<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 SEPTEMBER 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.
<TABLE>
<CAPTION>
Class Outstanding at September 30, 1998
----- ---------------------------------
<S> <C>
Common Stock, No par value 8,694,286
</TABLE>
<PAGE> 2
VRB BANCORP
Form 10-Q
September 30, 1998
Table of Contents
------------------------
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997.......................... 1
Consolidated Statements of Income
For the Nine Months Ended September 30, 1998 and 1997............. 2
Consolidated Statements of Income
For the Three Months Ended September 30, 1998 and 1997............ 3
Consolidated Statements of Changes in Shareholders' Equity
For the Period December 31, 1996 through September 30, 1998....... 4
Consolidated Statements of Cash Flows
For the Nine Months Ended September 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............................... 10-19
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II OTHER INFORMATION
Item 1. Legal proceedings................................................. 21
Item 2. Changes in securities............................................. 21
Item 3. Defaults upon senior securities................................... 21
Item 4. Submission of matters to a vote of security holders............... 21
Item 5. Other information................................................. 21
Item 6. Exhibits and reports on Form 8-K.................................. 21-22
SIGNATURES...................................................................... 23
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VRB BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
------------ ------------
1998 1997
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,929,040 $ 11,144,289
Federal funds sold 38,400,000 32,500,000
------------ ------------
Total cash and cash equivalents 51,329,040 43,644,289
------------ ------------
Investments
U.S. Treasury and agencies 35,261,591 20,074,686
States and political subdivisions 19,068,418 18,415,049
Corporate and other investments 333,763 1,108,163
Federal Home Loan Bank stock 1,731,400 1,208,000
Loans, net of allowance for loan losses and unearned income 181,756,923 115,413,898
Premises and equipment, net 6,250,204 4,411,372
Other real estate owned 60,000 --
Accrued interest and other assets 12,802,301 2,378,189
------------ ------------
TOTAL ASSETS $308,593,640 $206,653,646
============ ============
LIABILITIES
Deposits
Demand deposits $ 67,026,022 $ 49,998,132
Interest bearing demand deposits 110,020,344 80,334,130
Savings deposits 24,085,101 15,308,820
Time deposits 69,955,953 27,535,264
------------ ------------
Total deposits 271,087,420 173,176,346
Accrued interest and other liabilities 3,473,353 1,616,745
------------ ------------
Total liabilities 274,560,773 174,793,091
------------ ------------
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 8,694,286 and 8,340,744, issued and outstanding
at September 30, 1998 and December 31, 1997, respectively 21,523,369 18,462,712
Unrealized gain on available for sale securities 175,277 48,542
Retained earnings 12,334,221 13,349,301
------------ ------------
Total shareholders' equity 34,032,867 31,860,555
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $308,593,640 $206,653,646
============ ============
</TABLE>
1
<PAGE> 4
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
----------------------------------------
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $14,550,511 $ 8,434,695
Interest on investment securities:
U.S. Treasury and agencies 976,313 999,529
States and political subdivisions 707,986 707,396
Corporate and other investments 129,667 126,284
Federal funds sold 1,633,387 656,042
----------- -----------
Total interest income 17,997,864 10,923,946
----------- -----------
INTEREST EXPENSE
Interest bearing demand deposits 2,490,728 1,725,695
Savings deposits 399,841 251,103
Time deposits 3,042,360 965,116
Borrowed funds 4,491 --
----------- -----------
Total interest expense 5,937,420 2,941,914
----------- -----------
Net interest income 12,060,444 7,982,032
PROVISION FOR LOAN LOSSES -- --
----------- -----------
Net interest income after provision for loan losses 12,060,444 7,982,032
----------- -----------
NONINTEREST INCOME
Service charges on deposit accounts 967,672 774,622
Other operating income 599,654 328,449
Securities transactions -- 7,139
----------- -----------
Total noninterest income 1,567,326 1,110,210
----------- -----------
NONINTEREST EXPENSES
Salaries and benefits 4,470,229 3,042,752
Net occupancy 790,534 564,289
Communications 295,056 178,176
Data processing 235,261 133,065
FDIC insurance premium 39,863 13,515
Supplies 233,396 149,637
Professional fees 196,682 127,270
Other real estate expense 2,863 1,165
Other expenses 1,507,939 780,250
----------- -----------
Total noninterest expenses 7,771,823 4,990,119
----------- -----------
INCOME BEFORE INCOME TAXES 5,855,947 4,102,123
PROVISION FOR INCOME TAXES 2,186,000 1,312,000
----------- -----------
NET INCOME $ 3,669,947 $ 2,790,123
=========== ===========
BASIC EARNINGS PER SHARE $ 0.44 $ 0.37
=========== ===========
FULLY DILUTED EARNINGS PER SHARE $ 0.43 $ 0.37
=========== ===========
</TABLE>
2
<PAGE> 5
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
--------------------------------------
1998 1997
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $4,568,055 $2,914,088
Interest on investment securities:
U.S. Treasury and agencies 385,426 336,187
States and political subdivisions 247,309 236,669
Corporate and other investments 37,058 42,116
Federal funds sold 648,246 243,048
---------- ----------
Total interest income 5,886,094 3,772,108
---------- ----------
INTEREST EXPENSE
Interest bearing demand deposits 852,884 621,640
Savings deposits 134,239 84,266
Time deposits 954,005 327,586
Borrowed Funds -- --
---------- ----------
Total interest expense 1,941,128 1,033,492
Net interest income 3,944,966 2,738,616
PROVISION FOR LOAN LOSSES -- --
---------- ----------
Net interest income after provision for loan losses 3,944,966 2,738,616
---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 330,352 252,696
Other operating income 204,680 128,236
Securities transactions -- --
---------- ----------
Total noninterest income 535,032 380,932
---------- ----------
NONINTEREST EXPENSES
Salaries and benefits 1,522,544 1,011,086
Net occupancy 244,331 201,119
Communications 104,607 63,063
Data processing 67,780 45,151
FDIC insurance premium 8,067 4,706
Supplies 66,789 44,801
Professional fees 66,413 50,403
Other real estate expense -- --
Other expenses 518,508 289,795
---------- ----------
Total noninterest expenses 2,599,039 1,710,124
---------- ----------
INCOME BEFORE INCOME TAXES 1,880,959 1,409,424
PROVISION FOR INCOME TAXES 701,000 396,000
---------- ----------
NET INCOME $1,179,959 $1,013,424
========== ==========
BASIC EARNINGS PER SHARE $ 0.14 $ 0.14
---------- ----------
FULLY DILUTED EARNINGS PER SHARE $ 0.14 $ 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 17,475 85,230 -- -- 85,230
(Febuary to August 1997)
2 for 1 stock split 3,592,157 -- -- -- --
(September 10, 1997)
Stock options exercised 6,430 26,152 -- -- 26,152
(September to October 1997)
Income tax benefit from stock
options exercised -- 86,896 -- -- 86,896
Cash dividend ($.14 per share, -- -- (1,006,333) -- (1,006,333)
paid October 31, 1997)
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 19,410 50,128 -- -- 50,128
(March - Sept 1998)
4% Stock Dividend (Sept 10, 1998) 334,132 3,010,529 (3,010,529) --
Payment for fractional shares
related to stock dividend
($9.00 per share) (2,467) (2,467)
Cash Dividend Declared ($.20 (1,672,031) (1,672,031)
per share, payable Oct 1, 1998)
Net income -- -- 3,669,947 -- 3,669,947
Change in net unrealized gain on
available-for-sale securities,
net of taxes -- -- -- 126,735 126,735
------------ ------------ ------------ ------------ ------------
BALANCE, September 30, 1998
(unaudited) 8,694,286 $ 21,523,369 $ 12,334,221 $ 175,277 $ 34,032,867
============ ============ ============ ============ ============
</TABLE>
4
<PAGE> 7
VRB BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1998 1997
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,669,947 $ 2,790,123
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 748,225 375,064
FHLB of Seattle stock dividend (103,900) (64,700)
Gain on sale of securities -- (7,139)
Changes in assets and liabilities
Accrued interest receivable and other assets 211,179 (142,951)
Accrued interest payable and other liabilities (1,160,981) 176,135
------------- -------------
Net cash provided by operating activities 3,364,470 3,126,532
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of available-for-sale securities 24,476,203 3,316,427
Proceeds from the maturity of held-to-maturity securities 1,285,000 215000
Purchases of available-for-sale securities (33,992,656) (3,000,000)
Purchases of held-to-maturity securities (1,845,561) --
Loan originations, net of principal repayments 26,535,843 (13,386,531)
Purchases of premises and equipment (330,236) (635,782)
Net cash used to purchase Colonial Banking Company (1,644,499) --
------------- -------------
Net cash provided by / (used in) investing activities 14,484,094 (13,490,886)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(decrease) in deposit liabilities, net of withdrawals (9,964,900) 10,909,471
Proceeds from the exercise of stock options 50,128 80,571
Repayments of FHLB of Seattle advances (249,041) --
------------- -------------
Net cash provided by / (used in) financing activities (10,163,813) 10,990,042
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,684,751 625,688
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 43,644,289 29,216,909
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 51,329,040 $ 29,842,597
============= =============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 5,699,164 $ 2,939,358
Cash paid for taxes $ 2,130,000 $ 895,994
SCHEDULE OF NONCASH ACTIVITIES
Changes in unrealized gain on available-for-sale
securities, net of tax $ 126,735 $ (19,605)
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 nine months ended September 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 nine month periods ended September, 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 September 30, 1998
Basic earnings per share -
Income available to common shareholders $1,180 8,427 $ 0.14
Effect of dilutive securities
Outstanding common stock options -- 57
------ ------
Income available to common shareholders
plus assumed conversions $1,180 8,484 $ 0.14
====== ====== ======
For the three months ended September 30, 1997
Basic earnings per share -
Income available to common shareholders $1,013 7,470 $ 0.14
Effect of dilutive securities
Outstanding common stock options -- 63
------ ------
Income available to common shareholders
plus assumed conversions $1,013 7,533 $ 0.13
====== ====== ======
For the nine months ended September 30, 1998
Basic earnings per share -
Income available to common shareholders $3,670 8,372 $ 0.44
Effect of dilutive securities
Outstanding common stock options -- 65
------ ------
Income available to common shareholders
plus assumed conversions $3,670 8,437 $ 0.43
====== ====== ======
For the nine months ended September 30, 1997
Basic earnings per share -
Income available to common shareholders 2,790 7,452 $ 0.37
Effect of dilutive securities
Outstanding common stock options -- 61
------ ------
Income available to common shareholders
plus assumed conversions $2,790 7,513 $ 0.37
====== ====== ======
</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
nine months ended September 30, 1998, the unrealized gain on the Company's
available for sale investment portfolio increased by $126,735, net of tax, to a
net gain position of $175,277. 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 for 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 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. The Bank continues to
control overhead expenditures, and through natural attrition, is now operating
with a slightly leaner staff.
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 nine months
PRO FORMA INFORMATION ended September 30,
1998 1997
------- -------
<S> <C> <C>
in thousands, except EPS
Net Interest Margin $12,107 $11,854
Net Income $ 3,689 $ 3,240
Basic earnings per share $ 0.44 $ 0.43
Fully diluted earnings per share $ 0.44 $ 0.43
Average Shares Outstanding 8,372 7,452
</TABLE>
<TABLE>
<CAPTION>
For the three months
ended September 30,
1998 1997
------ ------
<S> <C> <C>
Net Interest Margin $3,945 $4,094
Net Income $1,180 $1,216
Basic earnings per share $ 0.14 $ 0.16
Fully diluted earnings per share $ 0.14 $ 0.16
Average Shares Outstanding 8,427 7,470
</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: 3rd quarter 1998 to 2nd Quarter 1998
Third quarter earnings per share of $.14 was slightly less than prior quarter
results of $.15 per share. On a slightly higher share count, third quarter
earnings per share reflected a marginal decline in interest spreads and
increased operating expenses.
For the nine months ended September 30, 1998, and 1997
Net income totaled $3,670,000 or $.44 per share for the nine months ended
September 30, 1998. This is a 31% increase when compared to the same period last
year, when earnings totaled $2,790,000 or $.37 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: 3rd quarter 1998 to 2nd Quarter 1998
The 3rd quarter in 1998 was a continuation of trends previously identified in
the 1st and 2nd quarters. Maturing interest earning assets have been re-pricing
at lower rates and the Bank's mix of interest earning assets reflects recent
growth in the Bank's investment portfolio. As a result, the Bank's overall yield
on interest earning assets declined over the last three months. Pressure on
margins was further compounded by recent fed policy which resulted in a 25 basis
point drop in the overnight federal funds rate and a parallel shift in the prime
rate. Certain interest earning assets were immediately subject to repricing,
including fed funds sold and variable rate loans.
Also within the 3rd quarter, the Bank moved approximately $1.2 million in loans
to nonaccrual, which resulted in the reversal of approximately $40,000 in
accrued but uncollected interest.
Under the combined influence of all of these factors, interest income declined
by approximately $123,000, or 2% when compared to the 2nd quarter. This follows
a similar decline when comparing the 1st and 2nd quarter of 1998. While the Bank
was able to recover a segment of the decline by an improving cost of funds, the
Bank's net interest margin dipped from 6.06% in Q1 & Q2 to 5.84% in Q3, for a
year to date average of 5.96%.
11
<PAGE> 14
For the nine months ended September 30, 1998, and 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 September 30,
1998 and 1997.
<TABLE>
<CAPTION>
For the nine months ended September 30, 1998
-------------------------------------------------------
Average Inc / Exp Rate
--------- --------- ----
<S> <C> <C> <C>
(in thousands)
Interest-earning assets:
Loans (*) $ 196,791 $ 14,551 9.86%
Investment securities
Taxable securities 22,799 1,106 6.47%
Nontaxable securities (**) 18,439 1,073 7.76%
Federal funds sold 39,936 1,633 5.45%
--------- ---------
Total interest earning assets 277,965 18,363 8.81%
--------- ---------
Cash and due from banks 13,726
Fixed assets 6,244
Loan loss allowance (4,092)
Other assets 12,823
---------
Total Assets $ 306,666
---------
Interest-bearing liabilities:
Interest-bearing checking accounts $ 108,016 $ 2,491 3.07%
Savings accounts 24,335 400 2.19%
Time deposits 75,465 3,042 5.37%
Borrowed funds 70 4 7.62%
--------- ---------
Total interest-bearing liabilities 207,886 5,937 3.81%
Noninterest bearing deposits 62,749 -- 0.00%
--------- ---------
Total deposits and borrowed funds 270,635 5,937 2.92%
--------- ---------
Other liabilities 2,479
---------
Total Liabilities 273,114
Shareholders' equity 33,552
---------
Total liabilities and shareholders' equity $ 306,666
=========
Net interest income $ 12,426
=========
Net interest spread 5.88%
Average yield on earning assets (**) 8.81%
Interest expense to earning assets(*) 2.85%
Net interest margin 5.96%
<CAPTION>
For the nine months ended September 30, 1997
----------------------------------------------------
Average Inc / Exp Rate
--------- --------- -----
<S> <C> <C> <C>
(in thousands)
Interest-earning assets:
Loans (*) $ 107,586 $ 8,435 10.45%
Investment securities
Taxable securities 22,510 1,133 6.71%
Nontaxable securities (**) 18,501 1,072 7.73%
Federal funds sold 16,280 656 5.37%
--------- --------- -----
Total interest earning assets 164,877 11,296 9.13%
--------- --------- -----
Cash and due from banks 9,969
Fixed assets 4,396
Loan loss allowance (1,613)
Other assets 2,377
---------
Total Assets $ 180,006
---------
Interest-bearing liabilities:
Interest-bearing checking accounts $ 70,836 $ 1,726 3.25%
Savings accounts 15,362 251 2.18%
Time deposits 26,026 965 4.94%
Borrowed funds -- -- 0.00%
--------- --------- -----
Total interest-bearing liabilities 112,224 2,942 3.50%
Noninterest bearing deposits 44,888 -- 0.00%
--------- --------- -----
Total deposits and borrowed funds 157,112 2,942 2.50%
--------- --------- -----
Other liabilities 1,333
---------
Total Liabilities 158,445
Shareholders' equity 21,561
---------
Total liabilities and shareholders' equity $ 180,006
=========
Net interest income $ 8,354
=========
Net interest spread 6.64%
-----
Average yield on earning assets (**) 9.13%
-----
Interest expense to earning assets(*) 2.38%
-----
Net interest margin 6.76%
=====
</TABLE>
* Nonaccrual loans are included in the average balance.
** Tax-exempt income has been adjusted to a tax equivalent basis at 34%.
The Bank's net interest margin after adjusting tax exempt income to reflect a
tax equivalent basis, increased $4,072,000 or 48.7%, when comparing the first
nine months of 1998 and that reported in 1997. However, the margin expressed as
a percentage of net average earning assets moved to 5.96% , a 80 basis point
decline from 6.76%. Post CBC 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. Recent fiscal policy has seen interest rates decline, capping the
yield available on new loan and investment products. With this in mind, the
Bank's
12
<PAGE> 15
deposit pricing strategies have been 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 Nine Months Ended September 30, 1998
-------------------------------------------------
Increase (Decrease) Due To
----------------------------
Volume Rate Net Change
------- ------- ----------
<S> <C> <C> <C>
(in thousands)
Interest-earning assets:
Loans $ 6,596 $ (479) $ 6,117
Investment securities
Taxable securities 14 (40) (26)
Nontaxable securities ** (4) 5 1
Federal funds sold 968 10 978
------- ------- -------
Total 7,574 (504) 7,070
------- ------- -------
Interest-bearing liabilities:
Interest bearing checking 857 (91) 766
Savings accounts 147 2 149
Time deposits 1,993 86 2,079
Borrowed funds 4 -- 4
------- ------- -------
Total 3,001 (3) 2,998
------- ------- -------
Net increase (decrease) in net interest income $ 4,573 $ (501) $ 4,072
======= ======= =======
</TABLE>
NON INTEREST INCOME AND NON INTEREST EXPENSE:
Quarter to Quarter Comparison: 3rd quarter 1998 to 2nd quarter 1998
Non interest income, primarily fees and commissions, grew by approximately
$13,000, or 3%, in the 3rd quarter. This follows a strong 2nd quarter in which
non interest income grew an additional $52,000, or 11% when compared to 1st
quarter results.
Non interest expenses increased just under 2%, from $2,565,000 in the 2nd
quarter to $2,599,000 in the 3rd quarter. The 3rd quarter included the fall
segment of the Bank's "last real bank" advertising campaign which ran throughout
the month of September. The campaign, designed to target the consumer lending
market, has resulted in the origination of $1.5 million in new consumer loans
bank-wide.
For the nine months ended September 30, 1998
Non interest income year to date was $1,567,000 an increase of $457,000 or 41%,
from 1997. In particular, revenues earned on deposit accounts for the nine
months ended September 30, 1998, rose by
- -----------------------------
(1) This paragraph contains forward looking statements.
13
<PAGE> 16
$193,000, or 25% from 1997, mainly due to growth in fee-generating retail
accounts acquired as a result of the CBC acquisition.
Mortgage processing fees have increased by $76,000 or 57% for the nine months
ended September 30, 1998 when compared to the same period of the prior year.
Lower interest rates have further enhanced an already strong housing market in
the Rogue Valley. Although the Bank does not currently originate residential
first mortgages, the Bank's mortgage loan department serves Bank's customers
that wish to purchase or refinance a home.
Non interest expense increased $2,782,000, or 56%, from $4,990,000 to $7,772,000
for the nine months ended September 30, 1998 and 1997, respectively. 18% 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 57% for the nine months ended
September 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 54%. 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 REVIEW
The Bank must maintain cashflows adequate to fund operations and meet
commitments on a timely and cost effective basis. Fundamental to the management
of liquidity is the coordination of the relative maturities of the Bank's assets
and liabilities, with sufficient liquidity available at all times to fund loan
growth and deposit withdrawals.
The liquid assets of the Bank include cash and due from banks, interest bearing
deposits in banks, federal funds sold and available for sale securities. Among
the Bank's funding sources are core deposits and optional credit with
correspondent banks.
For the first nine months of 1998, the ongoing operations of the Bank resulted
in cash outflows of close to $10 million, from declining deposit levels. The
decline, which at one point reached over $15 million, represented departing
funds from matured time certificates. As anticipated, former CBC customers who
were previously paid a premium for their funds, moved maturing COD's to
alternative investments. While management expects average COD's to continue to
decline, abet at a much slower pace, the 3rd quarter saw growth in most deposit
categories, with average deposits in the third quarter exceeding the second
quarter by several million dollars(2).
- ------------------------------
(2) This paragraph contains forward looking statements.
14
<PAGE> 17
During the same period, total principal repayments exceeded loan originations,
resulting in cash inflows of $26 million. In particular, commercial entities
have taken advantage of the low re-pricing opportunities available throughout in
the marketplace. The Bank selectively competes at these rates, deliberately
attracting customers with both deposit and credit needs, and the potential of a
long term banking relationship.
The combined effect of these factors, as well as the maturity and call of close
to $25 million in investment securities, has left the Bank in a position of
unusually high liquidity. Under utilized funds have been reinvested in the bond
market. Federal funds sold was capped at 12% of total assets, allowing
sufficient liquidity to respond to changes in deposit levels.
CAPITAL MANAGEMENT
At September 30, 1998, shareholders equity totaled $34,032,000, an increase of
$2,172,000 from year end 1997. Common equity reflects recent activity on behalf
of the Board of Directors. On August 31, 1998, the Board of Directors declared a
$.20 per share cash dividend, payable October 1, 1998. The dividend, when paid,
will approximate $1.7 million.
Also on August 31, 1998, the Board of Directors approved a 4% stock dividend for
shareholders of record on September 10, 1998. As a result of the stock dividend,
334,132 shares were issued and $3,010,529 was reclassified from retained
earnings to common stock. All references to the number of common shares and per
common shares contained within this report have been restated to reflect the
effects of the stock dividend.
The Bank is required to maintain minimum amounts of capital to "risk weighted"
assets, as defined by banking regulators. At September 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 11.96% and 13.22%, respectively.
While the Bank is considered well capitalized, these ratios are materially
different when compared to ratios of 15.63% and 16.77% 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.
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 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
September 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. (3)
- ------------------------------
(3) This paragraph contains forward looking statements.
15
<PAGE> 18
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 September 30, 1998:
<TABLE>
<CAPTION>
September 30, December 31,
--------------------------------
1998 1997 $ Change % Change
--------- ---------- -------- --------
<S> <C> <C> <C> <C>
(in thousands)
ASSETS
Loans $181,757 $115,414 $ 66,343 57.48%
Investments 56,395 40,806 15,589 38.20%
Federal funds sold 38,400 32,500 5,900 18.15%
Other Assets 32,042 17,934 14,108 78.67%
-------- -------- -------- --------
Total assets $308,594 $206,654 $101,940 49.33%
======== ======== ======== ========
LIABILITIES AND EQUITY
Noninterest bearing deposits $ 67,026 $ 49,998 $ 17,028 34.06%
Interest bearing deposits 204,061 123,178 80,883 65.66%
-------- -------- -------- --------
Total Deposits 271,088 173,176 97,912 56.54%
Other Liabilities 3,473 1,617 1,856 114.78%
-------- -------- -------- --------
Total Liabilities 274,561 174,793 99,768 57.08%
-------- -------- -------- --------
Total Capital 34,033 31,861 2,172 6.82%
-------- -------- -------- --------
Total Liabilities and Capital $308,594 $206,654 $101,940 49.33%
======== ======== ======== ========
</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 $181.8 million at
September 30, 1998, representing a $66.3 million or 57.5% 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 $25 million for the first nine 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 and the maturity of several
short-term construction loans originated outside of the Rogue Valley market (2)
the sale the Bank's one million dollar visa loan portfolio (sold for par value)
and (3) a slowing local economy operating under a highly competitive
environment.
Commitments, principally real estate construction notes and commercial lines of
credit, totaled $19.6 million at September 30, 1998, a 10% decrease when
compared to commitments outstanding as of the end of the previous quarter.
16
<PAGE> 19
Reflective of the Bank's lending criteria, as well as trends within the local
economy, 73% of the Bank's loan portfolio is classified as real estate mortgage
loans. Of the $132.2 million in real estate mortgage loans outstanding as of
September 30, 1998, approximately $82 million were made to commercial customers
where the collateral for the loans includes the real estate occupied by the
customers' businesses. An additional $31 million represented loans secured by
multi family (5 or more) residential property and the remaining $19 million was
secured by family residential property.
The loans acquired as a result of the merger with CBC are predominantly
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>
September 30, 1998 December 31, 1997
---------------------------------- ----------------------------------
Amount Percentage Amount Percentage
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
(in thousands)
Commercial $ 16,709 9.19% $ 12,720 11.02%
Real estate construction 24,325 13.38% 15,476 13.41%
Real estate mortgage 132,218 72.74% 77,049 66.76%
Consumer and other 12,523 6.89% 11,949 10.35%
--------- --------- --------- ---------
185,775 102.21% 117,194 101.54%
Allowance for loan losses
and unearned fees (4,018) (2.21%) (1,780) (1.54%)
--------- --------- --------- ---------
Net loans $ 181,757 100.00% $ 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 September 30, 1998, the Bank's allowance for
loan losses was $3,620,000, or 1.95% of total loans, and is believed to be
adequate to absorb potential credit losses in the near term 4.
As of September 30, 1998, total non performing assets as a percentage of total
assets increased to .63%. The increase is attributable to the credit issues of
one borrower. The note is well collateralized, and management expects to resolve
the delinquency without moving into foreclosure(4).
- ------------------------------
(4) This statement is a forward looking statement.
17
<PAGE> 20
Due to the low number of net charge off's totaling $58,000 for the nine months
ended September 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 third quarter.
The following table presents information with respect to non-performing assets:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
(in thousands)
Loans on nonaccrual status $1,857 $ 372
Loans past due greater than 90 days but not on nonaccrual status 4 --
Other real estate owned 60 --
------ ------
Total nonperforming assets $1,921 $ 372
====== ======
Percentage of nonperforming assets to total assets 0.63% 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 September 30, 1998, the Bank's portfolio of
investment securities (including FHLB stock) totaled $56,395,000, an increase of
38% when compared to the balance of the portfolio at December 31, 1997 of
$40,806,000. The increase reflects the purchase of over $35 million in
securities, excluding the acquisition of approximately $5 million in securities
from the CBC merger. The purchases came at the heels of the call or maturity of
$25 million in investments, and the excess proceeds from early loan payoff's.
Purchases were staggered into varying maturities to 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 September 30, 1998 and December
31, 1997:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
(in thousands)
Investments available-for-sale
U.S. Treasury and agencies $35,262 $20,075
States and political subdivisions -- --
Corporate and other investments 334 1,108
------- -------
$35,596 $21,183
======= =======
Investments held-to-maturity
U.S. Treasury and agencies $ -- $ --
States and political subdivisions 19,068 18,415
Corporate and other investments -- --
------- -------
$19,068 $18,415
======= =======
</TABLE>
18
<PAGE> 21
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 when combined accounted for
65.3% of total deposits at September 30, 1998. Immediately subsequent to the CBC
merger, non interest and interest bearing balance averaged $165 million. As of
September, averages for the same categories increased to $178 million. The
changes in the Bank's deposit mix are having a positive impact on the Bank's
cost of funds, which has dropped from approximately 3.00% for the first quarter
of 1998 to 2.80% for the third quarter of 1998.
The changes evident in the Bank's deposit mix is further illustrated below:
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
SEPTEMBER 30 TOTAL DECEMBER 31 TOTAL
1998 DEPOSITS 1997 DEPOSITS
------- -------- ------- --------
<S> <C> <C> <C> <C>
(in thousands)
Demand 67,026 24.7% 49,998 28.9%
Interest bearing demand 110,020 40.6 80,334 46.4
Savings 24,085 8.9 15,309 8.8
Time deposits 69,956 25.8 27,535 15.9
------- ------- ------- -------
271,087 100.0% 173,176 100.0%
======= ======= ======= =======
</TABLE>
19
<PAGE> 22
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 September 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).
20
<PAGE> 23
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: None
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**
21
<PAGE> 24
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
22
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 9, 1998 /S/Tom Anderson
-------------------------------------
Tom Anderson
Executive Vice President
Chief Operating Officer and Secretary
Date: November 9, 1998 /S/Felice Belfiore
-------------------------------------
Felice Belfiore
Senior Vice President
Chief Financial Officer
23
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 12,929
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 38,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,595
<INVESTMENTS-CARRYING> 19,068
<INVESTMENTS-MARKET> 19,885
<LOANS> 185,775
<ALLOWANCE> 4,018
<TOTAL-ASSETS> 308,594
<DEPOSITS> 271,087
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,473
<LONG-TERM> 0
0
0
<COMMON> 21,523
<OTHER-SE> 12,334
<TOTAL-LIABILITIES-AND-EQUITY> 308,594
<INTEREST-LOAN> 14,551
<INTEREST-INVEST> 3,447
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 17,998
<INTEREST-DEPOSIT> 5,933
<INTEREST-EXPENSE> 5
<INTEREST-INCOME-NET> 12,060
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,772
<INCOME-PRETAX> 5,856
<INCOME-PRE-EXTRAORDINARY> 5,856
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,670
<EPS-PRIMARY> .44
<EPS-DILUTED> .43
<YIELD-ACTUAL> .881
<LOANS-NON> 1,857
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,780
<CHARGE-OFFS> 100
<RECOVERIES> 42
<ALLOWANCE-CLOSE> 3,620
<ALLOWANCE-DOMESTIC> 3,620
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
