SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 5, 1998
VRB Bancorp
---------------------------------------
(Exact Name of Registrant as specified in its charter)
Oregon 000-25932 93-0892559
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.
of incorporation)
110 Pine St., Rogue River, Oregon 97537
- --------------------------------------------------------------------------------
Address of Principal Executive Office Zip Code
Registrant's telephone number including area code: 541-582-3216
-----------------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
1
<PAGE>
Item 2. Acquisition or Disposition of Assets
On January 5, 1998, the registrant, through its wholly-owned
subsidiary, Valley of the Rogue Bank ("VRB"), completed the acquisition of
Colonial Banking Company ("Colonial Bank"), an Oregon banking corporation
with principal offices in Grants Pass, Oregon. Prior to the acquisition,
Colonial Bank operated five branch offices in southern Oregon, one of which,
in Rogue River, has been consolidated with VRB's main office.
Pursuant to a Stock Option Agreement, dated July 24, 1997, between VRB
and shareholders of Investors Banking Corporation ("IBC"), a registered bank
holding company and 81% shareholder of Colonial Bank, VRB acquired all of the
outstanding shares of IBC. Following liquidation of IBC, VRB effected a
statutory merger of Colonial Bank into VRB.
The terms and conditions of the acquisition, including the
consideration, were negotiated at arms-length, and were previously reported
in a registration statement on Form S-1 (Commission file no. 333-37167)
relating to a public offering of 1,150,000 shares of the registrant's common
stock. The proceeds of the offering provided approximately $8.8 million of
the consideration for the acquisition, with the balance coming from VRB's
other cash resources. Consideration for the acquisition of Colonial Bank was
paid in cash, and totaled approximately $17.3 million, including $12.6
million paid to shareholders and holders of stock options of IBC and $3.1
million paid to minority shareholders of Colonial Bank. Prior to the closing
of the acquisition, Colonial Bank paid approximately $1.6 million to cancel
outstanding options to acquire Colonial Bank stock.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Audited financial statements of Colonial Banking Company for the
years ended December 31, 1997, 1996, and 1995, are filed as Appendix A
to this Form 8K beginning on page F-1.
(b) Pro Forma Financial Information.
The following pro forma combined financial information of VRB gives
effect to the acquisition of Colonial Bank as of December 31, 1997.
The pro forma combined balance sheet was prepared as if the acquisition
had occurred on December 31, 1997. The pro forma statement of income was
prepared as if the acquisition had occurred prior to the beginning of the
fiscal year presented.
2
<PAGE>
The pro forma combined balance sheet and statements of income are not
necessarily indicative of the consolidated financial position or results of
operations as they might have been had the acquisition actually occurred on
the dates indicated.
PRO FORMA COMBINED BALANCE SHEET
December 31, 1997
<TABLE>
<CAPTION>
Historical
----------------------
Colonial
VRB Banking Acquisition Pro Forma
Bancorp Company Adjustments Combined
---------- ---------- ------------ ----------
(audited) (audited)
ASSETS
<S> <C> <C> <C> <C>
Cash and due from banks ........................ $ 21,144 $ 2,884 $ -- $ 24,028
Federal funds sold ............................. 22,500 8,930 (15,708)(A) 15,722
--------- --------- --------- ---------
Total cash and cash equivalents ........... 43,644 11,814 (15,708) 39,750
Investments .................................... 40,806 5,189 13 (B) 46,008
Loans, net of allowance for loan losses and .... 115,414 92,560 -- 207,974
unearned income
Premises and equipment, net .................... 4,412 1,816 -- 6,228
Accrued interest and other assets .............. 1,637 1,693 (24)(B) 3,306
Goodwill ....................................... 741 -- 9,442 (A) 10,194
11 (B)
--------- --------- --------- ---------
Total assets .............................. $ 206,654 $ 113,072 $ (6,266) $ 313,460
========= ========= ========= =========
LIABILITIES
Deposits ....................................... $ 173,176 $ 104,406 $ -- $ 277,582
Borrowed funds ................................. -- 249 -- 249
Accrued interest and other liabilities ......... 1,617 2,151 -- 3,768
--------- --------- --------- ---------
Total liabilities ......................... 174,793 106,806 -- 281,599
SHAREHOLDER'S EQUITY
Preferred Stock ................................ -- 1,502 (1,502)(A) --
Common Stock ................................... 18,463 1,180 (1,180)(A) 18,463
Surplus ........................................ -- 3,402 (3,402)(A) --
Unrealized gain on available-for-sale securities 49 -- -- 49
Retained earnings .............................. 13,349 182 (182)(A) 13,349
--------- --------- --------- ---------
Total shareholders' equity ................ 31,861 6,266 (6,266) 31,861
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 206,654 $ 113,072 $ (6,266) $ 313,460
========= ========= ========= =========
</TABLE>
3
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Historical
----------------------
Colonial
VRB Banking Acquisition Pro Forma
Bancorp Company Adjustments Combined
---------- ---------- ------------ ----------
(audited) (audited)
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans ..................... $ 11,444 $ 8,765 $ -- $ 20,209
Interest on investment securities .............. 2,448 590 -- 3,038
Federal funds sold ............................. 1,063 361 (864)(C) 560
---------- ---------- ---------- ----------
Total interest income ..................... 14,955 9,716 (864) 23,807
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest-bearing demand deposits ............... 2,415 693 -- 3,108
Savings deposits ............................... 337 298 -- 635
Time deposits .................................. 1,310 3,199 -- 4,509
Borrowed funds ................................. -- 15 -- 15
---------- ---------- ---------- ----------
Total interest expense .................... 4,062 4,205 -- 8,267
---------- ---------- ---------- ----------
Net interest income ....................... 10,893 5,511 (864) 15,540
PROVISION FOR LOAN LOSSES ...................... 250 674 -- 924
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses ............................. 10,643 4,837 (864) 14,616
---------- ---------- ---------- ----------
NON-INTEREST INCOME
Service charges on deposit accounts ............ 1,020 365 -- 1,385
Other operating income ......................... 651 432 -- 1,083
---------- ---------- ---------- ----------
Total non-interest income ................. 1,671 797 -- 2,468
---------- ---------- ---------- ----------
NON-INTEREST EXPENSE
Salaries and benefits .......................... 4,120 3,364 (1,751)(D) 5,733
Net occupancy .................................. 814 525 -- 1,339
Goodwill amortization .......................... 80 -- 629 (E) 709
Other expenses ................................. 1,859 750 -- 2,609
---------- ---------- ---------- ----------
Total non-interest expenses ............... 6,873 4,639 (1,122) 10,390
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES ..................... 5,441 995 258 6,694
PROVISION FOR INCOME TAXES ..................... 1,737 351 (328)(F) 2,425
665 (G)
---------- ---------- ---------- ----------
NET INCOME ..................................... $ 3,704 $ 644 $ (79) $ 4,269
========== ========== ========== ==========
BASIC EARNINGS PER SHARE ....................... $ 0.58
==========
DILUTED EARNINGS PER SHARE ..................... $ 0.58
==========
WEIGHTED AVERAGE SHARES OUTSTANDING ............ 7,345
==========
<FN>
(A) In accordance with the Plan of Merger, and pursuant to the Stock Option
Agreement, VRB purchased all of the shares of IBC at an aggregate exercise
price equal to $12.6 million. IBC then liquidated into VRB and VRB acquired
Colonial, by merger, through the redemption of the remaining common and
preferred stock owned by the minority shareholders for $43.36 per share.
The total purchase price of $15,708,000 was paid by liquidation of federal
funds sold.
(B) The acquisition of Colonial was accounted for using the purchase method of
accounting under generally accepted accounting principles. Accordingly, the
net assets of Colonial have been adjusted to their approximate fair value
as of December 31, 1997 for a combined decrease in assets of $11,000. IBC
has no significant net assets other than its investment in Colonial.
(C) The amount represents estimated loss of earnings from funds used to
purchase Colonial, assuming such funds would have earned a rate equivalent
to the average federal funds rate of 5.44% experienced during the period
presented.
(D) In accordance with the Plan of Merger, prior to the acquisition, Colonial
cashed out 47,599 common and preferred stock options at an amount equal to
the difference between the weighted average exercise price of $10.61 and
$43.36 per share. Colonial also made severance payments to certain senior
officers equivalent to one year's salary. Both of these events, which
totaled $1,751,000, are considered material non-recurring charges directly
attributable to the acquisition of Colonial, and are therefore, excluded
from the pro forma combined statement of income.
(E) The amount represents amortization of goodwill created as a result of the
acquisition of Colonial, assuming a 15-year amortization period.
(F) The estimated tax effect of the transactions described in Note C has been
computed at a combined statutory tax rate of 38% in effect during the
period presented.
(G) The amount represents the tax effect of the non-recurring transactions
described in Note D at an effective tax rate of 38%.
</FN>
</TABLE>
4
<PAGE>
(c) Exhibits.
The following exhibits are being filed herewith or incorporated
by reference:
2.1 Stock Option Agreement, dated July 24, 1997, by and among
Valley of the Rogue Bank and the shareholders of Investors
Banking Corporation *
2.2 Plan of Merger, dated September 30, 1997, by and between
Valley of the Rogue Bank and Colonial Banking Company *
23.1 Consent of Moss Adams LLP
* Incorporated by reference to the registrant's registration
statement on Form S-1 (Commission file number 333-37167) as
declared effective by the Commission on November 12, 1997.
5
<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 hereunto duly authorized.
VRB BANCORP
(Registrant)
Date: March 20, 1998 By: /s/ Tom Anderson
Tom Anderson,
Executive Vice President
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Colonial Banking Company Page
Independent Auditor's Report.............................................F-2
Balance Sheets...........................................................F-3
Statements of Income.....................................................F-4
Statements of Changes in Shareholders' Equity............................F-5
Statements of Cash Flows.................................................F-6
Notes to Financial Statements............................................F-7
Note: These financial statements have not been reviewed, or confirmed for
accuracy or relevance by the Federal Deposit Insurance Corporation.
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Colonial Banking Company:
We have audited the accompanying balance sheets of Colonial Banking Company
as of December 31, 1997 and 1996, and the related statements of income,
changes in shareholders' equity, and cash flows for the years ended December
31, 1997, 1996, and 1995. These financial statements are the responsibility
of Colonial Banking Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Colonial Banking Company as
of December 31, 1997 and 1996, and the results of its operations and cash
flows for the years ended December 31, 1997, 1996, and 1995, in conformity
with generally accepted accounting principles.
Moss Adams LLP
Portland, Oregon
January 16, 1998
F-2
<PAGE>
COLONIAL BANKING COMPANY
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
-------------------
ASSETS 1997 1996
--------- --------
<S> <C> <C>
Cash and due from banks .................................. $ 2,884 $ 1,873
Federal funds sold ....................................... 8,930 6,385
-------- --------
Total cash and cash equivalents ..................... 11,814 8,258
-------- --------
Held-to-maturity securities .............................. 4,769 13,348
Federal Home Loan Bank stock ............................. 420 389
Loans held-for-sale ...................................... 110 181
Loans, net of allowance for loan losses
and unearned income .................................... 92,450 73,026
Premises and equipment, net .............................. 1,816 1,524
Accrued interest and other assets ........................ 1,693 1,164
-------- --------
Total assets ........................................ $113,072 $ 97,890
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand deposits ....................................... $ 8,330 $ 7,462
Interest-bearing demand deposits ...................... 28,298 22,569
Savings deposits ...................................... 17,214 18,666
Time deposits ......................................... 50,564 42,844
-------- --------
Total deposits ...................................... 104,406 91,541
Accrued interest and other liabilities ................ 2,151 328
Long-term debt ........................................ 249 271
-------- --------
Total liabilities ................................... 106,806 92,140
-------- --------
Commitments and contingencies (Note 11)
Shareholders' equity
Preferred stock, non-voting, $10.50 par value;
160,857 shares authorized, 143,008 shares
issued and outstanding .............................. 1,502 1,502
Common stock, $5 par value, 2,000,000 shares
authorized, 235,993 shares issued and outstanding ... 1,180 1,180
Surplus ............................................... 3,402 2,302
Undivided profits ..................................... 182 766
-------- --------
Total shareholders' equity .......................... 6,266 5,750
======== ========
Total liabilities and shareholders' equity .......... $113,072 $ 97,890
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
COLONIAL BANKING COMPANY
STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1997 1996 1995
------- ------- -------
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans .......................... $8,765 $6,061 $5,000
Interest on investment securities held-to-maturity:
State and municipal subdivisions .................. 20 43 50
U.S. Treasuries and agencies ...................... 570 852 740
Interest on federal funds sold ...................... 361 680 296
Interest on deposits with banks ..................... -- -- 4
------ ------ ------
Total interest income ............................. 9,716 7,636 6,090
------ ------ ------
INTEREST EXPENSE
Interest-bearing demand deposits .................... 693 516 461
Savings deposits .................................... 298 333 437
Time deposits ....................................... 3,199 2,715 1,931
Other borrowings .................................... 15 17 21
------ ------ ------
Total interest expense ............................ 4,205 3,581 2,850
------ ------ ------
Net interest income ............................ 5,511 4,055 3,240
PROVISION FOR LOAN LOSSES ........................... 674 428 234
------ ------ ------
Net interest income after provision for loan losses 4,837 3,627 3,006
------ ------ ------
NON-INTEREST INCOME
Service charges on deposit accounts ................. 365 386 374
Other service charges and fees ...................... 335 286 241
Gains on sale of mortgage loans, net ................ 97 100 77
------ ------ ------
Total non-interest income ......................... 797 772 692
------ ------ ------
NON-INTEREST EXPENSE
Salaries and benefits ............................... 3,364 1,443 1,202
Net occupancy ....................................... 525 509 458
Communications ...................................... 80 91 109
FDIC insurance premium .............................. 40 40 78
Supplies ............................................ 46 53 48
Professional fees ................................... 61 35 24
Other expenses ...................................... 523 486 470
------ ------ ------
Total non-interest expenses ....................... 4,639 2,657 2,389
------ ------ ------
INCOME BEFORE INCOME TAXES .......................... 995 1,742 1,309
PROVISION FOR INCOME TAXES .......................... 351 649 449
------ ------ ------
NET INCOME .......................................... $ 644 $1,093 $ 860
====== ====== ======
BASIC EARNINGS PER COMMON AND COMMON ................ $ 2.19 $ 4.16 $ 3.10
EQUIVALENT SHARE
====== ====== ======
DILUTED EARNINGS PER COMMON AND COMMON .............. $ 1.70 $ 2.73 $ 2.16
EQUIVALENT SHARE
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
COLONIAL BANKING COMPANY
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Total
Preferred Stock Common Stock Undivided Shareholders'
Shares Amount Shares Amount Surplus Profits Equity
------------------ --------------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 ........... 143 $ 1,500 236 $ 1,179 $ 1,155 $ 215 $ 4,049
Exercise of preferred stock options .. -- 2 -- -- -- -- 2
Exercise of common stock options ..... -- -- -- 1 1 -- 2
Cash dividends paid on preferred stock -- -- -- -- -- (128) (128)
Net income ........................... -- -- -- -- -- 860 860
------- -------- ------- -------- -------- -------- --------
BALANCE, December 31, 1995 ........... 143 1,502 236 1,180 1,156 947 4,785
Transfer to surplus .................. -- -- -- -- 1,146 (1,146) --
Cash dividends paid on preferred stock -- -- -- -- -- (128) (128)
Net income ........................... -- -- -- -- -- 1,093 1,093
------- -------- ------- -------- -------- -------- --------
BALANCE, December 31, 1996 ........... 143 1,502 236 1,180 2,302 766 5,750
Transfer to surplus .................. -- -- -- -- 1,100 (1,100) --
Cash dividends paid on preferred stock -- -- -- -- -- (128) (128)
Net income ........................... -- -- -- -- -- 644 644
------- -------- ------- -------- -------- -------- --------
BALANCE, December 31, 1997 ........... 143 $ 1,502 236 $ 1,180 $ 3,402 $ 182 $ 6,266
======= ======== ======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
COLONIAL BANKING COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income ..................................................... $ 644 $ 1,093 $ 860
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization ............................... 206 213 203
Provision for loan losses ................................... 674 428 234
Gains on sales of mortgage loans, net ....................... (97) (100) (77)
Deferred taxes .............................................. (275) (165) (117)
Originations of mortgage loans held-for-sale ................ (7,227) (6,993) (5,994)
Proceeds from sales of mortgage loans ....................... 7,337 6,993 6,110
Change in cash due to changes in certain assets and liabilities:
Increase in accrued interest and other assets ............... (254) (80) (97)
Increase (decrease) in accrued interest and other liabilities 1,823 (256) 180
--------- --------- ---------
Net cash from operating activities ..................... 2,831 1,133 1,302
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest-bearing deposits with banks ........... -- -- 594
Purchases of investment securities held-to-maturity ............ -- (7,674) (3,164)
Proceeds from maturities and calls of investment securities .... 8,548 9,983 3,678
held-to-maturity
Net increase in loans .......................................... (20,040) (18,925) (12,732)
Purchases of premises and equipment ............................ (498) (44) (452)
--------- --------- ---------
Net cash from investing activities .......................... (11,990) (16,660) (12,076)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ....................................... 12,865 13,568 19,883
Net decrease in short-term borrowings .......................... -- -- (1,225)
Proceeds from issuance of preferred stock ...................... -- -- 102
Repayment of long-term debt .................................... (22) (22) (18)
Cash dividends paid on preferred stock ......................... (128) (128) (128)
Net proceeds from exercise of preferred stock options .......... -- -- 2
Net proceeds from exercise of common stock options ............. -- -- 2
--------- --------- ---------
Net cash from financing activities .......................... 12,715 13,418 18,618
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH FLOW EQUIVALENTS ........ 3,556 (2,109) 7,844
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................... 8,258 10,367 2,523
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ......................... $ 11,814 $ 8,258 $ 10,367
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ......................................... $ 4,130 $ 3,351 $ 2,690
========= ========= =========
Cash paid for taxes ............................................ $ 562 $ 1,104 $ 534
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
COLONIAL BANKING COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE 1 - Organization And Summary Of Significant Accounting Policies
Description of business - The Bank is a state-chartered institution
authorized to provide banking services by the State of Oregon. With its
headquarters in Grants Pass, Oregon, the Bank also has branch operations in
Josephine and Jackson County, Oregon. The Bank is subject to the regulations
of certain Federal and State agencies and undergoes periodic examinations by
those regulatory authorities.
Management's estimates and assumptions - In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates.
Investment securities - The Bank is required to specifically identify under
generally accepted accounting principles its investment securities as
"held-to-maturity," "available-for-sale," or "trading accounts." Accordingly,
management has determined that all investment securities held at December 31,
1997, 1996, and 1995, are "held-to-maturity" and conform to the following
accounting policies:
Securities held-to-maturity - Bonds, notes, and debentures for which the Bank
has the intent and ability to hold to maturity are reported at cost, adjusted
for premiums and discounts that are recognized in interest income using the
interest method over the period to maturity.
Declines in the fair value of individual held-to-maturity securities below
their cost that are other than temporary, result in write-downs of the
individual securities to their fair value. The related write-downs would be
included in earnings as realized losses. Premiums and discounts are
recognized in interest income using the interest method over the period to
maturity.
Loans, net of allowance for loan losses and unearned income - Loans are
stated at the amount of unpaid principal, reduced by an allowance for loan
losses and unearned income. Interest on loans is calculated by using the
simple-interest method on daily balances of the principal amount outstanding.
The allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the allowance for loan
losses when management believes that the collectability of the principal is
unlikely. The allowance is an amount that management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectable, based on evaluations of the collectability of loans and prior
loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions
that may affect the borrower's ability to pay. Various regulatory agencies,
as an integral part of their examination process, periodically review the
Bank's reserve for loan losses. Such agencies may require the Bank to
recognize additions to the reserve based on their judgment of information
available to them at the time of their examinations.
Impaired loans are carried at the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's market price, or
the fair value of the collateral if the loan is collateral dependent. Accrual
of interest is discontinued on impaired loans when management believes, after
considering economic and business conditions, collection efforts, and
collateral position, that the borrower's financial condition is such that
collection of interest is doubtful. When interest accrual is discontinued,
all unpaid accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment to the yield of the related loan.
Loansheld-for-sale - Mortgage loans held-for-sale are carried at the lower of
cost or estimated market value. Market value is determined on an aggregate loan
basis. At December 31, 1997 and 1996, mortgage loans held-for-sale were carried
at cost which approximated market.
F-7
<PAGE>
Premises and equipment - Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed on straight-line and
accelerated methods over the shorter of estimated useful lives of the assets
or terms of the leases.
Income taxes - Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in
tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
Statement of cash flows - Cash equivalents are generally all short-term
investments with a maturity of three months or less. Cash and cash
equivalents normally include cash on hand, amounts due from banks, and
federal funds sold.
Off-balance-sheet financial instruments - The Bank holds no derivative
financial instruments. However, in the ordinary course of business, the Bank
enters into off-balance-sheet financial instruments consisting of commitments
to extend credit as well as commercial letters of credit and standby letters
of credit. Such financial instruments are recorded in the financial
statements when they are funded or related fees are incurred or received.
Fair value of financial instruments - The following methods and assumptions
were used by the Bank in estimating fair values of financial instruments as
disclosed herein:
Cash and cash equivalents - The carrying amounts of cash and short-term
instruments approximate their fair value.
Held-to-maturity securities - Fair values for investment securities,
excluding restricted equity securities, are based on quoted market prices.
The carrying values of restricted equity securities approximate fair values.
Loans receivable - For variable-rate loans that reprice frequently and have
no significant change in credit risk, fair values are based on carrying
values. Fair values for certain mortgage loans (for example, one-to-four
family residential), credit card loans, and other consumer loans are based on
quoted market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. Fair values
for commercial real estate and commercial loans are estimated using
discounted cash flow analyses, using interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality. Fair
values for impaired loans are estimated using discounted cash flow analyses
or underlying collateral values, where applicable.
Deposit liabilities - The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the reporting date (that
is, their carrying amounts). The carrying amounts of variable-rate,
fixed-term money market accounts, and certificates of deposit (CDs)
approximate their fair values at the reporting date. Fair values for
fixed-rate CDs are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a schedule
of aggregated expected monthly maturities on time deposits.
Long-term debt - The fair values of the Bank's long-term debt are estimated
using discounted cash flow analyses based on the Bank's current incremental
borrowing rates for similar types of borrowing arrangements.
Accrued interest - The carrying amounts of accrued interest approximate their
fair values.
Off-balance-sheet instruments - The Bank's off-balance-sheet instruments
include unfunded commitments to extend credit and standby letters of credit.
The fair value of these instruments is not considered practicable to estimate
because of the lack of quoted market prices and the inability to estimate
fair value without incurring excessive costs.
Advertising - Advertising costs are generally charged to expense during the
year in which they are incurred.
Stock options - In October 1995 the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation." This new standard defines a fair
value based method of accounting for an employee stock option or similar
equity instrument.
This statement gives entities a choice of recognizing related compensation
expense by adopting the new fair value method or to continue to measure
compensation using the intrinsic value approach under Accounting Principles
Board (APB) Opinion No. 25, the former standard. If the former standard for
measurement were elected, SFAS No. 123 requires supplemental disclosure to
show the effects of using the new measurement criteria. The Bank has elected
F-8
<PAGE>
to continue using the measurement prescribed by APB Opinion No. 25, and
accordingly, this pronouncement has had no affect on the Bank's financial
position or results of operations.
Recently issued accounting standards - In June 1997, the FASB issued SFAS No.
130 "Reporting Comprehensive Income" which the Bank is required to adopt for
years beginning after December 15, 1997. This statement establishes standards
for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general purpose
financial statements. When adopted, the unrealized gain or loss on
available-for-sale securities will be recognized as a component of
comprehensive income.
Other issued but not yet required FASB statements are not currently
applicable to the Bank's operations.
Reclassifications - Certain reclassifications have been made to the 1996 and
1995 financial statements to conform with current year presentations.
F-9
<PAGE>
NOTE 2 -Investment Securities
The amortized cost and estimated market values of investment securities at
December 31, 1997 and 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
December 31, 1997
Held-to-maturity securities:
<S> <C> <C> <C> <C>
U.S. Government and agency securities ......... $ 4,320 $ 15 $ -- $ 4,335
Obligations of state and political subdivisions 95 1 -- 96
Mortgage-backed securities .................... 354 -- (3) 351
-------- -------- -------- --------
$ 4,769 $ 16 $ (3) $ 4,782
======== ======== ======== ========
December 31, 1996
Held-to-maturity securities:
U.S. Government and agency securities ......... $ 9,806 $ 22 $ (14) $ 9,814
U.S. Treasury securities ...................... 1,988 -- (7) 1,981
Obligations of state and political subdivisions 892 2 -- 894
Mortgage-backed securities .................... 662 7 -- 669
-------- -------- -------- --------
$ 13,348 $ 31 $ (21) $ 13,358
======== ======== ======== ========
</TABLE>
The amortized cost and estimated market value of investment securities
held-to-maturity at December 31, 1997, by contractual maturity, are shown
below (in thousands). Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties. Mortgage-backed securities are
listed separately as their estimated average lives vary according to changes
in interest rates.
Amortized Estimated
Cost Market Value
--------- ------------
Due in one year or less ......................... $ 946 $ 942
Due after one year through five years ........... 3,469 3,489
Mortgage-backed securities ...................... 354 351
------- -------
$4,769 $4,782
======= =======
Investment securities with a carrying value of approximately $323,000 and
$505,000 were pledged at December 31, 1997 and 1996, respectively, to secure
Federal Home Loan Bank borrowings. At December 31, 1997 and 1996, investment
securities with an amortized cost of $250,000 and $477,000, respectively,
were pledged to secure public deposits and for other purposes required or
permitted by law.
The Bank, as a member of the Federal Home Loan Bank (FHLB) system, is
required to maintain an investment in capital stock of the FHLB. The FHLB
stock is not actively traded but is redeemable by FHLB at its current book
value.
F-10
<PAGE>
NOTE 3 - Loans and Reserve for Loan Losses
The loan portfolio consisted of the following (in thousands):
1997 1996
-------- --------
Real estate:
Commercial .............................. $ 6,500 $ 6,366
Construction ............................ 11,810 9,238
Mortgage ................................ 62,835 46,997
Installment ............................. 2,256 2,574
Commercial .............................. 11,508 9,527
-------- --------
$ 94,909 $ 74,702
Less:
Allowance for loan loss ................. (1,898) (1,297)
Unearned income ......................... (561) (379)
-------- --------
$ 92,450 $ 73,026
======== ========
The following is an analysis of the changes in the allowance for loan losses (in
thousands):
1997 1996 1995
------- ------- -------
Beginning balance .......................... $ 1,297 $ 981 $ 775
Provision for loan losses .................. 674 428 234
Losses ..................................... (76) (118) (37)
Recoveries ................................. 3 6 9
------- ------- -------
Ending balance ............................. $ 1,898 $ 1,297 $ 981
======= ======= =======
There were no impaired loans at December 31, 1997 or 1996.
NOTE 4 - Premises and Equipment
Premises, furniture, and equipment consisted of the following (in thousands):
1997 1996
------- -------
Land ......................................... $ 199 $ 199
Buildings .................................... 1,996 1,952
Furniture and equipment ...................... 971 892
------- -------
3,166 3,043
Less accumulated depreciation ................ (1,350) (1,519)
------- -------
$ 1,816 $ 1,524
======= =======
F-11
<PAGE>
NOTE 5 - Accrued Interest and Other Assets
Accrued interest and other assets consisted of the following (in thousands):
1997 1996
------ ------
Accrued interest receivable .................... $ 690 $ 713
Prepaid expenses ............................... 68 91
Deferred taxes ................................. 536 261
Income tax refund receivable ................... 253 --
Other assets ................................... 146 99
------ ------
$1,693 $1,164
====== ======
NOTE 6 - Time Deposits
Time certificates of deposit of $100,000 and over, aggregated $9,160,000 and
$6,228,000 at December 31, 1997 and 1996, respectively.
At December 31, 1997, the scheduled maturities for time deposits is as
follows (in thousands):
1998 $ 34,133
1999 9,539
2000 5,254
2001 763
2002 and thereafter 875
---------
$ 50,564
=========
NOTE 7 - Income Taxes
The income tax provision consisted of the following (in thousands):
1997 1996 1995
----- ----- -----
Current ................................. $ 626 $ 814 $ 566
Deferred ................................ (275) (165) (117)
----- ----- -----
Provision for income taxes .............. $ 351 $ 649 $ 449
===== ===== =====
Deferred income taxes represent the tax effect of differences in timing
between financial income and taxable income. Deferred income taxes, according
to the timing differences which caused them, were as follows (in thousands):
1997 1996 1995
----- ----- -----
Accounting loan loss provision in excess ...... $(231) $(120) $ (78)
of tax provision
Accounting depreciation in excess of tax ...... (19) (27) (16)
depreciation
Accrued to cash basis conversion .............. (37) (34) (40)
Federal Home Loan Bank stock dividends ........ 12 13 8
Other differences ............................. -- 3 9
----- ----- -----
$(275) $(165) $(117)
===== ===== =====
F-12
<PAGE>
The net deferred tax benefits included in other assets in the accompanying
balance sheets include the following components (in thousands):
1997 1996
---- ----
Deferred tax assets:
Loan loss reserve .................................... $630 $395
Accumulated depreciation ............................. 19 --
---- ----
649 395
---- ----
Deferred tax liabilities:
Cash to accrual conversion ........................... 69 103
Federal Home Loan Bank stock dividends44 ............. 32
---- ----
113 135
---- ----
Net deferred tax asset ................................. $536 $261
==== ====
Management believes, based upon the Bank's historical performance, net
deferred tax assets will be realized in the normal course of operations and,
accordingly, management has not reduced net deferred tax assets by a
valuation allowance.
The tax provision differs from the federal statutory rate of 34% due
principally to the effect of tax exemptions for interest received on
municipal investments. The 1997 and 1995 provisions for income taxes reflect
a reduction in the state income tax rate from 6.6% to 3.8% and 3.3%,
respectively.
A reconciliation between the statutory federal income tax rate and the
effective tax rate is as follows (in thousands):
1997 1996 1995
----- ----- -----
Federal income taxes at statutory rate ........ $ 338 $ 592 $ 444
State income tax expense, net of federal ...... 38 115 43
income tax benefit
Other ......................................... (25) (58) (38)
----- ----- -----
$ 351 $ 649 $ 449
===== ===== =====
Effective tax rate ............................ 35% 37% 34%
===== ===== =====
NOTE 8 - Financial Instruments With Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit and financial guarantees. Those instruments involve
elements of credit and interest-rate risk similar to the amounts recognized
in the balance sheets. The contract or notional amounts of those instruments
reflect the extent of the Bank's involvement in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit, and financial guarantees written, is represented
by the contractual notional amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank's experience has been that a
significant amount of loan commitments are drawn upon by customers. While most
commercial letters of credit are not utilized, a significant portion of such
utilization is on an immediate payment basis. The Bank evaluates each
F-13
<PAGE>
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if it is deemed necessary by the Bank upon extension of credit, is
based on management's credit evaluation of the counter-party. Collateral held
varies but may include cash, accounts receivable, inventory, premises and
equipment, and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to
a third party. These guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond financing,
and similar transactions. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities
to customers. The Bank holds cash, marketable securities, or real estate as
collateral supporting those commitments for which collateral is deemed
necessary.
The Bank has not been required to perform on any financial guarantees during
the past two years, and has not incurred any losses on its commitments in
1997, 1996, or 1995.
A summary of the notional amounts of the Bank's financial instruments with
off-balance-sheet risk at December 31, 1997 and 1996, follows (in thousands):
1997 1996
------- -------
Commitments to extend credit ....................... $10,737 $10,252
Commercial and standby letters of credit ........... 336 352
------- -------
$11,073 $10,604
======= =======
NOTE 9 - Fair Values of Financial Instruments
The following table estimates fair value and the related carrying values of
the Bank's financial instruments (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Financial assets:
<S> <C> <C> <C> <C>
Cash and due from banks ............... $ 2,884 $ 2,884 $ 1,873 $ 1,873
Federal funds sold .................... $ 8,930 $ 8,930 $ 6,385 $ 6,385
Securities held-to-maturity ........... $ 4,769 $ 4,782 $13,348 $13,358
Federal Home Loan Bank stock .......... $ 420 $ 420 $ 389 $ 389
Loans held-for-sale ................... $ 110 $ 112 $ 181 $ 184
Loans, net of allowance for loan losses $92,450 $93,509 $73,026 $74,135
Accrued interest and other assets ..... $ 1,693 $ 1,693 $ 1,164 $ 1,164
Financial liabilities:
Demand and savings deposits ........... $53,842 $51,153 $48,697 $48,697
Time deposits ......................... $50,564 $53,356 $42,844 $42,829
Long-term debt ........................ $ 249 $ 242 $ 271 $ 258
Accrued interest and other liabilities $ 2,151 $ 2,151 $ 328 $ 328
</TABLE>
While estimates of fair value are based on management's judgment of the most
appropriate factors, there is no assurance that were the Bank to have
disposed of such items at December 31, 1997 and 1996, the estimated fair
values would necessarily have been achieved at that date. Since market values
may differ depending on various circumstances, the estimated fair values at
December 31, 1997 and 1996, should not necessarily be considered to apply at
subsequent dates.
In addition, other assets and liabilities of the Bank that are not defined as
financial instruments are not included in the above disclosures, such as
premises and equipment. Also, non-financial instruments typically not
F-14
<PAGE>
recognized in the financial statements nevertheless may have value but are
not included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the trained work force, customer goodwill, and similar
items.
NOTE 10 - Concentrations of Credit
All of the Bank's loans, commitments, and commercial and standby letters of
credit have been granted to customers in the Bank's market area. Investments
in state and municipal securities are not significantly concentrated within
any one region of the United States. The concentrations of credit by type of
loan are set forth in Note 3. The distribution of commitments to extend
credit approximates the distribution of loans outstanding. Commercial and
standby letters of credit were granted primarily to commercial borrowers as
of December 31, 1997.
NOTE 11 - Commitments and Contingencies
In the ordinary course of business, the Bank becomes involved in various
litigation arising from normal banking activities. In the opinion of
management, the ultimate disposition of these actions will not have a
material adverse effect on the financial position or results of operations.
The Bank leases certain branch premises and equipment. The following is a
schedule of future minimum lease payments under operating leases in effect as
of December 31, 1997 (in thousands):
Years Ending December 31,
1998 $ 124
1999 127
2000 129
2001 131
2002 128
Thereafter 441
----------
Total minimum payments required $ 1,080
==========
Total rental expense was $143,000, $144,000, and $132,000 in 1997, 1996, and
1995, respectively.
NOTE 12 - Borrowings from Federal Home Loan Bank (FHLB)
At December 31, 1997 and 1996, the Bank had long-term borrowings from the
FHLB totaling $249,000 and $271,000, respectively, with fixed interest rates
ranging from 5.50% to 6.61%. The borrowings require monthly principal and
interest payments and mature from 2008 through 2010. All borrowings from FHLB
are collateralized by a blanket pledge agreement on FHLB stock, funds on
deposit with FHLB, investments, and loans.
NOTE 13 - Stock Option Plans
The Bank established a nonqualified preferred and common stock option plan
(the Stock Plan) for key employees. The Stock Plan provided that the exercise
price of options would be the estimated fair market value at the date of
grant.
In the fourth quarter of 1997, the Bank cancelled all of its outstanding
stock options. Employees were paid $1,559,000 on January 2, 1998, for the
cancellation of these options. This amount is accrued in the December 31,
1997, financial statements in other liabilities and has been recorded as
salaries and benefits expense.
NOTE 14 - Employee Benefit Plans
The Bank maintains a profit sharing plan (the Plan) that covers substantially
all employees of the Bank. Contributions to the Plan are made solely at the
F-15
<PAGE>
discretion of the Board of Directors, and totaled approximately $32,000,
$34,000, and $26,000 in 1997, 1996, and 1995, respectively. Effective
February 1, 1998, the Plan will be merged into Valley of the Rogue Bank's
Profit Sharing Plan (see Note 18).
NOTE 15 - Earnings Per Common and Common Equivalent Shares
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 year. 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. Comparative earnings per
share data for the years ended December 31, 1997, 1996, and 1995, have been
restated to conform with the current year presentation. The following table
illustrates the computations of basic and diluted earnings per share for the
years ended December 31, 1997, 1996, and 1995 (dollars in thousands except per
share amounts):
<TABLE>
<CAPTION>
Income (Loss) Shares Per Share
1997 (Numerator) (Denominator) (Amount)
- ---------------------------------------------------------------- ----------- ------------- --------
BASIC EARNINGS PER SHARE
<S> <C> <C> <C>
Net income ..................................................... $ 644
Less: Preferred stock dividends ................................ (128)
--------
Income available to common shareholders ........................ $ 516 236 $ 2.19
======== ======== ========
DILUTED EARNINGS PER SHARE
Income available to common shareholders ........................ $ 516 236
Plus income impact of assumed conversions
Preferred stock dividends .................................... 128 143
-------- --------
Net income available to common shareholders .................... $ 644 379 $ 1.70
plus assumed conversions
======== ======== ========
1996
- ----------------------------------------------------------------
BASIC EARNINGS PER SHARE
Net income ....................................................... $ 1,093
Less: Preferred stock dividends .................................. (128)
--------
Income available to common shareholders .......................... $ 965 236 $ 4.16
======== ======== ========
DILUTED EARNINGS PER SHARE
Income available to common shareholders .......................... $ 965 236
Plus income impact of assumed conversions
Preferred stock dividends ........................................ 128 143
Stock options .................................................... 22
-------- --------
Net income available to common shareholders ...................... $ 1,093 401 $ 2.73
plus assumed conversions
======== ======== ========
1995
- ----------------------------------------------------------------
BASIC EARNINGS PER SHARE
Net income ....................................................... $ 860
Less: Preferred stock dividends .................................. (128)
--------
Income available to common shareholders .......................... $ 732 236 $ 3.10
======== ======== ========
DILUTED EARNINGS PER SHARE
Income available to common shareholders .......................... $ 732 236
Plus income impact of assumed conversions
Preferred stock dividends ........................................ 128 143
Stock options .................................................... 20
-------- --------
Net income available to common shareholders ...................... $ 860 399 $ 2.16
plus assumed conversions
======== ======== ========
</TABLE>
F-16
<PAGE>
NOTE 16 - Transactions With Related Parties
Certain directors, executive officers, and principal shareholders are
customers of and have had banking transactions with the Bank in the ordinary
course of business, and the Bank expects to have such transactions in the
future. All loans and commitments to loan included in such transactions were
made in compliance with applicable laws on substantially the same terms
(including interest rates and collateral) as those prevailing at the time for
comparable transactions with other persons and, in the opinion of the
management of the Bank, do not involve more than the normal risk of
collectability or present any other unfavorable features. The amount of loans
outstanding to directors, executive officers, principal shareholders, and
companies with which they are associated was as follows (in thousands):
1997 1996
----- -----
Beginning balance ........................ $ 220 $ 69
Loans made ............................... 402 198
Loans paid ............................... (44) (47)
===== =====
Ending balance ........................... $ 578 $ 220
===== =====
NOTE 17 - Regulatory Matters
The Bank is subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets
(as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the regulatory
agencies categorized the Bank as adequately capitalized under the regulatory
framework for prompt corrective action. To be categorized as adequately
capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table below. There
are no conditions or events since that notification that management believes
have changed the institution's category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ------------------- ------------------
(in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ------- ------ ----------- ------ ---------
As of December 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk-weighted assets $7,196 8.5% $6,791 Gt/= 8.0% $8,489 Gt/=10.0%
Tier I capital to risk-weighted assets $5,298 6.2% $3,396 Gt/= 4.0% $5,093 Gt/= 6.0%
Tier I capital to average assets ..... $5,298 4.0% $5,340 Gt/= 4.0% $6,675 Gt/= 5.0%
As of December 31, 1996
Total capital to risk-weighted assets $6,756 9.7% $3,573 Gt/= 8.0% $6,967 Gt/=10.0%
Tier I capital to risk-weighted assets $6,226 8.9% $2,786 Gt/= 4.0% $4,180 Gt/= 6.0%
Tier I capital to average assets ..... $6,226 6.5% $3,857 Gt/= 4.0% $4,821 Gt/= 5.0%
</TABLE>
F-17
<PAGE>
NOTE 18 - Subsequent Events
Effective January 5, 1998, VRB Bancorp purchased all of the outstanding
shares of Investors Banking Corporation (IBC), Colonial Banking Company's
primary shareholder, for $41 per share. Simultaneously with the acquisition
of these shares, IBC was liquidated and Colonial Banking Company was merged
into VRB Bancorp. The minority shareholders of Colonial Banking Company were
paid $43.36 per share for their remaining shares of Colonial Banking Company.
F-18
<PAGE>
EXHIBIT INDEX
2.1 Stock Option Agreement, dated July 24, 1997, by and among
Valley of the Rogue Bank and the shareholders of Investors
Banking Corporation *
2.2 Plan of Merger, dated September 30, 1997, by and between
Valley of the Rogue Bank and Colonial Banking Company *
23.1 Consent of Moss Adams LLP
* Incorporated by reference to the registrant's registration
statement on Form S-1 (Commission file number 333-37167) as
declared effective by the Commission on November 12, 1997.
EXHIBIT 23.1
CONSENT AND REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANT
We hereby consent to the use, in amendment number one to Form 8-K/A dated
January 5, 1998, of our report dated January 16, 1998, relating to the financial
statements of Colonial Banking Company.
/s/ Moss Adams LLP
Portland, Oregon
March 20, 1998
