<PAGE>   1

                                                                      EXHIBIT 13

        Forward Looking Statements: The following narrative includes a
discussion of certain significant business trends and uncertainties as well as
other forward looking statements and is intended to be read in conjunction with
and is qualified in its entirety by reference to the consolidated financial
statements and accompanying notes included elsewhere in the annual report. This
report contains certain "forward-looking statements" that are based on the
current beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. All statements
other than statements of historical facts regarding the Company's financial
position, business strategy and plans and objectives of future operations, are
forward looking statements. When used in this report, the words "estimate",
"believes", "project", "goal", "objective", or similar expressions 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. Based
upon changing conditions, the occurrence of certain risks or uncertainties, or
if any of the underlying assumptions prove incorrect, actual results may vary
materially from those described herein.

                      MANAGEMENTS DISCUSSION AND ANALYSIS

        Financial Overview

        VRB Bancorp and its subsidiary, Valley of the Rogue Bank (collectively
VRB or the Bank), operates 14 banking offices along the I-5 corridor in southern
Oregon. The Bank has prospered by emphasizing relationship banking and excellent
customer service to small and medium size businesses in specific commercial
niches. VRB will continue to emphasize personal service balanced with a more
recent commitment toward providing new means of product delivery, and electronic
banking services.

        In 1999, net income totaled $4.9 million, virtually unchanged from that
in 1998. Earnings per share for each period was also consistent at $.57 per
average share outstanding. Internal departmental restructuring, and pressure on
interest margins influenced earnings growth. Costs to establish a brand image,
and strengthen the lending and technological capabilities of the Bank also lead
to higher costs. It is management's belief that these costs will be recovered in
the form of future efficiencies and profitability.

        VRB operated under a relatively low interest rate environment until
after the third quarter of 1999 when interest rates increased by .75%, in three
successive increases of .25% each. The effect of rising rates had a minor impact
on VRB in 1999. Gains as a result of variable loans re-pricing at higher rates
were offset by strong competition that served to limit rate increases on new and
renewed loans. Future growth in both loans and deposits may require more
aggressive pricing strategies and management expects pressure on interest
margins to continue unabated.


                            SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Years ended December 31
(in thousands, except per share data)              1999           1998           1997           1996           1995
-------------------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>            <C>            <C>            <C>
OPERATING RESULTS
Interest income                                $ 22,693       $ 23,912       $ 14,955       $ 13,188       $ 11,973
Interest expense                                  6,413          7,671          4,062          3,627          2,989
-------------------------------------------------------------------------------------------------------------------
Net interest income                              16,280         16,241         10,893          9,561          8,984
-------------------------------------------------------------------------------------------------------------------
Provision for credit losses                          --             --            250            250             --
Noninterest income                                2,055          2,141          1,671          1,370          1,380
Noninterest expense                              10,564         10,489          6,873          5,828          6,061
Income before income taxes                        7,771          7,893          5,441          4,853          4,303
Provision for income taxes                        2,883          2,966          1,737          1,602          1,395
-------------------------------------------------------------------------------------------------------------------
Net income                                     $  4,888       $  4,927       $  3,704       $  3,251       $  2,908
-------------------------------------------------------------------------------------------------------------------

Return on average equity                          14.17%         14.60%         15.60%         17.30%         17.80%
Return on average assets                           1.57%          1.60%          2.00%          1.99%          2.02%

PER SHARE DATA(1)
-------------------------------------------------------------------------------------------------------------------
Earnings per common share                      $   0.57       $   0.57       $   0.48       $   0.44       $   0.40
-------------------------------------------------------------------------------------------------------------------
Diluted earnings per share                         0.57           0.56           0.48           0.43           0.39
Dividends declared per common share                0.24           0.19           0.13           0.13           0.08
Ratio of dividends declared to net income          42.1%          33.7%          28.0%          28.3%          19.0%

BALANCE SHEET DATA AT YEAR END
Loans                                          $198,001       $175,188       $115,414       $ 99,776       $ 88,972
-------------------------------------------------------------------------------------------------------------------
Total assets                                    311,504        311,217        177,107        151,485        141,537
-------------------------------------------------------------------------------------------------------------------
Total deposits                                  276,366        274,122        173,176        155,568        132,744
-------------------------------------------------------------------------------------------------------------------
Total equity                                     33,609         35,235         31,861         20,188         17,470
-------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)     Adjusted to reflect all stock dividends and stock splits through
        December 31, 1999.


                                       1
<PAGE>   2
                 AVERAGE BALANCES & AVERAGE RATES EARNED & PAID
<TABLE>
<CAPTION>
Years Ended December 31 (in thousands)                             1999                                       1998
---------------------------------------------------------------------------------------------------------------------------------
                                                  Balance        Interest      Rate          Balance        Interest       Rate
---------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>             <C>             <C>        <C>             <C>             <C>
INTEREST-EARNING ASSETS
Federal funds sold                              $  18,792       $     936       4.98%      $  38,206       $   2,053       5.37%
Held to maturity securities(1)                     18,004           1,382       7.68          18,432           1,410       7.65
Available for sale securities                      57,340           3,483       6.07          28,573           1,814       6.35
Commercial Loans(2)                               149,589          13,845       9.26         156,049          15,261       9.78
Consumer Loans(2)                                  36,226           3,501       9.66          37,397           3,852      10.27
---------------------------------------------------------------------------------------------------------------------------------
Total earning assets                              279,951          23,147       8.27         278,657          24,390       8.75
---------------------------------------------------------------------------------------------------------------------------------
Nonearning assets                                  35,947                                     33,161
Less: Loan loss reserve                            (3,835)                                    (4,062)

---------------------------------------------------------------------------------------------------------------------------------
Total assets                                    $ 312,063                                  $ 307,756
---------------------------------------------------------------------------------------------------------------------------------

INTEREST-BEARING LIABILITIES
Interest-bearing checking                       $  32,813       $     321       0.98%      $  33,188       $     446       1.34%
Money market                                       84,549           2,774       3.28          75,519           2,764       3.66
Savings                                            24,764             486       1.96          24,336             523       2.15
Time                                               59,252           2,832       4.78          73,627           3,932       5.34
---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits                   201,378           6,413       3.18         206,670           7,665       3.71
---------------------------------------------------------------------------------------------------------------------------------

Noninterest-bearing deposits                       73,610                                     64,733
---------------------------------------------------------------------------------------------------------------------------------
Total deposits                                    274,988                                    271,403
---------------------------------------------------------------------------------------------------------------------------------
Other liabilities                                   2,588                                      2,571
---------------------------------------------------------------------------------------------------------------------------------
Total liabilities                                 277,576                                    273,974
---------------------------------------------------------------------------------------------------------------------------------

Shareholders' equity                               34,487                                     33,782
---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity      $ 312,063                                  $ 307,756
---------------------------------------------------------------------------------------------------------------------------------

Net interest income(1)                                          $  16,734                                  $  16,725
Interest Income as a percentage
     of average earning assets                                                  8.27%                                      8.75%
Interest expense as a percentage
     of average earning assets                                                  2.29                                       2.75
---------------------------------------------------------------------------------------------------------------------------------
Net interest margin                                                             5.98%                                      6.00%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
Years Ended December 31 (in thousands)                              1997
--------------------------------------------------------------------------------------
                                                  Balance         Interest       Rate
--------------------------------------------------------------------------------------
<S>                                              <C>             <C>             <C>
INTEREST-EARNING ASSETS
Federal funds sold                               $  19,556       $   1,063       5.44%
Held to maturity securities(1)                      18,480           1,431       7.74
Available for sale securities                       22,486           1,504       6.69
Commercial Loans(2)                                 71,016           7,531      10.60
Consumer Loans(2)                                   38,565           3,913      10.15
--------------------------------------------------------------------------------------
Total earning assets                               170,103          15,442       9.08
--------------------------------------------------------------------------------------
Nonearning assets                                   17,056
Less: Loan loss reserve                             (1,597)

--------------------------------------------------------------------------------------
Total assets                                     $ 185,562
--------------------------------------------------------------------------------------

INTEREST-BEARING LIABILITIES
Interest-bearing checking                        $  20,256       $     299       1.48%
Money market                                        53,036           2,116       3.99
Savings                                             15,358             337       2.19
Time                                                26,285           1,310       4.98
--------------------------------------------------------------------------------------
Total interest-bearing deposits                    114,935           4,062       3.53
--------------------------------------------------------------------------------------

Noninterest-bearing deposits                        45,552
--------------------------------------------------------------------------------------
Total deposits                                     160,487
--------------------------------------------------------------------------------------
Other liabilities                                    1,415
--------------------------------------------------------------------------------------
Total liabilities                                  161,902
--------------------------------------------------------------------------------------

Shareholders' equity                                23,660
--------------------------------------------------------------------------------------
Total liabilities and shareholders' equity       $ 185,562
--------------------------------------------------------------------------------------

Net interest income(1)                                           $  11,380
Interest Income as a percentage
     of average earning assets                                                   9.08%
Interest expense as a percentage
     of average earning assets                                                   2.39
--------------------------------------------------------------------------------------
Net interest margin                                                              6.69%
--------------------------------------------------------------------------------------
</TABLE>

(1)  Tax exempt income has been adjusted to a tax equivalent basis at a 37%
     effective rate.

(2)  Nonaccrual loans are included in average balances.


        Net Interest Income

        For financial institutions, the primary component of earnings is net
interest income, which is the difference between interest income, from loans and
investment securities, and interest expense on deposits. In 1999, VRB sustained
net interest income levels while experiencing changing interest rates and
increased competitive pressures by investing excess liquidity in securities,
expanding the loan portfolio, and reducing the rates paid on deposits.

        A key financial benchmark for all financial institutions is the interest
margin, which is net interest income divided by average interest earning assets.
In 1999, VRB's interest margin of 5.98% declined by .02%, virtually unchanged
from the prior year.

        During 1999, the average yield on interest earning assets declined by
 .48%, reflecting the low interest rate environment in effect for most of the
year. To offset the decline in asset yields, select deposit rates were reduced.
These pricing decisions influenced the bank's deposit mix, and $14.3 million in
certificates of deposit were replaced by less expensive funding such as
interest-bearing demand deposits. Overall, VRB's average cost of funds declined
from 3.71% to 3.18%.


                                       2
<PAGE>   3
                  ANALYSIS OF CHANGES IN INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                          December 99 compared to December 98                 December 99 compared to December 97
                                                Increase (decrease) in                              Increase (decrease) in
                                              interest due to changes in                          interest due to changes in

------------------------------------------------------------------------------------------------------------------------------------
(in thousands)                         Average Volume    Average Rate     Net Effect   Average Volume   Average Rate      Net Effect
------------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>             <C>             <C>             <C>             <C>
INTEREST-EARNING ASSETS
Federal funds sold                         $  (967)        $  (150)        $(1,117)        $ 1,002         $   (12)        $   990
Held-to-maturity securities                    (33)              5             (28)             (4)            (17)            (21)
Available-for-sale securities                1,747             (78)          1,669             386             (76)            310
Commercial loans                              (598)           (818)         (1,416)          8,316            (586)          7,730
Consumer loans                                (113)           (238)           (351)           (107)             46             (61)

------------------------------------------------------------------------------------------------------------------------------------
Total                                           36          (1,279)         (1,243)          9,593            (645)          8,948
------------------------------------------------------------------------------------------------------------------------------------

INTEREST-BEARING LIABILITIES
Interest-bearing checking                       (4)           (121)           (125)            174             (27)            147
Money market                                   296            (286)             10             823            (175)            648
Savings                                          8             (45)            (37)            193              (7)            186
Time deposits                                 (687)           (413)         (1,100)          2,528              94           2,622

------------------------------------------------------------------------------------------------------------------------------------
Total                                         (387)           (865)         (1,252)          3,718            (115)          3,603
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
Net increase in net interest income        $   423         $  (414)        $     9         $ 5,875         $  (530)        $ 5,345
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

        Fee Income

        Fee income, or noninterest income, totaled $2.1 million, a 4% decline
when compared to the prior year. As a percent of total revenues, fee income
equaled 8.3% in 1999, virtually unchanged from 1998. The decline in
noninterest income is due to the decrease in residential mortgage loans
originated through the Bank's mortgage lending department.

        In the third quarter, the mortgage lending department was restructured
and moved in-house to include local processing, underwriting and closing of
residential real estate loans. In connection with the restructure, the
department introduced new products and expanded its mortgage services.
Management believes the department is now positioned to capture a much larger
share of the market; however, the origination and refinance of mortgage loans
and related fees are dependent on the general level and direction of interest
rates. Accordingly, there can be no assurance that such income will improve in
the future.

        Cost of Operations

        Cost of operations, or noninterest expense, grew to $10.6 million, a
small increase of less than one percent. VRB hired a number of senior lending
and calling officers in 1999 to generate loan growth. As a result, salaries and
benefits rose from $6.0 million to $6.3 million, a 5.6% increase. VRB had 177
full time equivalent employees at December 31, 1999 compared to 167 full time
equivalent employees at December 31, 1998.

        Occupancy costs, including depreciation, rent and small equipment,
increased by 12.9% to $1.2 million. In 1999, VRB embarked on a campaign to
upgrade operating equipment and streamline data and voice communications,
investing $1.1 million into capital projects and company infrastructure. With
the exception of communication expense (primarily postage and phone service),
other administrative expenses declined slightly, centered around reductions in
professional fees and other one-time expenses related to the acquisition of
Colonial Banking Company in 1998 (see Note 2 in Notes to Consolidated Financial
Statements).

        One measure of VRB's ability to contain noninterest expenses is the
efficiency ratio. It is calculated by dividing total noninterest expense by the
sum of net interest income and noninterest income. In 1999, VRB maintained an
efficiency margin of 57.6%, slightly higher than 1998's efficiency margin of
57.1%. Excluding the amortization of goodwill from the measurement, the
efficiency margin drops to 53.5% and 52.8% for 1999 and 1998, respectively.


                                       3
<PAGE>   4

        Income Taxes

        The income tax provision was $2.9 million in 1999, compared to $3.0 in
1998. VRB's effective tax rate declined slightly to 37% in 1999, and differs
from federal and state statutory rates due to nondeductible goodwill (see Note 8
in Notes to Consolidated Financial Statements).

        Comparison of Results of Operations for the Years Ended December 31,
        1998 and December 31, 1997

        In the first quarter of 1998, VRB acquired Colonial Banking Company
("CBC"). CBC was a state charted bank owned by Investors Banking Corporation,
with approximately $116 million in total assets. CBC added four branches to
VRB's existing branch network in Southern Oregon. VRB paid $15.7 million in
cash, which was approximately 2.5 times book value. The acquisition of CBC
brought increased market share to the Bank and preempted the acquisition of CBC
by potential competitors looking to enter the Rogue Valley market.

        Earnings grew to $4.9 million in 1998, up $1.2 million or 33% when
compared to 1997. Diluted earnings per share grew to $.57, an increase of 19%
from $.48 in 1997. Earnings accretion from the CBC acquisition was partially
diluted by the sale of 1.2 million shares of VRB common stock, the proceeds of
which were used to finance the CBC acquisition.

        The acquisition of CBC altered VRB's deposit structure with a new
emphasis in certificates of deposit (27% of total deposits vs. 16%
pre-acquisition). CBC also brought an unusually large concentration of out-of-
area commercial loans with very low interest rates. The net portfolio return on
CBC loans was approximately 70 basis points lower than VRB's then present
average. While net interest income grew by $1.3 million, VRB's interest margin
declined from 6.69% to 6.01%. Noninterest income and expenses also reflected the
acquisition, growing 28% and 53%, respectively.

        Lending and Credit Management

        Loans: As of December 31, 1999, loans outstanding totaled $201.7 (not
including mortgage loans held for sale). This is a 13% increase over 1998, when
loans totaled $179.1. Loan growth was diversified across all categories, with
the biggest gains in commercial real estate, term debt and lines of credit. Loan
growth is the result of aggressive calling strategies, innovative terms and
favorable economic conditions.


                               LOAN PORTFOLIO MIX

<TABLE>
<CAPTION>
                                                                     1999                         1998
---------------------------------------------------------------------------------------------------------------
(in thousands)                                              Amount        Percent         Amount        Percent
---------------------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>          <C>              <C>
Real estate mortgage - commercial and residential           $134,765        67%          $126,675         71%

Real estate - construction                                    29,034        14%            23,552         13%

Commercial                                                    23,940        12%            16,418          9%

Installment                                                   13,997         7%            12,425          7%

---------------------------------------------------------------------------------------------------------------
                                                            $201,736       100%          $179,070        100%
---------------------------------------------------------------------------------------------------------------

Loans at fixed rates                                        $ 53,440        26%          $ 56,775         32%

Loans at variable rates                                      148,296        74%           122,295         68%

---------------------------------------------------------------------------------------------------------------
                                                            $201,736       100%          $179,070        100%
---------------------------------------------------------------------------------------------------------------
</TABLE>


                                       4
<PAGE>   5
                              LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
(in thousands)                                          1999         1998         1997         1996         1995
-----------------------------------------------------------------------------------------------------------------
<S>                                                   <C>          <C>          <C>          <C>          <C>
Balance, beginning of year                            $3,539       $1,780       $1,632       $1,407       $1,414

LOAN LOSSES
Commercial                                                --           21           48           29           31
Real Estate                                               28           95           --           --           --
Consumer                                                  58           73           93            9           14
-----------------------------------------------------------------------------------------------------------------
Total                                                     86          189          141           38           45
-----------------------------------------------------------------------------------------------------------------

RECOVERIES
Commercial                                                38           36           22           10           20
Real Estate                                               --           --           --           --           --
Consumer                                                  12           14           17            3           18
-----------------------------------------------------------------------------------------------------------------
Total                                                     50           50           39           13           38
-----------------------------------------------------------------------------------------------------------------

Net loan losses                                           36          139          102           25            7
Provision of loan losses                                  --           --          250          250           --
Changes incidental to merger                              --        1,898           --           --           --
-----------------------------------------------------------------------------------------------------------------
Balance, end of year                                  $3,503       $3,539       $1,780       $1,632       $1,407
-----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------
Loan loss reserve / total loans                         1.74%        1.98%        1.52%        1.61%        1.56%
-----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------
Net loan losses / average loans outstanding             0.02%        0.07%        0.09%        0.03%        0.01%
-----------------------------------------------------------------------------------------------------------------
</TABLE>

        Loan loss reserve: Risk of nonpayment exists for all types of loans,
with certain types of risk associated with different loans. VRB's loan portfolio
is focused on real estate mortgage and construction loans, with 81% of the
portfolio collateralized by some sort of real estate. The expected source of
repayment on these loans is generally the operations of the borrowers' business
or personal income, with real estate providing additional security. Risks
associated with real estate loans include the current economic climate,
fluctuating land values, and geographic and industry concentrations.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Nonperforming assets (in thousands)                      1999         1998         1997         1996         1995
------------------------------------------------------------------------------------------------------------------

<S>                                                      <C>          <C>          <C>          <C>          <C>
Loans on nonaccrual status                               $551         $262         $372         $ 58         $ 53
Loans past due greater than 90 days                        --            4           --           12           48
------------------------------------------------------------------------------------------------------------------
Total nonperforming loans                                 551          266          372           70          101
------------------------------------------------------------------------------------------------------------------
Other real estate owned                                    --           51           --           --           --
------------------------------------------------------------------------------------------------------------------
Total nonperforming assets                               $551         $317         $372         $ 70         $101
------------------------------------------------------------------------------------------------------------------

Allowance for loan losses / nonperforming loans           636%        1330%         477%        2331%        1393%
Nonperforming loans / total loans                        0.27%        0.15%        0.32%        0.06%        0.11%
Nonperforming assets / total assets                      0.18%        0.10%        0.18%        0.04%        0.07%
------------------------------------------------------------------------------------------------------------------
</TABLE>


        VRB has established credit policies and guidelines that control and
monitor credit risk on an ongoing basis.

        Managing credit risk is the responsibility of all loan officers. Each
credit is evaluated as to the likelihood that a borrower will repay a loan from
expected sources. When collateral is involved, this includes ensuring that
sufficient collateral is obtained at the outset, and that the value of the
collateral remains sufficient to support the credit.

        Nonperforming assets include assets that are on nonaccrual status, loans
past due greater than 90 days but not on nonaccrual status, and other real
estate owned (OREO). Nonperforming assets have consistently averaged less than a
quarter of one percentage point of total assets over the last 5 years.


                                       5
<PAGE>   6

        Liquidity

        Liquidity enables VRB to meet the borrowing needs of its customers and
deposit withdrawals of its depositors. VRB manages its liquidity through a
mature and stable base of customer deposits, various lines of credit with other
financial institutions and cash flows from continuing operations. VRB's
investment portfolio remains a potential source of liquidity, however, in 1999,
the portfolio remained unchanged, due to the overall interest rate conditions
and the depreciated value of securities available-for-sale.

        In 1999, liquidity was influenced by the following events:

        o Lending efforts gained momentum and VRB funded net loan growth of $23
million.

        o Capital expenditures grew in 1999, with cash outlays of $1.8 million
for the new Central Point site ($500,000), building remodel ($300,000), and
communication and data equipment upgrades ($1,000,000).

        o Deposit growth remained low, growing to $276.4 million as of December
31, 1999, an increase of $2.2 million over the prior year. Ongoing business
development strategies fostered higher growth in non interest and interest
bearing demand for total growth of $11.3 million. This growth was offset by a
decline in time certificates of deposit.

        o Cash outlays increased to accommodate record dividend payments ($2.1
million) and the repurchase of common stock ($3.1 million).

        Management anticipates that the bank will continue to rely upon customer
deposits, maturities of investments, loan repayments, income from continuing
operations and short-term borrowings to provide liquidity. Deposit strategies
have been designed to promote growth. However, such strategies may be influenced
by changes in general economic conditions, the banking industry, and competition
from banks and non-bank financial corporations. Short-term borrowings may be
used to compensate for reductions in other sources of funds.

        VRB maintains a cash management credit facility with the Federal Home
Loan Bank. The credit facility is limited to 10% of total assets, (approximately
$30 million at December 31, 1999) measured on a quarterly basis. The credit
facility is collateralized by FHLB stock owned by VRB and by all its other
assets. In addition, VRB maintains federal funds lines with correspondent banks
as an alternative source of temporary liquidity. At December 31, 1999, VRB had
federal funds lines totaling $8 million. No advances were outstanding at
year-end.

        Interest Rate Risk

        Interest rate risk is the risk that changes in market interest rates
will have an adverse impact on VRB's earnings. The greatest source of interest
rate risk results from the mismatch of maturities and repricing intervals for
rate sensitive assets, liabilities and off balance sheet commitments. To further
illustrate, if VRB makes long term fixed rate loans and finances them with
floating-rate deposits, a gap mismatch is created because the repricing period
for loans and deposits are different. If interest rates were to rise in this
scenario, VRB may be obligated to pay more interest on deposits while receiving
the same amount of interest on loans.

        VRB measures its interest rate risk using asset/liability simulation
modeling which quantifies variations in net interest income due to changes in
the interest rate environment. The analysis incorporates the maturity and
repricing characteristics of VRB's current configuration of interest bearing
assets and liabilities. By adjusting interest rates up or down in even
increments of 100 and 200 basis points in a series of "rate shocks", VRB can
develop a range of possible outcomes. The following table sets forth the
estimated changes in VRB's net interest income over a period of one year under
the scenarios set forth.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Rate Shock Analysis
--------------------------------------------------------------------------------------------------------------------------------

    Change in the prime rate           Increase (decrease)          Adjusted net interest margin       Adjusted return on equity
       CURRENT: 8.50%                 in net interest income                   5.98%                             14.17%
<S>                                   <C>                           <C>                                <C>

           2.00%                             $ (66)                            5.95%                             14.05%
           1.00%                             $ (33)                            5.97%                             14.11%
             --                                 --                               --                                 --
          -1.00%                             $  81                             6.01%                             14.32%
          -2.00%                             $(827)                            5.68%                             12.66%
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       6
<PAGE>   7

        Certain shortcomings are inherent in this analysis. Broad assumptions
have been made regarding customer behavior in periods of changing interest
rates, including the prepayment characteristics of loans and the repricing and
withdrawal of deposits. Additionally, certain assets, such as adjustable rate
loans have features, which restrict changes in interest rates. The interest rate
sensitivity of VRB's net interest income could vary significantly if different
assumptions were used, or if actual experience differs from the assumptions
used.

        Capital Management

        VRB and its wholly owned subsidiary, Valley of the Rogue Bank, are
subject to risk-based capital guidelines. Bank regulatory authorities use these
guidelines to evaluate capital adequacy based upon an institutions asset risk
profile and off balance sheet exposures, such as unused loan commitments, and
standby letters of credit. Institutions are required to maintain a minimum 8
percent total risk-based capital ratio, the ratio of total capital divided by
risk-weighted assets, and a Tier 1 capital ratio of at least 4 percent. In
addition, institutions are required to exceed a minimum 4% leverage ratio, which
is Tier 1 capital divided by total average assets. At December 31, 1999, VRB
maintained capital well above required regulatory levels. (See Note 18 of Notes
to Consolidated Statements)

        Management strives to sustain capital levels that assure financial
soundness while at the same time employs leverage to achieve increasing
profitability.

        Market for Common Stock

        VRB's common stock is listed on the Nasdaq Stock Market()and trades
under the symbol VRBA. As of February 15, 2000, VRB had approximately 2,100
shareholders of record.

        Dividends

        VRB paid a cash dividend of $.12 per share for shareholders of record on
March 31, 1999 and paid a second cash dividend of equal amount to shareholders
of record on September 15, 1999. Combined, the two dividends represented 42% of
the bank's net income. VRB anticipates that cash dividends will continue to be
paid on a regular basis. However, the amount paid will depend on the bank's
overall financial condition and liquidity.


                             MARKET FOR COMMON STOCK

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
The reported high and low closing stock prices were as follows:       1999                                   1998
----------------------------------------------------------------------------------------------------------------------------
                                                            High                Low                High                 Low
----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                 <C>                <C>                  <C>
1st quarter                                                 9.50                7.00               11.78                9.62
2nd quarter                                                 8.63                7.03               11.54                9.38
3rd quarter                                                 8.44                6.50               10.00                7.33
4th quarter                                                 7.38                5.75               10.23                7.00

----------------------------------------------------------------------------------------------------------------------------
Stock Data                                                                      1999                1998                1997
----------------------------------------------------------------------------------------------------------------------------

Book value per common share at year-end                                         4.05                4.05                3.66
Closing common stock price                                                      6.06                7.75                9.25
Number of common shares outstanding                                        8,303,596           8,694,286           8,674,374
P/E Ratio                                                                       10.6                13.6                19.3
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       7
<PAGE>   8

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------------------------------------------------

DECEMBER 31                                                                                        1999                  1998
<S>                                                                                       <C>                   <C>
Cash and due from banks                                                                   $  17,086,676         $  14,513,570
Interest-bearing deposits with other banks                                                    1,600,000             3,100,000
Federal funds sold                                                                                   --            23,000,000

-----------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents                                                              18,686,676            40,613,570
-----------------------------------------------------------------------------------------------------------------------------

Held-to-maturity securities:
    State and municipal subdivisions                                                         18,010,109            17,454,188
Available-for-sale securities:
    U.S. Treasuries and agencies                                                             54,755,835            57,070,000
    Collateralized mortgage obligations and other investments                                   134,146               193,631

Federal Home Loan Bank stock                                                                  1,898,800             1,765,220
Loans held-for-sale                                                                           1,182,951                    --
Loans, net of allowance for loan losses and unearned income                                 196,818,024           175,188,200
Premises and equipment, net of accumulated depreciation and amortization                      7,797,420             6,499,131
Goodwill, net of amortization                                                                 8,798,661             9,511,831
Other real estate owned                                                                              --                51,161
Accrued interest and other assets                                                             3,421,075             2,870,121

-----------------------------------------------------------------------------------------------------------------------------
Total assets                                                                              $ 311,503,697         $ 311,217,053
-----------------------------------------------------------------------------------------------------------------------------


-----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------------------

DECEMBER 31                                                                                        1999                  1998

DEPOSITS
Demand deposits                                                                           $  74,804,533         $  72,134,186
Interest-bearing demand deposits                                                            119,569,318           110,900,199
Savings deposits                                                                             23,512,119            24,269,197
Time deposits                                                                                58,479,936            66,818,719

-----------------------------------------------------------------------------------------------------------------------------
Total deposits                                                                              276,365,906           274,122,301
-----------------------------------------------------------------------------------------------------------------------------

Accrued interest and other liabilities                                                        1,528,447             1,859,297

-----------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                           277,894,353           275,981,598
-----------------------------------------------------------------------------------------------------------------------------

Commitments and contingencies (Note 12)

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 8,303,596 and
   8,694,286 issued and outstanding at December 31, 1999 and 1998, respectively              18,699,060            21,583,869
Retained earnings                                                                            16,428,287            13,590,957
Accumulated other comprehensive (loss) income, net of taxes                                  (1,518,003)               60,629

-----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                                   33,609,344            35,235,455
-----------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                                $ 311,503,697         $ 311,217,053
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

----------

See accompanying notes. The Financial Statements on Pages 13-32 have not been
reviewed, or confirmed for accuracy or relevance by the Federal Deposit
Insurance Corporation.


                                       8
<PAGE>   9

            CONSOLIDATED STATEMENTS OF INCOME & COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                          1999                 1998                1997
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                  <C>                 <C>
INTEREST INCOME
Interest and fees on loans                                               $ 17,345,427         $ 19,099,960        $ 11,443,683
Interest on investment securities held-to-maturity:
    State and municipal subdivisions                                          929,551              945,018             944,226
Interest on investment securities available-for-sale:
    U.S. Treasuries and agencies                                            3,340,584            1,648,543           1,336,882
    Collateralized mortgage obligations and other investments                   8,721               27,624              78,310

Federal Home Loan Bank stock dividends                                        133,792              137,720              88,500
Federal funds sold                                                            683,822            1,537,913             655,746
Interest on deposits in banks                                                 251,678              514,895             407,337

-------------------------------------------------------------------------------------------------------------------------------
Total interest income                                                      22,693,575           23,911,673          14,954,684
-------------------------------------------------------------------------------------------------------------------------------

INTEREST EXPENSE
Interest-bearing demand deposits                                            3,095,169            3,210,401           2,414,951
Savings deposits                                                              486,210              523,341             336,830
Time deposits                                                               2,831,771            3,932,290           1,309,999
Other borrowings                                                                   --                4,490                  --

-------------------------------------------------------------------------------------------------------------------------------
Total interest expense                                                      6,413,150            7,670,522           4,061,780
-------------------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME                                                        16,280,425           16,241,151          10,892,904
-------------------------------------------------------------------------------------------------------------------------------

PROVISION FOR LOAN LOSSES                                                          --                   --             250,000
-------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                        16,280,425           16,241,151          10,642,904
-------------------------------------------------------------------------------------------------------------------------------

NONINTEREST INCOME
Service charges on deposit accounts                                         1,300,921            1,294,878           1,019,786
Other operating income                                                        754,731              846,102             650,853

-------------------------------------------------------------------------------------------------------------------------------
Total noninterest income                                                    2,055,652            2,140,980           1,670,639
-------------------------------------------------------------------------------------------------------------------------------

NONINTEREST EXPENSES
Salaries and benefits                                                       6,317,618            5,984,912           4,120,469
Net occupancy                                                               1,157,013            1,024,860             813,915
Amortization of goodwill                                                      713,170              739,616             110,299
Communications                                                                452,014              386,461             239,721
Data processing                                                               325,376              306,499             181,460
Supplies                                                                      267,454              289,675             230,255
Professional fees                                                             192,401              266,446             180,658
FDIC insurance premium                                                         30,603               47,270              18,201
Other real estate expense                                                      14,970               25,486                  --
Other expenses                                                              1,093,825            1,418,223             977,946

-------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses                                                 10,564,444           10,489,448           6,872,924
-------------------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES                                                  7,771,633            7,892,683           5,440,619
-------------------------------------------------------------------------------------------------------------------------------

PROVISION FOR INCOME TAXES                                                  2,883,250            2,966,000           1,737,000

-------------------------------------------------------------------------------------------------------------------------------
NET INCOME                                                               $  4,888,383         $  4,926,683        $  3,703,619
-------------------------------------------------------------------------------------------------------------------------------

OTHER COMPREHENSIVE INCOME

Unrealized gain (loss) on securities, net of tax:
    Unrealized holding gain (loss) arising during period                   (1,578,632)              12,087              (2,964)
    Reclassification adjustment for gain included in net income                    --                   --              (4,283)
-------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss)                                          (1,578,632)              12,087              (7,247)
-------------------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME                                                     $  3,309,751         $  4,938,770        $  3,696,372
-------------------------------------------------------------------------------------------------------------------------------

BASIC EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE                    $       0.57         $       0.57        $       0.48

DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE                  $       0.57         $       0.56        $       0.48

-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.


                                       9
<PAGE>   10

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                                    ACCUMULATED
                                                                                                       OTHER            TOTAL
                                                            COMMON STOCK             RETAINED      COMPREHENSIVE     SHAREHOLDERS'
                                                       SHARES          AMOUNT        EARNINGS      INCOME (LOSS)        EQUITY
----------------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>          <C>             <C>             <C>               <C>
BALANCE, December 31, 1996                            3,574,682    $  9,480,330    $ 10,652,015    $     55,789      20,188,134
----------------------------------------------------------------------------------------------------------------------------------

Stock options exercised (February to August 1997)        17,475          85,230              --              --          85,230

2 for 1 stock split (September 10, 1997)              3,592,157              --              --              --              --

Stock options exercised (September to October 1997        6,430          26,152              --              --          26,152

Income tax benefit from stock options exercised              --          86,896              --              --          86,896

Cash dividend ($.14 per share, paid October 31, 1997)        --              --      (1,006,333)             --      (1,006,333)

Stock offering (November 1997)                        1,150,000       8,784,104              --              --       8,784,104

----------------------------------------------------------------------------------------------------------------------------------
Net income and comprehensive loss                            --              --       3,703,619          (7,247)      3,696,372
----------------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1997                            8,340,744      18,462,712      13,349,301          48,542      31,860,555
----------------------------------------------------------------------------------------------------------------------------------

Stock options exercised (March to September 1998)        19,410          50,128              --              --          50,128

Income tax benefit from stock options exercised              --          60,500              --              --          60,500

Cash dividend ($.20 per share, paid October 1, 1998)         --              --      (1,672,031)             --       1,672,031)

4% stock dividend (October 1, 1998)                     334,132       3,010,529      (3,010,529)             --              --

Payments for fractional shares related to
 stock dividend                                              --              --          (2,467)             --          (2,467)

----------------------------------------------------------------------------------------------------------------------------------
Net income and comprehensive income                          --              --       4,926,683          12,087       4,938,770
----------------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1998                            8,694,286      21,583,869      13,590,957          60,629      35,235,455
----------------------------------------------------------------------------------------------------------------------------------

Stock options exercised March to December 1999           36,179         219,126              --              --         219,126

Cash dividend ($0.12 per share, paid May 21
 and October 15, 1999)                                       --              --      (2,051,053)             --      (2,051,053)

Stock repurchased (April to December 1999)             (426,869)     (3,103,935)             --              --      (3,103,935)

----------------------------------------------------------------------------------------------------------------------------------
Net income and comprehensive loss                            --              --       4,888,383      (1,578,632)      3,309,751
----------------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1999                            8,303,596    $ 18,699,060    $ 16,428,287    $ (1,518,003)   $ 33,609,344
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.


                                       10
<PAGE>   11

                      CONSOLIDATED STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31                                                               1999             1998             1997
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income                                                                    $  4,888,383     $  4,926,683     $  3,703,619

ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FROM OPERATING ACTIVITIES:
Depreciation and amortization                                                    1,220,546        1,134,242          392,547
Loss (gain) on sales of assets                                                      18,423          (18,931)          (8,429)
Provision for loan losses                                                               --               --          250,000
FHLB stock dividend                                                               (133,580)        (137,720)         (88,500)
Deferred taxes                                                                    (167,988)          89,269           22,684
Compensation expense - stock options                                                89,763           93,340           57,312

CHANGE IN CASH DUE TO CHANGES IN CERTAIN ASSETS AND LIABILITIES:
Net change in accrued interest and other assets                                    324,277          410,555          215,220
Net change in accrued interest and other liabilities                              (313,041)      (1,292,613)         323,300

-----------------------------------------------------------------------------------------------------------------------------
Net cash from operating activities                                               5,926,783        5,204,825        4,867,753
-----------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the maturity of held-to-maturity securities                          575,000        3,425,000          215,000
Purchases of held-to-maturity securities                                        (1,125,587)      (2,371,411)              --
Proceeds from maturity of available-for-sale securities                                 --               --          446,971
Proceeds from sales of available-for-sale securities                            10,559,844       33,611,023        3,008,437
Purchases of available-for-sale securities                                     (10,500,000)     (64,980,969)      (3,000,000)
Net (increase) decrease in loans                                               (22,963,084)      31,608,420      (15,888,096)
Cash paid, net of cash acquired from acquisition                                        --       (1,644,499)              --
Sale of credit card portfolio obtained in acquisition                                   --          939,583               --
Purchase of premises and equipment                                              (1,795,106)        (675,541)        (699,013)
Proceeds from the sale of other real estate                                        186,500          420,850               --
Proceeds from the sale of premises and equipment                                     8,585               --            2,600

-----------------------------------------------------------------------------------------------------------------------------
Net cash from investing activities                                             (25,053,848)         332,456      (15,914,101)
-----------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits                                              2,243,605       (6,930,019)      17,607,889
Proceeds from public stock offering, net of expenses                                    --               --        8,784,104
Cash dividends and fractional share payments                                    (2,051,053)      (1,674,498)      (1,006,333)
Cash received from exercise of common stock options                                111,554           36,517           88,068
Repurchase of common stock                                                      (3,103,935)              --               --

-----------------------------------------------------------------------------------------------------------------------------
Net cash from financing activities                                              (2,799,829)      (8,568,000)      25,473,728
-----------------------------------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           (21,926,894)      (3,030,719)      14,427,380

CASH AND CASH EQUIVALENTS, beginning of year                                    40,613,570       43,644,289       29,216,909

-----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year                                        $ 18,686,676     $ 40,613,570     $ 43,644,289
-----------------------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest                                                        $  6,486,065     $  7,464,255     $  4,048,741
Cash paid for taxes                                                              2,944,100        2,805,000        1,320,994

SCHEDULE OF NONCASH ACTIVITIES
Stock dividends declared                                                                $-     $  3,010,529               $-
Transfer of loan balances to other real estate                                     150,309          453,079               --
Unrealized gain (loss) on available-for-sale securities, net of tax             (1,578,632)          12,087           (7,247)
Income tax benefit of stock options exercised                                           --           60,500           86,896

-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.


                                       11
<PAGE>   12

        Note 1: Organization and Summary of Significant Accounting Policies

        Basis of presentation - The accompanying consolidated financial
statements include the accounts of VRB Bancorp (VRB), a bank holding company,
and its wholly-owned subsidiary, Valley of the Rogue Bank (the Bank).
Substantially all activity of VRB is conducted through its subsidiary bank and
all significant intercompany accounts and transactions have been eliminated in
the preparation of the consolidated financial statements.

                        Notes to Consolidated Statements

        Description of business - The Bank is a state-chartered institution
authorized to provide banking services by the State of Oregon. With its
headquarters in Rogue River, Oregon, it also has branch operations in Josephine
and Jackson County, Oregon. The Bank conducts a general banking business. Its
activities include the usual deposit functions of a commercial bank: commercial,
real estate, installment, and mortgage loans; checking and savings accounts;
automated teller machines (ATM's); collection services; and, safe deposit
facilities. Both VRB Bancorp and Valley of the Rogue Bank are subject to the
regulations of certain Federal and State agencies and undergo periodic
examinations by those regulatory authorities.

        Management's estimates and assumptions - In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates.

        Investment securities - The Bank is required to specifically identify
under generally accepted accounting principles its investment securities as
"held-to-maturity," "available-for-sale," or "trading accounts." Accordingly,
management has determined that all investment securities held at December 31,
1999 and 1998, are either "available-for-sale" or "held-to-maturity" and conform
to the following accounting policies:

        Securities held-to-maturity - Bonds, notes, and debentures for which the
Bank has the intent and ability to hold to maturity are reported at cost,
adjusted for premiums and discounts that are recognized in interest income using
the interest method over the period to maturity.

        Securities available-for-sale - Available-for-sale securities consist of
bonds, notes, debentures, and certain equity securities not classified as
held-to-maturity securities. Securities are generally classified as
available-for-sale if the instrument may be sold in response to such factors as:
(1) changes in market interest rates and related changes in the security's
prepayment risk, (2) needs for liquidity, (3) changes in the availability of and
the yield on alternative instruments, and (4) changes in funding sources and
terms. Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of equity until
realized. Fair values for investment securities are based on quoted market
prices. Gains and losses on the sale of available-for-sale securities are
determined using the specific-identification method.

        Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary,
result in write-downs of the individual securities to their fair value. The
related write-downs would be included in earnings as realized losses. Premiums
and discounts are recognized in interest income using the interest method over
the period to maturity.

        Loans, net of allowance for loan losses and unearned income - Loans are
stated at the amount of unpaid principal, reduced by an allowance for loan
losses and unearned income. Interest on loans is calculated by using the
simple-interest method on daily balances of the principal amount outstanding.
The allowance for loan losses is established through a provision for loan losses
charged to expenses. Loans are charged against the allowance for loan losses
when management believes that the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrower's
ability to pay. Various regulatory agencies, as an


                                       12
<PAGE>   13

integral part of their examination process, periodically review the Bank's
reserve for loan losses. Such agencies may require the Bank to recognize
additions to the reserve based on their judgment of information available to
them at the time of their examinations.

        Loans receivable that will not be repaid in accordance with their
contractual terms are measured using a discounted cash flow methodology or the
fair value of the collateral for certain loans. Accrual of interest is
discontinued on impaired loans when management believes, after considering
economic and business conditions, collection efforts, and collateral position
that the borrower's financial condition is such that collection of interest is
doubtful. When interest accrual is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments are received.

        Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment to the yield of the related loan.

        Premises and equipment - Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the assets. Depreciation
is based on useful lives of 3 to 25 years on furniture and equipment; 15 to 40
years for buildings and components; and, 15 to 20 years on leasehold
improvements.

        Other real estate - Real estate acquired by the Bank in satisfaction of
debt is carried at the lower of cost or estimated net realizable value. When
property is acquired, any excess of the loan balance over its estimated net
realizable value is charged to the allowance for loan losses. Subsequent
write-downs to net realizable value, if any, or any disposition gains or losses
are included in noninterest income and expense.

        Goodwill - Goodwill represents the costs in excess of net assets
acquired arising principally from the purchase of Colonial Banking Company (see
Note 2), and is being amortized over 15 years.

        Income taxes - Deferred income tax assets and liabilities are determined
based on the tax effects of differences between the book and tax bases of the
various balance sheet assets and liabilities. Deferred tax assets and
liabilities are reflected at currently enacted income tax rates applicable to
the period in which the deferred tax assets or liabilities are expected to be
realized or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes.

        Statement of cash flows - Cash equivalents are generally all short-term
investments with a maturity of three months or less. Cash and cash equivalents
normally include cash on hand, amounts due from banks, and federal funds sold.

        Off-balance-sheet financial instruments - The Bank holds no derivative
financial instruments. However, in the ordinary course of business, the Bank
enters into off-balance-sheet financial instruments consisting of commitments to
extend credit as well as commercial letters of credit and standby letters of
credit. Such financial instruments are recorded in the financial statements when
they are funded or related fees are incurred or received.

        Fair value of financial instruments - The following methods and
assumptions were used by the Bank in estimating fair values of financial
instruments as disclosed herein:

        Cash and cash equivalents - The carrying amounts of cash and short-term
instruments approximate their fair value.

        Held-to-maturity and available-for-sale securities - Fair values for
investment securities, excluding restricted equity securities, are based on
quoted market prices. The carrying values of restricted equity securities
approximate fair values.

        Loans receivable - For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on carrying
values. Fair values for certain mortgage loans (for example, one-to-four family
residential), credit card loans, and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteris-


                                       13
<PAGE>   14

tics. Fair values for commercial real estate and commercial loans are estimated
using discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.
Fair values for impaired loans are estimated using discounted cash flow analyses
or underlying collateral values, where applicable.

        Deposit liabilities - The fair values disclosed for demand deposits are,
by definition, equal to the amount payable on demand at the reporting date (that
is, their carrying amounts). The carrying amounts of variable-rate, fixed-term
money market accounts and certificates of deposit (CDs) approximate their fair
values at the reporting date. Fair values for fixed-rate CDs are estimated using
a discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.

        Short-term borrowings - The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings maturing
within 90 days approximate their fair values. Fair values of other short-term
borrowings are estimated using discounted cash flow analyses based on the Bank's
current incremental borrowing rates for similar types of borrowing arrangements.

        Long-term debt - The fair values of the Bank's long-term debt are
estimated using discounted cash flow analyses based on the Bank's current
incremental borrowing rates for similar types of borrowing arrangements.

        Accrued interest - The carrying amounts of accrued interest approximate
their fair values.

        Off-balance-sheet instruments - The Bank's off-balance-sheet instruments
include unfunded commitments to extend credit and standby letters of credit. The
fair value of these instruments is not considered practicable to estimate
because of the lack of quoted market prices and the inability to estimate fair
value without incurring excessive costs.

        Advertising - Advertising costs are charged to expense during the year
in which they are incurred. Advertising expenses were $137,276, $169,524, and
$114,670 for the years ended December 31, 1999, 1998, and 1997, respectively.

        Stock options - VRB applies Accounting Principles Board Opinion 25 and
related interpretations in accounting for its stock option plans. Accordingly,
compensation costs are recognized as the difference between the exercise price
of each option and the market price of VRB's stock at the date each grant
becomes further vested. Accordingly, compensation costs charged to income were
$89,673, $93,340, and $57,312 in 1999, 1998, and 1997, respectively. Had
compensation for VRB's stock option plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the method
of Statement of Financial Accounting Standards No. 123, the Bank's net income
would have been affected as described in Note 14.

        Recently issued accounting standards - In June 1999, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standard (SFAS) No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that VRB recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair value.
If certain conditions are met, a derivative may be specifically designated as
(a) a hedge of the exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. SFAS No. 133, as amended by
SFAS No. 137, shall be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. However, management of VRB believes this
accounting standard will have no material effect on the financial condition and
results of operation of the Bank.


                                       14
<PAGE>   15

        Other issued but not yet required FASB statements are not currently
applicable to the Bank's operations. Management believes these pronouncements
will also have no material effect upon VRB's financial position or results of
operation.

        Reclassifications - Certain reclassifications have been made to the 1998
and 1997 consolidated financial statements to conform with current year
presentations.

        Note 2: Acquisition Of Colonial Banking Company

        VRB Bancorp completed its acquisition of Colonial Banking Company (CBC)
effective January 5, 1998. VRB paid former stockholders 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 on
the books of the Bank at their respective fair market values at the effective
date the acquisition was consummated. 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 financial statements for the year ended December 31, 1998, include
the operations of CBC from January 6, 1998 to December 31, 1998. Actual results
of operations for the year ended December 31, 1998, would not have been
materially different had the acquisition occurred on January 1, 1998. The
following information presents unaudited pro forma results of operations for the
year ended December 31, 1997, as though the acquisition had occurred on January
1, 1997. The pro forma results do not necessarily indicate the actual result
that would have been obtained had the acquisition of CBC actually occurred on
January 1, 1997.


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
NOTE 2: The following are the fair values of assets acquired and liabilities
assumed as of the January 5, 1998, acquisition date (in thousands):
-----------------------------------------------------------------------------------------
<S>                                                                             <C>
Investment securities                                                           $  4,797
Federal Home Loan Bank stock                                                         420
Loans, net                                                                        92,775
Premises and equipment, net                                                        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
-----------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------
Pro forma results of operation for the year ended December 31, 1997
-----------------------------------------------------------------------------------------

Net interest income before provision for loan loss                              $ 16,404
Net income                                                                         3,713

Earnings per common share:
Basic                                                                               0.51
Diluted                                                                             0.50
-----------------------------------------------------------------------------------------
</TABLE>


                                       15
<PAGE>   16

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
NOTE 3: Investment Securities. The amortized cost and estimated market values of
investment securities at December 31, 1999 and 1998, are as follows (in
thousands):
---------------------------------------------------------------------------------------------------------

                                                                   GROSS          GROSS         ESTIMATED
                                                   AMORTIZED     UNREALIZED     UNREALIZED       MARKET
                                                      COST         GAINS          LOSSES          VALUE
---------------------------------------------------------------------------------------------------------
<S>                                                 <C>           <C>            <C>            <C>
DECEMBER 31, 1999

HELD-TO-MATURITY SECURITIES:
---------------------------------------------------------------------------------------------------------
State and municipal subdivisions                    $ 18,010      $    137       $   (249)      $ 17,898
---------------------------------------------------------------------------------------------------------

AVAILABLE-FOR-SALE SECURITIES:
U.S. Treasuries and agencies                        $ 56,990            $-       $ (2,234)      $ 54,756
Collateralized mortgage obligations                      132             2             --            134
---------------------------------------------------------------------------------------------------------
                                                    $ 57,122      $      2       $ (2,234)      $ 54,890
---------------------------------------------------------------------------------------------------------

DECEMBER 31, 1998

HELD-TO-MATURITY SECURITIES:
---------------------------------------------------------------------------------------------------------
State and municipal subdivisions                    $ 17,454      $    793             $-       $ 18,247
---------------------------------------------------------------------------------------------------------

AVAILABLE-FOR-SALE SECURITIES:
U.S. Treasuries and agencies                        $ 56,977      $    177       $    (84)      $ 57,070
Collateralized mortgage obligations                      195            --             (1)           194
---------------------------------------------------------------------------------------------------------
                                                    $ 57,172      $    177       $    (85)      $ 57,264
---------------------------------------------------------------------------------------------------------
</TABLE>


        Note 3: Investment Securities

        The amortized cost and estimated market value of investment securities
at December 31, 1999, by contractual maturity, are shown below (in thousands).
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without prepayment
penalties.

        For purposes of the maturity table, collateralized mortgage obligations,
which are not due at a single maturity date, have been allocated over maturity
groupings based on the weighted-average contractual maturities of underlying
collateral. Collateralized mortgage obligations may mature earlier than their
weighted-average contractual maturities because of principal prepayments.

        At December 31, 1999 and 1998, investment securities with an amortized
cost of $6,185,993 and $8,168,284, respectively, were pledged to secure public
deposits and for other purposes required or permitted by law.

        The Bank, as a member of the Federal Home Loan Bank (FHLB) system, is
required to maintain an investment in capital stock of the FHLB. The FHLB stock
is not actively traded but is redeemable by FHLB at its current book value.


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
NOTE 3: Maturity Table
----------------------------------------------------------------------------------------------------------------------------

                                                               HELD-TO-MATURITY                     AVAILABLE-FOR-SALE
                                                                  SECURITIES                            SECURITIES
----------------------------------------------------------------------------------------------------------------------------
                                                                             ESTIMATED                            ESTIMATED
                                                      AMORTIZED COST       MARKET VALUE      AMORTIZED COST     MARKET VALUE
----------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                  <C>                <C>                <C>

Due in one year or less                                   $   205            $   206            $ 2,572            $ 2,549
Due after one year through five years                       3,394              3,418             38,050             36,672
Due after five years through ten years                      3,089              3,108             15,500             14,756
Due after ten years                                        11,322             11,166              1,000                913

----------------------------------------------------------------------------------------------------------------------------
                                                          $18,010            $17,898            $57,122            $54,890
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       16
<PAGE>   17

        Note 4: Loans and Allowance for Loan Losses

        The Bank's recorded investment in impaired loans was $523,857 and
$262,456 at December 31, 1999 and 1998, respectively. The average recorded
investment in impaired loans approximates their recorded investment at December
31, 1999 and 1998. The total allowance for loan losses related to these loans at
December 31, 1999 and 1998, was approximately $70,000 and $42,000, respectively.
Interest income recognized on impaired loans during the years ended December 31,
1999, 1998, and 1997, was not significant. Management estimates that in 1999,
approximately $42,600 of interest income was not recognized on impaired loans on
nonaccrual status, compared with approximately $35,300 in 1998 and $29,600 in
1997.


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
NOTE 4: The loan portfolio, including loans held-for-sale,
consisted of the following (in thousands):
----------------------------------------------------------------------------------------------------------
                                                                               1999                  1998
----------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                   <C>
Real estate - construction                                                $  29,034             $  23,552
Real estate - residential and commercial                                    134,765               126,675
Commercial                                                                   23,940                16,418
Installment                                                                  13,946                12,327
Other loans                                                                      51                    98
----------------------------------------------------------------------------------------------------------
                                                                            201,736               179,070
----------------------------------------------------------------------------------------------------------

Allowance for loan losses                                                    (3,503)               (3,539)
Unearned loan fee income                                                       (232)                 (343)

----------------------------------------------------------------------------------------------------------
                                                                          $ 198,001             $ 175,188
----------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
The following is an analysis of the changes in the allowance for loan losses (in
thousands):
--------------------------------------------------------------------------------------------------------------------
                                                                       1999                1998                1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                 <C>                 <C>
Beginning balance                                                   $ 3,539             $ 1,780             $ 1,632
Acquired upon CBC acquisition (Note 2)                                   --               1,898                  --
Provision for possible loan losses                                       --                  --                 250
Loans charged-off                                                       (86)               (189)               (141)
Recoveries                                                               50                  50                  39

--------------------------------------------------------------------------------------------------------------------
Ending balance                                                      $ 3,503             $ 3,539             $ 1,780
--------------------------------------------------------------------------------------------------------------------
</TABLE>


        Note 5: Bank Premises and Equipment


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
NOTE 5: Bank premises, furniture, and equipment consisted of the following
(in thousands):
---------------------------------------------------------------------------------------------------
                                                                         1999                 1998
---------------------------------------------------------------------------------------------------

<S>                                                                  <C>                  <C>
Land                                                                 $  2,069             $  1,613
Buildings                                                               6,001                5,375
Furniture and equipment                                                 4,268                4,136

---------------------------------------------------------------------------------------------------
                                                                       12,338               11,124
---------------------------------------------------------------------------------------------------

Less: accumulated depreciation                                         (4,541)              (4,625)

---------------------------------------------------------------------------------------------------
                                                                     $  7,797             $  6,499
---------------------------------------------------------------------------------------------------
</TABLE>


                                       17
<PAGE>   18

        Note 6: Accrued Interest and Other Assets

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
NOTE 6: Accrued interest and other assets consisted of the following (in thousands):
---------------------------------------------------------------------------------------------------------
                                                                                  1999              1998
---------------------------------------------------------------------------------------------------------
<S>                                                                             <C>               <C>
Accrued interest receivable                                                     $1,925            $1,931
Prepaid expenses                                                                   272               234
Deferred taxes                                                                   1,099               553
Other assets                                                                       125               152

---------------------------------------------------------------------------------------------------------
                                                                                $3,421            $2,870
---------------------------------------------------------------------------------------------------------
</TABLE>


        Note 7: Time Deposits

        Time certificates of deposit of $100,000 and over aggregated $8,574,472
and $8,089,537 at December 31, 1999 and 1998, respectively.


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
NOTE 7: At December 31, 1999, the scheduled maturities for time deposits is as
follows (in thousands):
----------------------------------------------------------------------------------------------
<S>                                                                                   <C>
2000                                                                                  $52,802
2001                                                                                    2,459
2002                                                                                    2,774
2003                                                                                      222
2004 and thereafter                                                                       223

----------------------------------------------------------------------------------------------
                                                                                      $58,480
----------------------------------------------------------------------------------------------
</TABLE>


        Note 8: Income Taxes


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
NOTE 8: The income tax provision consisted of the following (in thousands):
-----------------------------------------------------------------------------------------------------------------
                                                                        1999              1998              1997
-----------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>               <C>
Currently payable                                                     $2,665            $2,877            $1,715
Deferred                                                                 168                89                22

-----------------------------------------------------------------------------------------------------------------
Provision for income taxes                                            $2,833            $2,966            $1,737
-----------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Deferred income taxes represent the tax effect of differences in timing between
financial income and taxable income. Deferred income taxes, according to the
timing differences, which caused them, were as follows (in thousands):
----------------------------------------------------------------------------------------------------------------------------

                                                                                  1999              1998              1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>               <C>               <C>
Accounting loan loss provision less than (in excess of) tax provision            $  14             $  69             $ (58)
Accounting depreciation less than tax depreciation                                  42                46                 3
Deferred compensation                                                               15                 9                (6)
Accounting loan fees in excess of tax loan fees                                    178                67                66
Federal Home Loan Bank stock dividends                                              54                52                28
Cash to accrual adjustment                                                          --               (72)               --
Option compensation expense                                                        (36)              (72)               --
Other differences                                                                  (99)              (10)              (11)

----------------------------------------------------------------------------------------------------------------------------
                                                                                 $ 168             $  89             $  22
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       18
<PAGE>   19

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
The net deferred tax benefits included in other assets in the accompanying
consolidated balance sheets include the following components (in thousands):
--------------------------------------------------------------------------------------------------------

                                                                               1999                1998
--------------------------------------------------------------------------------------------------------

<S>                                                                         <C>                 <C>
DEFERRED TAX ASSETS:
Loan loss reserve                                                           $ 1,062             $ 1,076
Deferred compensation                                                            64                 100
Other                                                                           242                  86
--------------------------------------------------------------------------------------------------------
                                                                              1,368               1,262
--------------------------------------------------------------------------------------------------------

DEFERRED TAX LIABILITIES:
Accumulated depreciation                                                       (193)               (151)
Deferred loan fees                                                             (543)               (365)
Federal Home Loan Bank stock dividends                                         (247)               (193)
                                                                               (983)               (709)
--------------------------------------------------------------------------------------------------------
Net deferred tax asset                                                      $   385             $   553
--------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
A reconciliation between the statutory federal income tax rate and the
effective tax rate is as follows (in thousands):
-------------------------------------------------------------------------------------------------------------------------

                                                                          1999                 1998                 1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                  <C>                  <C>
Federal income taxes at statutory rate                                 $ 2,647              $ 2,684              $ 1,850
State income tax expense, net of federal income tax benefit                370                  344                  237
Effect of nontaxable interest income                                      (389)                (321)                (294)
Non-deductible goodwill                                                    275                  219                   --
Other                                                                      (70)                  40                  (56)
-------------------------------------------------------------------------------------------------------------------------
                                                                       $ 2,833              $ 2,966              $ 1,737
-------------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------------
Effective tax rate                                                          37%                  38%                  32%
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


        The exercise of stock options which have been granted under VRB
Bancorp's stock option plans give rise to compensation which is includable in
the taxable income of the participant and deductible by the Bank for federal and
state income tax purposes. Such compensation results from increases in the fair
market value of VRB Bancorp's common stock subsequent to the date of grant of
the applicable exercised stock options and, accordingly, in accordance with APB
Opinion No. 25, such compensation is not recognized as an expense for financial
accounting purposes and the related tax benefits are taken directly to common
stock. For the years ended December 31, 1998 and 1997, these transactions
resulted in federal and state tax deductions and benefits, which have increased
common stock.

        Management believes, based upon the Bank's historical performance, that
net deferred tax assets will be realized in the normal course of operations and,
accordingly, management has not reduced net deferred tax assets by a valuation
allowance.

        The tax provision differs from the federal statutory rate of 34% due
principally to tax exemptions for interest received on municipal investments and
nondeductible goodwill expense amortization. The 1997 provision for income taxes
reflects a reduction in the state income tax rate from 6.6% to 3.8%.

        Note 9: Financial Instruments with Off-Balance-Sheet Risk

        The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit and financial guarantees. Those instruments involve elements
of credit and interest-rate risk similar to the amounts recognized in the
consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of the Bank's involvement in particular classes
of financial instruments.

        The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit, and financial guarantees written, is represented by
the contractual notional amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.

        Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to


                                       19
<PAGE>   20

expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank's experience has been that a
majority of loan commitments are drawn upon by customers. While most commercial
letters of credit are not utilized, a significant portion of such utilization is
on an immediate payment basis. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
it is deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral varies but may
include cash, accounts receivable, inventory, premises and equipment, and
income-producing commercial properties.

        Standby letters of credit and financial guarantees written are
conditional commitments issued by the Bank to guarantee the performance of a
customer to a third-party. These guarantees are primarily issued to support
public and private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan facilities
to customers. The Bank holds cash, marketable securities, or real estate as
collateral supporting those commitments for which collateral is deemed
necessary.

        The Bank has not been required to perform on any financial guarantees
during the past two years. The Bank has not incurred any losses on its
commitments in either 1999, 1998, or 1997.


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
NOTE 9: A summary of the notional amounts of the Bank's financial instruments
with off-balance-sheet risk at December 31, 1999 and 1998, follows:
-------------------------------------------------------------------------------------------------------------

                                                                                 1999                   1998
<S>                                                                       <C>                    <C>
Commitments to extend credit                                              $32,106,632            $21,165,221
Commercial and standby letters of credit                                  $ 1,113,024            $ 1,090,009

-------------------------------------------------------------------------------------------------------------
</TABLE>


        Note 10: Fair Values of Financial Instruments

        While estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Bank to have
disposed of such assets or liabilities at December 31, 1999 and 1998, the
estimated fair values would necessarily have been realized at that date, since
market values may differ depending on various circumstances. The estimated fair
values at December 31, 1999 and 1998, should not necessarily be considered to
apply at subsequent dates. 25

        In addition, other assets and liabilities of the Bank that are not
defined as financial instruments are not included in the above disclosures, such
as premises and equipment. Also, nonfinancial instruments typically not
recognized in the financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the trained work force, customer goodwill, and similar
items.


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
NOTE 10: The following table estimates fair value and the related carrying
values of the Bank's financial instruments (in thousands):
----------------------------------------------------------------------------------------------------------------------------

                                                                              1999                           1998
                                                                   CARRYING          FAIR          CARRYING          FAIR
                                                                    AMOUNT           VALUE          AMOUNT           VALUE
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>             <C>             <C>             <C>
FINANCIAL ASSETS:
Cash and due from banks                                            $ 17,087        $ 17,087        $ 14,514        $ 14,514
Interest-bearing deposits with other banks                            1,600           1,600           3,100           3,100
Federal funds sold                                                       --              --          23,000          23,000
Securities held-to-maturity                                          18,010          17,898          17,454          18,247
Securities available-for-sale                                        54,890          54,890          57,264          57,264
Federal Home Loan Bank stock                                          1,899           1,899           1,765           1,765
Loans held-for-sale                                                   1,183           1,183              --              --
Loans, net of allowance for loan losses and unearned income         196,818         196,208         175,188         175,233
Accrued interest                                                      1,925           1,925           1,931           1,931

FINANCIAL LIABILITIES:
Demand and savings deposits                                         217,886         217,886         207,304         207,304
Time deposits                                                        58,480          58,355          66,819          67,196
Accrued interest                                                   $    275        $    275        $    348        $    348

----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       20
<PAGE>   21

        Note 11: Concentrations of Credit Risk

        All of the Bank's loans, commitments, and commercial and standby letters
of credit have been granted to customers in the Bank's market area. Investments
in state and municipal securities are not significantly concentrated within any
one region of the United States. The concentrations of credit by type of loan
are set forth in Note 4. The distribution of commitments to extend credit
approximates the distribution of loans outstanding. Commercial and standby
letters of credit were granted primarily to commercial borrowers as of December
31, 1999. The Bank's loan policy does not allow the extension of credit to any
single borrower or group of related borrowers in excess of a total of $1,250,000
without approval from the Board of Directors.

        Note 12: Commitments and Contingencies

        Litigation - In the ordinary course of business, the Bank becomes
involved in various litigation arising from normal banking activities. In the
opinion of management, the ultimate disposition of these actions will not have a
material adverse effect on the consolidated financial position or results of
operations.

        Operating leases - The Bank leases certain branch premises and
equipment.


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
NOTE 12: The following is a schedule of future minimum lease payments under
operating leases in effect as of December 31, 1999:
---------------------------------------------------------------------------------------------
<S>                                                                               <C>
YEARS ENDING DECEMBER 31
2000                                                                              $  249,453
2001                                                                                 244,031
2002                                                                                 241,065
2003                                                                                 177,844
2004                                                                                 161,646
Thereafter                                                                           361,598

---------------------------------------------------------------------------------------------
Total minimum payments required                                                   $1,435,637
---------------------------------------------------------------------------------------------
</TABLE>


        Total rental expense was $239,785, $226,920, and $94,350 in 1999, 1998,
and 1997, respectively.

        Year 2000 - Because of the unprecedented nature of the Year 2000 issue,
its effects, if any, may not be identified until a future date. Management
cannot assure that VRB or the Bank have has identified all Year 2000 issues,
that VRB's or the Bank's remediation efforts has been successful in whole or in
part, or that parties with whom VRB or the Bank does business will not be
significantly impacted by Year 2000 issues.

        Note 13: Borrowing Agreements

        The Bank has federal fund borrowing agreements with Bank of America and
Wells Fargo Bank for $5,000,000 and $3,000,000, respectively. There is no stated
rate of interest on these borrowings. As of December 31, 1999, there were no
borrowings outstanding under these agreements.

        The Bank also participates in the Cash Management Advance Program with
the Federal Home Loan Bank of Seattle (FHLB). Under the program, the Bank may
borrow to a maximum of 10% of total assets (approximately $30 million at
December 31, 1999 and 1998) with interest at the FHLB's cash management rate.
There were no borrowings outstanding at December 31, 1999 and 1998.


                                       21
<PAGE>   22

        Note 14: Stock Option Plans

        The Bank has two stock option plans, which were approved by the
shareholders during 1991 and amended in 1994. The plans provide for an aggregate
of 754,514 shares of the Bank's unissued common stock to be granted to key
employees and nonemployee directors. The 1994 amendment removed the requirement
for a five-year vesting schedule for any future grants from the Employees' Plan,
thus leaving the setting of any vesting schedule to the discretion of the Board
of Directors. The Directors' Plan was amended to extend the time in which
options may be exercised following resignation or retirement.

        With the exception of certain options granted to nonemployee directors,
all options granted and outstanding under both the Directors' and Employees'
Plans are noncompensatory and exercisable at purchase prices which approximate
fair value on the date of grant. Because certain options granted to the Bank's
directors were based on purchase prices below the fair value of the stock as of
the grant date, they are considered compensatory transactions and give rise to
the recognition of compensation expense. Accordingly, the Bank has recognized
$89,763, $93,340, and $57,312 as compensation expense relating to 15,695,
16,851, and 18,790 shares of common stock optioned to its directors during 1999,
1998, and 1997, respectively.

        Had compensation cost for the Bank's 1999, 1998, and 1997, grants for
stock-based compensation plans been determined consistent with the fair value
provisions of SFAS No. 123, the Bank's net income, and net income per common
share for December 31, 1999, 1998, and 1997, would approximate the pro forma
amounts below (in thousands except per share data):


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
NOTE 14: Stock Option Plans
-------------------------------------------------------------------------------------------------

1999                                                                  AS REPORTED       PRO FORMA
-------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>
Net income                                                            $   4,888        $   4,788
Basic earnings per common and common equivalent share                      0.57             0.56
Diluted earnings per common and common equivalent share                    0.57             0.56

1998                                                                  AS REPORTED       PRO FORMA
-------------------------------------------------------------------------------------------------

Net income                                                            $   4,927        $   4,735
Basic earnings per common and common equivalent share                      0.58             0.56
Diluted earnings per common and common equivalent share                    0.58             0.56

1997                                                                  AS REPORTED       PRO FORMA
-------------------------------------------------------------------------------------------------

Net income                                                            $   3,704        $   3,497
Basic earnings per common and common equivalent share                      0.48             0.46
Diluted earnings per common and common equivalent share                    0.48             0.46

-------------------------------------------------------------------------------------------------
</TABLE>


                                       22
<PAGE>   23

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
NOTE 14: The following summarizes options available and outstanding under both
the Directors' and Employees' Plans as of December 31, 1999, after the effect of
the current year's stock dividend (in thousands with the exception of the
exercise price):
-----------------------------------------------------------------------------------------------------------------------------------

                                                                    DIRECTORS' PLAN              EMPLOYEES' PLAN
                                                                    WEIGHTED AVERAGE             WEIGHTED AVERAGE   COMBINED PLANS
                                                        SHARES       OPTION PRICE      SHARES      OPTION PRICE        SHARES
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>          <C>               <C>       <C>                <C>
Options outstanding at December 31, 1996                   37           $ 1.75           123           $ 2.78           160
Options exercisable at December 31, 1996                   37             1.75            35             1.62            72
Options reserved at December 31, 1996                     165                            197                            362

-----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1996                   37           $ 1.75           123           $ 2.78           160
-----------------------------------------------------------------------------------------------------------------------------------
Options granted in 1997                                    19             2.72           147             8.59           166
Options exercised in 1997                                  (9)            2.46           (33)            1.93           (42)
Options forfeited                                          --               --            (5)            3.47            (5)

-----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1997                   47             2.01           232           $ 5.81           279
-----------------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1997                   47             2.01            14             1.96            61
Options reserved at December 31, 1997                     146                             55                            201

-----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1997                   47           $ 2.01           232           $ 5.81           279
-----------------------------------------------------------------------------------------------------------------------------------
Options granted in 1998                                    17             3.67            18            10.62            35
Options exercised in 1998                                 (13)            1.89            (8)            1.67           (21)
Options forfeited                                          --               --            (5)            8.14            (5)

-----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1998                   51           $ 2.58           237           $ 6.28           288
-----------------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1998                   51             2.58            40             5.40            91
Options reserved at December 31, 1998                     129                             42                            171

-----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1998                   51           $ 2.58           237           $ 6.28           288
-----------------------------------------------------------------------------------------------------------------------------------
Options granted in 1999                                    16             4.05             5             7.17            21
Options exercised in 1999                                 (25)            3.09           (11)            3.06           (36)
Options forfeited                                          --               --           (32)            8.12           (32)

-----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1999                   42           $ 2.82           199           $ 6.18           241
-----------------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1999                   42             2.82            52             5.54            94
Options reserved at December 31, 1999                     113                             69                            182

-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


        The fair value of options granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions: (1)
dividend yields of 3.24% in 1999, 5.75% in 1998, and 1.52% in 1997; (2) expected
volatility of 28.57% in 1999, 18.35% in 1998, and 28.00% in 1997; (3) risk-free
rates of 6.50% in 1999, 4.75% in 1998; and 6.50% in 1997; and, (4) expected life
of one to ten years for all three years.

        The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated.

        Note 15: Employee Benefit Plans

        The Bank has a defined contribution profit sharing plan. All permanent
employees are eligible to participate once they meet the age and length of
employment requirements. Contributions are determined annually by the Board of
Directors and were $337,418, $313,562, and $168,557 in 1999, 1998, and 1997,
respectively, excluding additional amounts set aside for funding through the
Bank's bonus program. Voluntary employee contributions are required to share in
Bank contributions. Employee contributions were $222,313, $226,381, and $189,640
in 1999, 1998, and 1997, respectively.


                                       23
<PAGE>   24

        The Bank has established a bonus program as part of the compensation
package it provides to employees. At December 31, 1999, the Bank employed
approximately 190 individuals eligible to participate in this program. Under the
program, a bonus pool for nonexecutives is established and funded based on net
profits of the current and immediately preceding year. An executive bonus
program is similarly funded and is based on current year profits with payments
measured on the basis of return on assets. For the years ending December 31,
1999, 1998, and 1997, $660,000, $620,000, and $542,400, respectively, was
expensed to fund these programs with their related payroll and benefit costs.

        The Bank has also established supplemental retirement agreements with
certain executive officers. The agreements provide for established
post-retirement payments to covered executives for up to ten years after their
retirement. The supplemental programs are self-funded by the Bank through the
setting aside of funds into a bank-controlled deposit account. As of December
31, 1999, a liability for the supplemental retirement plans was recognized and
funded in the amount of $225,736. During 1999, 1998, and 1997, the Bank recorded
Plan expenses of $38,600, $38,600, and $21,000, respectively.

        Note 16: Earnings Per Common and Common Equivalent Shares

        Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the year. Diluted earnings per share reflect the
potential dilution that could occur if common shares were issued pursuant to the
exercise of options under the Bank's stock option plans. Comparative earnings
per share data for the years ended December 31, 1998 and 1997, have been
restated to conform with the current year presentation.


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
NOTE 16: The following table illustrates the computations of basic and diluted
earnings per share for the years ended December 31, 1999, 1998, and 1997
(dollars in thousands except per share amounts):
-------------------------------------------------------------------------------------------------------------------

                                                                          INCOME        SHARES PER         SHARE
                                                                       (NUMERATOR)     (DENOMINATOR)       AMOUNT
-------------------------------------------------------------------------------------------------------------------
1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>             <C>              <C>
Basic earnings per share
Income available to common shareholders                                   $4,888           8,579          $   0.57
Effect of dilutive securities
Outstanding common stock options                                              --              43
Income available to common shareholders plus assumed conversions          $4,888           8,622          $   0.57

-------------------------------------------------------------------------------------------------------------------
1998
-------------------------------------------------------------------------------------------------------------------

Basic earnings per share
Income available to common shareholders                                   $4,927           8,685          $   0.57
Effect of dilutive securities
Outstanding common stock options                                              --              77
Income available to common shareholders plus assumed conversions          $4,927           8,762          $   0.56

-------------------------------------------------------------------------------------------------------------------
1997
-------------------------------------------------------------------------------------------------------------------

Basic earnings per share
Income available to common shareholders                                   $3,704           7,639          $   0.48
Effect of dilutive securities                                                 --              21
Income available to common share-
holders plus assumed conversions                                          $3,704           7,660          $   0.48

-------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       24
<PAGE>   25

        Note 17: Transactions with Related Parties

        Certain directors, executive officers, and principal stockholders are
customers of and have had banking transactions with the Bank in the ordinary
course of business, and the Bank expects to have such transactions in the
future. All loans and commitments to loan included in such transactions were
made in compliance with applicable laws on substantially the same terms
(including interest rates and collateral) as those prevailing at the time for
comparable transactions with other persons and, in the opinion of the management
of the Bank, do not involve more than the normal risk of collectibility or
present any other unfavorable features.


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
NOTE 17: The amount of loans outstanding to directors, executive officers,
principal stockholders, and companies with which they are associated was as
follows:
---------------------------------------------------------------------------------------

                                                           1999                  1998
<S>                                                 <C>                   <C>
Beginning balance                                   $ 1,946,548           $ 1,354,803
Loans made                                            4,194,000               891,665
Loans paid                                             (584,600)             (299,920)
---------------------------------------------------------------------------------------
Ending balance                                      $ 5,555,948           $ 1,946,548
---------------------------------------------------------------------------------------
</TABLE>


        Note 18: Regulatory Matters

        VRB Bancorp and the Bank are subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on VRB Bancorp and the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, VRB Bancorp and the Bank must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.

        Quantitative measures established by regulation to ensure capital
adequacy require VRB Bancorp and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital to
average assets (as defined). Management believes, as of December 31, 1999, that
VRB Bancorp and the Bank meet all capital adequacy requirements to which they
are subject.

        As of December 31, 1999, the most recent notification from the Office of
the Comptroller of the Currency categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based,
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category. VRB Bancorp's capital ratios are not significantly
different from those of the Bank.


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
NOTE 18: Regulatory capital (in thousands)
------------------------------------------------------------------------------------------------------------------------------

                                                                                                            TO BE WELL
                                                                                                        CAPITALIZED UNDER
                                                                              FOR CAPITAL               PROMPT CORRECTIVE
                                                       ACTUAL              ADEQUACY PURPOSES:           ACTION PROVISIONS:
------------------------------------------------------------------------------------------------------------------------------
                                               AMOUNT          RATIO      AMOUNT         RATIO         AMOUNT          RATIO
------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>              <C>        <C>              <C>         <C>              <C>
As of December 31, 1999
Total capital to risk weighted assets         $28,728          12.7%      $18,080        >=8.0%        $22,601        >=10.0%
Tier 1 capital to risk weighted assets         25,895          11.5%        9,040        >=4.0%         13,560         >=6.0%
Tier 1 capital to average assets               25,895           8.3%       12,442        >=4.0%         15,553         >=5.0%

As of December 31, 1998
Total capital to risk weighted assets          28,019          14.0%       16,011        >=8.0%         20,013        >=10.0%
Tier 1 capital to risk weighted assets         25,509          12.7%        8,034        >=4.0%         12,051         >=6.0%
Tier 1 capital to average assets              $25,509           8.5%      $12,004        >=4.0%        $15,005         >=5.0%

------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       25
<PAGE>   26

                      PARENT COMPANY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
NOTE 19: Condensed financial information for VRB Bancorp (unconsolidated parent
company only) is as follows:
-------------------------------------------------------------------------------------------------------------

                                                                                   1999                 1998
-------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                  <C>
ASSETS
Cash                                                                       $    387,667         $     49,986
Investment in subsidiary                                                     33,239,060           35,126,747
Goodwill                                                                         51,675               58,722

-------------------------------------------------------------------------------------------------------------
Total assets                                                                 33,678,402           35,235,455
-------------------------------------------------------------------------------------------------------------

LIABILITIES                                                                      69,058                   --

SHAREHOLDERS' EQUITY
Common stock                                                                  8,699,060           21,583,869
Retained earnings                                                            16,428,287           13,590,957
Accumulated other comprehensive income (loss), net of taxes                  (1,518,003)              60,629

-------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                 $ 33,678,402         $ 35,235,455
-------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                         1999              1998              1997
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>               <C>
INCOME
Equity in undistributed (excess distribution of) earnings of subsidiary bank      $  (416,627)      $ 4,133,730       $ 2,810,666
Dividends                                                                           5,320,000           800,000           900,000
Other income                                                                               57                --                --

EXPENSES
Goodwill and other administrative expenses                                             (7,047)           (7,047)           (7,047)
Professional fees                                                                      (8,000)               --                --

-----------------------------------------------------------------------------------------------------------------------------------
Net income                                                                        $ 4,888,383       $ 4,926,683       $ 3,703,619
-----------------------------------------------------------------------------------------------------------------------------------


-----------------------------------------------------------------------------------------------------------------------------------
                                                                                         1999              1998              1997
-----------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net income to net cash from operating activities:
Net income                                                                        $ 4,888,383       $ 4,926,683       $ 3,703,619
Equity in undistributed (excess distribution of) earnings of subsidiary bank          416,627        (4,133,730)       (2,810,666)
Amortization                                                                            7,047             7,047             7,047
Increase in liabilities                                                                69,058                --                --

-----------------------------------------------------------------------------------------------------------------------------------
Net cash from operating activities                                                  5,381,115           800,000           900,000
-----------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Cash investment in subsidiary                                                              --                --        (8,000,000)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from public stock offering, net of costs                                          --                --         8,784,104
Cash dividends and fractional share payments                                       (2,051,053)       (1,674,498)       (1,006,333)
Repurchase of common stock                                                         (3,103,935)               --                --
Cash received from exercise of common stock options                                   111,554            36,517            88,068

-----------------------------------------------------------------------------------------------------------------------------------
Net cash from financing activities                                                 (5,043,434)       (1,637,981)        7,865,839
-----------------------------------------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  337,681          (837,981)          765,839

CASH AND CASH EQUIVALENTS, beginning of year                                           49,986           887,967           122,128

-----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year                                            $   387,667       $    49,986       $   887,967
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       26
<PAGE>   27

        Note 20: Stock Offering

        During November 1997, the Bank registered 1,150,000 shares of common
stock for sale to the public at a price of $8.50 per share, for an aggregate
offering price of $9,775,000. All shares were sold, resulting in net proceeds of
$8,784,104, after deducting $990,896 for underwriting discounts and commissions,
legal, accounting and printing fees, and other offering expenses. Net proceeds
to the Bank were used in connection with the acquisition of Colonial Banking
Company in early January 1998 (see Note 2). Pending such use, the net proceeds
were invested in short-term, investment-grade securities.

        Note 21: Quarterly Financial Information (Unaudited)


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
NOTE 21: Quarterly financial information (in thousands):
---------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>               <C>             <C>
1999 QUARTER ENDED                                         DECEMBER 31    SEPTEMBER 30      JUNE 30         MARCH 31
Results of operations
Interest income                                               $5,914          $5,886          $6,009          $6,103
Interest expense                                               1,733           1,941           1,953           2,043

---------------------------------------------------------------------------------------------------------------------
Net interest income                                            4,181           3,945           4,056           4,060
---------------------------------------------------------------------------------------------------------------------

Provision for credit losses                                       --              --
Noninterest income                                               573             535             522             510
Noninterest expense                                            2,717           2,599           2,565           2,608
Income before income taxes                                     2,037           1,881           2,013           1,962
Provision for income taxes                                       780             701             765             720

---------------------------------------------------------------------------------------------------------------------
Net income                                                    $1,257          $1,180          $1,248          $1,242
---------------------------------------------------------------------------------------------------------------------

Basic earnings per common share                               $ 0.14          $ 0.14          $ 0.14          $ 0.15

Diluted earnings per common share                             $ 0.14          $ 0.13          $ 0.14          $ 0.15

---------------------------------------------------------------------------------------------------------------------
</TABLE>


                          INDEPENDENT AUDITOR'S REPORT

        To the Board of Directors and Shareholders of VRB Bancorp

        We have audited the accompanying consolidated balance sheets of VRB
Bancorp as of December 31, 1999 and 1998, and the related consolidated
statements of income and comprehensive income, changes in shareholders'
equity, and cash flows for the years ended December 31, 1999, 1998, and 1997.
These financial statements are the responsibility of VRB Bancorp's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

        We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of VRB Bancorp
as of December 31, 1999 and 1998, and the results of its operations and cash
flows for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.


/s/ [SIGNATURE ELIGIBLE]

Portland, Oregon
January 14, 2000



                                       27