<PAGE> 1
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 JUNE 30, 1998
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) 582-4554
---------------
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 June 30, 1998
----- ----------------------------
Common Stock, No par value 8,349,245
<PAGE> 2
VRB Bancorp
Form 10-Q
June 30, 1998
Table of Contents
----------------------------
<TABLE>
<CAPTION>
Page
PART I FINANCIAL INFORMATION Number
- ------ --------------------- ------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 ................................ 1
Consolidated Statements of Income
For the Six Months Ended June 30, 1998 and 1997..................... 2
Consolidated Statements of Income
For the Three Months Ended June 30, 1998 and 1997 ................. 3
Consolidated Statements of Changes in Shareholders' Equity
For the Period December 31, 1996 through June 30, 1998 ............ 4
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997 ................... 5
Notes to Consolidated Financial Statements ........................ 6-9
Item 2. Management's discussion and analysis of financial
condition and results of operations ............................... 10-18
Item 3. Quantitative and Qualitative Disclosures about Market Risk ........ 19
PART II OTHER INFORMATION
Item 1. Legal proceedings .................................................. 20
Item 2. Changes in securities .............................................. 20
Item 3. Defaults upon senior securities .................................... 20
Item 4. Submission of matters to a vote of security ........................ 20
Item 5. Other information .................................................. 21
Item 6. Exhibits and reports on Form 8-K ................................... 21
SIGNATURES ...................................................................... 22
</TABLE>
<PAGE> 3
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
VRB BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 11,693,132 $ 11,144,289
Federal funds sold 46,800,000 32,500,000
------------- -------------
Total cash and cash equivalents 58,493,132 43,644,289
------------- -------------
Investments
U.S. Treasury and agencies 16,307,547 20,074,686
States and political subdivisions 19,182,253 18,415,049
Corporate and other investments 849,943 1,108,163
Federal Home Loan Bank stock 1,699,300 1,208,000
Loans, net of allowance for loan losses and unearned income 186,188,521 115,413,898
Premises and equipment, net 6,275,362 4,411,372
Other real estate owned 60,000 --
Accrued interest and other assets 12,944,538 2,378,189
------------- -------------
TOTAL ASSETS $ 302,000,596 $ 206,653,646
============= =============
LIABILITIES
Deposits
Demand deposits $ 63,598,524 $ 49,998,132
Interest bearing demand deposits 105,149,383 80,334,130
Savings deposits 23,611,869 15,308,820
Time deposits 73,231,659 27,535,264
------------- -------------
Total deposits 265,591,435 173,176,346
Accrued interest and other liabilities 2,102,340 1,616,745
Total liabilities 267,693,775 174,793,091
------------- -------------
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, 30,000,000 shares authorized
with 8,349,254 and 8,340,744, issued and outstanding
at June 30, 1998 and December 31, 1997, respectively 18,482,885 18,462,712
Unrealized gain (loss) on available for sale securities (15,354) 48,542
Retained earnings 15,839,290 13,349,301
------------- -------------
Total shareholders' equity 34,306,821 31,860,555
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 302,000,596 $ 206,653,646
============= =============
</TABLE>
1
<PAGE> 4
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1998 1997
----------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $10,023,666 $ 5,520,607
Interest on investment securities:
U.S. Treasury and agencies 590,887 663,342
States and political subdivisions 460,677 470,727
Corporate and other investments 92,609 84,168
Federal funds sold 985,141 412,994
----------- -----------
Total interest income 12,152,980 7,151,838
----------- -----------
INTEREST EXPENSE
Interest bearing demand deposits 1,637,844 1,104,054
Savings deposits 265,602 166,837
Time deposits 2,088,355 637,531
Borrowed funds 4,491 --
----------- -----------
Total interest expense 3,996,292 1,908,422
----------- -----------
Net interest income 8,156,688 5,243,416
PROVISION FOR LOAN LOSSES -- --
----------- -----------
Net interest income after provision for loan losses 8,156,688 5,243,416
----------- -----------
NONINTEREST INCOME
Service charges on deposit accounts 637,320 521,926
Other operating income 353,763 200,213
Securities transactions -- 7,139
----------- -----------
Total noninterest income 991,083 729,278
----------- -----------
NONINTEREST EXPENSES
Salaries and benefits 2,947,685 2,062,296
Net occupancy 546,203 372,168
Communications 190,449 115,112
Data processing 167,481 114,679
FDIC insurance premium 31,795 8,809
Supplies 166,607 104,837
Professional fees 130,269 76,866
Other real estate expense 2,863 1,166
Other expenses 989,430 424,034
----------- -----------
Total noninterest expenses 5,172,782 3,279,967
----------- -----------
INCOME BEFORE INCOME TAXES 3,974,989 2,692,727
PROVISION FOR INCOME TAXES 1,485,000 916,000
----------- -----------
NET INCOME $ 2,489,989 $ 1,776,727
----------- -----------
BASIC AND FULLY DILUTED EARNINGS PER SHARE $ 0.30 $ 0.25
=========== ===========
</TABLE>
2
<PAGE> 5
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
-----------------------------------
1998 1997
-------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $4,910,211 $2,876,993
Interest on investment securities:
U.S. Treasury and agencies 251,994 333,278
States and political subdivisions 229,158 235,936
Corporate and other investments 44,263 41,906
Federal funds sold 573,210 192,819
---------- ----------
Total interest income 6,008,836 3,680,932
---------- ----------
INTEREST EXPENSE
Interest bearing demand deposits 806,545 542,904
Savings deposits 132,051 81,741
Time deposits 1,014,556 317,652
Borrowed Funds -- --
---------- ----------
Total interest expense 1,953,152 942,297
---------- ----------
Net interest income 4,055,684 2,738,635
PROVISION FOR LOAN LOSSES -- --
---------- ----------
Net interest income after provision for loan losses 4,055,684 2,738,635
---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 327,022 266,701
Other operating income 195,001 114,223
Securities transactions -- --
---------- ----------
Total noninterest income 522,023 380,924
---------- ----------
NONINTEREST EXPENSES
Salaries and benefits 1,479,613 1,040,906
Net occupancy 238,290 191,943
Communications 102,567 58,600
Data processing 79,031 54,551
FDIC insurance premium 15,994 6,811
Supplies 81,710 58,100
Professional fees 71,801 42,869
Other real estate expense 999 1,166
Other expenses 495,074 231,198
---------- ----------
Total noninterest expenses 2,565,079 1,686,144
---------- ----------
INCOME BEFORE INCOME TAXES 2,012,628 1,433,415
PROVISION FOR INCOME TAXES 765,000 491,000
---------- ----------
NET INCOME $1,247,628 $ 942,415
---------- ----------
BASIC AND FULLY DILUTED EARNINGS PER SHARE $ 0.15 $ 0.13
========== ==========
</TABLE>
3
<PAGE> 6
VRB BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN (LOSS) ON
AVAILABLE- TOTAL
COMMON STOCK RETAINED FOR-SALE SHAREHOLDERS'
SHARES AMOUNT EARNINGS SECURITIES EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE, December 31,
1996 (Audited) 3,574,682 $ 9,480,330 $ 10,652,015 $ 55,789 $ 20,188,134
Stock options exercised
(February to August 1997) 17,475 85,230 -- -- 85,230
2 for 1 stock split
(September 10, 1997) 3,592,157 -- -- -- --
Stock options exercised
(September to October 1997) 6,430 26,152 -- -- 26,152
Income tax benefit from stock
options exercised -- 86,896 -- -- 86,896
Cash dividend ($.14 per share,
paid October 31, 1997) -- -- (1,006,333) -- (1,006,333)
Stock Offering (November 1997) 1,150,000 8,784,104 -- -- 8,784,104
Net income -- -- 3,703,619 -- 3,703,619
Change in net unrealized gain on
available-for-sale securities,
net of taxes -- -- -- (7,247) (7,247)
--------- ------------ ------------ ------------ ------------
BALANCE, December 31, 1997
(audited) 8,340,744 $ 18,462,712 $ 13,349,301 $ 48,542 $ 31,860,555
========= ============ ============ ============ ============
Stock options exercised
(March - May 1998) 8,510 20,173 -- -- 20,173
Net income -- -- 2,489,989 -- 2,489,989
Change in net unrealized gain on
available-for-sale securities,
net of taxes -- -- -- (63,896) (63,896)
--------- ------------ ------------ ------------ ------------
BALANCE, June 30, 1998
(unaudited) 8,349,254 $ 18,482,885 $ 15,839,290 $ (15,354) $ 34,306,821
========= ============ ============ ============ ============
</TABLE>
4
<PAGE> 7
VRB BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1998 1997
----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,489,989 $ 1,776,727
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 762,199 243,511
FHLB of Seattle stock dividend (71,800) (41,300)
Gain on sale of securities -- (7,139)
Changes in assets and liabilities
Accrued interest receivable and other assets 261,463 321,274
Accrued interest payable and other liabilities (740,656) (97,419)
------------- -------------
Net cash provided by operating activities 2,701,195 2,195,654
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of available-for-sale securities 13,611,248 3,190,082
Proceeds from the maturity of held-to-maturity securities 870,000 165000
Purchases of available-for-sale securities (4,997,656) (3,000,000)
Purchases of held-to-maturity securities (1,543,721) --
Loan originations, net of principal repayments 21,814,923 (8,153,089)
Purchases of premises and equipment (272,894) (602,486)
Net cash used to purchase Colonial Banking Company (1,644,499) --
------------- -------------
Net cash provided by / (used in) investing activities 27,837,401 (8,400,493)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(decrease) in deposit liabilities, net of withdrawals (15,460,885) 879,299
Proceeds from the exercise of stock options 20,173 36,066
Repayments of FHLB of Seattle advances (249,041) --
Net cash provided by / (used in) financing activities (15,689,753) 915,365
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,848,843 (5,289,474)
CASH AND CASH EQUIVALENTS, beginning of period 43,644,289 29,216,909
------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 58,493,132 $ 23,927,435
============= =============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 3,745,348 $ 1,919,722
Cash paid for taxes $ 1,372,000 $ 570,994
SCHEDULE OF NONCASH ACTIVITIES
Changes in unrealized gain on available-for-sale
securities, net of tax $ (63,896) $ (120,991)
SUPPLEMENTAL SCHEDULE OF CASH USED TO PURCHASE
COLONIAL BANKING COMPANY
NET ASSETS ACQUIRED
Cash, cash equivalents and investment securities $ 19,280,208
Loans, net of allowance for loan losses and unearned income 92,775,384
Premises and equipment 1,816,296
Accrued interest receivable and other assets 1,695,921
Deposits (107,875,973)
Accrued interest payable and other liabilities (1,509,709)
Goodwill 9,526,357
-------------
Total proceeds payable to shareholders of Colonial Banking Company 15,708,484
-------------
Less: cash and cash equivalents acquired as a result of the acquisition (14,063,985)
-------------
NET CASH USED TO PURCHASE COLONIAL BANKING COMPANY $ 1,644,499
=============
</TABLE>
5
<PAGE> 8
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.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial 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 Bank's 1997 Annual Report
to Shareholders. The operating results for the six months ended June 30, 1998,
are not necessarily indicative of the results that may be expected for the
entire fiscal year ending December 31, 1998, or any other future interim period.
NOTE 3 - SFAS No. 128, "Earnings per share"
In 1997, the FASB issued SFAS No. 128, "Earnings per share" which is effective
for financial statements issued for periods ending after December 15, 1997. SFAS
No. 128 replaced 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 stockholders 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 plans.
6
<PAGE> 9
The following table illustrates the computations of basic and diluted earnings
per share for the three and six month periods ended June 30, 1998 and 1997
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
For the three months ended June 30, 1998
Basic earnings per share -
Income available to common shareholders $1,248 8,347 $0.15
Effect of dilutive securities
Outstanding common stock options -- 82 --
------ ------ -----
Income available to common shareholders
plus assumed conversions $1,248 8,429 $0.15
====== ====== =====
For the three months ended June 30, 1997
Basic earnings per share -
Income available to common shareholders $ 942 7,161 $0.13
Effect of dilutive securities
Outstanding common stock options -- 67 --
------ ------ -----
Income available to common shareholders
plus assumed conversions $ 942 7,228 $0.13
====== ====== =====
For the six months ended June 30, 1998
Basic earnings per share -
Income available to common shareholders $2,490 8,344 $0.30
Effect of dilutive securities
Outstanding common stock options -- 83 --
------ ------ -----
Income available to common shareholders
plus assumed conversions $2,490 8,427 $0.30
====== ====== =====
For the six months ended June 30, 1997
Basic earnings per share -
Income available to common shareholders $1,777 7,157 $0.25
Effect of dilutive securities
Outstanding common stock options -- 83 --
------ ------ -----
Income available to common shareholders
plus assumed conversions $1,777 7,220 $0.25
====== ====== =====
</TABLE>
NOTE 4 - SFAS No. 130, "Reporting Comprehensive Income"
SFAS No. 130 requires that all enterprises report a financial measure of the
changes in equity that result from recognized transactions and other economic
events of the period. Such changes in equity shall be reported in the financial
statements as components of comprehensive income. Elements of comprehensive
income include the changes in (1) the unrealized gain or loss on securities
classified as available for sale, (2) foreign currency translation adjustments,
and (3) minimum pension liabilities. SFAS No. 130 is effective for all
enterprises for years beginning after December 15, 1997.
7
<PAGE> 10
If the Company were to report comprehensive income, the change in the unrealized
gain(loss) on the Company's securities currently categorized as
available-for-sale would qualify as an element of comprehensive income. For the
six months ended June 30, 1998, the unrealized gain on the Company's available
for sale investment portfolio decreased by $63,896, net of tax, to a net loss
position of $15,354. The Bank does not have any other elements of comprehensive
income.
At this time, comprehensive income (net income plus the change in the unrealized
gain/loss on available-for-sale securities) does not materially differ from net
income as reported in the financial statements, and therefore, the provisions of
this statement need not be applied.
NOTE 5 - Acquisition of Colonial Banking Company
Effective January 5, 1998, the Company acquired Colonial Banking Company
("CBC"), a community bank with five full service branches located in the Rogue
Valley, the Company's principal region of business (herein referred to as "the
acquisition", or "the merger"). CBC also operated a loan production office out
of Portland, Oregon, which was closed immediately after the acquisition. The
acquisition, reported under the purchase method of accounting, resulted in the
addition of approximately $100 million in assets with an aggregate purchase
price of $15.7 million, and created $9.4 million in purchased goodwill with an
realizable recovery period of 15 years. With the exception of one branch which
was consolidated into the head office of the Company, the Company retained and
continues to operate all of the full service branches of CBC.
Following the acquisition, the Company instituted its pricing policies for
deposits and loans, and introduced the Company's products to all CBC customers
while endeavoring to provide the same services throughout its entire branch
network. By mid January, 1998, CBC's data processing system had been
discontinued, and the data converted and merged with the Company's existing
in-house data processing system.
The integration of CBC continues to move forward with positive results. Careful
consideration and time has been directed toward monitoring and maintaining the
credit quality of the CBC loan portfolio. In addition, the Bank's infrastructure
has expanded to accommodate the growth in asset size with relative ease.
8
<PAGE> 11
Below is condensed pro forma information for the results of operations as if the
Company and CBC had combined at the beginning of each of the respective periods
presented:
<TABLE>
<CAPTION>
For the six months
PRO FORMA INFORMATION ended June 30,
--------------------
1998 1997
------ -----
in thousands, except EPS
<S> <C> <C>
Net Interest Margin $8,204 $7,760
Net Income $2,509 $2,086
Basic earnings per share $ 0.30 $ 0.29
Fully diluted earnings per share $ 0.30 $ 0.29
Average Shares Outstanding 8,344 7,157
</TABLE>
<TABLE>
<CAPTION>
For the three months
ended June 30,
---------------------
1998 1997
------ ------
<S> <C> <C>
Net Interest Margin $4,056 $4,049
Net Income $1,248 $1,123
Basic earnings per share $ 0.15 $ 0.16
Fully diluted earnings per share $ 0.15 $ 0.16
Average Shares Outstanding 8,347 7,161
</TABLE>
Further discussion of the acquisition is noted throughout this document under
Part 1, Financial Information, Item 2, Management's discussion and analysis of
financial condition and results of operations.
9
<PAGE> 12
Disclosure Regarding Forward-Looking Statements
The following discussion includes forward-looking statements within the meaning
of the "safe-harbor" provisions of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are based on the beliefs of the
Company's management and on assumptions made by and information currently
available to management. All statements other than statements of historical
fact, regarding the Company's financial position, business strategy and plans
and objectives of management for future operations of the Company are
forward-looking statements. When used herein, the words "anticipate," "believe,"
"estimate," "expect," and "intend" and words or phrases of similar meaning, as
they relate to the Company or management, are intended to identify
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct.
Forward-looking statements are subject to certain risks and uncertainties, which
could cause actual results to differ materially from those indicated by the
forward-looking statements. These risks and uncertainties include the Company's
ability to maintain or expand its market share or net interest margins, or to
implement its marketing and growth strategies. Further, actual results may be
affected by the Company's ability to compete on price and other factors with
other financial institutions; customer acceptance of new products and services;
and, general trends in the banking industry and the regulatory environment, as
they relate to the Company's cost of funds and returns on assets. In addition,
there are risks inherent in the banking industry relating to collectibility of
loans and changes in interest rates. The reader is advised that this list of
risks is not exhaustive and should not be construed as any prediction by the
Company as to which risks would cause actual results to differ materially from
those indicated by the forward-looking statements.
Part I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
VRB Bancorp was organized in 1983 under Oregon law for the purpose of becoming a
holding company of Valley of the Rogue Bank, an Oregon state chartered bank
organized in 1967. The Company conducts its business through, and has no
material operations outside of, Valley of the Rogue Bank. Accordingly, reference
to "VRB", "the Company", and "the Bank", are intended to denote VRB Bancorp and
Valley of the Rogue Bank as a consolidated entity.
Material Changes in Results of Operations
Quarter to Quarter Comparison: 2nd quarter 1998 to 1st Quarter 1998
Net income improved slightly when comparing 2nd quarter earnings of $1,248,000
to 1st quarter earnings of $1,242,000. The Bank's EPS was consistent at 15 cents
for both quarters, as was the Bank's 1.6% return on total average assets.
For the six months ended June 30, 1998, and 1997
Net income totaled $2,490,000 or 30 cents per share for the six months ended
June 30, 1998. This is a 40% increase when compared to the same period last
year, when earnings totaled $1,777,000 or 25 cents per share. The improved
results when comparing the two periods reflect the Bank's recent acquisition of
CBC and the successful utilization of the net assets acquired.
10
<PAGE> 13
Interest Margin:
Quarter to Quarter Comparison: 2nd quarter 1998 to 1st Quarter 1998
The 2nd quarter in 1998 was a continuation of trends previously identified in
the 1st quarter. Maturing interest earning assets have been re-pricing at lower
rates and the Bank's mix of interest earning assets has shifted to accommodate
growth in short term securities and federal funds sold. In addition, the Bank
experienced a small decline in total average interest earning assets, dropping
from an average of $278.5 million in the 1st quarter to $275.9 in the 2nd
quarter. Under the combined influence of these factors, interest income declined
by approximately $136,000, or 2% when compared to the 1st quarter. However, the
ebb in interest income was recovered by an improving cost of funds, and as a
result, the Bank's interest margin remained consistent with first quarter
results of 6.06%.
For the six months ended June 30, 1998, and 1997
Net interest income of $8,157,000 for the six months ended June 30, 1998
represented a 56% increase when compared to the same period in 1997. Below is an
analysis of the various financial components that make up the Bank's interest
margin on a tax equivalent basis for the periods ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
For the six months ended June 30, 1998
-------------------------------------------
Average Inc / Exp Rate
------- --------- ----
<S> <C> <C> <C>
(in thousands)
Interest-earning assets:
Loans (*) $ 201,854 $ 10,024 9.93%
Investment securities
Taxable securities 20,971 683 6.51%
Nontaxable securities (**) 18,015 698 7.75%
Federal funds sold 36,349 985 5.42%
--------- -------- ----
Total interest earning assets 277,189 12,390 8.94%
--------- -------- ----
Cash and due from banks 13,553
Fixed assets 6,227
Loan loss allowance (4,120)
Other assets 12,828
---------
Total Assets $ 305,677
=========
Interest-bearing liabilities:
Interest-bearing checking accounts $ 107,070 $ 1,638 3.06%
Savings accounts 24,352 266 2.18%
Time deposits 77,567 2,088 5.38%
Borrowed funds 106 4 7.55%
--------- -------- ----
Total interest-bearing liabilities 209,095 3,996 3.82%
Noninterest bearing deposits 61,078 -- 0.00%
--------- -------- ----
Total deposits and borrowed funds 270,173 3,996 2.96%
--------- -------- ----
Other liabilities 2,421
---------
Total Liabilities 272,594
Shareholders' equity 33,083
---------
Total liabilities and shareholders' equity $ 305,677
=========
Net interest income $ 8,394
========
Net interest spread 5.98%
----
Average yield on earning assets (**) 8.94%
----
Interest expense to earning assets(*) 2.88%
----
Net interest margin 6.06%
----
</TABLE>
(*) Nonaccrual loans are included in the average balance.
(**) Tax-exempt income has been adjusted to a tax equivalent basis at 34%.
<TABLE>
<CAPTION>
For the six months ended June 30, 1997
------------------------------------------
Average Inc / Exp Rate
------- --------- ----
<S> <C> <C> <C>
(in thousands)
Interest-earning assets:
Loans (*) $ 104,868 $ 5,521 10.53%
Investment securities
Taxable securities 22,521 748 6.64%
Nontaxable securities (**) 18,535 713 7.69%
Federal funds sold 15,591 413 5.30%
-------- --------- -----
Total interest earning assets 161,515 7,395 9.16%
-------- --------- -----
Cash and due from banks 9,785
Fixed assets 4,350
Loan loss allowance (1,627)
Other assets 2,370
---------
Total Assets $ 176,393
=========
Interest-bearing liabilities:
Interest-bearing checking accounts $ 69,143 $ 1,104 3.19%
Savings accounts 15,435 167 2.16%
Time deposits 26,055 638 4.90%
Borrowed funds -- -- 0.00%
--------- --------- -----
Total interest-bearing liabilities 110,633 1,909 3.45%
Noninterest bearing deposits 43,490 -- 0.00%
--------- --------- -----
Total deposits and borrowed funds 154,123 1,909 2.48%
-----
Other liabilities 1,277
---------
Total Liabilities 155,400
Shareholders' equity 20,993
---------
Total liabilities and shareholders' equity $ 176,393
=========
Net interest income $ 5,486
=========
Net interest spread 6.68%
-----
Average yield on earning assets (**) 9.16%
-----
Interest expense to earning assets(*) 2.36%
-----
Net interest margin 6.79%
-----
</TABLE>
11
<PAGE> 14
The Bank's net interest margin after adjusting tax exempt income to reflect a
tax equivalent basis, increased $2,908, or 53.0%, when comparing the first six
months of 1998 and that reported in 1997. However, the margin expressed as a
percentage of net average earning assets moved to 6.06% , a 73 basis point
decline from 6.79%. Post acquisition, the Bank's yield on net interest earning
assets shifted downward to accommodate the interest rate characteristics of
approximately $98 million in newly acquired assets, which historically averaged
a 5.5% tax equivalent yield.
Management expects to continue to operate under a highly competitive loan
market, and rates on new and renewed loans will most likely reflect this
environment. Loan growth will most likely be tempered by the Bank's high credit
quality standards. The Bank's deposit pricing strategies will be designed to
place downward pressure on the Bank's average cost of funds, without adversely
impacting the bank's liquidity or financial performance(1).
The following table shows the increase (decrease) in VRB Bancorp's consolidated
interest income and expense 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 Six Months Ended June 30, 1998
Increase (Decrease) Due To
-----------------------------------------
Volume Rate Net Change
---------- --------- ----------
(in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans $ 4,816 $ (312) $ 4,504
Investment securities
Taxable securities (51) (13) (64)
Nontaxable securities (**) (20) 5 (15)
Federal funds sold 563 10 573
------- ------- -------
Total 5,308 (310) 4,998
------- ------- -------
Interest-bearing liabilities:
Interest bearing checking 580 (45) 535
Savings accounts 97 3 100
Time deposits 1,387 64 1,451
Borrowed funds 4 -- 4
------- ------- -------
Total 2,068 22 2,090
------- ------- -------
Net increase (decrease) in net interest income $ 3,240 $ (332) $ 2,908
======= ======= =======
</TABLE>
- ----------
(1) This paragraph contains forward looking statements.
12
<PAGE> 15
Non Interest Income and Non Interest Expense:
Quarter to Quarter Comparison: 2nd quarter 1998 to 1st Quarter 1998
Non interest income increased by $52,000, or 11% when comparing 2nd quarter
results to those recognized in the 1st quarter of 1998. Mortgage loan processing
fees had a strong 2nd quarter showing, with fees improving from $46,000 for the
first three month of the year, to $86,000 in the second three months of the
year. The 86% increase reflects the advantageous home mortgage market in the
Rogue Valley.
Non interest expenses declined by $43,000, or 1.6% when comparing the 1st and
2nd quarter of 1998. Management continues to look for potential reductions in
operating expenses and economies of scale.
For the six months ended June 30, 1998, and 1997
Non interest income, which is primarily services charges on deposit accounts and
mortgage processing fees, increased by $262,000 or 36% when comparing the six
months ended June 30, 1998 to the same period in 1997. The bank acquired
approximately $26 million in transactional based deposit accounts as a result of
the CBC acquisition, which in turn generated an additional $100,000 in service
and NSF fees during the 1st and 2nd quarter of 1998. In addition, the Bank
continues to focus on alternative fee income sources independent from deposit
levels.
Non interest expense increased $1,893,000, or 58%, from $3,280,000 to $5,173,000
for the six months ended June 30, 1998 and 1997, respectively. 17% of the
increase represents the amortization of intangible assets created as a result of
the acquisition of CBC. The remaining increase reflects the staffing and
maintenance of four additional branches and increased infrastructure in place to
service the Bank's loan portfolio.
The Bank efficiency ratio, or non interest expenses as a percentage of total net
interest income plus non interest income was 56% for the six months ended June
30, 1998. However, when eliminating the amortization of intangible assets
acquired as a result of the CBC merger, the Bank's efficiency margin is reduced
to 53%. This is positive relationship when compared to the same period a year
ago when the Bank's efficiency margin was 55%.
Material Changes in Financial Condition:
Liquidity and Capital Resources
The Bank 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.
Throughout the first and second quarter, the Company has experienced strong
competition for both deposits and loans. In particular, larger super-regional
banks have aggressively marketed loan programs with low interest rates and no
fee options. Over the last six months, principal loan repayments have exceeded
loan originations as commercial entities have taken advantage of the very low
re-pricing opportunities available elsewhere in the marketplace. Fueled by loan
run-off and net proceeds from the maturity or call of
13
<PAGE> 16
investment securities, the Bank's investment in federal funds sold grew to $46.8
million as of June 30, 1998 or 15.5% of total assets.
As predicted, average deposits have declined by approximately $15 million over
the last six months. The vast majority of the decline centers around time
certificates of deposit, as former CBC customers have moved maturing funds to
alternative investments. Given the Bank's high levels of liquidity, the Bank has
not sought to replace such funds except through normal means. Management is
focusing on relationship banking, and typically targets key customers with both
deposit and credit needs.
Contingencies
Year 2000 - Management continues to monitor the impact of Year 2000 on the
Bank's data processing and proprietary systems, as well as the Bank's
vulnerability to the principal borrowers of the Bank and their potential failure
to address their own Year 2000 issues. The Bank has an established an action
plan which establishes a timeline for the testing of all systems impacted by the
Year 2000, using internal and external resources at relatively minimal cost. As
of June 30, 1998, current testing is on schedule and has not revealed any
circumstances that would cause management to believe that preparing our computer
systems for Year 2000 will have a materially impact on the operations or
financial performance of the Bank. (2)
- ----------
(2) This paragraph contains forward looking statements.
14
<PAGE> 17
Balance Sheet Analysis
The table below provides abbreviated balance sheets which illustrate the
material changes in financial condition when comparing the end of the proceeding
fiscal year to June 30, 1998:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997 $ Change % Change
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Loans $186,189 $115,414 $ 70,775 61.32%
Investments 38,039 40,806 (2,767) (6.78%)
Federal funds sold 46,800 32,500 14,300 44.00%
Other Assets 30,973 17,934 13,039 72.71%
-------- -------- -------- -----
Total assets $302,001 $206,654 $ 95,347 46.14%
======== ======== ======== =====
LIABILITIES AND EQUITY
Noninterest bearing deposits $ 63,599 $ 49,998 $ 13,601 27.20%
Interest bearing deposits 201,993 123,178 78,815 63.98%
-------- -------- -------- -----
Total Deposits 265,592 173,176 92,416 53.37%
Other Liabilities 2,102 1,617 485 29.99%
-------- -------- -------- -----
Total Liabilities 267,694 174,793 92,901 53.15%
-------- -------- -------- -----
Total Capital 34,307 31,861 2,446 7.68%
-------- -------- -------- -----
Total Liabilities and Capital $302,001 $206,654 $ 95,347 46.14%
======== ======== ======== =====
</TABLE>
Loans:
The Bank provides a broad range of commercial and consumer lending products.
Credit is extended principally to small and medium sized businesses, and
residents in the local area. Outstanding loans totaled $186.2 million at June
30, 1998, representing a $70.8 million or 61.3% increase when compared to loans
of $115.4 million as of December 31, 1997. However, when excluding the loans
acquired as a result of the CBC merger, principal repayments have exceeded new
loans by over $20 million for the first six months of 1998. The decline in
average loans is due to several factors including (1) previously scheduled
payoffs on a number of loans acquired from CBC (2) maturity of several
short-term construction loans originating in the Portland market (3) the sale
the Bank's one million dollar visa loan portfolio (sold for par value) and (4) a
slowing local economy operating under a highly competitive environment.
Commitments, principally real estate construction notes and commercial lines of
credit, totaled $22.0 million at June 30, 1998, a 11% decrease when compared to
commitments outstanding as of the end of the previous quarter.
Reflective of the Bank's customer base, as well as trends within the local
economy, 85% of the Bank's loan portfolio resides in real estate mortgage loans.
Of the $137.6 million in real estate mortgage loans
15
<PAGE> 18
outstanding as of June 30, 1998, approximately $85 million were made to
commercial customers where the collateral for the loans includes the real estate
occupied by the customers' businesses. An additional $32 million represented
loans secured by multi family (5 or more) residential property and the remaining
$21 million was secured by family residential property.
Of the loans acquired as a result of the merger with CBC, 97% are collateralized
with real estate. Approximately 80% of such loans are categorized as loans
secured by nonresidential and multi-family residential properties located
throughout the state, including loans based out of Portland/Salem metropolitan
area.
The following table presents the composition of the Bank's loan portfolio at the
date indicated:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------------------------ ------------------------------
Amount Percentage Amount Percentage
----------- ------------ ---------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Commercial $ 16,201 8.70% $ 12,720 11.02%
Real estate construction 23,921 12.85% 15,476 13.41%
Real estate mortgage 137,649 73.93% 77,049 66.76%
Consumer and other 12,486 6.71% 11,949 10.35%
--------- --------- --------- ---------
190,257 102.18% 117,194 101.54%
Allowance for loan losses
and unearned fees (4,068) (2.18%) (1,780) (1.54%)
--------- --------- --------- ---------
Net loans $ 186,189 100.00% $ 115,414 100.00%
--------- --------- --------- ---------
</TABLE>
Loan Loss Reserve:
The reserve for loan losses represents management's estimate of the Bank'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 Bank's loan portfolio, which is influenced by non
performing 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 June 30, 1998, the Bank's allowance for loan
losses was $3,633,000, or 1.9% of total loans, and is believed to be adequate to
absorb potential credit losses in the near term. (3)
As of June 30, 1998, total non performing assets as a percentage of total assets
increased slightly from .18% to .21%, as management continues to closely monitor
all credits that are past due or substandard. Due to the low number of net
charge off's totaling $45,000 for the six months ended June 30, 1998, the
decline in average outstanding loans, and the relative strength of the Bank's
total loan portfolio, the Bank did not record a provision for loan losses in the
first or second quarter.
- ----------
(3) This statement is a forward looking statement.
16
<PAGE> 19
The following table presents information with respect to non-performing assets:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(in thousands)
<S> <C> <C>
Loans on nonaccrual status $428 $372
Loans past due greater than 90 days but not on nonaccrual status 156
Other real estate owned 60 --
---- ----
Total nonperforming assets $644 $372
==== ====
Percentage of nonperforming assets to total assets 0.21% 0.18%
==== ====
</TABLE>
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 June 30, 1998, the Bank's portfolio of investment
securities (including FHLB stock) totaled $38,039,000, a decrease of $2,767,000,
or 6.8% when compared to the balance of the portfolio at December 31, 1997 of
$40,806,000. The decline reflects the call or maturity of over $14 million in
securities, offset by the acquisition of approximately $5 million in securities
from the CBC merger, and the purchase of $6.5 million new securities.
The Bank currently has $46,800,000 in federal funds sold. As mentioned earlier,
loan run off and the call of several outstanding bond issues have fueled the
growth in this area. The Bank is currently reinvesting these funds into
securities with varying maturities that best accommodate the anticipated credit
and deposit trends within the Bank.
VRB follows financial accounting principles which require the identification of
investment securities as held-to-maturity or available-for-sale. Securities
designated as held-to-maturity are those that VRB has the intent and ability to
hold until they mature or are called, rather than those that management may sell
if liquidity requirements dictate. The following table provides the book value
of the Bank's investment portfolio (excluding FHLB stock) as divided between
held-to maturity and available-for-sale as of June 30, 1998 and December 31,
1997:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(in thousands)
<S> <C> <C>
Investments available-for-sale
U.S. Treasury and agencies $16,308 $20,075
States and political subdivisions -- --
Corporate and other investments 850 1,108
------- -------
$17,158 $21,183
------- -------
Investments held-to-maturity
U.S. Treasury and agencies $ -- $ --
States and political subdivisions 19,182 18,415
Corporate and other investments -- --
------- -------
$19,182 $18,415
------- -------
</TABLE>
17
<PAGE> 20
Deposits:
Deposits are the Bank'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 Bank's depositors are residents of Southern Oregon. The composition of
the Bank's deposit base shifted significantly upon the acquisition of CBC. Fixed
maturity accounts originally increased by approximately 200%; however, post
acquisition, the deposit mix has and continues to reshuffle. Higher priced CBC
time deposits are maturing as scheduled, with approximately half renewing at
lower rates. Similar to 1997, the Bank continues to see growth in non-interest
bearing and interest bearing demand deposits, which combined accounted for 63%
of total deposits at June 30, 1998. The changes in the Bank's deposit mix are
having a positive impact on the Bank's cost of funds, which has dropped from
3.00% for the first quarter of 1998 to 2.90% for the second quarter of 1998.
The changes evident in the Bank's deposit mix is further illustrated below:
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
JUNE 30 TOTAL DECEMBER 31 TOTAL
1998 DEPOSITS 1997 DEPOSITS
(in thousands)
<S> <C> <C> <C> <C>
Demand 63,598 23.9% 49,998 28.9%
Interest bearing demand 105,149 39.6 80,334 46.4
Savings 23,612 8.9 15,309 8.8
Time deposits 73,232 27.6 27,535 15.9
------- ------- ------- -------
265,591 100.0% 173,176 100.0%
======= ======= ======= =======
</TABLE>
Shareholders' Equity:
Shareholder equity at June 30, 1998 amounted to $34,307,000 compared to
$31,861,000 at December 31, 1997. The increase in equity reflects consolidated
earnings of $2,490,000 and the proceeds from the exercise of stock options (
8,510 shares for a total increase of $20,173). 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 bank's investment portfolio declined $63,896, net of tax, when comparing
December 31, 1997 to June 30, 1998.
The Bank is required to maintain minimum amounts of capital to "risk weighted"
assets, as defined by banking regulators. At June 30, 1998, the Bank was
required to have Tier 1 and Total Capital ratios of 4.0% and 8.0%, respectively.
The Bank's actual ratios at that date were 12.0% and 13.2%, respectively. While
the Bank is considered well capitalized, these ratios are materially different
when compared to ratios of 16.2% and 17.5% for the same period in 1997. The
decline in the Bank's relative capital position is principally due to the
exclusion of all purchased goodwill created as a result of the CBC acquisition
when computing the Bank's tier 1 capital.
18
<PAGE> 21
Part I - FINANCIAL INFORMATION
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, interest rate and credit risks are the most
significant risks that could have an adverse impact on the Bank's financial
condition and results of operation. Other types of market risk, such as foreign
currency exchange rate risk and commodity price risk are not relevant to Bank
operations at this time.
Interest Rate Risk
Interest rate risk is managed through the monitoring of the Bank's "gap"
position and the sensitivity of the bank's net interest margins and capital
position under changing interest rate environments. The Bank's gap is the
difference between re-pricing assets and re-pricing liabilities over specific
time periods. By managing the re-pricing characteristics of the Bank's assets
and liabilities, the Bank can minimize the potential adverse impact from
changing interest rates, while structuring the Bank's asset/liability position
to obtain the maximum interest spread.
Periodically, the Bank will "rate shock" the balance sheet by simulating a 100
and 200 basis point change in interest rates. Rate shock is an instantaneous
adjustment in market rates on a balance sheet level to determine the effect such
changes would have on the Company's income levels and capital position for the
succeeding twelve months.
As of June 30, 1998, management's analysis indicated that the Bank's interest
rate risk was within acceptable guidelines and that there are no material
changes in the Bank's exposure to mismatched re-pricing positions from that
reported as of December 31, 1997.
Credit Risk
Credit risk is principally controlled by prudent loan underwriting standards and
adequate allowances for potential loan loss (See discussion under Item 2 -
Management discussion and analysis, Loans and Loan Loss Reserve).
19
<PAGE> 22
Part II - OTHER INFORMATION
Item 1. Legal Proceedings:
The registrant is not a party to any pending legal proceedings that it believes
would have a material adverse effect on the financial condition or operations of
the registrant.
Item 2. Changes in Securities: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders:
On April 24, 1998, the shareholders of VRB Bancorp held their annual meeting.
The following directors were elected to serve terms expiring with the 1999
annual meeting of shareholders:
<TABLE>
<CAPTION>
Jim John Larry April Michael Robert Gary Tom William
Coleman Dunkin Parducci Sevcik Donovan DeArmond Lundberg Anderson Haden
Chairman Vice Chairman Director Director Director Director Director Director Director
--------- ------------- --------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For 6,103,207 6,078,747 6,103,057 6,103,307 6,100,957 6,103,207 6,083,551 6,102,707 5,957,347
Against 1,630 26,090 1,780 1,530 3,880 1,630 21,286 2,130 147,490
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 6,104,837 6,104,837 6,104,837 6,104,837 6,104,837 6,104,837 6,104,837 6,104,837 6,104,837
</TABLE>
In addition, the following matter was voted upon and approved:
Amendment to the Articles of Incorporation of VRB Bancorp to increase the total
shares of all classes of stock which VRB Bancorp shall have authority to issue
to forty million (40,000,000) divided into three classes as follows:
Five million (5,000,000) shares of voting preferred stock, with a par
value of five dollars per share.
Five million (5,000,000) shares of preferred stock, with a par value of
five dollars, without voting rights except with respect to voting rights in
the event of a default in the payment of any dividend or with respect to
any provision granting the right to consent to the issuance of a different
series of Preferred Stock which would materially affect the rights,
preferences or powers of such issuance.
Thirty million (30,000,000) shares of common stock without par value.
The number of votes cast for this matter totaled 6,104,837, with 5,538,366 for,
285,296 against, and 281,175 abstaining.
20
<PAGE> 23
Item 5. Other Information: None
Item 6a. 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 Employment Agreement dated April 10, 1992, by and between Valley of the
Rogue Bank and Tom Anderson*
10.4 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*
10.5 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)
10.6 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)
10.7 Employment Agreement dated February 27, 1997 by and among Valley of the
Rogue Bank, VRB Bancorp and Felice Belfiore**
10.8 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.
Item 6b. Reports on Form 8-K: None
21
<PAGE> 24
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: August 10, 1998
/s/ TOM ANDERSON
-----------------------------------------
Executive Vice President
Chief Operating Officer and Secretary
Date: August 10, 1998 /s/ FELICE BELFIORE
-----------------------------------------
Felice Belfiore
Vice President
Chief Financial Officer
22
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 11,693
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 46,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,156
<INVESTMENTS-CARRYING> 19,182
<INVESTMENTS-MARKET> 19,729
<LOANS> 190,257
<ALLOWANCE> 4,068
<TOTAL-ASSETS> 302,001
<DEPOSITS> 265,591
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,102
<LONG-TERM> 0
0
0
<COMMON> 18,483
<OTHER-SE> 15,824
<TOTAL-LIABILITIES-AND-EQUITY> 302,001
<INTEREST-LOAN> 10,024
<INTEREST-INVEST> 2,129
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 12,153
<INTEREST-DEPOSIT> 3,992
<INTEREST-EXPENSE> 5
<INTEREST-INCOME-NET> 8,157
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,173
<INCOME-PRETAX> 3,975
<INCOME-PRE-EXTRAORDINARY> 3,975
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,490
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
<YIELD-ACTUAL> .884
<LOANS-NON> 428
<LOANS-PAST> 156
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,780
<CHARGE-OFFS> 60
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 3,633
<ALLOWANCE-DOMESTIC> 3,673
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
