<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THREE MONTHS ENDED JUNE 30, 1999
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 July 31, 1999
----- ----------------------------
Common stock, no par value 8,652,918
<PAGE> 2
VRB BANCORP
Form 10-Q
June 30, 1999
Table of contents
------------------------
<TABLE>
<CAPTION>
Page
PART I FINANCIAL INFORMATION Number
------
<S> <C>
Item 1. Financial statements
Consolidated balance sheets
June 30, 1999 and December 31, 1998 1
Consolidated statements of income and comprehensive income
For the three months ended June 30, 1999 and 1998 2-3
Consolidated statements of income and comprehensive income
For the six months ended June 30, 1999 and 1998 4-5
Consolidated statements of changes in shareholders' equity
For the period December 31, 1997 through June 30, 1999 6
Consolidated statements of cash flows
For the six months ended June 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 22-23
SIGNATURES 24
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VRB BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
For the period ended June 30, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 13,963,708 $ 14,513,570
Federal funds sold 13,700,000 26,100,000
- ------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 27,663,708 40,613,570
Investments
U.S. Treasury and agencies 55,480,585 57,070,000
States and political subdivisions 18,062,405 17,454,188
Corporate and other investments 166,963 193,631
Federal Home Loan Bank stock 1,831,400 1,765,220
Loans, net of allowance for loan losses and unearned income 184,397,523 175,188,200
Premises and equipment, net 6,902,640 6,499,131
Other real estate owned 201,469 51,161
Accrued interest and other assets 13,175,912 12,381,952
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 307,882,605 $ 311,217,053
============================================================================================================
LIABILITIES
Deposits
Demand deposits $ 73,563,678 $ 72,134,186
Interest bearing demand deposits 115,216,087 110,900,199
Savings deposits 25,002,396 24,269,197
Time deposits 57,657,020 66,818,719
- ------------------------------------------------------------------------------------------------------------
Total deposits 271,439,181 274,122,301
Accrued interest and other liabilities 1,254,574 1,859,297
- ------------------------------------------------------------------------------------------------------------
Total liabilities 272,693,755 275,981,598
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 8,652,918 and 8,694,286, issued and outstanding
at June 30, 1999 and December 31, 1998, respectively 21,207,124 21,583,869
Accumulated other comprehensive income, net of taxes (991,701) 60,629
Retained earnings 14,973,427 13,590,957
- ------------------------------------------------------------------------------------------------------------
Total shareholders' equity 35,188,850 35,235,455
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 307,882,605 $ 311,217,053
============================================================================================================
</TABLE>
1
<PAGE> 4
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the three months ended June 30, 1999 1998
- ------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 4,327,308 $ 4,910,211
Interest on investment securities:
U.S. Treasury and agencies 844,463 251,994
States and political subdivisions 233,155 229,158
Corporate and other investments 35,087 44,263
Federal funds sold 157,921 573,210
- ------------------------------------------------------------------------------------------------------------
Total interest income 5,597,934 6,008,836
INTEREST EXPENSE
Interest bearing demand deposits 731,687 806,545
Savings deposits 122,476 132,051
Time deposits 685,434 1,014,556
Borrowed Funds -- --
- ------------------------------------------------------------------------------------------------------------
Total interest expense 1,539,597 1,953,152
- ------------------------------------------------------------------------------------------------------------
Net interest income 4,058,337 4,055,684
- ------------------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES -- --
- ------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 4,058,337 4,055,684
NONINTEREST INCOME
Service charges on deposit accounts 322,744 327,022
Other operating income 156,436 195,001
Securities transactions -- --
- ------------------------------------------------------------------------------------------------------------
Total noninterest income 479,180 522,023
NONINTEREST EXPENSES
Salaries and benefits 1,536,491 1,479,613
Net occupancy 273,867 238,290
Communications 119,655 102,567
Data processing 79,107 79,031
FDIC insurance premium 7,670 15,994
Supplies 64,784 81,710
Professional fees 42,564 71,801
Other real estate expense 10,471 999
Other expenses 514,479 495,074
- ------------------------------------------------------------------------------------------------------------
Total noninterest expenses 2,649,088 2,565,079
</TABLE>
2
<PAGE> 5
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (CONTINUED)
<TABLE>
<CAPTION>
For the three months ended June 30, 1999 1998
- ------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
INCOME BEFORE INCOME TAXES 1,888,429 2,012,628
PROVISION FOR INCOME TAXES 710,250 765,000
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,178,179 $ 1,247,628
============================================================================================================
OTHER COMPREHENSIVE INCOME
UNREALIZED LOSS ON SECURITIES, NET OF TAXES
Unrealized holding loss arising during period (689,495) (18,009)
Reclassification adjustment for loss included in net income -- --
- ------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 488,684 $ 1,229,619
============================================================================================================
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 six months ended June 30, 1999 1998
- ------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 8,525,906 $ 10,023,666
Interest on investment securities:
U.S. Treasury and agencies 1,646,167 590,887
States and political subdivisions 461,796 460,677
Corporate and other investments 71,180 92,609
Federal funds sold 424,326 985,141
- ------------------------------------------------------------------------------------------------------------
Total interest income 11,129,375 12,152,980
INTEREST EXPENSE
Interest bearing demand deposits 1,443,176 1,637,844
Savings deposits 242,244 265,602
Time deposits 1,457,088 2,088,355
Borrowed funds -- 4,491
- ------------------------------------------------------------------------------------------------------------
Total interest expense 3,142,508 3,996,292
- ------------------------------------------------------------------------------------------------------------
Net interest income 7,986,867 8,156,688
- ------------------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES -- --
- ------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 7,986,867 8,156,688
NONINTEREST INCOME
Service charges on deposit accounts 630,556 637,320
Other operating income 361,708 353,763
- ------------------------------------------------------------------------------------------------------------
Total noninterest income 992,264 991,083
NONINTEREST EXPENSES
Salaries and benefits 3,077,196 2,947,685
Net occupancy 518,477 546,203
Communications 224,402 190,449
Data processing 171,214 164,207
FDIC insurance premium 15,583 31,795
Supplies 125,031 166,607
Professional fees 88,461 130,269
Other real estate expense 9,400 2,863
Other expenses 860,521 992,704
- ------------------------------------------------------------------------------------------------------------
Total noninterest expenses 5,090,285 5,172,782
</TABLE>
4
<PAGE> 7
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (cont.)
<TABLE>
<CAPTION>
For the six months ended June 30, 1999 1998
- ------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
INCOME BEFORE INCOME TAXES 3,888,846 3,974,989
PROVISION FOR INCOME TAXES 1,460,250 1,485,000
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,428,596 $ 2,489,989
============================================================================================================
OTHER COMPREHENSIVE INCOME
UNREALIZED LOSS ON SECURITIES, NET OF TAXES
Unrealized holding loss arising during period (1,052,330) (63,896)
Reclassification adjustment for loss included in net income -- --
- ------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 1,376,266 $ 2,426,093
============================================================================================================
BASIC EARNINGS PER SHARE $ 0.28 $ 0.29
============================================================================================================
FULLY DILUTED EARNINGS PER SHARE $ 0.28 $ 0.28
============================================================================================================
</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 (64,800) (508,365) (508,365)
Net income and comprehensive income -- -- 2,428,596 (1,052,330) 1,376,266
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1999 (unaudited) 8,652,918 $ 21,207,124 $ 14,973,427 $ (991,701) $ 35,188,850
=====================================================================================================================
</TABLE>
6
<PAGE> 9
VRB BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended June 30, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,428,596 $ 2,489,989
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 516,045 762,199
FHLB of Seattle stock dividend (66,180) (71,800)
Changes in cash due to changes in assets and liabilities
Accrued interest receivable and other assets (660,119) 261,463
Accrued interest payable and other liabilities (573,490) (740,656)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,644,852 2,701,195
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the maturity of available-for-sale securities 10,526,996 13,611,248
Proceeds from the maturity of held-to-maturity securities 520,000 870,000
Purchases of available-for-sale securities (10,500,000) (4,997,656)
Purchases of held-to-maturity securities (1,125,587) (1,543,721)
Net (increase) decrease in loans (9,304,673) 20,875,340
Purchases of premises and equipment (605,458) (272,894)
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 (10,488,722) 27,837,401
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in deposits (2,683,121) (15,460,885)
Proceeds from the exercise of common stock options 131,620 20,173
Net cash used to repurchase common stock (508,365) --
Cash dividend (1,046,126) --
Repayments of FHLB of Seattle advances -- (249,041)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (4,105,992) (15,689,753)
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,949,862) 14,848,843
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 40,613,570 43,644,289
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 27,663,708 $ 58,493,132
======================================================================================================================
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 3,214,684 $ 3,745,348
Cash paid for taxes $ 1,572,288 $ 1,372,000
SCHEDULE OF NONCASH ACTIVITIES
Changes in unrealized loss on available-for-sale
securities, net of tax $ (1,052,330) $ (63,896)
</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 Bank's 1998 Annual Report
to Shareholders. The operating results for the three months ended June 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 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.
8
<PAGE> 11
The following table illustrates the computations of basic and diluted earnings
per share for the three month periods ended June 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 June 30, 1999
Basic earnings per share -
Income available to common shareholders $ 1,178 8,676 $ 0.14
Effect of dilutive securities
Outstanding common stock options -- 39
------- -------
Income available to common shareholders
plus assumed conversions $ 1,178 8,715 $ 0.14
======= ======= =======
For the three months ended June 30, 1998
Basic earnings per share -
Income available to common shareholders $ 1,247 8,681 $ 0.14
Effect of dilutive securities
Outstanding common stock options -- 86
------- -------
Income available to common shareholders
plus assumed conversions $ 1,247 8,767 $ 0.14
======= ======= =======
For the six months ended June 30, 1999
Basic earnings per share -
Income available to common shareholders $ 2,429 8,688 $ 0.28
Effect of dilutive securities
Outstanding common stock options -- 36
------- -------
Income available to common shareholders
plus assumed conversions $ 2,429 8,724 $ 0.28
======= ======= =======
For the six months ended June 30, 1998
Basic earnings per share -
Income available to common shareholders $ 2,490 8,678 $ 0.29
Effect of dilutive securities
Outstanding common stock options -- 87
------- -------
Income available to common shareholders
plus assumed conversions $ 2,490 8,765 $ 0.28
======= ======= =======
</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
VRB recognize the unrealized gain or loss on available-for-sale securities as a
component of comprehensive income. This Statement is effective for the year
ended December 31, 1998.
NOTE 5 - Acquisition of Colonial Banking Company
9
<PAGE> 12
VRB Bancorp completed its acquisition of Colonial Banking Company (herein
referred to as "CBC") effective January 5, 1998. VRB 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 JUNE, 1999 AND 1998
Earnings totaled $1,178,000 for the 2nd quarter of 1999, or $.14 per share. This
is a 5% decline when compared to earnings for the same quarter in 1998, which
totaled $1,248,000, also $.14 per share on slightly higher shares.
Material changes
Interest margin: Quarter over quarter, the Bank's interest margin remained
consistent, with 1999 bolstered by the recovery of approximately $20,000 in
interest income on loans removed from non-accrual. After excluding the recovery,
interest margins decreased slightly in the current quarter as a result of lower
interest rates and lower average loan volumes (see applicable commentary under
discussion for the six months ended June 30, 1999 below).
Real estate lending: Mortgage processing fees declined from $86,000 to $34,000,
on lower volume. VRB is currently restructuring its real estate department from
a brokerage environment to an independent real estate lending department.
Lending programs historically not offered by the Bank will now make up a broader
product base, including FHA, State of Oregon Housing, Oregon Department of
Veterans Affairs and other governmental lending programs. The department,
11
<PAGE> 14
under new leadership, is expected to become fully operational by August of 99.
Expenses related to the restructure are evident in rising non-interest expenses,
in particular, increases salaries and benefits and occupancy costs.
FOR THE SIX MONTHS ENDED JUNE, 1999 AND 1998
Earnings totaled $2,429,000, or $.28 per share, a 2% decline when compared to
the same period in 1998, when earnings totaled $2,490,000, or $.29 per share.
Material changes
Rate environment: Competition and Fed policy have combined to reduce the yield
on interest earning assets by 71 basis points when comparing the first six
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 with
loan originations exceeding payoffs by approximately $9 million, for a 5% net
growth year to date. In spite of the improvement, loans averaged only 66% of the
Bank's interest earning assets in 1999, verses 73% in 1998, reducing interest on
loans by approximately $900,000 when comparing the two periods.
Deposit mix: consistent with previous reports, the Bank continues to experience
declining concentrations in time certificates of deposit ("TCD's"). Compared to
six months ended June 30, 1998, average TCD's have declined by approximately
$16.8 million, effectively masking a $14 million increase in average demand and
money market deposits.
The changing mix in deposits, compounded by low interest rates, reduced the
bank's cost of funds by 61 basis points when comparing the six months ended June
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 six months ended June 30,
1999 and 1998:
<TABLE>
<CAPTION>
Six months ended June 30, 1999 1998
(in thousands) Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------
Interest-earning assets
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 17,972 424 4.72% $ 36,349 985 5.42%
Held to maturity securities (1) 18,002 745 8.28 18,015 742 8.24
Available for sale securities 57,746 1,717 5.95 20,971 683 6.51
Commercial loans (2) 146,560 6,807 9.29 162,379 7,942 9.78
Consumer loans (2) 35,900 1,719 9.58 39,475 2,082 10.55
- -----------------------------------------------------------------------------------------------------------------------
Total earning assets 276,180 11,412 8.26 277,189 12,434 8.97
Non earning assets 34,041 32,121
Less: loan loss reserve (3,544) (3,633)
- -----------------------------------------------------------------------------------------------------------------------
Total average assets $ 306,677 $305,677
=======================================================================================================================
Interest bearing liabilities
- -----------------------------------------------------------------------------------------------------------------------
Interest bearing checking 32,779 160 0.98 33,787 245 1.45
Money market 79,805 1,283 3.22 73,283 1,392 3.80
Savings 24,959 242 1.94 24,352 266 2.18
Time 60,812 1,457 4.79 77,673 2,093 5.39
- -----------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 198,355 3,142 3.17 209,095 3,996 3.82
Noninterest bearing deposits 70,487 61,078
- -----------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 268,842 270,173
Other liabilities 1,571 2,421
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 270,413 272,594
Shareholders' equity 36,264 33,083
- -----------------------------------------------------------------------------------------------------------------------
Total average liabilities and shareholders' equity $ 306,677 $305,677
=======================================================================================================================
Net interest income 8,270 8,438
Interest income as a percentage
of average earning assets 8.26% 8.97%
Interest expense as a percentage
of average earning assets 2.28 2.88
- -----------------------------------------------------------------------------------------------------------------------
Net interest margin 5.99% 6.09%
=======================================================================================================================
</TABLE>
In total, net interest income declined by approximately $168,000, or 2% when
comparing the two periods. Unfavorable changes in both asset yields and loan
volumes, have been offset by lower funding costs as numerically illustrated on
the following page:
13
<PAGE> 16
<TABLE>
<CAPTION>
June 99 over June 98
Increase (decrease) due to
Interest earning assets Volume Rate Net
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds sold $ (434) $ (127) $ (561)
Held to maturity securities (1) 4 3
Available for sale securities 1,093 (59) 1,034
Commercial loans (735) (400) (1,135)
Consumer loans (171) (192) (363)
- -----------------------------------------------------------------------------------
Total (248) (774) (1,022)
- -----------------------------------------------------------------------------------
Interest bearing liabilities
- -----------------------------------------------------------------------------------
Interest bearing checking (5) (80) (85)
Money market 105 (214) (109)
Savings 6 (30) (24)
Time deposits (404) (232) (636)
- -----------------------------------------------------------------------------------
Total (298) (556) (854)
- -----------------------------------------------------------------------------------
Net decrease in net interest income $ 50 $ (218) $ (168)
- -----------------------------------------------------------------------------------
</TABLE>
Local competition has played a significant role in reducing the yield the Bank
can effectively offer to credit customers. Management expects future product
pricing to continue 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. For example, in the later half of the current
quarter, adjustments were made to the Bank's TCD pricing in order to stabilize
balances, and secure fixed term funds in anticipation of the Year 2000.
The Federal Reserve Board increased the fed funds rate to 5% on June 30, 1999.
Management anticipates that the increase in rates will benefit the bank on a
short-term basis as variable rate assets re-price to reflect the 25 basis point
increase. However, offsetting the improved margin could be a reduction in loan
demand if the rate hike proves to be enough to slow the local economy.
Cost of operations
Non-interest expense declined by approximately $83,000, from $5,173,000 to
$5,090,000. 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, certain administrative expenses
declined slightly, centered around reductions in professional fees 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 56.7% for the six months ended
June 30, 1999 verses 56.5% 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 a favorable comparison when compared to the Bank's
historical averages of 56% experienced prior to the acquisition of CBC.
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 due from banks, interest-bearing
deposits in other banks, and federal funds sold. As of June 30, 1999, liquid
assets made up 9% of total bank assets. In addition, the Bank has approximately
$56 million in available-for-sale securities that can be sold if necessary.
However, as the yield curve has escalated, the market value has declined:
therefore, any sale would most likely result in a loss to the Bank. If the Bank
were to fall under conditions of diminishing 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 six months of 1999, the ongoing operations of the Bank resulted in
cash outflows (cash and federal funds) of close to $12 million. The change in
the Bank's liquidity represents net loan growth of $9 million, and deposit
declines of $3 million.
Capital management
As of June 30, 1999, shareholders' equity totaled $35,189,000, a decrease of
$47,000 when compared to total shareholders' equity as of the end of the
previous fiscal year. The decline in shareholders' equity reflects the Board of
Directors first quarter decision to declare a $.12 per share cash dividend,
which was paid May 21, 1999. The dividend totaled approximately $1.0 million.
Upon announcement on April 14, 1999, the Bank commenced with a stock repurchase
plan. The repurchase plan is to be used to fund options granted and exercised
over the next twelve months, and is limited to 5% of total outstanding shares.
As of June 30, 1999, a total of 64,800 shares had been repurchased for $508,000.
The Bank is required to maintain minimum amounts of capital to "risk weighted"
assets, as defined by banking regulators. At June 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 12.7% and 14.0%, respectively.
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. As described in the Company's most recent
10-K regulatory filing, 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.
15
<PAGE> 18
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
unexpected interrupted by Year 2000 issues. Sections of the plan include
the Bank's preparation for unprecedented customer 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.
As of June 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 $81,000 in direct and indirect costs on Year 2000 compliance
issues. Management expects to spend an additional $23,000 in 1999 to complete
its remediation efforts. The costs to complete the Bank's Year 2000 modification
and testing processes are management's best estimates. Actual events are
dependent on the continued availability of certain resources, bank liquidity,
third party modification plans and other factors.
16
<PAGE> 19
Balance Sheet Analysis
The table below provides abbreviated balance sheets, which illustrate the
material changes in financial condition when comparing the end of the proceeding
fiscal year to June 30, 1999:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998 $ Change % Change
- -----------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Loans $184,398 $175,188 $ 9,210 5.26%
Investments 75,541 76,483 (942) (1.23%)
Federal funds sold 13,700 26,100 (12,400) (47.51%)
Other assets 34,244 33,446 798 2.39%
- -----------------------------------------------------------------------------------------------------------------
Total assets $307,883 $311,217 $ (3,334) (1.07%)
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY
Noninterest bearing deposits $ 73,564 $ 72,135 $ 1,429 1.98%
Interest bearing deposits 197,875 201,988 (4,113) (2.04%)
- -----------------------------------------------------------------------------------------------------------------
Total deposits 271,439 274,123 (2,684) (0.98%)
- -----------------------------------------------------------------------------------------------------------------
Other liabilites 1,255 1,859 (604) (32.49%)
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 272,694 275,982 (3,288) (1.19%)
Total shareholders' equity 35,189 35,235 (46) (0.13%)
- -----------------------------------------------------------------------------------------------------------------
Total liabilites and shareholders' equity $307,883 $311,217 $ (3,334) (1.07%)
- -----------------------------------------------------------------------------------------------------------------
</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 $188.2 million at June
30, 1999, representing a $9.5 million increase when compared to loans of $178.7
million as of December 31, 1998.
Commitments, principally real estate construction notes and commercial lines of
credit, totaled $27.6 million at June 30, 1999, a 30% 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 $128 million in real estate mortgage loans outstanding as of June
30, 1999, approximately $85 million were made to commercial customers where the
collateral for the loans includes the real estate occupied by the customers'
businesses. An additional $25 million represented loans secured by multi family
(5 or more) residential property and the remaining $17 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>
June 30, 1999 December 31, 1998
Amount Percentage Amount Percentage
- ----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Commercial $ 22,239 12.06% $ 16,418 9.37%
Real estate construction 24,512 13.29% 23,552 13.44%
Real estate residential mortgage 42,152 22.86% 126,332 72.11%
Real estate commercial mortgage 85,492 46.36% -- 0.00%
Consumer and other 13,836 7.50% 12,425 7.09%
- ----------------------------------------------------------------------------------------------------------
188,231 102.08% 178,727 102.02%
Allowance for loan losses
and unearned fees (3,833) (2.08%) (3,539) (2.02%)
- ----------------------------------------------------------------------------------------------------------
Net loans $ 184,398 100.00% $ 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 June 30, 1999, the Bank's allowance for loan
losses was $3,544,000 or 1.88% of total loans, and is believed to be highly
adequate to absorb potential credit losses that may arise in the normal course
of business.
As of June 30, 1999, total non-performing assets as a percentage of total assets
increased slightly to .23%, to total $696,000. The increase is attributable to
the credit issues of two borrowers. Both notes are collateralized by real
property. In order to resolve the delinquencies, both credits have been moved
into foreclosure, with one such property now residing in OREO. Baring unforeseen
events, full collection of both credits is anticipated.
Recoveries exceeded charge offs in the 1st and 2nd quarter of 1999, for net
recoveries of $6,000. 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.
The following table presents information with respect to non-performing assets:
<TABLE>
<CAPTION>
December 31,
June 30, 1999 1998
- ----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Loans on nonaccrual status $ 476 $ 262
Loans past due greater than 90 days but not on nonaccrual status 19 4
Other real estate owned 201 51
- ----------------------------------------------------------------------------------------------
Total nonperforming assets $ 696 $ 317
- ----------------------------------------------------------------------------------------------
Percentage of nonperforming assets to total assets 0.23% 0.10%
- ----------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 21
Investment Portfolio
Investment securities are purchased for managing liquidity and generating after
tax profits consistent with the risk guidelines established by management and
the Board of Directors. As of June 30, 1999, the Bank's portfolio of investment
securities totaled $73.7 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 June 30, 1999, the Bank's investment portfolio that is currently AFS
totaled $55.6 million, or approximately 75% of the total portfolio. Due to
recent improvements in average yields for similar securities now available in
the bond market, the market value the AFS portfolio has dropped by approximately
$1,052,000, net of tax. This represents a 1.9% percent decline in the aggregate
market value of the Bank's available for sale investments. If long term rates
continue to improve, 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 great 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 June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
December 31,
June 30, 1999 1998
- ----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Investments available-for-sale
U.S. Treasury and agencies $55,481 $57,070
States and political subdivisions -- --
Corporate and other investments 167 194
- ----------------------------------------------------------------------------------------------
$55,648 $57,264
- ----------------------------------------------------------------------------------------------
Investments held-to-maturity
U.S. Treasury and agencies $ -- $ --
States and political subdivisions 18,062 17,454
Corporate and other investments -- --
- ----------------------------------------------------------------------------------------------
$18,062 $17,454
==============================================================================================
FHLB stock $ 1,831 $ 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.
19
<PAGE> 22
Total deposits declined $2.7 million, or 1%, when comparing June 30, 1999 to the
end of 1998. Fluctuations in noninterest bearing deposits are common and despite
the decline in balances outstanding on June 30, 1999, the Bank continues to
experience conservative growth in all deposit categories except time
certificates of deposit. Time certificates of deposit have declined $9 million
over the last six months. The decline is linked to those accounts acquired from
CBC, as funds mature and leave seeking higher returns. This trend has slowed in
the later half of 1999, due to newly increased rates for certain CD time
horizons.
The decline in time certificates of deposits has resulted in a lower average
cost of funds. In illustration, when comparing 1998 to the first half of 1999,
the Bank's average cost of funds declined from 2.82 % to 2.34%
The changes evident in the Bank's deposit mix is further illustrated below:
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
JUNE 30 TOTAL DECEMBER 31 TOTAL
1999 DEPOSITS 1998 DEPOSITS
------- ---------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Demand $ 73,564 27.1% $ 72,134 26.3
Interest bearing demand 115,216 42.4 110,900 40.5
Savings 25,002 9.2 24,269 8.9
Time deposits 57,657 21.2 66,819 24.4
-------- ----- -------- -----
$271,439 100.0% $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 adverse impact from
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 June 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: 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**
22
<PAGE> 25
10.8 Employment Agreement dated May 1, 1996 by and between Valley of the
Rogue Bank and Brad Copeland**
27.0 Financial Data Schedule
- ----------
* Incorporated by reference to the Company's registration statement on
Form 10 (Commission file number 0-25932) filed April 26, 1995 pursuant
to Section 12(g) of the Securities Exchange Act of 1934.
** Incorporated by reference to the Company's registration statement on
Form S-1 (Commission File number 333-37167) declared effective November
5, 1997.
ITEM 6b. Reports on form 8-K: None
23
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 9, 1999 /s/ William A. Haden/
----------------------------------------
William A. Haden
President
Chief Executive Officer
Date: August 9, 1999 /s/ Felice Belfiore/
----------------------------------------
Felice Belfiore
Senior Vice President
Chief Financial Officer
24
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,964
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 55,647
<INVESTMENTS-CARRYING> 18,062
<INVESTMENTS-MARKET> 18,209
<LOANS> 188,231
<ALLOWANCE> 3,833
<TOTAL-ASSETS> 307,883
<DEPOSITS> 271,439
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,254
<LONG-TERM> 0
0
0
<COMMON> 21,207
<OTHER-SE> 13,982
<TOTAL-LIABILITIES-AND-EQUITY> 307,883
<INTEREST-LOAN> 8,526
<INTEREST-INVEST> 2,603
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11,129
<INTEREST-DEPOSIT> 3,143
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 7,987
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,090
<INCOME-PRETAX> 3,888
<INCOME-PRE-EXTRAORDINARY> 3,888
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,429
<EPS-BASIC> .28
<EPS-DILUTED> .28
<YIELD-ACTUAL> .08
<LOANS-NON> 476
<LOANS-PAST> 19
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,539
<CHARGE-OFFS> 17
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 3,545
<ALLOWANCE-DOMESTIC> 3,545
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
