<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 MARCH 31, 2000
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 May 1, 2000
----- --------------------------
Common stock, no par value 8,297,979
<PAGE> 2
VRB BANCORP
Form 10-Q
March 31, 2000
Table of contents
------------------------
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial statements
Consolidated balance sheets
March 31, 2000 and December 31, 1999 1
Consolidated statements of income and comprehensive income
For the three months ended March 31, 2000 and 1999 2-3
Consolidated statements of changes in shareholders' equity
For the period December 31, 1998 through March 31, 2000 4
Consolidated statements of cash flows
For the three months ended March 31, 2000 and 1999 5
Notes to consolidated financial statements 6-7
Item 2. Management's discussion and analysis of financial
condition and results of operations 8-15
Item 3. Quantitative and qualitative disclosures about market risk 16
PART II OTHER INFORMATION
Item 1. Legal proceedings 17
Item 2. Changes in securities 17
Item 3. Defaults upon senior securities 17
Item 4. Submission of matters to a vote of security holders 17
Item 5. Other information 17
Item 6. Exhibits, independent accountant's review report, and reports on Form 8-K 17-18
SIGNATURES 19
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VRB BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
- ---------------------------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 17,474,582 $ 17,086,676
Federal funds sold 2,000,000 1,600,000
- ---------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 19,474,582 18,686,676
Investments
U.S. Treasury and agencies 54,591,065 54,755,835
States and political subdivisions 18,011,446 18,010,109
Corporate and other investments 125,627 134,146
Federal Home Loan Bank stock 1,929,400 1,898,800
Loans, net of allowance for loan losses and unearned income 203,147,538 198,000,975
Premises and equipment, net 7,737,849 7,797,420
Goodwill 8,620,369 8,798,661
Accrued interest and other assets 3,416,224 3,421,075
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 317,054,100 $ 311,503,697
=====================================================================================================================
LIABILITIES
Deposits
Demand deposits $ 78,283,028 $ 74,804,533
Interest bearing demand deposits 120,131,668 119,569,318
Savings deposits 23,483,976 23,512,119
Time deposits 58,961,643 58,479,936
- ---------------------------------------------------------------------------------------------------------------------
Total deposits 280,860,315 276,365,906
Accrued interest and other liabilities 2,562,700 1,528,447
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 283,423,015 277,894,353
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 8,297,979 and 8,303,596, issued and outstanding
at March 31, 2000 and December 31, 1999, respectively 18,667,641 18,699,060
Accumulated other comprehensive income, net of taxes (1,686,235) (1,518,003)
Retained earnings 16,649,679 16,428,287
- ---------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 33,631,085 33,609,344
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 317,054,100 $ 311,503,697
=====================================================================================================================
</TABLE>
<PAGE> 4
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the three months ended March 31, 2000 1999
- -----------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 4,608,567 $ 4,198,597
Interest on investment securities:
U.S. Treasury and agencies 840,728 804,064
States and political subdivisions 231,507 228,641
Corporate and other investments 32,589 33,732
Federal funds sold 12,547 266,405
- -----------------------------------------------------------------------------------------------------------------
Total interest income 5,725,938 5,531,439
INTEREST EXPENSE
Interest bearing demand deposits 854,114 711,489
Savings deposits 115,265 119,767
Time deposits 711,104 771,654
Borrowed funds 32,189 --
- -----------------------------------------------------------------------------------------------------------------
Total interest expense 1,712,672 1,602,910
- -----------------------------------------------------------------------------------------------------------------
Net interest income 4,013,266 3,928,529
- -----------------------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES -- --
- -----------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 4,013,266 3,928,529
NON INTEREST INCOME
Service charges on deposit accounts 327,770 307,812
Other operating income 236,318 203,272
- -----------------------------------------------------------------------------------------------------------------
Total non interest income 564,088 511,084
NON INTEREST EXPENSES
Salaries and benefits 1,558,227 1,540,705
Net occupancy 391,972 276,674
Communications 122,070 104,747
Data processing 79,826 92,107
FDIC insurance premium 14,159 7,913
Supplies 61,509 60,247
Professional fees 35,995 45,897
Advertising 58,411 59,349
Other expenses 358,036 251,558
- -----------------------------------------------------------------------------------------------------------------
Total non interest expenses 2,680,205 2,439,197
</TABLE>
<PAGE> 5
VRB BANCORP
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (cont.)
<TABLE>
<S> <C> <C>
INCOME BEFORE INCOME TAXES 1,897,149 2,000,416
PROVISION FOR INCOME TAXES 680,000 750,000
- -----------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,217,149 $ 1,250,416
=================================================================================================================
OTHER COMPREHENSIVE INCOME
UNREALIZED LOSS ON SECURITIES, NET OF TAXES
Unrealized holding loss arising during period (168,232) (362,830)
- -----------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 1,048,917 $ 887,586
=================================================================================================================
BASIC EARNINGS PER SHARE $ 0.15 $ 0.14
=================================================================================================================
FULLY DILUTED EARNINGS PER SHARE $ 0.15 $ 0.14
=================================================================================================================
</TABLE>
<PAGE> 6
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, 1998
(audited) 8,694,286 $ 21,583,869 $ 13,590,957 $ 60,629 $ 35,235,455
Stock options exercised 36,179 219,126 -- -- 219,126
Cash dividend ($.12 per share,
paid May 21 and October 15, 1999) -- -- (2,051,053) -- (2,051,053)
Stock repurchased (426,869) (3,103,935) -- -- (3,103,935)
Net income and comprehensive income -- -- 4,888,383 (1,578,632) 3,309,751
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1999
(audited) 8,303,596 18,699,060 16,428,287 (1,518,003) 33,609,344
Stock repurchased (January 2000) (8,000) (49,257) -- -- (49,257)
Stock options exercised
(January to March 2000) 2,383 17,838 -- -- 17,838
Cash dividend declared ($.12 per share,
March 17, 2000) -- -- (995,757) -- (995,757)
Net income and comprehensive income -- -- 1,217,149 (168,232) 1,048,917
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 2000
(unaudited) 8,297,979 $ 18,667,641 $ 16,649,679 $ (1,686,235) $ 33,631,085
==============================================================================================================================
</TABLE>
<PAGE> 7
VRB BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the three months ended March 31 2000 1999
- ---------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,217,149 $ 1,250,416
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 343,827 233,023
FHLB of Seattle stock dividend (30,600) (33,680)
Changes in cash due to changes in assets and liabilities
Accrued interest receivable and other assets (4,734) (473,552)
Accrued interest payable and other liabilities 38,496 65,730
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,564,138 1,041,937
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the maturity of available-for-sale securities 7,841 10,519,853
Proceeds from the maturity of held-to-maturity securities -- 500,000
Purchases of available-for-sale securities -- (10,500,000)
Purchases of held-to-maturity securities -- (1,125,587)
Net increase in loans (5,146,563) (2,928,460)
Purchases of premises and equipment (100,500) (314,681)
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,239,222) (3,848,875)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits 4,494,409 (7,222,430)
Proceeds from the exercise of common stock options 17,838 98,728
Net cash used to repurchase common stock (49,257) --
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 4,462,990 (7,123,702)
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 787,906 (9,930,640)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,686,676 40,613,570
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 19,474,582 $ 30,682,930
===============================================================================================================
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 1,734,263 $ 1,570,921
Cash paid for taxes $ 445,000 $ 43,755
SCHEDULE OF NONCASH ACTIVITIES
Changes in unrealized loss on available-for-sale
securities, net of tax $ (168,232) $ (362,830)
</TABLE>
<PAGE> 8
VRB BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization
The accompanying financial statements reflect the operations of VRB Bancorp and
its wholly owned subsidiary, Valley of the Rogue Bank.
NOTE 2 - Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information, and in compliance with instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Adjustments to the interim financial statements are of
a normal recurring nature and include all adjustments that, in the opinion of
management, are necessary to the fair presentation of the financial position and
operating results for the interim periods. The consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Bank's 1999 Annual Report
to Shareholders. The operating results for the three months ended March 31,
2000, are not necessarily indicative of the results that may be expected for the
entire fiscal year ending December 31, 2000, or any other future interim period.
NOTE 3 - Earnings per common and common equivalent shares
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per share" which
became 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.
<PAGE> 9
The following table illustrates the computations of basic and diluted earnings
per share for the three-month period ended March 31, 2000 and 1999 (in thousands
except per share amounts):
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
For the three months ended March 31, 1999
Basic earnings per share -
Income available to common shareholders $1,250 8,699 $0.14
Effect of dilutive securities
Outstanding common stock options -- 40
------ -----
Income available to common shareholders
plus assumed conversions $1,250 8,739 $0.14
====== ===== =====
For the three months ended March 31, 2000
Basic earnings per share -
Income available to common shareholders $1,217 8,297 $0.15
Effect of dilutive securities
Outstanding common stock options -- --
------ -----
Income available to common shareholders
plus assumed conversions $1,217 8,297 $0.15
====== ===== =====
</TABLE>
NOTE 4 - SFAS No. 130 "Reporting Comprehensive Income".
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income."
This Statement is effective for the year ended December 31, 1998. This Statement
established 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 change in market value for those
investments classified as available-for-sale as a component of comprehensive
income. However, the change in market value on available-for-sale securities
does not affect net income, or earnings per share, unless the investment is
actually sold. At this time, VRB does not intend to sell any of its
available-for-sale securities.
<PAGE> 10
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.
TRENDS AND ANNOUNCEMENTS
Rate environment: Using a number of small incremental rate hikes, the Federal
Reserve Board has increased interest rates by a total of 125 basis points
beginning back in July of 1999. Up to this point, rising rates have had a
marginal effect on the bank's interest margin. Speaking locally, management
believes that competition has effectively mitigated the effect of rising rates
for new customers and therefore, both interest rates and loan demand has
remained relatively stable. On the deposit side, prices are slowly moving to
reflect the higher rate environment. In particular, the Bank's money market and
certificates of deposit pricing has become more competitive as the Bank looks
for deposit growth in 2000. Despite interest rate volatility, the Bank's
interest margin has remained stable at 5.93% in the 1st quarter of the year.
Central Point Branch: On January 31, 2000, the Bank opened a temporary branch in
Central Point. The permanent facility is scheduled to open by October 2000.
Central point is one of the fastest growing communities in southern Oregon and
brings the Company's total branch network to 14. Initial acceptance of the
branch is very positive, and total deposits grew to over $1 million in its first
two months of operation.
<PAGE> 11
CHANGES IN THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
AND 1999
Earnings totaled $1,217,000 for the 1st quarter of 2000. The results are up on a
per share basis, from $.14 in 1999 to $.15 per share in 2000.
Net interest income
Interest income on loans and investments increased (on a tax equivalent basis)
by $193,000 when comparing 1st quarter of 2000 to the same quarter in the prior
year. Average loans outstanding grew by $25.8 million, or 14%, and contributed
substantially to the higher income levels.
Gains in interest income were partially offset by increases in the Bank's
interest expense. Deposit rates increased throughout the 1st quarter of 2000,
reflecting recent monetary policy and competitive pressures. Over all, the Bank
paid an additional $78,000 on interest bearing deposit accounts
The above discussion is supported in the following analysis of the Bank's
interest margin (on a tax equivalent basis) for the three months ended March 31,
2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000 1999
(in thousands) Avg Balance Interest Rate Avg Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------
Interest earning assets
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 756 $ 12 6.35% $ 22,703 $ 266 4.69%
Held to maturity securities (1) 18,011 365 8.11 17,922 363 8.10
Available for sale securities 56,785 874 6.16 57,004 839 5.89
Commercial loans (2) 165,580 3,686 8.90 143,059 3,348 9.36
Consumer loans (2) 38,760 922 9.51 35,469 850 9.59
- ----------------------------------------------------------------------------------------------------------------------
Total earning assets 279,892 5,859 8.37 276,157 5,666 8.21
Non earning assets 35,598 33,545
Less: loan loss reserve (3,735) (3,880)
- ----------------------------------------------------------------------------------------------------------------------
Total average assets $ 311,755 $ 305,822
======================================================================================================================
Interest bearing liabilities
- ----------------------------------------------------------------------------------------------------------------------
Interest bearing checking $ 30,642 $ 75 0.98% $ 32,663 $ 79 0.97%
Money market 86,379 780 3.61 79,141 632 3.19
Savings 23,710 115 1.94 24,681 120 1.94
Time 58,506 711 4.86 63,271 772 4.88
Borrowed funds 2,156 32 5.94 -- --
- ----------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits
and borrowed funds 201,393 1,713 3.40 199,756 1,603 3.21
Non interest bearing deposits 74,290 68,014
- ----------------------------------------------------------------------------------------------------------------------
Total deposits and borrowed funds 275,683 267,770
Other liabilities 2,057 2,185
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 277,740 269,955
Shareholders' equity 34,015 35,867
- ----------------------------------------------------------------------------------------------------------------------
Total average liabilities and
shareholders' equity $ 311,755 $ 305,822
======================================================================================================================
Net interest income $ 4,146 $ 4,063
Interest income as a percentage
of average earning assets 8.373% 8.21%
Interest expense as a percentage
of average earning assets 2.45 2.32
- ----------------------------------------------------------------------------------------------------------------------
Net interest margin 5.92% 5.89%
======================================================================================================================
</TABLE>
(1) Tax exempt income has been adjusted to a tax equivalent basis at the
Bancorp's effective tax rate of 37%
(2) Non accrual loans are included in the average balance
<PAGE> 12
The following table further analyzes the Bank's interest margin, and attributes
increases in interest income and interest expense to changes in "volume" or
changes in "rate".
<TABLE>
<CAPTION>
March 31, 2000 over March 31, 1999
(in thousands) Increase (decrease) in interest due to changes in
Interest earning assets Volume Rate Net
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds sold $(348) $ 94 $(254)
Held to maturity securities 2 0 2
Available for sale securities (3) 38 35
Commercial loans 501 (163) 338
Consumer loans 78 (6) 72
- ---------------------------------------------------------------------------------------
Total 230 (37) 193
- ---------------------------------------------------------------------------------------
Interest bearing liabilities
- ---------------------------------------------------------------------------------------
Interest bearing checking (5) 1 (4)
Money market 65 83 148
Savings (5) (0) (5)
Time deposits (58) (3) (61)
Borrowed funds 32 -- 32
- ---------------------------------------------------------------------------------------
Total 30 80 110
- ---------------------------------------------------------------------------------------
Net increase in net interest income 200 (117) 83
=======================================================================================
</TABLE>
Fee income
Fee income, or non interest income, increased by $53,000, or 10% when comparing
quarter over quarter. The increase reflects fees from mortgage origination
activity, growth in the number of deposit accounts, and ATM surcharge fees.
Despite higher interest rates and seasonal trends in mortgage banking, mortgage
fee income grew 12%. Management believes the increase is also due to the
mortgage department's restructure in mid-1999, which expanded the Company's
mortgage lending programs available to customers.
Cost of operations
Cost of operations, or non interest expense, grew to $2.7 million for the
quarter. The 9.9% increase is exaggerated by a $100,000 loss recovery that took
place in 1999. Excluding this event, non interest expense increased 5%, which
primarily reflects higher occupancy costs. The bank funded a number of
technological improvements in 1999, and rising depreciation expense reflects
these improvements.
The Bank's efficiency ratio, or non-interest expense as a percentage of total
net interest income plus non-interest income, was 58.5% for the three months
ended March 31, 2000 compared to 54.9% for the same period in 1999. This
comparison is also skewed by the Bank's one time recovery described above.
Excluding non-cash expenses, such as goodwill, the efficiency ratio drops to
54.4% for the current period.
<PAGE> 13
CHANGES IN FINANCIAL CONDITION AS OF MARCH 31, 2000
Liquidity review
The Bank must maintain cashflows adequate to fund operations and meet
commitments on a timely and cost effective basis.
The bank's liquidity changed throughout the quarter to reflect climbing loan
balances. As a result, the Bank borrowed funds from the Federal Home Loan Bank
("FHLB") on an intermittent basis during the period. The debt resulted in
approximately $32,000 in interest expense. However, liquidity increased by the
close of the 1st quarter, and all advances were paid off accordingly. Management
expects that the Bank will continue to borrower from the FHLB. However, the
volume of such borrowings is dependent on deposit growth and the Bank's ability
to continue to grow its loan portfolio.
Generally, liquid assets of the Bank include cash and due from banks, interest
bearing deposits in other banks, and federal funds sold. As of March 31, 2000,
liquid assets made up 6% of total Bank assets, a decline from previous levels
for the reasons described above. The Bank also has approximately $56 million in
available-for-sale securities that can be sold if necessary. However, as the
rate environment has increased, the market value of these securities 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 a
$30 million line of credit with the FHLB of Seattle that could be used in lieu
of selling securities.
For the first three months of 2000, ongoing operations of the Bank resulted in
cash inflows (cash and federal funds) of close to $1 million. The net impact of
cash inflows and outflows included net loan growth of $5.2 million offset by
deposit increases on $4.5 million and cash from earnings.
Capital management
As of March 31, 2000, shareholders' equity totaled $33.6 million, a slight
increase of $22,000 when compared to total shareholders' equity as of the end of
the previous fiscal year. The increase in shareholders' equity essentially
reflects earnings of $1.2 million offset by the Board of Directors first quarter
decision to declare a $.12 per share cash dividend, payable May 1, 2000. When
paid, the dividend will total approximately $1.0 million.
The Bank is required to maintain minimum amounts of capital to "risk weighted"
assets, as defined by banking regulators. At March 31, 2000, 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 11.42% and 12.67%, respectively.
<PAGE> 14
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 March 31, 2000:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999 $ Change % Change
- -----------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Loans $ 206,914 $ 201,736 $ 5,178 2.57%
Allowance for loan losses and deferred fees (3,766) (3,735) (31) 0.83%
Investments 74,657 74,799 (142) (0.19%)
Federal funds sold 2,000 1,600 400 25.00%
Other assets 37,249 37,104 145 0.39%
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 317,054 $ 311,504 $ 5,550 1.78%
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY
Non interest bearing deposits $ 78,283 $ 74,804 $ 3,479 4.65%
Interest bearing deposits 202,577 201,562 1,015 0.50%
- -----------------------------------------------------------------------------------------------------------------
Total deposits 280,860 276,366 4,494 1.63%
- -----------------------------------------------------------------------------------------------------------------
Other liabilities 2,563 1,529 1,034 67.63%
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 283,423 277,895 5,528 1.99%
Total shareholders' equity 33,631 33,609 22 0.07%
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 317,054 $ 311,504 $ 5,550 1.78%
- -----------------------------------------------------------------------------------------------------------------
</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 $206.9 million at March
31, 2000, representing a $5.2 million increase when compared to loans of $201.7
million as of December 31, 1999.
Commitments, principally real estate construction notes and commercial lines of
credit, totaled $33.8 million at March 31, 2000, unchanged 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, 79% of the Bank's loan portfolio is classified as real estate secured
loans. Of the $162.9 million in real estate mortgage loans outstanding as of
March 31, 2000, approximately $100.3 million were made to commercial customers
where the collateral for the loans includes the real estate occupied by the
customers' businesses. An additional $20.3 million represented loans secured by
multi family (5 or more) residential property and the remaining $42.3 million
was secured by family residential property. This is relatively unchanged from
previous reporting periods.
<PAGE> 15
The following table presents the composition of the Bank's loan portfolio at the
date indicated:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
Amount Percentage Amount Percentage
- -----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Commercial $ 29,757 14.65% $ 23,940 12.09%
Real estate construction 21,257 10.46% 29,034 14.66%
Real estate residential mortgage 41,368 20.36% -- 0.00%
Real estate commercial mortgage 100,303 49.37% 134,765 68.06%
Consumer and other 14,229 7.00% 13,997 7.07%
- -----------------------------------------------------------------------------------------------------------
206,914 101.85% 201,736 101.89%
Allowance for loan losses (3,502) (1.72%) (3,503) (1.77%)
Deferred loan fees (264) (0.13%) (232) (0.12%)
- -----------------------------------------------------------------------------------------------------------
Net loans $ 203,148 100.00% $ 198,001 100.00%
- -----------------------------------------------------------------------------------------------------------
</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 March 31, 2000, the Bank's allowance
for loan losses was $3,502,000 or 1.72% of net loans, and is believed to be
adequate to absorb potential credit losses that may arise in the normal course
of business.
As of March 31, 2000, total non-performing assets as a percentage of total
assets declined slightly to .16%, or $499,000. Non-performing assets primarily
represent three loans to one borrower. All three are well collateralized by real
property and baring unforeseen events, full collection is anticipated.
Loan charge-offs were minimal in the 1st quarter. After netting charge-offs
against recoveries, charge-offs were just over $1,000.
Due to the adequacy of the Bank's loan loss reserve and the strength of the
Bank's loan portfolio, the Bank did not record a loan loss provision in the
first quarter of 2000.
<PAGE> 16
The following table presents information with respect to non-performing assets:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
- -----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Loans on nonaccrual status $ 499 $ 551
Loans past due greater than 90 days but not
on nonaccrual status -- --
Other real estate owned -- --
- -----------------------------------------------------------------------------------------
Total non-performing assets $ 499 $ 551
- -----------------------------------------------------------------------------------------
Percentage of non-performing loans to total loans 0.24% 0.27%
Percentage of non-performing assets to total assets 0.16% 0.18%
- -----------------------------------------------------------------------------------------
</TABLE>
Investment Portfolio
Investment securities are purchased for managing liquidity and generating after
tax profits consistent with the risk guidelines established by management and
the Board of Directors. As of March 31, 2000, the Bank's portfolio of investment
securities totaled $74.6 million, virtually unchanged when compared to the
balance of the portfolio at December 31, 1999 of $74.8 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 March 31, 2000, the Bank's investment portfolio that is currently AFS
totaled $54.7 million, or approximately 73% of the total portfolio. Due to
rising interest rates, the market value the Bank's AFS portfolio has dropped by
approximately $1.7 million, net of tax. This represents an approximate 4%
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.
<PAGE> 17
The following table provides the book value of the Bank's investment portfolio
as divided between HTM and AFS as of March 31, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
- ---------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Investments available-for-sale
U.S. Treasury and agencies $54,591 $54,756
Corporate and other investments 126 134
- ---------------------------------------------------------------------------------
$54,717 $54,890
=================================================================================
Investments held-to-maturity
States and political subdivisions $18,011 $18,010
=================================================================================
FHLB stock $ 1,929 $ 1,899
=================================================================================
</TABLE>
Deposits
Deposits are the Bank's principal 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 $4.5 million, or 1.6%, when comparing March 31, 2000 to
the end of the prior year. Non interest bearing deposits have increased to 27.9%
of total deposits, up from 24.7% as of March 31, 1999. The growth in non
interest bearing accounts reflects the Bank's emphasis on relationship banking.
Generally, non interest bearing checking accounts are used as the key to promote
other banking products. The strategy fosters a very low cost of funds, which
averaged 2.48% in the first quarter of the year. While this strategy contributes
to the Bank's strong earnings, it also increases the volatility of the Bank's
deposit base, which can fluctuate depending on the time of month and external
events like tax deadlines.
The Bank's current deposit mix is further illustrated below:
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
MARCH 31 TOTAL DECEMBER 31 TOTAL
2000 DEPOSITS 1999 DEPOSITS
-------- -------- ----------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Demand $ 78,283 27.9% $ 74,805 27.1%
Interest bearing demand 120,132 42.8 119,569 43.3
Savings 23,484 8.4 23,512 8.5
Time deposits 58,961 21.0 58,480 21.2
-------- ----- -------- -----
$280,860 100.0% $276,366 100.0%
======== ===== ======== =====
</TABLE>
<PAGE> 18
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 by monitoring 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 March 31, 2000, 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, 1999.
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).
<PAGE> 19
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:
<TABLE>
<S> <C>
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 January 11, 1993, and Amendment to
Employment Agreement, dated September 26, 1994, by and between Valley
of the Rogue Bank and William A. Haden*
10.4 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)
10.5 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)
10.6 Employment Agreement dated February 27, 1997 by and among Valley of the
Rogue Bank, VRB Bancorp and Felice Belfiore**
10.7 Employment Agreement dated May 1, 1996 by and between Valley of the
Rogue Bank and Brad Copeland**
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
15.0 Independent Accountant's Review Report
27.0 Financial Data Schedule
</TABLE>
- ----------
* 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
<PAGE> 21
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: May 12, 2000 William A. Haden
-----------------------------------------
William A. Haden
President
Chief Executive Officer
Date: May 12, 2000 Felice Belfiore
-----------------------------------------
Felice Belfiore
Senior Vice President
Chief Financial Officer
<PAGE> 1
Exhibit 15.0 - Independent Accountant's Review Report
Board of Directors and Shareholders
VRB Bancorp and Subsidiary
We have reviewed the accompanying condensed consolidated balance sheet of VRB
Bancorp and Subsidiary as of March 31, 2000, and the related condensed
consolidated statements of income and cash flows for the three months ended
March 31, 2000. These financial statements are the responsibility of VRB
Bancorp's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of VRB Bancorp and Subsidiary as of
December 31, 1999, and the related consolidated statements of income,
shareholders' equity, and cash flows for the year then ended not presented
herein; and in our report dated January 14, 2000, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1999, is fairly presented in, all material respects, in
relation to the consolidated balance sheet from which it has been derived.
Moss Adams, LLP
Portland, Oregon
May 10, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 17,474
<INT-BEARING-DEPOSITS> 2,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,645
<INVESTMENTS-CARRYING> 18,011
<INVESTMENTS-MARKET> 18,005
<LOANS> 206,649
<ALLOWANCE> 3,502
<TOTAL-ASSETS> 307,883
<DEPOSITS> 280,860
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,563
<LONG-TERM> 0
0
0
<COMMON> 18,668
<OTHER-SE> 16,650
<TOTAL-LIABILITIES-AND-EQUITY> 317,054
<INTEREST-LOAN> 4,609
<INTEREST-INVEST> 1,117
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,726
<INTEREST-DEPOSIT> 1,713
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 4,013
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,680
<INCOME-PRETAX> 1,897
<INCOME-PRE-EXTRAORDINARY> 1,217
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,217
<EPS-BASIC> .15
<EPS-DILUTED> .15
<YIELD-ACTUAL> .08
<LOANS-NON> 499
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,503
<CHARGE-OFFS> 7
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 3,502
<ALLOWANCE-DOMESTIC> 3,502
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
