<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
[OBJECT OMITTED]
0-25932
------------------------
(Commission File Number)
VRB BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
OREGON 93-0892559
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
110 Pine Street, Rogue River, Oregon 97537
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (541) 582-4554
--------------
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) to the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1999
----- -------------------------------
Common stock, no par value 8,389,605
<PAGE> 2
VRB BANCORP
Form 10-Q
September 30, 1999
Table of contents
---------------
<TABLE>
<CAPTION>
Page
Part I Financial information Number
------
<S> <C>
Item 1. Financial statements
Consolidated balance sheets
September 30, 1999 and December 31, 1998 1
Consolidated statements of income and comprehensive income
For the three months ended September 30, 1999 and 1998 2-3
Consolidated statements of income and comprehensive income
For the nine months ended September 30, 1999 and 1998 4-5
Consolidated statements of changes in shareholders' equity
For the period December 31, 1997 through September 30, 1999 6
Consolidated statements of cash flows
For the nine months ended September 30, 1999 and 1998 7
Notes to consolidated financial statements 8-10
Item 2. Management's discussion and analysis of financial
condition and results of operations 11-20
Item 3. Quantitative and qualitative disclosures about market risk 21
Part II Other information
Item 1. Legal proceedings 22
Item 2. Changes in securities 22
Item 3. Defaults upon senior securities 22
Item 4. Submission of matters to a vote of security holders 22
Item 5. Other information 22
Item 6. Exhibits and reports on Form 8-K
Signatures 23
</TABLE>
<PAGE> 3
Part I - FINANCIAL INFORMATION
Item 1 - Financial statements
VRB BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
For the period ended September 30, 1999 December 31, 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited) (Audited)
ASSETS
Cash and due from banks $ 17,424,854 $ 14,513,570
Federal funds sold 18,600,000 26,100,000
- ----------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 36,024,854 40,613,570
Investments
U.S. Treasury and agencies 55,299,590 57,070,000
States and political subdivisions 18,008,757 17,454,188
Corporate and other investments 152,245 193,631
Federal Home Loan Bank stock 1,864,800 1,765,220
Loans, net of allowance for loan losses and unearned income 184,550,208 175,188,200
Premises and equipment, net 7,628,097 6,499,131
Other real estate owned 201,469 51,161
Accrued interest and other assets 12,551,080 12,381,952
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 316,281,101 $ 311,217,053
================================================================================================================
LIABILITIES
Deposits
Demand deposits $ 75,509,837 $ 72,134,186
Interest bearing demand deposits 123,324,989 110,900,199
Savings deposits 23,477,436 24,269,197
Time deposits 58,103,944 66,818,719
- ----------------------------------------------------------------------------------------------------------------
Total deposits 280,416,206 274,122,301
Accrued interest and other liabilities 2,435,180 1,859,297
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 282,851,386 275,981,598
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 8,396,638 and 8,694,286, issued and outstanding
at September 30, 1999 and December 31, 1998, respectively 19,301,773 21,583,869
Accumulated other comprehensive income, net of taxes (1,045,458) 60,629
Retained earnings 15,173,400 13,590,957
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 33,429,715 35,235,455
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 316,281,101 $ 311,217,053
================================================================================================================
</TABLE>
1
<PAGE> 4
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the three months ended September 30, 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited) (Unaudited)
INTEREST INCOME
Interest and fees on loans $4,342,326 $4,568,055
Interest on investment securities:
U.S. Treasury and agencies 848,251 385,426
States and political subdivisions 234,343 247,309
Corporate and other investments 35,448 37,058
Federal funds sold 291,137 648,246
- ------------------------------------------------------------------------------------------------------------
Total interest income 5,751,505 5,886,094
INTEREST EXPENSE
Interest bearing demand deposits 817,437 852,884
Savings deposits 123,696 134,239
Time deposits 678,677 954,005
Borrowed Funds - -
- ------------------------------------------------------------------------------------------------------------
Total interest expense 1,619,810 1,941,128
- ------------------------------------------------------------------------------------------------------------
Net interest income 4,131,695 3,944,966
- ------------------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES - -
- ------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 4,131,695 3,944,966
NONINTEREST INCOME
Service charges on deposit accounts 327,892 330,352
Other operating income 183,681 204,680
Securities transactions - -
- ------------------------------------------------------------------------------------------------------------
Total noninterest income 511,573 535,032
NONINTEREST EXPENSES
Salaries and benefits 1,605,512 1,522,544
Net occupancy 310,394 244,331
Communications 109,130 104,607
Data processing 83,131 67,780
FDIC insurance premium 7,373 8,067
Supplies 66,645 66,789
Professional fees 63,903 66,413
Other real estate expense 3,714 -
Other expenses 447,893 518,508
- ------------------------------------------------------------------------------------------------------------
Total noninterest expenses 2,697,695 2,599,039
</TABLE>
2
<PAGE> 5
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (cont.)
<TABLE>
<S> <C> <C>
INCOME BEFORE INCOME TAXES 1,945,573 1,880,959
PROVISION FOR INCOME TAXES 738,000 701,000
- ------------------------------------------------------------------------------------------------------------
NET INCOME $1,207,573 $1,179,959
============================================================================================================
OTHER COMPREHENSIVE INCOME
Unrealized loss on securities, net of taxes
Unrealized holding gain (loss) arising during period (53,757) 190,632
Reclassification adjustment for loss included in net income - -
- ------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $1,153,816 $1,370,591
============================================================================================================
BASIC EARNINGS PER SHARE $ 0.14 $ 0.14
============================================================================================================
FULLY DILUTED EARNINGS PER SHARE $ 0.14 $ 0.14
============================================================================================================
</TABLE>
3
<PAGE> 6
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the nine months ended September 30, 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited) (Unaudited)
INTEREST INCOME
Interest and fees on loans $12,868,231 $14,550,511
Interest on investment securities:
U.S. Treasury and agencies 2,494,418 976,313
States and political subdivisions 696,139 707,986
Corporate and other investments 106,628 129,667
Federal funds sold 715,463 1,633,387
- -------------------------------------------------------------------------------------------------------------
Total interest income 16,880,879 17,997,864
INTEREST EXPENSE
Interest bearing demand deposits 2,260,614 2,490,728
Savings deposits 365,940 399,841
Time deposits 2,135,765 3,042,360
Borrowed funds - 4,491
- -------------------------------------------------------------------------------------------------------------
Total interest expense 4,762,319 5,937,420
- -------------------------------------------------------------------------------------------------------------
Net interest income 12,118,560 12,060,444
- -------------------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES - -
- -------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 12,118,560 12,060,444
NONINTEREST INCOME
Service charges on deposit accounts 958,448 967,672
Other operating income 541,389 599,654
- -------------------------------------------------------------------------------------------------------------
Total noninterest income 1,499,837 1,567,326
NONINTEREST EXPENSES
Salaries and benefits 4,682,709 4,470,229
Net occupancy 828,871 790,534
Communications 333,533 295,056
Data processing 254,345 235,261
FDIC insurance premium 22,956 39,863
Supplies 191,676 233,396
Professional fees 152,364 196,682
Other real estate expense 13,114 2,863
Other expenses 1,304,413 1,507,939
- -------------------------------------------------------------------------------------------------------------
Total noninterest expenses 7,783,981 7,771,823
</TABLE>
4
<PAGE> 7
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (cont.)
<TABLE>
<S> <C> <C>
INCOME BEFORE INCOME TAXES 5,834,416 5,855,947
PROVISION FOR INCOME TAXES 2,198,250 2,186,000
- -------------------------------------------------------------------------------------------------------------
NET INCOME $ 3,636,166 $3,669,947
=============================================================================================================
OTHER COMPREHENSIVE INCOME
Unrealized loss on securities, net of taxes
Unrealized holding gain (loss) arising during period (1,106,087) 126,735
Reclassification adjustment for loss included in net income - -
- -------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 2,530,079 $3,796,682
=============================================================================================================
BASIC EARNINGS PER SHARE $ 0.42 $ 0.42
=============================================================================================================
FULLY DILUTED EARNINGS PER SHARE $ 0.42 $ 0.42
=============================================================================================================
</TABLE>
5
<PAGE> 8
VRB BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON STOCK RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT EARNINGS INCOME EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 (audited) 8,340,744 $ 18,462,712 $ 13,349,301 $ 48,542 $ 31,860,555
Stock options exercised
(March - Sept 1998) 19,410 50,128 - - 50,128
Income tax benefit from stock
options exercised - 60,500 - - 60,500
Cash dividend ($.20 per share,
October 1, 1998) - - (1,672,031) - (1,672,031)
4% stock dividend (October 1 1998) 334,132 3,010,529 (3,010,529) - -
Payment for fractional shares
related to stock dividend
($9.00 per share) - - (2,467) - (2,467)
Net income and comprehensive income - - 4,926,683 12,087 4,938,770
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1998 (audited) 8,694,286 21,583,869 13,590,957 60,629 35,235,455
===========================================================================================================================
Stock options exercised
(January to March 1999) 23,432 131,620 - - 131,620
Cash dividend declared ($.12 per share,
March 29, 1999) - - (1,046,126) - (1,046,126)
Stock repurchased (288,680) (2,183,088) (2,183,088)
Cash dividend declared ($.12 per share, (1,007,597) (1,007,597)
September 20, 1999)
Stock repurchased (32,400) (230,628) (230,628)
Net income and comprehensive income - - 3,636,166 (1,106,087) 2,530,079
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, September 30, 1999
(unaudited) 8,396,638 $ 19,301,773 $ 15,173,400 $ (1,045,458) $ 33,429,715
===========================================================================================================================
</TABLE>
6
<PAGE> 9
VRB BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ended September 30, 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,636,166 $ 3,669,947
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 802,639 748,225
FHLB of Seattle stock dividend (99,580) (103,900)
Changes in cash due to changes in assets and liabilities
Accrued interest receivable and other assets (93,398) 211,179
Accrued interest payable and other liabilities (400,481) (1,160,981)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,845,346 3,364,470
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the maturity of available-for-sale securities 10,541,579 24,476,203
Proceeds from the maturity of held-to-maturity securities 575,000 1,285,000
Purchases of available-for-sale securities (10,500,000) (33,992,656)
Purchases of held-to-maturity securities (1,125,587) (1,845,561)
Net (increase) decrease in loans (9,423,417) 25,596,260
Purchases of premises and equipment (1,467,319) (330,236)
Proceeds from the sale of credit card portfolio obtained through acquisition - 939,583
Net cash used to purchase Colonial Banking Company - (1,644,499)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by / (used in) investing activities (11,399,744) 14,484,094
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits 6,293,905 (9,964,900)
Proceeds from the exercise of common stock options 131,619 50,128
Net cash used to repurchase common stock (2,413,716) -
Cash dividend (1,046,126) -
Repayments of FHLB of Seattle advances - (249,041)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by / (used in) financing activities 2,965,682 (10,163,813)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,588,716) 7,684,751
CASH AND CASH EQUIVALENTS, beginning of period 40,613,570 43,644,289
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 36,024,854 $ 51,329,040
===========================================================================================================================
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 4,843,138 $ 5,699,164
Cash paid for taxes $ 2,206,100 $ 2,130,000
SCHEDULE OF NONCASH ACTIVITIES
Changes in unrealized gain (loss) on available-for-sale
securities, net of tax $ (1,106,087) $ 126,735
</TABLE>
7
<PAGE> 10
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 Company's 1998 Annual
Report to shareholders. The operating results for the nine months ended
September 30, 1999, are not necessarily indicative of the results that may be
expected for the entire fiscal year ending December 31, 1999, or any other
future interim period.
NOTE 3 - 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 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 as a result of the exercise of options under
the Company's stock option plans.
8
<PAGE> 11
The following table illustrates the computations of basic and diluted earnings
per share for the three and nine month periods ended September 30, 1999 and 1998
(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, 1999
Basic earnings per share -
Income available to common shareholders $ 1,208 8,581 $ 0.14
Effect of dilutive securities
Outstanding common stock options - 46
----------- -----------
Income available to common shareholders
plus assumed conversions $ 1,208 8,627 $ 0.14
----------- ----------- -----------
For the three months ended September 30, 1998
Basic earnings per share -
Income available to common shareholders $ 1,180 8,688 $ 0.14
Effect of dilutive securities
Outstanding common stock options - 49
----------- -----------
Income available to common shareholders
plus assumed conversions $ 1,180 8,737 $ 0.14
----------- ----------- -----------
For the nine months ended September 30, 1999
Basic earnings per share -
Income available to common shareholders $ 3,636 8,652 $ 0.42
Effect of dilutive securities
Outstanding common stock options - 45
----------- -----------
Income available to common shareholders
plus assumed conversions $ 3,636 8,697 $ 0.42
----------- ----------- -----------
For the nine months ended September 30, 1998
Basic earnings per share -
Income available to common shareholders $ 3,670 8,681 $ 0.42
Effect of dilutive securities
Outstanding common stock options - 65
----------- -----------
Income available to common shareholders
plus assumed conversions $ 3,670 8,746 $ 0.42
----------- ----------- -----------
</TABLE>
NOTE 4 - Recently issued accounting standards
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130 "Reporting Comprehensive Income." This Statement establishes standards for
reporting comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of financial statements. This Statement requires that
the Company recognize the unrealized gain or loss on available-for-sale
securities as a component of comprehensive income. This Statement is effective
for interim periods leading up to and through the year ended December 31, 1998.
9
<PAGE> 12
NOTE 5 - Acquisition of Colonial Banking Company
The Company completed its acquisition of Colonial Banking Company (herein
referred to as "CBC") effective January 5, 1998. The Company paid former
shareholders of CBC $15.7 million in cash for the common and preferred stock of
CBC. This acquisition was treated as a purchase for accounting purposes.
Accordingly, under generally accepted accounting principles, the assets and
liabilities of CBC have been recorded at their respective fair market values at
the time of acquisition. Goodwill, the excess of the purchase price over the net
fair value of the assets and liabilities acquired, was recorded at $9.5 million.
Amortization of goodwill over a 15 year period will result in a charge to
earnings of approximately $635,000 per year.
The following are the fair values of assets acquired and liabilities assumed (in
thousands):
<TABLE>
<S> <C>
Investment securities $ 4,797
Federal Home Loan Bank stock 420
Loans, net 92,775
Premises and equipment 1,802
Goodwill 9,526
Accrued interest and other assets 1,710
- -----------------------------------------------------------------
Total assets $111,030
Deposits $107,876
Accrued interest and other liabilities 1,510
Cash paid for acquisition, net of cash acquired 1,644
- -----------------------------------------------------------------
Total liabilities $111,030
</TABLE>
10
<PAGE> 13
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 RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
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 THE RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER, 1999 AND 1998
Earnings totaled $1,208,000 for the third quarter of 1999, or $.14 per share.
This is a 2% increase when compared to earnings for the same quarter in 1998,
which totaled $1,180,000, or $.14 per share.
Material changes
Rate environment: The Federal Reserve Board increased the federal funds rate by
50 basis points (one half of one percent) in the third quarter of 1999. The
impact of this rate increase has been minor to date and management does not
expect to materially benefit from the rate increase in the fourth quarter.
Federal funds sold and variable rate loans have, and will continue to reprice at
higher rates. However, strong competitive conditions and lower loan demand may
offset any gains(1).
Interest margin (defined as interest income less interest expense divided by
average earning assets): Quarter over quarter, the Bank's interest margin
improved to 6.00% in 1999, up from 5.86% in the third quarter of 1998. 1998
- --------
(1) This paragraph includes forward looking statements
11
<PAGE> 14
included a $40,000 adjustment to interest income, which came as a result of
management's decision to move a $1.2 million dollar loan to non-accrual status.
This loan is now performing in accordance with its terms. After excluding the
adjustment in 1998, interest margins remained up 9 basis points in 1999 as a
result of higher asset volumes and low deposit costs. (See expanded interest
margin commentary under the heading "For the nine months ended September 30,
1999", seen below).
Non interest expenses: Non interest expense increased by $98,000 when comparing
1999 to 1998. Salaries and benefits increased by $82,000 as a result of new
positions in loan administration and mortgage lending. In addition, costs
related to the maintenance of branch buildings rose by $66,000. Rising expenses
were partially offset by reductions in other categories.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Earnings totaled $3,636,000, or $.42 per share, a 1% decline when compared to
the same period in 1998, when earnings totaled $3,670,000, or $.42 per share.
Material changes
Rate environment: Despite the rising rate environment over the last three
months, competition and past fed policy have combined to reduce the yield on
interest earning assets by 54 basis points when comparing the first nine months
of 1999 to 1998.
Loan volumes: VRB continues to replenish its loan portfolio after the net loss
of approximately $30 million in loans in 1998. Loan volume has improved in 1999
with loan originations exceeding payoffs by approximately $9 million, for a 5%
net growth year to date.
Despite recent growth, loans have averaged 66% of total earning assets in 1999,
compared to 71% in 1998. Lower loan volumes have hindered earnings growth. Had
the bank retained previous loan volumes, interest income would have been
approximately $100,000 higher when reporting for the last twelve months.
Deposit mix: Compared to the nine months ended September 30, 1998, average TCD's
have declined by approximately $14 million, offset by rising balances in average
demand and money market deposits, for net average deposit growth of $2.2
million. The changing mix in deposits, compounded by low interest rates, reduced
the bank's cost of funds by 60 basis points when comparing the nine months ended
September 30, 1999 and 1998, respectively.
12
<PAGE> 15
Interest margin
The above discussion is supported in the following analysis of the Bank's
interest margin (on a tax equivalent basis) for the nine months ended September
30, 1999 and 1998:
<TABLE>
<CAPTION>
Nine months ended September 30, 1999 1998
(in thousands) Avg Balance Interest Rate Avg Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 19,544 715 4.88% $ 39,936 1,633 5.45%
Held to maturity securities (1) 18,002 1,118 8.28 18,439 1,073 7.76
Available for sale securities 57,661 2,601 6.01 22,799 1,106 6.47
Commercial loans (2) 147,811 10,271 9.26 158,636 11,599 9.75
Consumer loans (2) 36,068 2,597 9.60 38,155 2,952 10.32
Total earning assets 279,086 17,302 8.27 277,965 18,363 8.81
Non earning assets 35,279 32,793
Less: loan loss reserve (3,850) (4,092)
- ----------------------------------------------------------------------------------------------------------------------------------
Total average assets $ 310,515 $ 306,666
- ----------------------------------------------------------------------------------------------------------------------------------
Interest bearing liabilities
Interest bearing checking 32,830 240 0.97 33,399 367 1.47
Money market 82,769 2,021 3.26 74,618 2,124 3.80
Savings 24,945 366 1.96 24,334 400 2.19
Time 59,638 2,135 4.77 75,535 3,046 5.38
Total interest bearing deposits 200,182 4,762 3.17 207,886 5,937 3.81
Noninterest bearing deposits 72,658 62,749
Total interest bearing deposits 272,840 270,635
Other liabilities 2,510 2,479
Total liabilities 275,350 273,114
Shareholders' equity 35,165 33,552
- ----------------------------------------------------------------------------------------------------------------------------------
Total average liabilities and shareholders' equity $ 310,515 $ 306,666
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income 12,540 12,426
Interest income as a percentage
of average earning assets 8.27% 8.81%
Interest expense as a percentage
of average earning assets 2.28 2.85
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest margin 5.99% 5.96%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In total, net interest income increased by approximately $114,000, or 1% when
comparing the two periods. Overall, the Bank's deposit costs have declined
sufficient to recover lost interest due to lower asset yields and loan volumes.
This is further illustrated on the following page:
13
<PAGE> 16
<TABLE>
<CAPTION>
September 99 over September 98
Increase (decrease) in interest due to changes in
Interest earning assets Volume Rate Net
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds sold $ (746) $ (172) $ (918)
Held to maturity securities (27) 72 45
Available for sale securities 1,573 (78) 1,495
Commercial loans (752) (576) (1,328)
Consumer loans (150) (205) (355)
- --------------------------------------------------------------------------------------------
Total (104) (957) (1,061)
- --------------------------------------------------------------------------------------------
Interest bearing liabilities
- --------------------------------------------------------------------------------------------
Interest bearing checking (4) (123) (127)
Money market 199 (302) (103)
Savings 9 (43) (34)
Time deposits (569) (342) (911)
- --------------------------------------------------------------------------------------------
Total (365) (810) (1,175)
- --------------------------------------------------------------------------------------------
Net decrease in net interest income $ 260 $ (146) $ 114
- --------------------------------------------------------------------------------------------
</TABLE>
Competition continues to drive local loan rates and market conditions point to a
loosening in the credit terms offered by most banks. Management expects its own
loan pricing to reflect this environment. Quality loan growth remains the focus
of the Bank's outside calling efforts and advertising programs. Deposit
strategies, designed to place downward pressure on the Bank's average cost of
funds, will be adjusted as needed to encourage asset growth, fund loan demand
and maintain bank liquidity(2).
Cost of operations
Non-interest expense increased by approximately $12,000, from $7,772,000 to
$7,784,000. In the first quarter of 1999, the Bank recovered a $100,000 reserve
established for two potential operating losses that did not come to fruition.
With the exception of salaries and benefits, other administrative expenses
declined slightly, centered around reductions in advertising and other one-time
costs related to the acquisition and integration of CBC.
The Bank's efficiency ratio, or non-interest expense as a percentage of total
net interest income plus non-interest income, was 57.2% for the nine months
ended September 30, 1999 verses 57.0% for the same period in 1998. While this
comparison is slightly skewed by the Bank's one time operational recovery
described above, certain operating economies have been realized as a result of
the CBC acquisition. To illustrate further, after eliminating the amortization
of intangible assets directly related to the CBC merger and adding back the one
time operational recovery, the Bank's current efficiency margin is reduced to
approximately 54%. This is an improvement when compared to the Bank's historical
averages of 56% experienced prior to the acquisition of CBC.
- ----------
(2) This paragraph includes forward-looking statements.
14
<PAGE> 17
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.
The liquid assets of the Bank include cash and cash due from other banks,
interest-bearing deposits held at the Federal Home Loan Bank of Seattle, and
federal funds sold. As of September 30, 1999, liquid assets made up 8.2% of
total bank assets. In addition, the Bank has approximately $55 million in
available-for-sale securities that can be sold if necessary. However, as
interest rates have risen over the last several months, the relative market
value the Bank's portfolio has declined: therefore, any sale would most likely
result in a loss to the Bank. If the Bank were to experience a period of low
liquidity, the Bank has various lines of credit with the FHLB of Seattle that
could be used in lieu of selling securities.
For the first nine months of 1999, the ongoing operations of the Bank resulted
in cash outflows (cash and federal funds) of $4.5 million. Net loan growth of $9
million and the repurchase of company stock valued at $2.4 million have reduced
the Bank's liquidity. Cash outflows have been partially offset by inflows from
$6 million in deposit growth.
Capital management
As of September 30, 1999, shareholders' equity totaled $33,430,000, a decrease
of $1.8 million when compared to total shareholders' equity as of the end of the
1998. The decline in shareholders' equity reflects semi-annual cash dividends of
$.12 per share, declared in March and September of this year. September's
dividend will be paid on October 15, 1999.
On April 14, 1999, the Board of Directors approved a stock repurchase plan. The
repurchase plan is to be used to fund options granted over the next twelve
months, and is limited to 5% of total outstanding shares. As of September 30,
1999, a total of 321,080 shares had been repurchased for $2.4 million, or
approximately $7.50 per share.
The Bank is required to maintain minimum amounts of capital to "risk weighted"
assets, as defined by banking regulators. At September 30, 1999, 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 11.80% and 13.05 %, respectively.
Contingencies
Various disclosures and announcements, including the disclosures in this report,
concerning the Bank's products and year 2000 programs are intended to constitute
"Year 2000 Readiness Disclosures" as defined in the Year 2000 Information and
Readiness Disclosure Act. This Act provides added protection from liability for
certain public and private statements concerning an entity's year 2000 readiness
and the year 2000 readiness for its products and services. It also potentially
provides added protection from liability for certain types of year 2000
disclosures made after January 1, 1996 and before the date of enactment of the
Act.
Year 2000 - Management continues to monitor the potential impact that Year 2000
may have on the Bank's data processing and proprietary systems. In addition, the
Bank's vulnerability to the principal borrowers of the Bank and
15
<PAGE> 18
their potential failure to address their own Year 2000 issues, has also been
assessed. As described in the Company's annual report on form 10-K for the year
ended December 31, 1998, VRB remains on schedule in relation to its action plan
which was designed to meet established timelines and key milestones outlined in
interagency statements issued by the Federal Financial Institutions Examination
Council. Below is a brief analysis of the various phases of the Bank's Year 2000
action plan, and the progress made to date:
Assessment: All information technology supported systems and products
have been identified and evaluated. Significant borrowers of the Bank
have been contacted to build year 2000 awareness and encourage early
solutions regarding potential business interruption due to system
failures.
Third party evaluation and remediation: Third party confirmation of Year
2000 compliance has been received by critical outside vendors that
support non-information technology systems such as embedded chips.
Integrated testing: Testing and validation of the Bank's mission
critical data processing systems (ITI) was completed in December of
1998. Testing of other various non mission critical systems is presently
ongoing.
Contingency planning: On June 30, 1999, the Board approved the Bank's
contingency plan in the event that its business operations are
unexpectedly interrupted by Year 2000 issues. Sections of the plan
include the Bank's preparation for unprecedented customer deposits or
withdrawals leading up the Year 2000, security of the Bank's employees,
customers and funds, strategies to accommodate extended power loss, and
failure of our data processing system due to circumstances beyond our
control. The FDIC reviewed the Bank's contingency plan in August of 99.
As of September 30, 1999, neither the Company's integrated testing of critical
systems, nor the Bank's ongoing contingency planning, has revealed any
circumstances that would cause management to believe that Year 2000 will have a
material financial impact on the performance of the Bank. To date, the Bank has
spent approximately $106,000 in direct and indirect costs on Year 2000
compliance issues. Management expects to spend an additional $5,000 in 1999 to
complete its Year 2000 preparations. Total costs for such preparations are
management's best estimates. Actual costs are dependent on the continued
availability of public utilities, funding resources, bank liquidity, third party
modification plans and other factors(3).
- ----------
(3) This paragraph includes forward looking statements
16
<PAGE> 19
Balance sheet analysis
The table below provides abbreviated balance sheets, which illustrate the
material changes in financial condition when comparing December 31, 1998 to
September 30, 1999:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 $ Change % Change
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands)
ASSETS
Loans $184,550 $175,188 $ 9,362 5.34%
Investments 75,325 76,483 (1,158) (1.51%)
Federal funds sold 18,600 26,100 (7,500) (28.74%)
Other assets 37,806 33,446 4,360 13.04%
- ------------------------------------------------------------------------------------------------------------------------
Total assets $316,281 $311,217 $ 5,064 1.63%
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY
Noninterest bearing deposits $ 75,510 $ 72,135 $ 3,375 4.68%
Interest bearing deposits 204,906 201,988 2,918 1.44%
- ------------------------------------------------------------------------------------------------------------------------
Total deposits 280,416 274,123 6,293 2.30%
- ------------------------------------------------------------------------------------------------------------------------
Other liabilites 2,435 1,859 576 30.98%
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 282,851 275,982 6,869 2.49%
Total shareholders' equity 33,430 35,235 (1,805) (5.12%)
- ------------------------------------------------------------------------------------------------------------------------
Total liabilites and shareholders' equity $316,281 $311,217 $ 5,064 1.63%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Loans
The Bank offers 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 $184.6 million at
September 30, 1999, representing a $9.4 million increase when compared to loans
of $175.2 million as of December 31, 1998. As a result of the Bank's intensive
calling efforts on the region's business communities, commercial and commercial
real estate loans have accounted for most of the growth.
Commitments, principally real estate construction notes and commercial lines of
credit, totaled $30.1 million at September 30, 1999, a 37% increase when
compared to commitments outstanding as of the end of the previous year.
Reflective of the Bank's lending criteria, as well as trends within the local
economy, 68% of the Bank's loan portfolio is classified as real estate mortgage
loans. Of the $127 million in real estate mortgage loans outstanding as of
September 30, 1999, approximately $85 million were made to commercial customers,
secured by commercial real estate. An additional $22 million represented loans
secured by multi family residential property (5 or more), and the remaining $20
million was secured by family residential property. This is relatively unchanged
from previous reporting periods.
17
<PAGE> 20
The following table presents the composition of the Bank's loan portfolio at the
date indicated:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
Amount Percentage Amount Percentage
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands)
Commercial $ 21,027 11.39% $ 16,418 9.37%
Real estate construction 25,983 14.08% 23,552 13.44%
Real estate residential mortgage 42,061 22.79% 46,685 26.65%
Real estate commercial mortgage 85,299 46.22% 79,990 45.66%
Consumer and other 13,980 7.58% 12,425 7.09%
- ----------------------------------------------------------------------------------------------------------------
188,350 102.06% 179,070 102.22%
Allowance for loan losses
and unearned fees (3,800) (2.06%) (3,882) (2.22%)
- ----------------------------------------------------------------------------------------------------------------
Net loans $ 184,550 100.00% $ 175,188 100.00%
- ----------------------------------------------------------------------------------------------------------------
</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 control credit losses by
maintaining strong underwriting standards and closely monitoring the financial
condition of the borrower. As of September 30, 1999, the Bank's allowance for
loan losses was $3.5 million or 1.88% of total loans, and is believed to be
adequate to absorb potential credit losses that may arise in the normal course
of business.(4)
To date, recoveries exceeded charge offs in 1999, for net recoveries of $7,000.
Due to the Bank's substantial loan loss reserve and the strength of the Bank's
loan portfolio, the Bank has not recorded a loan loss provision in 1999.
As of September 30, 1999, total non-performing loans as a percentage of total
loans remained very low at .25%, to total $473,000. Management believes the
underlying value of the collateral is adequate to recover amounts owed 4.
- ----------
(4) This paragraph includes forward-looking statements.
18
<PAGE> 21
The following table presents information with respect to non-performing assets:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(in thousands)
Loans on nonaccrual status $ 473 $ 262
Loans past due greater than 90 days but not on nonaccrual status - 4
Other real estate owned 201 51
- ---------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 674 $ 317
- ---------------------------------------------------------------------------------------------------------------
Percentage of nonperforming loans to total loans 0.25% 0.14%
Percentage of nonperforming assets to total assets 0.21% 0.10%
- ---------------------------------------------------------------------------------------------------------------
</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, the Bank's portfolio of investment
securities totaled $73.5 million, virtually unchanged when compared to the
balance of the portfolio at December 31, 1998 of $76.5 million.
VRB follows financial accounting principles that require the identification of
investment securities as held-to-maturity ("HTM") or available-for-sale ("AFS").
Securities designated as HTM 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.
As of September 30, 1999, the Bank's investment portfolio that is currently AFS
totaled $55.4 million, or approximately 75% of the total portfolio. Due to
recent declines in average prices for similar securities for sale in the bond
market, the market value the AFS portfolio has dropped by approximately
$1,106,000, net of tax. This loss in value represents 1.9% percent of the
original cost of the securities. If prices continue to decline, the value of the
Bank's investment holdings will most likely continue to decline. This could
hinder the Bank's ability to quickly liquidate securities without incurring a
loss on the sale. Because future rate fluctuations are subject to uncertainty,
management continues to monitor the market value of the portfolio in relation to
current liquidity needs on a regular basis.
The following table provides the book value of the Bank's investment portfolio
as divided between HTM and AFS as of September 30, 1999 and December 31, 1998:
19
<PAGE> 22
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
(in thousands)
Investments available-for-sale
U.S. Treasury and agencies $ 55,300 $ 57,070
States and political subdivisions - -
Corporate and other investments 152 194
- ------------------------------------------------------------------------------------
$ 55,452 $ 57,264
- ------------------------------------------------------------------------------------
Investments held-to-maturity
U.S. Treasury and agencies $ - $ -
States and political subdivisions 18,009 17,454
Corporate and other investments - -
- ------------------------------------------------------------------------------------
$ 18,009 $ 17,454
====================================================================================
FHLB stock $ 1,864 $ 1,765
====================================================================================
</TABLE>
Deposits
Deposits are the Bank's major source of funds available for lending and other
investment opportunities. Deposit inflows and outflows are influenced by general
interest rates and economic conditions. Substantially all of the Bank's
depositors are residents of southern Oregon.
Total deposits increased $6.3 million when comparing September 30, 1999 to the
end of 1998. The Bank has experienced growth in all deposit categories with the
exception of time certificates of deposit. Time certificates of deposit have
declined $9 million over the last nine months. The decline is linked to those
accounts acquired from CBC, as funds mature and leave seeking higher returns.
Internal deposit strategies have recently changed and CD balances have
stabilized in the third quarter.
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
1999 DEPOSITS 1998 DEPOSITS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands)
Demand $ 75,510 26.9% $ 72,134 26.3%
Interest bearing demand 123,325 44.0 110,900 40.5
Savings 23,477 8.4 24,269 8.9
Time deposits 58,104 20.7 66,819 24.4
- --------------------------------------------------------------------------------------------------------
$ 280,416 100.0% $ 274,122 100.0%
========================================================================================================
</TABLE>
20
<PAGE> 23
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 market 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
applicable 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 to changing interest rate environments. The Bank's gap is the
difference between re-pricing assets and re-pricing liabilities over specific
time periods. By matching the re-pricing characteristics of the Bank's assets
and liabilities, the Bank can minimize the potential negative effect that may
arise from rapidly changing interest rates.
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, 1999, management's analysis indicated that the Bank's
overall 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, 1998.
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).
21
<PAGE> 24
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: On June 30, 1999, Tom Anderson, Executive Vice
President and Chief Operating Officer resigned to pursue other non-banking
interests. His position is not being replaced at this time, and his
responsibilities are now shared among the various members of senior management
team. Anderson remains an active Board member for both Valley of the Rogue Bank
and VRB Bancorp.
ITEM 6a. Exhibits
The following exhibit is being filed with or incorporated by reference into this
report in Form 10-Q and this list shall constitute the exhibit index:
27.0 Financial Data Schedule
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 10, 1999 /s/ William A. Haden
-----------------------------------------
William A. Haden
President
Chief Executive Officer
Date: November 10, 1999 /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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 17,425
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 18,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 57,317
<INVESTMENTS-CARRYING> 18,009
<INVESTMENTS-MARKET> 18,048
<LOANS> 188,350
<ALLOWANCE> 3,800
<TOTAL-ASSETS> 316,281
<DEPOSITS> 280,416
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,435
<LONG-TERM> 0
0
0
<COMMON> 19,302
<OTHER-SE> 14,128
<TOTAL-LIABILITIES-AND-EQUITY> 316,281
<INTEREST-LOAN> 12,868
<INTEREST-INVEST> 4,012
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 16,881
<INTEREST-DEPOSIT> 4,762
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 12,118
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,784
<INCOME-PRETAX> 5,834
<INCOME-PRE-EXTRAORDINARY> 3,888
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,636
<EPS-BASIC> .42
<EPS-DILUTED> .42
<YIELD-ACTUAL> .08
<LOANS-NON> 473
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,539
<CHARGE-OFFS> 35
<RECOVERIES> 42
<ALLOWANCE-CLOSE> 3,546
<ALLOWANCE-DOMESTIC> 3,546
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
