% of total assets. Additionally, the Company has a
short term borrowing arrangement with FHLB of Seattle for cash advances up to
approximately $8.5 million.
<PAGE>
Asset-Liability Management and Interest Rate Risk
The principal purpose of asset-liability management is to manage the Company's
sources and uses of funds to maximize net interest income under changing
interest rate conditions. On a monthly basis, the Company evaluates the
stability of the Company's net interest margins and capital position under
meaningful rate changes. This includes the calculation of the Company's "GAP",
the difference between repricing assets and repricing liabilities in specific
time periods. As of September 30, 1997, management's analysis indicated that the
Company's interest rate risk was within acceptable guidelines and that
mismatched positions are short term in nature.
<PAGE>
Part II - Other Information
Item 2 -- Changes in Securities and Use of Proceeds
On November 6, 1997, the Company commenced an offering of 1,000,000 shares of
its common stock (plus an additional 150,000 shares to cover over-allotments)
pursuant to a registration statement on Form S-1 (Commission file number
333-37167) that was declared effective by the Securities and Exchange Commission
on November 5, 1997. The managing underwriter for the offering was Black &
Company, Inc., Portland, Oregon. A total of 1,150,000 shares of common stock was
registered for sale by the Company at a price to the public of $8.50 per share,
for an aggregate offering price of $9,775,000. The offering closed on November
12, 1997 with the sale of 1,000,000 shares, subject to the exercise of the
over-allotment option which may be exercised by the underwriters any time prior
to December 5, 1997. Total fees and expenses payable by the Company in
connection with the offering are estimated at $845,000, including $595,000 in
underwriting discounts and commissions, $45,000 for SEC, NASD and Nasdaq Stock
Market filing fees and blue sky fees and expenses, $200,000 for legal,
accounting and printing fees and $5,000 for other expenses. No fees or expenses
were paid to directors, officers or holders of more than 10% of the outstanding
shares of the Company. The net proceeds to the Company, estimated at $7,655,000,
will be used in connection with the acquisition of Colonial Banking Company,
expected to occur in early January, 1998. Pending such use, the net proceeds are
invested in short-term, investment-grade securities.
Item 5 -- Other Information
Effective September 30, 1997, the Company's wholly-owned subsidiary, Valley of
the Rogue Bank ("the Bank"), signed a definitive merger agreement with Colonial
Banking Company ("CBC") pursuant to which CBC would be merged with and into the
Bank, with the resulting bank continuing under the name and charter of Valley of
the Rogue Bank. The merger is subject to satisfaction of certain conditions of
closing, including regulatory and shareholder approval. The Bank has agreed to
purchase all of the outstanding shares of CBC stock for a cash price of
approximately $17.3 million. The Bank anticipates the merger to take place
effective early in January 1998. As of September 30, 1997, CBC has $112.9
million in total assets, of which $97.1 million represent outstanding loans. CBC
has five full service branches in Southern Oregon, as well as a loan production
office in Portland, Oregon. Following the merger, four of CBC's branches will
become branch offices of the Bank, and a fifth branch will be consolidated into
the Bank's main office in Rogue River, Oregon.
Item 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are being filed with or incorporated by reference into
this report in Form 10-Q and this list shall constitute the exhibit index:
3.1 Articles of Incorporation of VRB Bancorp*
3.2 Bylaws of VRB Bancorp*
4.0 Specimen stock certificate*
10.1 Stock Option Agreement, dated July 24, 1997, between Valley of the
Rogue Bank and the shareholders of Investors Banking Corporation**
10.2 Plan of Merger, dated September 30, 1997, between Valley of the Rogue
Bank and Colonial Banking Company**
10.3 Ground Lease Agreement dated June 1, 1988, relating to lease of
parking area of Poplar Drive Branch Office*
10.4 Lease Agreement and Memorandum of Agreement dated August 15, 1989
relating to lease of Stewart Avenue Branch Office*
10.5 Lease Agreement dated December 27, 1979, and related agreements
relating to the Talent Branch Office*
<PAGE>
10.6 Employment Agreement dated April 10, 1992, by and between Valley of
the Rogue Bank and Tom Anderson*
10.7 Employment Agreement dated January 11, 1993, and Amendment to
Employment Agreement, dated September 26, 1994, by and between Valley
of the Rogue Bank and William A. Haden*
10.8 1994 Amended Non-Discretionary Stock Option Plan for Non-Employee
Directors (incorporated by reference to Exhibit 4.3 of the
Registrant's registration statement on Form S-8 filed with the
Commission on October 3, 1995)
10.9 1994 Amended Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit 4.3 of the Registrant's registration statement on
Form S-8 filed with the Commission on October 3, 1995)
10.10 Employment Agreement dated February 27, 1997 by and among Valley of
the Rogue Bank, VRB Bancorp and Felice Belfiore**
10.11 Employment Agreement dated May 1, 1996 by and between Valley of the
Rogue Bank and Brad Copeland**
27.0 Financial Data Schedule
_____________________
* Incorporated by reference to the Company's registration statement on
Form 10 (Commission file number 0-25932) filed April 26, 1995 pursuant
to Section 12(g) of the Securities Exchange Act of 1934.
** Incorporated by reference to the Company's registration statement on
Form S-1 (Commission File number 333-37167 declared effective November
5, 1997).
(b) Reports on Form 8-K: None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1997 /s/ Tom Anderson
---------------------------------------------
Tom Anderson
Executive Vice President
Chief Operating Officer and Secretary
Date: November 13, 1997 /s/ Felice Belfiore
---------------------------------------------
Felice Belfiore
Vice President
Chief Financial Officer
- 15 -
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<PERIOD-END> SEP-30-1997
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0
0
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