SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
(Amendment No. 1)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1994
Commission File No. 0-15814
VENTURA COUNTY NATIONAL BANCORP
(Exact Name of Registrant as specified in its charter)
CALIFORNIA 77-0038387
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 ESPLANADE DRIVE 93030
OXNARD, CALIFORNIA (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code:
(805) 981-2600
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of class)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements in the past 90 days. Yes [x] No [ ]
Indicate the number of shares of each of the issuer's
classes of common stock as of the latest practicable date.
As of September 30, 1994 - Common stock no par value; issued
and outstanding: 6,333,835 shares.
Total No. of pages: 20
Exhibit Index at page: 19
<PAGE>
Ventura County National Bancorp
INDEX
September 30, 1994
Part I. Financial Information 3
Item 1. Financial Statements
Consolidated Balance Sheets at September
30, 1994 and December 31, 1993 4
Consolidated Statements of Operations for
the three and nine months ended September 5
30, 1994 and 1993
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1994 6
and 1993
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of 11-18
Operations
Part II. Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of 19
Security Holders
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
PAGE
<PAGE>
Part I. Financial Information
The Consolidated Balance Sheet at September 30, 1994, the
Consolidated Statements of Operations for the three and nine
months ended September 30, 1994 and 1993 and the Consolidated
Statements of Cash Flows for the nine months ended September 30,
1994 and 1993 are unaudited. However, in the opinion of
management, all adjustments have been made for a fair
presentation of the financial condition and results of operations
and cash flows of Ventura County National Bancorp and
Subsidiaries (the Company). The accompanying notes are
considered an integral part of these financial statements.
PAGE
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<TABLE>
<CAPTION>
Item I. Financial Statements
VENTURA COUNTY NATIONAL BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands of dollars)
September 30, December 31,
1994 1993
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $17,738 $15,943
Federal Funds Sold 33,500 18,000
Interest Bearing Deposits with
Other Financial Institutions 694 2,180
Securities held-to-maturity 17,037 2,300
Securities available-for-sale 22,039 38,475
Loans and Leases,
Net of Unearned Income 181,470 267,514
Less: Loan Loss Reserve 9,030 14,313
Net Loans and Leases 172,440 253,201
Premises and Equipment, Net 2,065 1,687
Other Assets 6,120 8,743
TOTAL ASSETS $271,633 $340,529
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits:
Non-Interest Bearing Demand $ 73,900 $ 99,502
Interest Bearing Demand
and Savings 86,547 101,224
Time 90,160 117,563
Total Deposits 250,607 318,289
Notes Payable 125 125
Other Liabilities 1,658 1,745
Total Liabilities 252,390 320,159
Commitments and Contingencies
Shareholders' Equity:
Contributed Capital, including
common stock of no par value.
Authorized, 20,000,000 shares;
Issued 6,333,835 30,949 30,949
Unrealized Loss on Securities (937) (122)
Retained Earnings (10,769) (10,457)
Total Shareholders' Equity 19,243 20,370
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $271,633 $340,529
</TABLE>
See accompanying notes to Consolidated Financial Statements.
PAGE
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<TABLE>
<CAPTION>
VENTURA COUNTY NATIONAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands of dollars, except per share amounts)
Three Months Nine Months
Ended September 30 Ended September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest Income:
Loans and Leases $4,584 $5,514 $14,325 $17,909
Interest on Deposits
with Other Financial
Institutions 10 56 58 208
Taxable Investments 541 464 1,376 1,481
Federal Funds Sold 376 205 736 336
Total Interest Income 5,511 6,239 16,495 19,934
Interest Expense:
Deposits 1,501 2,057 4,704 6,518
Other Borrowings 2 150 9 506
Total Interest Expense 1,503 2,207 4,713 7,024
Net Interest Income 4,008 4,032 11,782 12,910
Provision for Loan
Losses 400 6,062 3,275 14,413
Net Interest Income
(Loss) After
Provision for Loan
Losses 3,608 (2,030) 8,507 (1,503)
Other Income:
Service Charges on Deposit 313 369 937 1,173
Accounts
Loan Fees 25 172 127 817
Miscellaneous Fees 73 138 282 429
Other 180 321 2,344 1,320
Total Other Income 591 1,000 3,690 3,739
Other Expenses:
Salary and Employee
Benefits 1,350 1,722 4,904 5,223
Net Occupancy 573 564 1,613 1,818
Equipment 216 248 645 867
Other 1,420 1,955 5,058 6,779
Total Other Expenses 3,559 4,489 12,220 14,687
Income (Loss) Before
Income Taxes 640 (5,519) (23) (12,451)
Applicable Income Taxes 75 (1,218) 289 (3,904)
(Benefit)
Net Income (Loss) $565 ($4,301) $(312) ($8,547)
Net Income (Loss)
Per Share $0.09 ($0.77) (0.05) ($1.52)
</TABLE>
See accompanying notes to Consolidated Financial Statements.
PAGE
<PAGE>
<TABLE>
<CAPTION>
VENTURA COUNTY NATIONAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of dollars)
For the nine months ended
September 30,
1994 1993
<S> <C> <C>
Cash flows from operating
activities:
Net income (loss) $ (312) ($8,547)
Gain on sale of
Mortgage Servicing (1,443) 0
Gain on sale of
merchant card (174) 0
Gain on sale of SBA loans (261) (325)
Adjustments to reconcile
net income to
cash flows from
operating activities:
Depreciation and amortization 573 942
Provision for loan losses 3,275 14,413
Change in deferred loan fees (340) (136)
Amortization of investment
premium, net of
investment discount 280 135
Loss (gain) on sale of
investment securities 150 (28)
Gain on sale of REO (520) (1)
REO writedowns 796 1,216
Change in other assets (5,658) (2,905)
Change in other liabilities (87) 690
Decrease in deferred
compensation related to ESOP 0 438
Net cash provided by (applied to)
operating activities (3,721) 5,892
Cash flows from investing activities:
Proceeds from sale of
servicing $ 1,763 0
Proceeds from sale of
merchant card 174 0
Principal reductions from
investment securities
available for sale 2,354 0
Principal reductions from
investment securities 0 26,788
Principal reductions from
investment securities held
to maturity 2,789 0
Proceeds from sale of investment 8,756 0
securities available for sale
Proceeds from sale of investment 0 22,772
securities
Purchase of investment securities
available for sale (10,126) (59,662)
Purchase of investment securities
held to maturity (3,194) 0
Purchase of premises and equipment (773) (336)
Proceeds from sales of premises and
equipment 31 11
Proceeds from sale of REO properties 5,208 834
Net decrease in loans and leases 70,892 33,273
Proceeds from sale of SBA loans 282 517
Proceeds from sale of nonperforming
loans 9,056 0
Increase in fed funds sold (15,500) (26,000)
Change in interest bearing
deposits with other financial
institutions 1,486 2,280
Net cash provided by investing 73,198 477
activities
Cash flows from financing activities:
Change in demand and savings
deposits (40,279) (9,142)
Change in time deposits (27,403) (10,052)
Change in short term borrowings 0 (2,908)
Change in notes payable 0 (438)
Net cash (applied to)
financing activities (67,682) (22,540)
Net increase (decrease) in cash
and cash 1,795 (16,171)
Cash and Cash Equivalents
at December 31 15,943 38,704
Cash and Cash Equivalents
at September 30 $17,738 $22,533
</TABLE>
See accompanying notes to Consolidated Financial Statements.
PAGE
<PAGE>
VENTURA COUNTY NATIONAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1994
Note A. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
the instructions to Form 10-Q and Rule 10-01 of Regulation S -
X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion
of management, all adjustments (consisting solely of normal
recurring accruals) considered necessary for a fair pre-
sentation have been included. Operating results for the three
and nine months ended September 30, 1994 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1994. For further information, refer to
the Consolidated Financial Statements and footnotes included
in the Company's Annual Report for the year ended December 31,
1993.
The Consolidated Financial Statements include the accounts of
the Company and the following subsidiaries: Ventura County
National Bank (VCNB) and Frontier Bank, N.A. (Frontier)
(jointly, the Banks), Frontier Services, Inc., Venco
Commercial Finance Company, Ventura County Management Service
Co., Inc., and Ventura Capital Fund, Inc. Of these
subsidiaries, the latter four companies are currently
inactive. All significant inter-company balances and
transactions have been eliminated in consolidation.
Note B. Investment Securities
On December 31, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115 Accounting for
Certain Investments in Debt and Equity Securities. SFAS No.
115 addresses accounting and reporting for investments in
equity securities that have a readily determinable fair value
and for all investments in debt securities. Those investments
are classified in three categories and accounted for as
follows: 1) debt securities for which the Company has the
positive intent and ability to hold to maturity are classified
as held-to-maturity securities and reported at amortized cost;
2) debt and equity securities that are bought and held
principally for the purpose of selling in the near term are
classified as trading securities and reported at fair value,
with unrealized gains and losses included in earnings; and 3)
debt and equity securities not classified as either held-to-
maturity securities or trading securities are classified as
available-for-sale securities and reported at fair value, with
unrealized gains and losses excluded from earnings and
reported in a separate component of shareholders' equity. The
Company had no trading securities at September 30, 1994 or
December 31, 1993. Mortgage-backed securities consist entirely
of Federal Home Loan Mortgage Corporation backed securities. The
Company did not have structured notes, CMOs or other derivative
products in the portfolio at September 30, 1994 or December 31,
1993. Unrealized losses totaling $937,000 and $122,000 at
September 30, 1994 and December 31, 1993, respectively, were due
to the interest rate environment; as such, these unrealized
losses were deemed temporary in nature.
PAGE
<PAGE>
The amortized cost basis, gross unrealized holding gains and
losses and estimated market values of securities-available-for-
sale at September 30, 1994 and December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
Securities-Available-for-Sale
(in thousands of dollars)
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Market
September 30, 1994 Basis Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government
Securities $10,127 $ 0 $ 87 $10,040
Mortgage Backed
Securities 12,629 0 630 11,999
$22,756 $ 0 $ 717 $22,039
December 31, 1993
U.S. Government
Securities $ 0 $ 0 $ 0 $ 0
Mortgage Backed
Securities 38,597 56 178 38,475
$38,597 $ 56 $ 178 $38,475
</TABLE>
The amortized cost basis, gross unrealized holding gains and
losses and estimated market values of securities-held-to-
maturity at September 30, 1994 are as follows:
<TABLE>
<CAPTION>
Securities-Held-to-Maturity
(in thousands of dollars)
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Market
September 30, 1994 Basis Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government
Securities $ 1,250 $ 0 $ 11 $ 1,239
Mortgage Backed
Securities 14,197 0 511 13,686
Federal Reserve Bank
& FHLB Stock 1,590 0 0 1,590
$17,037 $ 0 $ 522 $16,515
</TABLE>
Securities-held-to-maturity at December 31, 1993 included
Federal Reserve Bank and FHLB stock carried at $2,300,000,
which approximates market. At September 30, 1994, debt
securities totaling $5,000,000, which are classified as
available-for-sale, mature in less than six months while the
remaining debt securities classified as held-to-maturity and
available-for-sale mature after one year and before five
years. During the nine months ended September 30, 1994, the
Company received $8,756,000 in proceeds from the sale of
investment securities classified as available-for-sale,
resulting in gross losses of $150,000.
The Company transferred a mortgage backed security with an
unrealized loss of $220,000 from available-for-sale to held-to-
maturity in the quarter ended September 30, 1994 due to a
change in intent to hold the security to maturity and limit
the impact of unrealized losses on shareholders' equity. Due to
a decline in the market value of investment securities
classified as available-for-sale PAGE
<PAGE>
and the $220,000 unrealized loss
on the security transferred,
in accordance with SFAS 115 the Company recorded an unrealized
loss totaling $937,000 in shareholders' equity on the
consolidated balance sheet at September 30, 1994, an increase
of $815,000 from December 31, 1993. The $220,000 unrealized
loss will be accreted to shareholders' equity over the
average life of the security.
Note C. Commitments and Contingencies
In the ordinary course of business, the Banks enter into
various commitments to make loans or extend credit in the form of
lease financing arrangements or to provide lines of credit to
customers. At September 30, 1994, the Banks had
outstanding loan commitments of $18,201,000 and letters of
credit outstanding in the amount of $2,721,000.
Note D. Lease Commitments
The Company has commitments for non-cancelable operating
leases of premises and equipment. Rental payments for the
nine months ended September 30, 1994 and 1993 were $1,170,000
and $1,249,000, respectively.
Note E. Income Tax Provisions
Amounts provided for income taxes are based on the income or
loss reported in the consolidated financial statements at
current tax rates. Such amounts include taxes deferred to
future periods resulting from temporary differences in the
recognition of items for tax and financial statement purposes.
Note F. Stock Dividend and Income Per Share
Income per share data is calculated using the weighted average
number of shares of common stock and common stock equivalents
outstanding. Stock options are considered to be common stock
equivalents except when their effect is anti-dilutive. The
weighted average number of shares used to compute income per
share for the nine months ended September 30, 1994 and 1993
were 6,333,835 and 5,614,255, respectively.
Note G. Statement of Cash Flows
For the three and nine months ended September 30, 1994 and
1993, the Company paid approximately $1,522,000 and $4,780,000
and $2,164,000 and $6,959,000 in interest, respectively. The
Company has paid no income taxes in 1994 and paid $0 and
$300,000, respectively, in income taxes during the three and
nine months ended September 30, 1993. The Company acquired
$1,575,000 and $6,063,000, respectively, in real estate owned
through foreclosures during the three and nine months ended
September 30, 1994.
PAGE
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Part 1, Item 2
VENTURA COUNTY NATIONAL BANCORP AND SUBSIDIARIES
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
The following presents management's discussion and analysis of
the consolidated financial condition and operating results of
Ventura County National Bancorp (separately "Parent" and, with
its subsidiaries on a consolidated basis, the "Company"), and its
subsidiaries as of September 30, 1994 and for the three and nine
months ended September 30, 1994 and 1993. The discussion should
be read in conjunction with the Company's Consolidated Financial
Statements and notes thereto.
General
At September 30, 1994, the Company had total assets
of $271,633,000 and net income of $565,000 or $0.09 per share
for the three months ended September 30, 1994 and a net loss
of $312,000 or $0.05 per share for the nine months ended
September 30, 1994, as compared to total assets of $340,529,000
at December 31, 1993 and net losses of $2,670,000 or $0.48 per
share and $4,246,000 or $0.76 per share for the corresponding
periods of 1993. The significant improvement in operating
results for the three and nine months ended September 30,
1994, as compared to the three and nine months ended
September 30, 1993 is due primarily to a substantial
reduction in the provision for loan losses, increased
non-interest income and reduced non-interest expenses.
Net Interest Income and Net Interest Margin
Net interest income decreased by $1,128,000 or 8.7% to
$11,782,000 for the nine months ended September 30, 1994 as
compared to the nine months ended September 30, 1993, primarily
due to a significant decrease in average interest earning assets,
which exceeded the decrease in average interest bearing
liabilities. These decreases reflect overall balance sheet
shrinkage, beginning in 1993, to improve liquidity. Net
interest income decreased by $24,000 or 0.6% to $4,008,000 for
the three months ended September 30, 1994 as compared to the
three months ended September 30, 1993.
Interest income for the nine months ended September 30, 1994
decreased $3,439,000 to $16,495,000, or 17.3%, to $16,495,000
over the nine months ended September 30, 1993 while interest
expense decreased $2,311,000 or 32.9% to $4,713,000 for the same
periods. Interest income decreased $728,000 or 11.7% to
$5,511,000 for the quarter ended September 30, 1994 as compared
to the quarter ended September 30, 1993, while interest expense
decreased $704,000 or 31.9%, during the third quarter of 1994
compared to the third quarter of 1993.
The decrease in interest income during the first nine months of
1994 was primarily attributable to a significant decrease in
interest earning assets. Average interest earning assets were
$285,541,000 for the nine months ended September 30, 1994, a
19.7% decrease from the average balance of $355,521,000 for the
nine months ended September 30, 1993. The decrease in interest
income was slightly offset by an increase in the yield on
interest earning assets to 7.7% for the nine months ended
September 30, 1994 versus a 7.5% yield on interest earning assets
for the corresponding period of 1993, which reflects increases in
market interest rates beginning in 1994 and a change in the mix
of assets due to the declining asset base. Average earning assets
as a percent of total average assets for the nine months ended
September 30, 1993 and 1994, increased from 90.7% to 93.8%,
respectively. The Company reduced average earning assets to fund
a planned reduction of volatile deposits, particularly title and
escrow and institutional certificates of deposit.
The decrease in interest expense during the nine months ended
September 30, 1994 was primarily attributable to a decrease in
average interest bearing deposits from $281,990,000 for the nine
months ended September 30, 1993 to $204,428,000 for the nine
months ended September 30, 1994, a decrease of 27.5 %. In
addition, the decrease in interest expense was also affected by
a change in the mix of interest-bearing liabilities. Average
noninterest bearing deposits as a percent of total average
deposits increased from 25.1% for the nine months ended
September 30, 1993 to 27.7% for the nine months ended
September 30, 1994, due to a significant decrease in interest
bearing time deposits. Average deposits decreased from
$335,590,000 to $282,063,000 or 16.0% for the nine months ended
September 30, 1993 and 1994, respectively. Average certificates
of deposit greater than $100,000 decreased from 16.9% of average
total deposits for the nine months ended September 30, 1993 to
12.5% of average total deposits for the nine months ended
September 30, 1994. As a result of the shift in the mix of
liabilities, the average cost of funds declined to 2.2% for the
nine months ended September 30, 1994 compared to a 2.7% cost of
funds for the corresponding period of 1993, despite increases in
market interest rates.
The decrease in interest income during the third quarter of 1994
was primarily attributable to the significant decrease in
interest earning assets. The effect of the decrease in interest
earning assets was slightly offset by an increase in the yield on
interest earning assets. The decrease in interest expense
during the three months ended September 30, 1994 was primarily
attributable to a decrease in interest bearing deposits. In
addition, a decrease in the cost of funds resulting from the
shift in the mix of liabilities contributed to the decrease in interest
expense.
As a result, net interest margin increased from 4.8% to 5.5% for
the nine months ended September 30, 1993 and 1994, respectively,
and from 4.7% to 6.0% for the three months ended September 30,
1993 and 1994, respectively.
Other Income
Other income decreased $49,000 to $3,690,000 for the nine months
ended September 30, 1994, a 1.3% decrease over the corresponding
period in 1993. Loan fees decreased from $817,000 for the nine
months ended September 30, 1993 to $127,000 for the nine months
ended September 30, 1994, reflective of a significant decrease in
income resulting from mortgage loan originations and servicing
and a charge of $330,000 related to purchased mortgage servicing
rights. The Company sold its mortgage servicing rights for a gain
of $1,744,000 in May, 1994, less the write-off of remaining
mortgage servicing rights intangible assets totaling $320,000
and also sold its mortgage origination unit in June, 1994 in
return for residual income on future loan originations by the
acquirer. Due to significant reductions in mortgage origination
activity, subsequent to the sale, the acquirer closed the
mortgage origination unit, so no residual income will be
generated. Mortgage servicing fee income and net gains on sale
of mortgage loans represented 18% of total other income for
the nine months ended September 30, 1994 and 38% of total
other income for the nine months ended September 30, 1993.
Other fee income increased from $1,320,000 to $2,344,000 for
the nine months ended September 30, 1993 and 1994,
respectively, due to the gain on sale of mortgage servicing and
a gain of $175,000 on the sale of the merchant credit card
operation in March, 1994, which were offset by a decrease
in gains on the sale of SBA loans during the comparative periods.
Merchant card income represented 1% and 3% of total other income
for the nine months ended September 30, 1994 and September 30,
1993, respectively. Service charges on deposit accounts
decreased $236,000 or 20.1% to $937,000 for the nine months
ended September 30, 1994, as compared to the corresponding
period in 1993, as a result of customers maintaining higher
average balances to offset service charge assessments and lower
deposit levels. Miscellaneous fee income decreased from $429,000
for the nine months ended September 30, 1993 to $282,000 for the
nine months ended September 30, 1994.
Other income decreased $409,000 to $591,000 for the three months
ended September 30, 1994, a 40.9% decrease over the corresponding
period in 1993. The decrease is a result of reduced mortgage
origination and servicing income for reasons discussed above,
together with lower service charges, miscellaneous fees and gains
from the sale of SBA loans.
Other Expenses
Total other expenses decreased from $14,687,000 to $12,220,000
for the nine months ended September 30, 1993 and 1994,
respectively. A decrease in net real estate owned (REO) expense
of $1,068,000 accounts for the majority of the $1,721,000 or
25.4% decrease in other expenses for the nine months ended
September 30, 1994 over the corresponding period in 1993.
The company incurred substantial writedowns on REO during the
nine months ended September 30, 1993 due to declining market
values on properties that were principally raw land and
commercial real estate. REO expense and writedowns in the
nine months ended September 30, 1994 totalled $227,000, which
reflects on improving market for distressed properties. Salary
and employee benefit expense decreased by $319,000 or 6.1%
from $5,223,000 for the nine months ended September 30,
1993 to $4,904,000 for the corresponding period in 1994
primarily as a result of staff reductions which was partially
offset by a decline in deferred loan origination costs. There
was a decline in total employees from 199 to 139 at
September 30, 1993 and 1994, respectively. The decrease in
employee benefits expense also reflected the replacement
during 1994 of contributions to the ESOP with 401(k) matching
contributions. The Company also adopted Statement of Position
("SOP") 93-6 in 1994 which provides that future ESOP
contributions, if any, shall be expensed at fair market value of
the Common Stock at the time of the contribution rather than the
historical cost of $9.00 per share. Adoption of SOP 93-6 had no
impact on results of operations during 1994. The extent to which
the adoption of SOP 93-6 will affect the Company's results of
operations depends on the level of future ESOP contributions, if
any, and the market value of the Common Stock, neither of which
can be determined at this time. These reductions were
partially offset by deferred loan origination costs. In
accordance with Statement of Financial Accounting Standards No.
91, the Company defers loan origination costs and amortizes them
into loan interest income over the life of each loan.
These deferred costs were $548,000 and $1,350,000 at
September 30, 1994 and 1993, respectively.
In addition, occupancy expense decreased from $1,818,000 to
$1,613,000 for the nine months ended September 30, 1993 and 1994,
respectively, as a result of a decrease in amortization expense
related to leased space and an increase in income from subleases.
Equipment expense decreased from $867,000 to $645,000 for the
nine months ended September 30, 1993 and 1994, respectively,
primarily due to a significant decrease in depreciation expense.
The Company outsourced its data processing in May 1994 with
monthly cost savings of approximately $52,000. The Company
outsourced its courier service in September 1993, resulting in
monthly reductions of approximately $8,000.
Total other expense expressed as a percentage of net interest
income plus other income, commonly referred to as the efficiency
ratio, was 79.0% and 88.2% for the nine months ended September
30, 1994 and 1993, respectively. Total other expenses decreased
from $4,489,000 to $3,559,000 for the three months ended
September 30, 1993 and 1994, respectively. This significant
decrease was largely attributable to a decline in REO expense
as a result of recoveries on sale of REO, while decreases were
also realized in salary, equipment expenses and data
processing expenses.
Loan Loss Reserve and Non Performing Loans
The Company maintains a loan loss reserve which it believes is
adequate to cover the risk of loss in the loan and lease
portfolio. The charge to expense is based on management's
evaluation of the quality of the loan and lease portfolio, the
level of classified loans and leases, total outstanding loans and
leases, losses previously charged against the reserve, and
current and anticipated economic conditions. Although management
believes the level of the loan loss reserve as of September 30,
1994 is adequate to absorb losses inherent in the loan portfolio,
additional declines in the local economy may result in increased
losses that cannot be reasonably predicted at this time.
For the nine months ended September 30, 1994, the provision for
loan losses was $3,275,000, as compared to $14,413,000 for the
corresponding period in 1993. For the three months ended
September 30, 1994, the provision for loan losses was $400,000,
as compared to $6,062,000 for the corresponding period in 1993.
The reduction of loan loss provision from 1993 to 1994 is due to
a significant decline in the migration of loans to nonaccrual
status or REO during 1994. At September 30, 1994, the loan
loss reserve was $9,030,000 as compared to $14,313,000 at
December 31, 1993. The ratio of the loan loss reserve to total
outstanding loans and leases was 4.95% at September 30, 1994 and
5.35% at December 31, 1993. The coverage ratio, or the ratio
of loan loss reserves to non-performing assets, was 66.1% and
64.9% at September 30, 1994 and December 31, 1993, respectively.
Nonperforming assets consist of nonperforming loans plus REO. The
Company's nonperforming loans fall within three categories:
troubled debt restructurings ("TDRs"), loans past due greater
than 90 days and still accruing and loans on nonaccrual status.
The level of loan loss reserves reflects management's assessment
of the inherent risk associated with the Company's classified
assets and ongoing economic weakness within the Banks' service
area. The Company has expanded the Loan Administration and
Special Assets Departments to improve overall asset quality.
Non-performing loans are those on which the borrower fails to
perform under the original terms of the obligation. As of
September 30, 1994, and December 31, 1993, the Company had
TDRs $691,000 and $348,000, respectively, on which the terms have
been renegotiated to provide for a reduction or a deferral of
interest or principal payments on concessionary terms. Those
renegotiated terms include, in some instances, strengthening the
collateral underlying the loan. All TDRs are current and
performing according to the negotiated terms.
Loans are automatically placed on non-accrual status when
principal or interest payments are past due greater than 90 days,
unless the loan is an SBA guaranteed loan and a deferral period
has been negotiated. If the loan is in the process of imminent
collection in the normal course of business, the Company
may continue to accrue interest. Loans are placed on non-
accrual status earlier, if there is doubt as to the
collectability of any amounts due according to the contractual
terms of the loan agreement. At September 30, 1994 and
December 31, 1993, the Company had $145,000 and $552,000,
respectively, in loans past due greater than 90 days and still
accruing interest and non-accrual loans of $10,114,000 and
$18,939,000, respectively.
The decrease in loans past due greater than 90 days reflects the
migration of certain loans to non-accrual or REO status
combined with a strengthened credit administration unit which has
improved collection efforts. The decrease in non-accrual
loans from December 31, 1993 to September 30, 1994 reflects
the bulk sale of $14.2 million in non-performing loans in May,
1994 which $1.5 million to the loan loss provision, which
resulted in a charge-off of $5.0 million and the addition
of the pay-off or restoration to performing status of other
credits and the migration of certain assets to REO.
Non-performing loans totaled $10,950,000 at September 30, 1994
or 6.0% of total outstanding loans and leases, as compared to
$19,839,000 or 7.4% of total loans and leases at December 31,
1993.
Loans charged off during the nine months ended September 30, 1994
and 1993 totaled $8,913,000 and $4,628,000, respectively, or 4.0%
and 1.56% of average outstanding loans and leases, respectively.
The level of charge offs in 1994 is in part attributable to the
bulk sale of non-performing loans discussed above. For the nine
months ended September 30, 1994 and 1993, loans and lease
recoveries were $355,000 and $116,000, respectively. Loans
charged off during the three months ended September 30, 1994 and
1993 totaled $1,323,000 and $2,803,000, respectively, while loans
and lease recoveries were $184,000 and $68,000, respectively.
Taxes
Applicable tax expense for the nine months ended September 30,
1994 were offset by utilization of a tax valuation allowance. In
addition, an additional charge of $289,000 was taken to increase
the tax valuation allowance in accordance with the provisions
of SFAS No. 109 "Accounting for Income Taxes" and to reflect the
filing of the Company's 1993 tax returns. Applicable tax
benefits for the nine months ended September 30, 1993 were
$3,904,000.
Financial Condition
Total assets at September 30, 1994 decreased $68.1 million or
20.0% from December 31, 1993. Net loans and leases decreased
$80.0 million or 31.6% from prior year end, primarily due to the
sale of non-performing loans and the payoff of other loans
that funded deposit outflows. These decreases were partially
offset by increases in federal funds sold of $15.0 million or
86.1% and cash and cash equivalents of $1.8 million or 11.3%.
The Company's REO balances increased from $2,229,000 at
December 31, 1993 to $2,709,000 at September 30, 1994. The
increase in REO reflects the repossession of several properties
which management believes improved the Company's ability to
resolve those impaired assets. At September 30, 1994, the
Company's REO consisted of two parcels of land for development
in Simi Valley, California and Hemet, California and five other
properties which together total $250,000. The Company is in
escrow on the Simi Valley property and is actively seeking a
buyer for the remaining REO.
Fixed assets, net of depreciation, increased from $1,687,000 at
December 31, 1993 to $2,065,000 at September 30, 1994 due to
capitalized costs associated with the Company's data processing
conversion.
Total deposits at September 30, 1994 decreased $67.7 million or
21.3% from December 31, 1993, due primarily to the intentional
run-off of $37.1 million of title and escrow deposits and
institutional certificates of deposit in an attempt to improve
the core deposit base and reduce potentially volatile
liabilities. Other categories of deposits also decreased. Non-
interest bearing demand deposits decreased $25.6 million or
25.7%, time deposits decreased $27.4 million or 23.3% and
interest bearing demand and savings deposits decreased $14.7
million or 14.5%.
The Company discontinued the issuance of commercial paper on
December 31, 1993. Average commercial paper sold for the first
nine months of 1993 was $6,870,000. Average Federal Funds
purchased for the nine months ended September 30, 1994 declined
to $59,000, compared to $1,839,000 for the corresponding period
in 1993. In 1993, the Company retired the remaining principal on
the ESOP loan. Principal outstanding on the ESOP loan was
$1,749,000 at September 30, 1993.
Liquidity and Asset/Liability Management
Liquidity management for banks requires that funds be available
to pay all deposit withdrawals and maturing financial obligations
and meet credit funding requirements promptly and fully in
accordance with their terms. Over a very short time frame, for
most banks, including the Banks, maturing assets provide only a
limited portion of the funds required to pay maturing
liabilities. The balance of the funds required is provided by
liquid assets and the acquisition of additional liabilities,
making liability management important to liquidity management in
the short-term.
The Banks maintain a level of liquidity that they consider
adequate to meet their current needs. The Banks' principal
sources of cash include incoming deposits, repayment of loans and
conversion of investment securities. When cash requirements
increase faster than cash is generated, either through increased
loan demand or withdrawal of deposited funds, the Banks can
arrange the sale of loans and investments and access their
Federal Funds lines of credit with correspondent banks or lines
of credit with federal agencies.
Management of the Company has set a minimum liquidity level of
20% as a target. The Company's average liquid assets (cash and
cash equivalents, federal funds sold, interest bearing deposits
with other financial institutions and investment securities) as a
percentage of average assets of the Company during the nine
months ended September 30, 1994 was 22.1% as compared to 13.1%
for the corresponding period in 1993. The loan to deposit ratios
for the Company at September 30, 1994 and December 31, 1993 were
72.7% and 84.0%, respectively. The increase in the liquidity
ratio and decrease in the loan to deposit ratio is the result of
a decrease in pledged securities and a decline in loans and total
assets during the first nine months of 1994 as compared to the
same period during 1993.
Although liability management is the key to liquidity management
in the short-term, long-term planning of both assets and
liabilities is necessary to manage net yields. To the extent
maturities of assets and liabilities do not match in a changing
rate environment, net yields may be affected.
From December 31, 1993 to September 30, 1994, total interest
earning assets decreased from $328,469,000 to $255,532,000, a
decrease of 22.2%, and interest bearing liabilities decreased
from $218,912,000 to $176,832,000, or 19.2%. The ratio of rate
sensitive assets to rate sensitive liabilities was 1.4 at
September 30, 1994 and December 31, 1993. Since 61% of interest
earning assets have variable interest rate structures and
therefore reprice immediately upon a change in prime rate, a
rising interest rate environment results in net interest margin
improvement for the Company, as assets reprice faster than
liabilities. In a relatively stable interest rate environment,
variable rate liabilities will continue to reprice upward while
variable rate assets, particularly those indexed to prime rate,
remain relatively constant, thereby narrowing net interest
margin. As interest rates decline, variable rate assets reprice
at lower rates immediately, while the variable rate liabilities
reprice gradually, resulting in a narrowing of the net interest
margin. The Banks have established floors on 41% of the variable
rate loans to mitigate the effect on net interest margin if
interest rates decline, many of which floors reprice upward in
connection with renewals during a rising rate environment.
Parent is a legal entity, separate and distinct from its
subsidiaries, and it must separately meet its liquidity needs.
Aside from raising capital on its own behalf or borrowing from
outside sources, Parent may receive additional funds through
dividends paid by, and fees from services provided to its
subsidiaries. Future cash dividends paid to Parent by its
subsidiaries will depend on each subsidiary's future
profitability, capital requirements and other factors. As
discussed further in the section entitled "Agreements with the
Office of the Comptroller of the Currency" Parent may owe a
reimbursement to VCNB. There was no material change in cash at
the Parent company level from December 31, 1993 to September 30,
1994.
Inflation
The assets and liabilities of the Company, except for fixed
assets, are virtually all monetary items. Since the Company
maintains a small portion of its total assets in fixed assets,
0.8% at September 30, 1994 and 0.5% at December 31, 1993,
respectively, the potential for inflated earnings resulting from
understated depreciation charges is minimal. High inflation
rates could impact other expense items, such as salaries and
occupancy expense.
Capital Resources
The Federal Deposit Insurance Corporation Improvement Act of 1991
requires that for banks to be considered "well capitalized," they
must maintain a leverage ratio of 5.0%, a Tier 1 risk based
capital ratio of 6.0% and a total risk based capital ratio of
10.0% and not be under a written agreement or capital directive.
Banks will be considered "adequately capitalized" if they
maintain a leverage ratio of 4.0%, a Tier 1 risk based capital
ratio of 4.0% and a total risk based capital ratio of 8.0%. Tier
1 capital consists primarily of common stock, retained earnings
and perpetual preferred stock, less goodwill and ineligible
items. Tier 2 capital is comprised of limited life preferred
stock, subordinated debt and loan loss reserves limited to 1.25%
of total risk weighted assets. Total risk based capital is Tier
1 plus Tier 2 capital; however, at least 50% of total risk based
capital must be comprised of Tier 1 capital. The capital
standards specify that assets, including off-balance sheet items,
be assigned "risk weights" based on credit and liquidity risk
which range from 0% risk weight for cash to 100% risk weight for
commercial loans and certain other assets. The leverage ratio is
Tier 1 capital to adjusted average assets. The Tier 1 capital
ratio is Tier 1 capital to risk weighted assets. The total risk-
based capital ratio is Tier 1 plus Tier 2 capital to risk
weighted assets. The following sets forth the capital ratios
for the Company and each of the Banks at September 30, 1994 and
December 31, 1993:
<TABLE>
<CAPTION>
Consolidated Company September 30, December 31,
1994 1993
<S> <C> <C>
Company<F1>
Risk-Based Capital Ratio 10.19% 8.73%
Tier 1 Capital Ratio 9.05% 7.43%
Leverage Ratio 7.43% 6.02%
VCNB
Risk-Based Capital Ratio 10.32% 7.83%
Tier 1 Capital Ratio 9.14% 6.52%
Leverage Ratio 6.72% 5.49%
Frontier<F1>
Risk-Based Capital Ratio 11.99% 11.31%
Tier 1 Capital Ratio 10.71% 10.03%
Leverage Ratio 7.85% 7.30%
<F1> In accordance with recent guidance from the Federal
Financial Institutions Examination Council, regulatory capital
includes $756,000, which represents a $792,000 cumulative effect
adjustment to reduce the balance of deferred gains on the sale of
SBA loans, a portion of which was offset by income recognized
under generally accepted accounting principles. This adjustment
is not reflected in the accompanying financial statements
prepared in accordance with generally accepted accounting
principles.
</TABLE>
The Company has determined to proceed with a proposed rights
offering to shareholders of $5,000,000 to $7,000,000. Although
the precise terms of the rights offering have not been
determined, it is anticipated that those shares unsubscribed to
by shareholders would be made available to standby purchasers as
of yet not identified. The offering will only be made by means
of a prospectus. Substantially all of the net proceeds of the
offering would be contributed as capital to VCNB for purposes of
satisfying the minimum capital requirements of VCNB's Formal
Agreement with the Comptroller of the Currency. It is
anticipated that the proposed offering would commence during the
second quarter of 1995, at which time the subscription price,
subscription ratio and proposed record date would be established.
Regulatory Agreements
VCNB entered into a Formal Agreement with the OCC on March 19,
1993 and Frontier entered into a Consent Order with the OCC on
March 29, 1993. The significant common requirements of the
Formal Agreement and the Consent Order for VCNB and Frontier
include conducting a program to evaluate and improve board
supervision and management, develop a program designed to improve
loan administration, developing a program regarding asset
diversification, obtaining current credit information on any
loans lacking such information, reviewing and revising loan
policy, establishing an independent loan review program,
developing and implementing a program to collect or strengthen
criticized assets, reviewing and maintaining an adequate loan
loss reserve, developing a new long range strategic plan,
developing and revising liquidity and funds management policy,
correcting violations of law cited by the OCC and obtaining
approval from the OCC to declare or pay a dividend. In addition,
the Consent Order requires that Frontier maintain as of May 31,
1993 and beyond a Tier 1 capital ratio of 9.50% and a leverage
ratio of 7.00%, respectively.
The Formal Agreement, which was amended on February 3, 1994,
requires VCNB to achieve a Tier 1 capital ratio of 12.00% and a
leverage ratio of 7.00% by September 30, 1994. At September 30,
1994, VCNB needed $4.2 million additional capital to reach its
Tier 1 capital requirement of 12%, and $0.6 million additional
capital to reach its leverage ratio requirement of 7%. Toward
that end, the Company has determined to proceed with a rights
offering of $5,000,000 to $7,000,000 as discussed more fully
above, the proceeds of which are intended to be contributed to
VCNB to satisfy the capital requirements of the Formal Agreement.
In addition, the Formal Agreement amendment requires VCNB to
seek reimbursement for all interest paid by VCNB to Parent in
connection with a deposit account at VCNB which was related to
the issuance of commercial paper. The Company believes that
contribution of the net proceeds from the rights offering will
satisfy the reimbursement requirement. Until such time as the
reimbursement requirement is satisfied, VCNB may not make any
distribution, payment or dividend to Parent without the prior
written consent of the OCC.
The Company entered into a Memorandum of Understanding (MOU) with
The Federal Reserve Bank of San Francisco (FRBSF) on March 19,
1994. The significant requirements of the MOU include submitting
a program to improve the financial condition of the Banks,
evaluate and improve board supervision and management, exit the
commercial paper market, comply with Federal Reserve policy
regarding management or service fees assessed by the Holding
Company and paid by the Banks and implement steps to improve the
effectiveness of the audit and credit review functions. The MOU
further restricts the Company from declaring or paying a
dividend, incurring any debt, adding or replacing a director or
senior executive or repurchasing Company stock without the prior
approval of the FRBSF. The MOU also requires the Company's board
of directors to establish a committee to monitor compliance with
the MOU and ensure that quarterly written progress reports
detailing the form and manner of all actions taken to attain
compliance with the MOU are submitted.
VCNB, Frontier and the Company are in compliance with or in the
process of complying with all of the items required under the
Formal Agreement, Consent Order and MOU, respectively, and
management does not believe the Formal Agreement, Consent Order
or MOU will have any adverse material impact on their future
operations. However, the ability of VCNB to meet the capital
requirements of the Formal Agreement is dependent on the
successful acquisition of capital from external sources. Any
deficiency in compliance with the requirements of the Formal
Agreement, Consent Order or MOU could result in penalties or
further regulatory restrictions.
Part II. Other Information
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other information.
As previously announced, negotiations for the sale of the
Company's subsidiary, Frontier Bank, N.A., have been
terminated.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(10.1) Agreement by and between Ventura County
National Bank, Oxnard, California and The Office of the
Comptroller of the Currency.
(10.2) Amended Formal Agreement by and between
Ventura County National Bank, Oxnard, California and The
Office of the Comptroller of the Currency.
(10.3) Consent Order by and between Frontier Bank,
N.A., La Palma, California and The Office of the Comptroller of
the Currency.
(10.4) Memorandum of Understanding by and between
Ventura County National Bancorp, Oxnard, California and The
Federal Reserve Bank of San Francisco.
(11) Statement re: computation of per share earnings
incorporated by reference in the Statement of Operations and
accompanying Notes to the Consolidated Financial Statements.
(b) Reports on Form 8-K.
Form 8-K filed August 19, 1994.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date March 28, 1995 By: /s/
Richard S. Cupp
President/Chief
Executive Officer
Date March 28, 1995 By: /s/Simone Lagomarsino
Chief Financial
Officer
