<PAGE> 1
As filed with the Securities and Exchange Commission on , 1996
REGISTRATION NO.
================================================================================
=================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
VINEYARD NATIONAL BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-030917
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
-------------------
9590 FOOTHILL BOULEVARD
RANCHO CUCAMONGA, CA 91730
(909) 987-0177
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF ISSUER'S PRINCIPAL EXECUTIVE OFFICES)
-------------------
VINEYARD NATIONAL BANK [NOW BANCORP]
1987 INCENTIVE STOCK OPTION PLAN (AS EXTENDED)
(FULL TITLE OF THE PLAN)
STEVEN R. SENSENBACH
VINEYARD NATIONAL BANK
9590 FOOTHILL BOULEVARD
RANCHO CUCAMONGA, CA 91730
(NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
-------------------
These securities will be sold subject to employee stock options under
the Vineyard National Bank [now Bancorp] 1987 Incentive Stock Option Plan. The
term of the plan has been extended by shareholder approval.
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO ELIGIBLE
EMPLOYEES:
The date of granting of options under the incentive stock option plan
is determined by the Stock Option Committee of the Board of Directors. It is
expected that about January 1997 will be the next grant of options.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================
Proposed Proposed
Title of Securities Amount to be Maximum Offering Maximum Amount of
to be Registered Registered Price Per Share Aggregate Offering Registration Fee
Price
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
common stock no 62,577(1) (see below)(2) $ 255,939.93 $ 6,398.50
par value
=========================================================================================
</TABLE>
- ----------
(1) Represents the number of shares of common stock of Vineyard National
Bancorp which are subject to stock options.
(2) Price is determined by the fair market value on the date of granting.
However, the offering price (estimated solely for the purpose of
computing the registration fee) is based on the net book value of the
common stock of Vineyard National Bancorp as of September 30, 1996
which was $4.09 per share.
TOTAL NUMBER OF PAGES .
================================================================================
=================================
<PAGE> 2
VINEYARD NATIONAL BANCORP
CROSS-REFERENCE SHEET
Registration Statement on Form S-8
Form S-8 Item Location in Proxy
Statement-Prospectus
1. Forepart of the Outside Front Cover Page; Cover
Registration Statement Page of the Proxy Statement;
and Outside Front Cover Cover Page of Joint Proxy and
Page of Prospectus.......... Prospectus filed as a part of
Form S-4 Registration Statement
2. Inside Front and Outside Vineyard National Bancorp
Back Cover Pages of Annual Report 1995 which has
Prospectus.................. been sent to stockholders;
Table of Contents; the Proxy
Statement; the Table of
Contents and Joint Proxy and
Prospectus filed as a part of
Form S-4 Registration
3. Risk Factors, Ratio of Vineyard National Bancorp
Earnings to Fixed Charges Annual Report, 1995 and reports
and Other Information....... filed with the SEC; the Proxy
Statement of 1996
4. General Information Introduction and Summary of the
regarding the Plan.......... Plan in the Proxy Statement of
1996, Vineyard National Bank
[now Bancorp] 1987 Incentive
Stock Option Plan; item 4 in
this Registration Statement;
Joint Proxy and Prospectus
section on stock option plans
5. Securities to be offered Item 5 of this Registration
and employees who may Statement; Vineyard National
participate in the plan..... Bank [now Bancorp] 1987
Incentive Stock Option Plan;
the Proxy Statement of 1996
6. Purchase of Securities Item 6 of this Registration
Pursuant to the Plan........ Statement; Vineyard National
Bank [now Bancorp] 1987
Incentive Stock Option Plan;
the Proxy Statement of 1996
7. Payment for securities Item 7 of this Registration
offered..................... Statement; the 1987 Incentive
Stock Option Plan
8. Contributions under the Not Applicable
Plan........................
9. Withdrawal from the Plan, Item 9 of this Registration
Assignment of Interest...... Statement; the 1987 Incentive
Stock Option Plan; the Proxy
Statement of 1996
<PAGE> 3
10. Defaults Under the Plan..... Item 10 of this Registration
Statement; the 1987 Incentive
Stock Option Plan
11. Administration of the Item 11 of this Registration
Plan........................ Statement; the 1987 Incentive
Stock Option Plan; the Proxy
Statement of 1996
12. Investment of Funds......... Not Applicable
13. Charges and Deductions Not Applicable
and Liens therefore.........
14. Description of Item 14 of this Registration
Registrant's Securities..... Statement
15. Incorporation of Certain Item 15 of this Registration
Documents by Reference...... Statement
16. Additional Information...... Not Applicable
17. Interest of Named Experts Item 17 of this Registration
and Counsel................. Statement
18. Disclosure of Commission Item 18 of this Registration
on indemnification for Statement
Securities Act
Liabilities.................
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
19. Indemnification of Item 18 of this Registration
Directors and Officers...... Statement
20. Exhibits.................... See Item 20 of this
Registration Statement
21. Undertakings................ See Item 21 of this
Registration Statement
<PAGE> 4
VINEYARD NATIONAL BANCORP P R O X Y
9590 Foothill Blvd., Rancho Cucamonga, CA 91730
THIS PROXY IS SOLICITED ON BEHALF OF THE BANCORP'S BOARD OF DIRECTORS.
The undersigned appoints Lester Stroh and Frank S. Alvarez or either of
them, as proxies with full power of substitution, to vote and act with respect
to all shares of Vineyard National Bancorp held of record September 6, 1996, at
the Annual Meeting of the shareholders on October 29, 1996 or any adjournment
including all powers the undersigned would possess if personally present, as
follows.
[ ] Authorize to vote for [ ] Withhold authority to
the nominees as a group vote for the nominees
as a group
1. To elect as a group the seven (7) persons nominated to the Board of
Directors to serve until the next annual meeting of shareholders as proposed
by management in the Proxy Statement OR if you choose not to grant or
withhold authority to vote for the nominees as a group, you may indicate
next to the name of each nominee below whether you would grant or withhold
authority to vote for the individual nominee
[ ] FOR [ ] AGAINST
2. To approve extending the term of the 1987 Incentive Stock Option Plan of
Vineyard National Bancorp, a California corporation, for an additional ten
(10) years
[ ] FOR [ ] AGAINST
3. To ratify the appointment of the accounting firm of Vayrinck, Trine, Day &
Co as auditors and as independent accountants for the year ending December 31,
1996
Authorize to vote Withhold authority to
for this nominee vote for this nominee
[ ] [ ] Frank Alvarez
[ ] [ ] Roland Noriega
[ ] [ ] Joel Ravitz
[ ] [ ] Steven Sensenbach
[ ] [ ] Jodie D. Smith
[ ] [ ] Lester Stroh
[ ] [ ] Renny Thomas
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE POSTAGE
PREPAID ENVELOPE PROVIDED.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder(s). If no direction is made, this proxy
will be voted for the seven (7) nominees for the Board of Directors, approval
of the extension of the 1987 Incentive Stock Option Plan and for the
ratification of the accounting firm.
If any other business is presented at the meeting, this Proxy shall be voted in
accordance with recommendations of the Board of Directors.
When signing as an attorney, executor, administrator, trustee, or
guardian, please give full title. If more than one trustee, all should sign.
When shares are held by joint tenants, both should sign.
Dated: , 1996
--------------------------- --------------------------------
(Signature of Shareholder)
Number of Shares:
---------------------- --------------------------------
(Please print name)
--------------------------------
(Signature of Shareholder)
--------------------------------
(Please print name)
I (We) plan to attend the Annual Meeting of shareholders.
------------
(number)
IMPORTANT - PLEASE SIGN
<PAGE> 5
V I N E Y A R D N A T I O N A L B A N C O R P
9590 Foothill Boulevard Rancho Cucamonga, CA 91730
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held October 29, 1996
The Annual Meeting of the shareholders of Vineyard National Bancorp,
Inc. will be held on Tuesday, October 29, 1996 at 4:00 P.M. at Red Hill Country
Club, 8358 Red Hill Country Club Drive, Rancho Cucamonga, California 91730, to
consider and act upon the following matters:
1. To elect seven persons to the Board of Directors of the Bancorp to
serve until the next Annual Meeting of shareholders and until their successors
are elected and have qualified;
2. To approve extending the term of the 1987 Incentive Stock Option
Plan of Vineyard National Bancorp, a California corporation, for an additional
ten (10) years. The Plan is summarized more fully herein;
3. To ratify the appointment of the accounting firm of Vavrinek,
Trine, Day & Co. as auditors and as independent accountants for the year ending
December 31, 1996;
4. To transact any other business as may properly come before the
meeting and any adjournments of it.
Shares represented by properly executed proxies solicited by the Board
of Directors of the Bancorp will be voted in accordance with the instructions
specified in the following statement. It is the intention of the Board of
Directors that shares represented by proxies which are not limited to the
contrary will be voted in favor of electing the named persons as directors and
on other matters as recommended by the Board.
The Board of Directors has fixed the close of business on September 6,
1996 as the record date for determination of shareholders entitled to receive
notice of, and to vote at, the meeting and any adjournment of it.
By Order of the Board of Directors
/s/ Soule Claude
---------------------------------
Soule Claude, Secretary
<PAGE> 6
TABLE OF CONTENTS
Proxy Statement
Page
----
Mailing..................................................................... 1
Shareholder Proposals....................................................... 1
Revocability of Proxy....................................................... 1
Persons Making the Solicitation............................................. 1
Voting Securities and Principal Holders..................................... 2
Election of Directors....................................................... 4
Identification and Business Experience of Executive Officers of
Vineyard National Bank...................................................... 5
Loans to Directors and Officers............................................. 6
Committees of the Board of Directors........................................ 7
Meetings of the Board of Directors.......................................... 7
Executive Compensation...................................................... 7
Termination of Employment and Change of Control Arrangement................. 8
Approval of Extending Term of the 1987 Incentive Stock Option
Plan........................................................................ 8
Aggregated Option Exercises During 1995 and Option Values at
December 31, 1995........................................................... 10
Deferred Compensation....................................................... 10
Defined Contribution Plan................................................... 10
Compensation of Directors................................................... 11
Independent Accountants..................................................... 11
Compliance with Section 16(a) of the Securities Exchange Act of
1934........................................................................ 11
Attorneys................................................................... 11
Financial Information and Incorporation by Reference........................ 12
Other Matters............................................................... 12
<PAGE> 7
V I N E Y A R D N A T I O N A L B A N C O R P
9590 Foothill Boulevard
Rancho Cucamonga, CA 91730
Proxy Statement
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Vineyard National Bancorp ("Bancorp"), a
California corporation, to be used in voting at the Annual Meeting of
shareholders to be held at 4:00 P.M., Tuesday, October 29, 1996 at the Red Hill
Country Club, 8358 Red Hill Country Club Drive, Rancho Cucamonga, California
91730 and at any adjournment of such meeting.
Mailing
It is anticipated that this Proxy Statement and Proxy will be mailed on
or about September 19, 1996.
Shareholder Proposals
Shareholder proposals for inclusion in this proxy statement for the
Annual Meeting of shareholders in 1996 must have been received by the Bancorp no
later than 5:00 P.M. on May 31, 1996.
Shareholder proposals to be considered for inclusion in the proxy
statement for the Annual Meeting of shareholders in 1997 must be received by the
Bancorp no later than 5:00 P.M. on May 31, 1997.
Revocability of Proxy
A proxy for use at the meeting is enclosed along with a return envelope
for your convenience. Any shareholder who executes and delivers such proxy has
the right to revoke it any time before it is exercised by filing with the
Secretary of the Bancorp an instrument revoking it or a duly executed proxy
bearing a later date. In addition, the powers of the proxy holders will be
suspended if the person executing the proxy is present at the meeting and
chooses to vote in person.
Unless revoked, all shares represented by a properly executed proxy
which is received in time for the meeting will be voted by the proxy holders in
accordance with the instructions on the proxy. If no instruction is specified
with respect to a matter to be acted upon, the shares represented by the proxy
will be voted in favor of the election of the nominees for directors set forth
herein and if any other business is properly presented at the meeting, the proxy
will be voted in accordance with the recommendations of management.
Persons Making the Solicitation
THIS STATEMENT IS FURNISHED IN CONNECTION WITH A SOLICITATION OF
PROXIES BY THE BOARD OF DIRECTORS OF THE BANCORP.
The expense of preparing, assembling, printing, and mailing this proxy
statement and the material used in this solicitation of proxies will be borne by
the Bancorp. It is contemplated that proxies will be solicited through the mail,
but officers and regular employees of the Bancorp and Bank may solicit proxies
personally.
1
<PAGE> 8
Voting Securities and Principal Holders
Only shareholders of record at the close of business on September 6,
1996 are entitled to receive notice of and to vote at the Annual Meeting of
shareholders. There were 1,862,643 shares of the Bancorp's no par value common
stock issued and outstanding on September 6, 1996 which was set as the record
date for the purpose of determining the shareholders entitled to receive notice
and to vote at the meeting.
Each holder of common stock will be entitled to one (1) vote in person
or by proxy for each share of common stock standing in his or her name on the
books of the Bancorp as of September 6, 1996, on any matter submitted to the
vote of the shareholders.
In electing directors, the shares are entitled to be voted cumulatively
if a candidate's name has been properly placed in nomination prior to the voting
and any shareholder present at the meeting has given notice of his or her
intention to vote his or her shares cumulatively. If a shareholder has given
such notice, all shareholders may cumulate their votes for candidates in
nomination. Cumulative voting entitles a shareholder to give one (1) nominee as
many votes as is equal to the number of directors to be elected multiplied by
the number of shares owned by such shareholder, or to distribute his or her
votes on the same principle between two or more nominees as he or she sees fit.
The seven (7) candidates receiving the highest number of votes will be elected.
The Board knows of no person who beneficially owns more than five
percent (5%) of the outstanding common stock of the Bancorp except as set forth
in the following table which reflects information as of the end of the Bancorp's
last fiscal year:
(a) Security Ownership of Certain Beneficial Owners (12/31/95)
<TABLE>
<CAPTION>
=============================================================================
Title of Class Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Ownership
=============================================================================
<S> <C> <C> <C>
Common Stock Frank S. Alvarez 109,065(1) 5.86%
1080 West 22nd Street
Upland, CA 91786
Common Stock Charles L. Keagle 113,120(2) 6.07%
2533 Vista Drive
Upland, CA 91786
Common Stock Phillip Schlosser and 105,300 5.65%
Elaine M. Schlosser
Route 1, Box 117
Redmond, Oregon 97756
</TABLE>
- ----------
(1) 109,065 includes 107,625 shares held by Louis M. Alvarez and Frank S.
Alvarez as co-trustees of Emanuel Alvarez and Lorenza E. Alvarez trust
and 1440 shares held as joint tenants by Frank S. and Encarnacion
Alvarez.
(2) 113,120 includes 112,048 shares held by Charles L. Keagle and Linda J.
Keagle as their community property; and 1072 shares held for their
children with Charles L. Keagle as custodian, under the California
Uniform Gifts to Minors Act.
2
<PAGE> 9
(b) Security Ownership of Management (12/31/95).
<TABLE>
<CAPTION>
================================================================================
Amount and Nature of
Title of Class Name of Beneficial Owner Beneficial Ownership Percent of Class
================================================================================
<S> <C> <C> <C>
Common Stock Frank Alvarez (D) 109,065 5.86 %
Common Stock Roland Noriega (D) 28,636(3) 1.54 %
Common Stock Lester Stroh (D) 60,750(4) 3.26 %
Common Stock Joel Ravitz (D) 42,482(5) 2.28 %
Common Stock Steven Sensenbach (D,O) 38,053 2.04 %
Common Stock Jodie D. Smith (D) 14,000(6) .75 %
Common Stock Renny Thomas (D) 5,700(7) .31 %
Common Stock Sara Ahern (O) None
Common Stock Soule Claude (O) 134 .01 %
Common Stock Robert Schoeffler (O) 2 negligible
Directors & 298,822 16.04 %
Officers of
the Bank as a
Group(8)
</TABLE>
- ----------
(3) Roland Noriega owns 8,640 shares directly and 19,996 as Trustee of the
R. & F. Noriega Trust.
(4) Lester Stroh is the beneficial owner of 60,750 shares held in his
account at a stock brokerage firm.
(5) Of this total, 19,668 are held by Quincy Cass Associates over which Mr.
Ravitz exercises control.
(6) Jodie Smith owns 14,000 shares of which 11,327 are held in his account
at a stock brokerage firm.
(7) Renny Thomas owns 5,700 of which 4,020 are held in his account at a
stock brokerage firm and 600 shares for his son.
(8) Officers including the four named officers, as of December 31, 1995,
hold options to purchase 76,420 shares in addition to the above, which
will equal 375,242 shares or 20.15% if exercised.
(D) Director
(O) Officer
3
<PAGE> 10
Election of Directors
The Board of Directors has set the number of directors of the Bancorp
at seven (7) which is within the number authorized by the Bylaws of the Bancorp.
The directors who are elected will serve until the next Annual Meeting of
shareholders and until their respective successors have been duly elected and
qualified.
Each of the nominees named herein has consented to be named in this
proxy statement and has consented to serve as a director if elected. The
following table sets forth certain information with respect to those persons who
are nominees for election as directors.
<TABLE>
<CAPTION>
Principal Occupation or Position Bancorp Current No.
Name and Other Directorships Director Since of Shares
(12/31/95)
<S> <C> <C> <C>
Frank Alvarez, age 61 Certified Public Accountant. 1988 109,065
Retired from Bowen McBeth, Inc.
CPAs. He is also on the Board
of Directors of Casa Colina
Rehabilitation Hospital in
Pomona, California. He has
been a Bank Director since 1981.
Roland Noriega, age 55 Sole owner of Merchant's 1993 28,636
Electric, an electrical
contracting firm in the City
of Commerce. He is also a
member of the Board of
Directors of PMI, an
investment company. He has
been a Bank Director since 1993.
Joel Ravitz, age 50 Chairman of the Board and CEO 1988 42,482
of Quincy Cass Associates, Inc.,
a Los Angeles based securities
broker dealer and a member of
National Association of Securities
Dealers. He is a Past President
and Director of Therapeutic Living
Centers for the Blind, a non-profit
corporation and a member of Town
Hall of California and the Bond
Club of Los Angeles. He has been a
Bank Director since 1983.
Steven R. Sensenbach, President and Chief Executive 1988 38,053
age 53 Officer of Vineyard National
Bancorp and President and Chief
Executive Officer of Vineyard
National Bank. Mr. Sensenbach
is a past director of the Federal
Reserve Bank of San Francisco, Los
Angeles Branch. He is a member
of the Advisory Council for the A.
Gary Anderson Graduate School of
Management at the University of
California, Riverside, was
appointed a Fellow of the A. Gary
Anderson GSM for 1992-93, and most
recently received the Graduate
School's first "Outstanding
Executive Achievement" award. He
has been a bank director since 1981.
</TABLE>
4
<PAGE> 11
<TABLE>
<CAPTION>
Principal Occupation or Position Bancorp Current No.
Name and Other Directorships Director Since of Shares
(12/31/95)
<S> <C> <C> <C>
Jodie D. Smith, age 54 Co-owner of J & J Enterprises 1994 14,000
of Ontario specializing in the
manufacturing and sale of
stainless steel pickup truck after
market accessories. He is also the
owner of J & P Developers, a
building and development company.
Mr. Smith is Vice President of
Strait Sound, Inc., a company dealing
with land planning and building in
the State of Washington. He has been
a Bank Director since 1994.
Lester Stroh, age 78 Chairman of the Board of 1988 60,750
Vineyard National Bancorp. He
is a licensed physician and
retired Chairman of the
Department of Allergy at Southern
California Permanente Medical
Group, Kaiser Foundation Hospital,
Fontana, California. He has been
a Bank Director since 1981.
Renny Thomas, age 58 Executive Vice President and 1993 5,700
managing underwriter of CAL/GROUP
Dentafits, a dental, vision and
prescription insurance and stop/loss
reinsurance facility. He is a
Past President and Director of Mass
Marketing Insurance Institute. He
is also a Director of the Eye Care
Network/Medical Eye Services. He has
been a Bank Director since 1993.
</TABLE>
Identification and Business Experience of Executive Officers of Vineyard
National Bank
1. Steven R. Sensenbach, age 53, is President and Chief Executive
Officer of Vineyard National Bancorp and President and Chief Executive Officer
of Vineyard National Bank. Mr. Sensenbach is a past director of the Federal
Reserve Bank of San Francisco, Los Angeles Branch. He is a member of the
Advisory Council for the A. Gary Anderson Graduate School of Management at the
University of California, Riverside, was appointed a Fellow of the A. Gary
Anderson GSM for 1992-93, and most recently received the Graduate School's first
"Outstanding Executive Achievement" award.
2. Robert Schoeffler, age 48, is the Executive Vice President/Senior
Credit Administrator of the Bank and has served in this capacity since January,
1993. Mr. Schoeffler joined Vineyard National Bank in April, 1991 as Vice
President/Manager of the Rancho Cucamonga branch and then became Senior Vice
President/Commercial Lending before his current position. Before joining
Vineyard National Bank Mr. Schoeffler worked in executive positions with other
independent banks.
3. Soule Claude, age 42, is presently the Corporate Secretary of
Vineyard National Bancorp, holding this position since October, 1992. Mrs.
Claude joined Vineyard National Bank in 1988 as Administrative Assistant to the
President/CEO and is currently Executive Vice President/Chief Financial Officer.
4. Sara Ahern, age 41, is the Senior Vice President and Cashier of
Vineyard National Bank and has held this position since June, 1995. Mrs. Ahern
joined Vineyard National Bank in June, 1993, as Vice President/Director of
Operations and currently is its Senior Vice President/Cashier and Director of
Operations.
All of the above officers hold office at the pleasure of the Board of
Directors.
5
<PAGE> 12
Loans to Directors and Officers
In the ordinary course of business the Bank has granted loans to
certain directors and officers and the companies in which they are associated.
Loans were made under the terms which are consistent with the Bank's normal
lending policies. The following is information concerning the indebtedness of
management in amounts exceeding $60,000 as of December 31, 1995, the end of the
fiscal year.
<TABLE>
<CAPTION>
Name Relationship to Type of Amount of Interest Rate Balance as of
Bancorp or Bank Transaction Transaction Paid or 12/31/95
Charged
<S> <C> <C> <C> <C> <C>
Frank Alvarez Director Personal
Reserve Line $ 6,300 18.00% $ -0-
Commercial Loan
to Bowen McBeth
$100,000 11.00% $ 56,538
Loan to
Cucamonga $150,000 8.5% $148,226
Investors
(commercial
real estate
loan)
Marc Alvarez Director's son Installment $ 11,100 7.25% $ 7,925
Loan
Roland Noriega Director Commercial Loan
$125,000 8.75% $ 50,891
Personal
Reserve Line $ 5,000 18.00% $ 0
Commercial Loan
$800,000 10.0% $787,843
Joel Ravitz Director Commercial Loan
$ 25,592 11.50% $ 25,592
Commercial Loan
$ 80,000 11.5% $ 67,078
Personal
Reserve Line $ 15,000 18.00% $ 13,940
Personal
Reserve Line $ 25,000 18.00% $ 23,274
Steven R. Director/Office 401(e) Loan $ 95,000 7.00%(9) $ 95,000
Sensenbach
Personal
Reserve Line $ 4,000 18.00% $ 0
Personal $ 1,000 18.00% $ 22.34
Reserve Line
</TABLE>
- ----------
(9) Fully secured by Mr. Sensenbach's Deferred Compensation Plan.
6
<PAGE> 13
<TABLE>
<CAPTION>
Name Relationship to Type of Amount of Interest Rate Balance as of
Bancorp or Bank Transaction Transaction Paid or 12/31/95
Charged
<S> <C> <C> <C> <C> <C>
Jodie D. Smith Director Personal
Reserve Line $ 500 18.00% $ 0
Installment
Loan $ 14,050 6.25% $ 2,527
Commercial Real
Estate Loan $300,000 10.75% $124,050
</TABLE>
Committees of the Board of Directors
The Bank, which is a subsidiary of the Bancorp, has a standing Audit
Committee which has met quarterly during the previous fiscal year. The members
of the Audit Committee are Frank Alvarez, Roland Noriega and Lester Stroh. The
function of this Committee is to monitor the Bank's financial operations,
receive reports from the Bank's independent certified public accountants, and to
select outside auditors and accountants when necessary. Neither the Bancorp nor
the Bank has a nominating committee or a compensation committee of the Board of
Directors.
Meetings of the Board of Directors.
The total number of meetings of the Board of Directors of the Bancorp
including regularly scheduled and special meetings during the last full fiscal
year was 12. In addition, the Board of Directors of the Bank had 13 regularly
scheduled and special meetings. No director during the last full fiscal year
attended fewer than eighty-eight percent (88%) of the total number of meetings
of the Board of Directors and the total number of meetings held by all
committees of the board on which that director served.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth compensation information for the
executive officers of the Bank, which is the sole subsidiary of the Bancorp, for
the last three (3) year period ending December 31, 1995 for those executive
officers with compensation in excess of sixty thousand dollars ($60,000) a year.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
Name and
Principal Position Year Salary Bonus Stock Options (#)
- ------------------ ---- ------ ----- -----------------
<S> <C> <C> <C> <C>
Steven R. Sensenbach 1995 $200,000 $89,764 54,533(10),(11)
President/Chief Executive 1994 $200,000 -0- 40,500
Officer/Director 1993 $200,000 $85,961 35,500
Robert Schoeffler 1995 $ 72,000 -0- 1,440(11)
Executive Vice President 1994 $ 96,100 -0- 1,200
1993 $ 80,520 $30,000 1,200
</TABLE>
- ----------
(10) The number of options increased because Mr. Sensenbach receives 5,000
options per year per his employment contract. The 1995 number reflects
the 6 for 5 stock split of August 31, 1995.
(11) August 31, 1995 the 6 for 5 split is reflected.
7
<PAGE> 14
Termination of Employment and Change of Control Arrangement
At any time during the term of Mr. Sensenbach's employment agreement,
the Board of Directors may terminate his employment with or without cause.
However, if the termination is without cause, then Mr. Sensenbach is entitled to
severance pay equal to one year's salary or if the remaining term is less than
one year, the amount will be prorated.
Approval of Extending Term of the 1987 Incentive Stock Option Plan
The Board of Directors recommends extending the term of the 1987
Incentive Stock Option Plan for an additional ten (10) years. Accordingly,
proxies given to management will be voted in favor of extending the term of the
1987 Incentive Stock Option Plan, a summary of which follows:
Introduction
The existing stock option plan was approved by the shareholders in 1987
for a term of ten (10) years (the "Plan"). Therefore, the Plan is scheduled to
terminate on September 30, 1997. The purpose of the Plan is to strengthen
Vineyard National Bancorp by providing incentive stock options as a means of
retaining and attracting key employees and certain officers in today's
competitive market. Accordingly, the Board believes it is in the best interest
of the corporation to extend the term of the 1987 Plan for an additional ten
(10) years.
Subject to approval by the holders of the majority of the outstanding
shares of the Bancorp entitled to vote, the Directors have approved a resolution
extending the term of the 1987 Incentive Stock Option Plan for an additional ten
(10) years. The Plan provides for granting of options to purchase shares of the
Bancorp's common stock at an option price per share which is not less than one
hundred percent (100%) of the fair market value of the stock at the time the
option is granted.
As of September 6, 1996 the aggregate number of shares available to be
issued pursuant to options granted under the 1987 Plan was 53,303 shares of the
common stock of the corporation after making adjustments for stock splits. If
all options subject to grant under the Plan are granted and the options are
exercised to purchase stock, the shares of stock so issued would constitute no
more than ten percent (10%) of the Bancorp's outstanding common stock. Extending
the term of the 1987 plan will not change the number of shares available to be
issued pursuant to options under this Plan.
Summary of the Plan
The Plan shall be administered by a committee appointed from time to
time by the Board of Directors. None of the committee members may participate in
the Plan. Only full-time salaried officers or full-time salaried employees of
the Bancorp and/or the Bank are eligible for participation in the Plan. No
member of the Committee or of the Board of Directors shall be liable for any
action or determination made in good faith, and the members shall be entitled to
indemnification and reimbursement in the manner provided under applicable law.
The purchase price of stock subject to each option shall be not less
than one hundred percent (100%) of the fair market value (determined by the
Board under any reasonable valuation method) of the stock at the time the option
is granted. Options shall be exercisable in such installments and upon other
conditions as the Stock Option Committee shall determine. Options will expire on
a date as the Board of Directors may determine, but not later than six (6) years
from date of grant.
Each person to whom an option is granted must agree at the request of
the Bancorp and/or Bank to remain in the continuous employ of the Bancorp and/or
Bank following the date of the granting of the option for a period of not less
than two (2) years.
Options under the plan shall not be assignable by the optionee during
the optionee's lifetime. In the event of the death of the optionee, the option
may be exercised within one (1) year after the date of the death by the person
or persons to whom his or her rights under the option shall have passed by will
or by the laws of descent and distribution. If an optionee's employment with the
Bancorp and/or Bank ceases for any reason other than the optionee's death or
discharge for cause, his or her option shall expire not later than thirty (30)
days thereafter. During this thirty (30) day period, the option is exercisable
only as to those installments, if any, which had accrued as of
8
<PAGE> 15
the date the optionee ceased to be employed by the Bank and/or Bancorp. If an
optionee's employment by the Bank and/or Bancorp is terminated for cause, his or
her option shall expire concurrently with the discharge for cause.
Upon the dissolution or liquidation of the Bancorp or upon
reorganization, merger or consolidation with one or more corporations as a
result of which the corporation is not the surviving corporation, or upon a sale
of substantially all of the property of the corporation, this Plan shall
terminate and any option granted under it shall terminate unless provision is
made in connection with the transaction for the assumption of the options
granted or the substitution of new options covering the stock of a successor
corporation or a parent or subsidiary with appropriate adjustments as to number
and kind of shares and prices. Adjustments under these conditions shall be made
by the Board whose determination as to the adjustments shall be final, binding
and conclusive.
If the outstanding shares of the stock of the corporation are
increased, decreased or changed into or exchanged for a different number of kind
of shares or securities of the corporation through reorganization, merger,
recapitalization, reclassification, stock split up, stock dividends, stock
consolidation or otherwise, an appropriate and proportionate adjustment shall be
made in the number and kind of shares as to which options may be granted. A
corresponding adjustment changing the number or kind of shares in the exercise
price per share allocated to unexercised options or portions thereof which shall
have been granted prior to such change shall likewise be made.
The Board of Directors shall have the right of first refusal to
purchase any shares of stock of an optionee who desires to sell or transfer his
or her shares which were purchased as a result of any option granted. The price
shall be at the then current fair market value of the shares as determined by
the Board of Directors.
The Board of Directors of the Bancorp reserves the right to suspend,
amend, or terminate the Plan and, with the consent of the optionee, make any
modifications to the terms and conditions of each option as it deems advisable,
with certain exceptions which may be amended only with the consent of a majority
of the outstanding shareholders.
Options to be granted under the Plan will not be "qualified stock
options" within the meaning of Section 422 and other sections of the Internal
Revenue Code, as amended and optionees will not be entitled to the favorable tax
treatment allowed in connection with the exercise of "qualified stock options."
This description is intended to highlight and summarize the principal
terms of the Plan. For further information, shareholders are referred to the
copy of the Plan which is available for inspection at the Bank.
The extension of the term of the 1987 Incentive Stock Option Plan shall
become effective when approved by the holders of a majority of the outstanding
shares of common stock of the Bancorp entitled to vote and shall terminate upon
the end of the extension which will be October 28, 2006, which is about ten
years after the present date of the meeting of shareholders at which time the
Board believes the shareholders will approve the extension.
By approving the extension of the term of the 1987 Incentive Stock
Option Plan, the shareholders authorize the officers and directors to execute
and file documents and to do acts required of them to carry out and perform the
Plan as approved.
9
<PAGE> 16
AGGREGATED OPTION EXERCISES DURING 1995
AND OPTION VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Shares Acquired Options at 12/31/95 (#) In-the-Money Options
Name on Exercise (#) Value Realized ($) Exercisable/Unexercisable at 12/31/95
Exercisable/Unexercisable
<S> <C> <C> <C> <C>
Steven R. 0 None 54,533 (48,544 at $2.92)(12) Option price is not less
Sensenbach (600 at $2.60) than fair market value on
the date of granting of
the option.(13)
Robert Schoeffler 0 None 1,400 ( 1,400 at $6.25)
Sara Ahern 0 None -0-
Soule Claude 0 None 1,869 ( 1,869 at $2.92)
Deferred Compensation
</TABLE>
During 1987, the Bank established a non-qualified, unfunded deferred
compensation plan for certain key management personnel and non employee
directors whereby they may defer compensation which will then provide for
certain payments upon retirement, death or disability. The plan provides for
payments for fifteen years commencing upon retirement, death or disability. The
plan provides for reduced benefits upon early retirement, disability or
termination of employment.
Effective September 1, 1990 the Bank adopted a new deferred
compensation plan with similar provisions of the 1987 plan except that the Bank
may make matching contributions of 25%(14) of officers' deferrals up to a
maximum of 5% and 50%(15) of senior officers' deferrals to a maximum of 10%. The
Bank's contribution, in the aggregate, for all Participants shall not exceed 4%
of compensation of all Bank employees. Each Participant contributes a minimum of
$1,000 annually to the plan. The deferred compensation expense was $138,833
($81,911 net of income taxes); $107,057 ($81,214 net of income tax); and $90,883
($53,621 net of income taxes) for the years ended December 31, 1995, 1994 and
1993, respectively.
Defined Contribution Plan
Effective August 1, 1990, the Bank established a qualified defined
contribution plan (401(k) Retirement Savings Plan) for all eligible employees.
Employees contribute from 1% to 15%(16) of their compensation with a maximum of
$9,500(17) annually. The Bank's contributions to the plan are based upon an
amount equal to 25%(18) of each participant's eligible contribution for the plan
year not to exceed 2% of the employee's compensation. The Bank's matching
contribution will become vested at 20% per year with full vesting after five
years. The expense was $36,070 ($21,281 net of income taxes); $34,533 ($26,197
net of income taxes); and $35,509 ($20,950 net of income taxes) for the years
ended December 31, 1995, 1994, and 1993, respectively.
- ----------
(12) On January 20, 1994, the Board of Directors elected to cancel existing
stock options, at the holders request, and reissue new stock options at
a price of $3.50 per share, ($2.92 after giving retroactive effect for
the six for five stock split).
(13) The price of Bancorp's common stock as of December, 1995 ranged from a
low of $2.60 to a high of $3.88 (See Annual Report).
(14) Reduced from 50% to 25% on June 30, 1995.
(15) Reduced from 100% to 50% on June 30, 1995.
(16) Increased from 12% to 15% on June 30, 1995.
(17) Increased from $9,240 to $9,500 based on IRS ruling.
(18) Reduced from 50% to 25% on June 30, 1995.
10
<PAGE> 17
Compensation of Directors
(1) Standard Arrangements.
All members of the Board of Directors have been paid $750 for
monthly meetings of the bank. No additional payments have been made to the
Directors for attending meetings of the Bancorp. Directors who are members of
special committees are paid $300 per meeting for attending those committee
meetings.
(2) Other Arrangements.
Lester Stroh, as Chairman of the Board of Directors of the
Bank, has use of a company car. However, a percentage of personal use is
reported as income to Dr. Stroh. There are no other arrangements.
Independent Accountants
Vavrinek, Trine, Day and Company has served as the Bancorp's
independent accountants since their appointment from the inception of the
Bancorp. The Board of Directors has selected Vavrinek, Trine, Day and Company
("VTD") as the Bancorp's independent accountants for the year ending December
31, 1996. Ron White, who will be representing VTD, will be present at the
meeting to respond to questions and will have an opportunity to make a statement
if he desires to do so.
Audit services of VTD for 1995 included the examination of the
consolidated financial statements, services related to filings with the
Securities and Exchange Commission, and the performance of limited reviews of
the Bancorp's quarterly unaudited financial information.
The Bancorp's Board of Directors recommends a vote FOR the proposal to
ratify the selection of Vavrinek, Trine, Day and Company as the Bancorp's
independent accountants for the year ending December 31, 1996.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and certain of its officers and persons owning more than 10
percent of a registered class of the Company's stock to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC").
Based on a review of copies of forms furnished to the Company or a
representation that no reports were required, the Company believes that there
was compliance with this requirement.
Attorneys
Buxbaum & Chakmak, a law corporation, of Claremont and Newport Beach,
California has been appointed as the general counsel for the Bank and Bancorp.
11
<PAGE> 18
Financial Information and Incorporation by Reference
The 1995 Annual Report to shareholders of Vineyard National Bancorp for
Vineyard National Bank, the wholly owned subsidiary of the Bancorp, for the year
ended December 31, 1995, including the financial statements and related
statements of income attached as part of those financial statements prepared in
conformity with generally accepted accounting principles has previously been
furnished to shareholders. The information from the Annual Report is
incorporated herein by reference.
WITHOUT CHARGE TO ANY SHAREHOLDER, THE BANCORP WILL PROVIDE A COPY OF
ITS 1995 ANNUAL REPORT UPON THE WRITTEN REQUEST OF THE SHAREHOLDER. IN ADDITION,
A SHAREHOLDER MAY REQUEST FROM THE BANCORP WITHOUT CHARGE A COPY OF THE FORM
10-K STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ATTACHED
EXHIBITS ARE LENGTHY SO COPIES OF THE EXHIBITS WILL BE PROVIDED ONLY UPON
PAYMENT OF COPYING COSTS. THE REQUEST SHOULD BE DIRECTED TO SOULE CLAUDE,
SECRETARY OF VINEYARD NATIONAL BANCORP, POST OFFICE BOX 727, RANCHO CUCAMONGA,
CALIFORNIA 91729.
Other Matters
The Board of Directors knows of no other matters to be presented to the
meeting other than those set forth above. However, if other matters properly
come before the meeting, it is the intention of the persons named in the
accompanying proxy to vote said proxy in accordance with the recommendations of
the Board of Directors, and authority to do so is included in the proxy.
Dated: Vineyard National Bancorp
/s/ Soule Claude
-----------------------
Soule Claude, Secretary
IMPORTANT
EVEN THOUGH YOU EXPECT TO ATTEND THE ANNUAL MEETING, IT IS URGENTLY
REQUESTED THAT WHETHER YOUR SHAREHOLDINGS ARE LARGE OR SMALL, YOU PROMPTLY FILL
IN, DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. THIS
WILL SAVE THE COMPANY THE EXPENSE OF FOLLOW-UP NOTICES.
12
<PAGE> 19
ITEM 4
General Information Regarding the Plan
(a) The Plan is called the Vineyard National Bank [now Bancorp] 1987
Incentive Stock Option Plan (herein "Plan"); c/o Vineyard National Bank, 9590
Foothill Boulevard, Rancho Cucamonga, California 91730 (909) 987-0177. Officers
and key employees of Vineyard National Bancorp (herein "Bancorp") and Vineyard
National Bank (herein "Bank") are entitled to participate in the Plan.
(b) The purpose of the Plan is as follows: The following is from
paragraph 1 of the Plan:
"The purpose of this Plan is to strengthen Vineyard National Bank [and
Bancorp] (referred to as the "Bank" and as "Bancorp"), by providing an
additional means of retaining and attracting competent full-time officers, and
employees of the Bank [and Bancorp] and by providing to the participating
officers and key employees an added incentive for high levels of performance and
for unusual efforts to increase the earnings of the Bank [and the Bancorp]. The
Plan seeks to accomplish these purposes and results by providing the means
whereby such officers and key employees may purchase shares of the capital stock
of the Bank [now Bancorp] pursuant to options".
The Plan was created when it was approved by the shareholders of the
Bank on September 30, 1987. The Plan was intended to be in effect for ten years
from that date. The term of the Plan has been extended another ten (10) years by
shareholder approval at an annual meeting on October 29, 1996. Except for that
change, the terms of the Plan remain unchanged.
On December 16, 1988 the Bancorp, a California bank holding company,
was created with the Bank as its wholly owned subsidiary. Shares of stock of the
Bank were exchanged for Bancorp stock. Therefore, the stock which was the
subject of options in the Plan became stock of the Bancorp.
On September 23, 1988 a Form S-4 Registration Statement under the
Securities Act of 1933 was filed with the Securities and Exchange Commission.
That registration statement registered 63,875 shares of the common stock of the
Bancorp which were the subject of options in accordance with the 1987 Stock
Option Plan.
On December 16, 1988, when the Bank merged into and became a wholly
owned subsidiary of the Bancorp, all shares of stock which were previously
subject to the Bank's 1987 Employee Incentive Stock Option Plan became shares of
stock in the Bancorp. With the conversion of the shares of the Bank to shares of
the Bancorp, the stock which was subject to the Incentive Stock Option Plan
("ISOP") changed from the Bank's stock to the Bancorp's stock. Therefore, the
ISOP now refers to stock of the Bancorp.
On January 19, 1994, at a meeting of the Board of Directors of the
Bancorp, the directors by resolution ratified an Addendum to the ISOP which made
it clear that the stock which was the subject
-1-
<PAGE> 20
of the ISOP was now stock of the Bancorp. With the exception of that change, the
rest of the terms of the ISOP remained unchanged.
The Registrant intends to register the options which remain in the Plan
which Plan has been extended ten (10) years. According to the 1995 Annual Report
which was previously filed with the SEC, there are 50,036 options available for
granting and 76,416 options which have been granted which numbers take into
consideration subsequent stock splits. This Form S-8 is for registration of
62,577 options under the Plan as extended by shareholder approval.
The Plan may be suspended, amended or terminated according to the terms
of the Plan is summarized from paragraph 13:
The Board may at any time suspend, amend, or terminate this Plan and
may, with the consent of an option holder, make such modifications of the terms
and conditions of the holder's option as it shall deem advisable. No option may
be granted during any suspension of the Plan or after its termination. The
amendment, suspension, or termination of the Plan shall not, without the consent
of the option holder, alter or impair any rights or obligations under any option
granted under the Plan.
With respect to the following amendments, the Board may only amend the
Plan with the consent of a majority of the outstanding shareholders of the Bank
[Corporation] and the consent of any appropriate government agency which by law
must give its consent.
A. To change the eligibility requirements to participate
in the Plan;
B. To increase the stock allocated to the Plan;
C. To extend the date of the Plan beyond September 30,
1997;
D. To extend or decrease the exercise period of an
option granted under the Plan which is six (6) years;
E. To decrease the option price;
F. To withdraw the administration of the Plan from the
Committee;
G. To permit any committee member to participate in the
Plan.
A majority of the shareholders of Vineyard National Bancorp
approved the extending of the date of the Plan to October 2006. Except as
extended, the terms of the Plan remain unchanged.
(c) The options to be granted under the Plan will not be "qualified
stock options" within the meaning of Section 422 and other sections of the
Internal Revenue Code of 1954 as amended.
(d) As of October 28, 1996 the approximate number of employees
participating in the Plan is nine (9).
-2-
<PAGE> 21
(e) It was assumed that ERISA rules were not applicable from the outset
of the plan.
ITEM 5
Securities to be Offered and Employees
Who May Participate in the Plan
(a) The options granted according to the terms of the Plan may be used
to purchase common stock of the Bancorp. According to the Annual Report, the
Incentive Stock Option Plan was approved by the shareholders in 1987 covering an
aggregate of 126,000 (after giving retroactive effect for the various stock
splits). As of December 31, 1995, the number of shares available for granting
was 50,036 and the number of options outstanding was 76,416.
(b) The Plan restricts the resale of the securities purchased as an
exercise of the granted options as follows:
If, at any time, an optionee owns shares in the Corporation which were
acquired by that shareholder under a corporate stock option plan, and desires to
sell or in any way transfer all or any portion of the shares in the Corporation,
the shareholder shall first offer to sell the shares to the Board of Directors
of the Corporation as a group. The Board of Directors shall then have a right of
first refusal to buy the offered shares of the optionee at the shares' then
current fair market value. The purchase price shall be payable in cash within
one hundred twenty (120) days of the receipt of a notice to the Board from the
optionee stating the number of shares he or she intends to sell or transfer. If
the Board fails to purchase all of the offered shares within the one hundred
twenty (120) day period, the optionee shall be free to sell the shares to any
person on any terms he or she desires. This restriction shall be printed on each
and every share purchased under this Plan by the optionee.
(c) Officers and key employees of the Bancorp and the Bank are eligible
for selection to participate in the Plan; provided, however, that members of the
Stock Option Committee which administers the Plan shall not while they are
members of the committee be eligible to receive the grant of options under the
plan. Directors who are not officers and full time employees of the Bancorp and
Bank are not eligible to participate in the plan.
(d) The Board of Directors of the Bancorp determines the basis upon
which eligibility of the employees to participate in the Plan is determined in
line with the stated purpose of the Plan which is indicated above in Item 4(b).
The Board of Directors has the power to determine the maximum and minimum number
of options which may be granted subject to the total number of options available
for granting and subject to the provisions in the employment contracts for the
participants in the Plan.
-3-
<PAGE> 22
ITEM 6
Purchase of Securities Pursuant to the Plan
(a) The officers and key employees who may participate in the Plan may
elect to participate for the full term of the Plan from their initial date of
eligibility.
In addition, the Plan provides that the purchase price of the stock
covered by each option shall be determined by the Board of Directors of the Bank
[now the Bancorp] but shall not be less in any event than 100% of the fair
market value of such stock on the date of the granting of the option.
After the option is granted, an employee may exercise the option and
purchase stock as follows:
The Employee shall have the right to purchase one-third (1/3) of the
total number of shares granted under the option at the end of two (2) years,
provided the Employee has been in the continuous employment of the Bank or
Bancorp for at least two (2) years from the grant of the option. The Employee
shall then have the right to the next one-third (1/3) of the total shares of
stock granted by the option at the end of the fourth year of his or her
continuous employment with the Bank or Bancorp. Finally, the Employee shall have
the right to purchase the remaining one-third (1/3) of the total number of
shares subject to this option at the end of the sixth year from the date of the
grant of the option provided that the Employee has been in the continuous
employment of the Bank or Bancorp for this six year period. The Employee shall
have a period of ninety (90) days beyond the sixth year in which to exercise the
remaining one-third (1/3) of the optioned stock. At the end of six years and
ninety (90) days from the date of the grant of the option, all rights, duties
and obligations of the parties under this option agreement shall expire. The
Employee may defer exercising any of his or her option rights until the very
last day of the six years and ninety (90) days. Likewise, as each portion of the
total number of shares subject to this option becomes exercisable, the option
once it matures shall remain exercisable until the end of the six years and
ninety (90) days from the date of the grant of the option. The Employee must
remain continuously employed by the Bank all during this period of time and
comply with all the other terms and conditions of this Agreement and the Plan.
If the Employee is terminated by the Bank or Bancorp for any reason, or
if the Employee voluntarily resigns from the Bank or Bancorp, then the effective
date of the termination or the resignation of the Employee shall be considered
as the end of the Employee's continuous employment with the Bank or Bancorp for
purposes of exercisability of options granted.
The options must be exercised before they expire. The expiration is on
the day which is 90 days beyond the sixth anniversary after the date of granting
of the option. The option will expire sooner if the Plan expires sooner.
-4-
<PAGE> 23
(b) In the event of changes in the securities as a result of stock
dividends, stock splits and other smaller changes, the following provision from
the Plan will control:
If the outstanding shares of the stock of the Corporation are
increased, decreased, or changed into, or exchanged for a different number or
kind of shares or securities of the Corporation through reorganization, merger,
recapitalization, reclassification, stock split-up, stock dividend, stock
consolidation, or otherwise, an appropriate and proportionate adjustment shall
be made in the number and kind of shares subject to the options which may be
granted under this Plan. A corresponding adjustment changing the number or kind
of shares and the exercise price per share allocated to unexercised options or
portions of the stock options which are subject to this Plan which shall have
been granted prior to any change, shall also be made. Any adjustment in an
outstanding option shall be made without change in the total price applicable to
the unexercised portion of the option but with a corresponding adjustment in the
price for each share covered by the option.
Upon the dissolution or liquidation of the Corporation, or upon a
reorganization, merger, or consolidation of the Corporation with one or more
other corporations where the Corporation is not the surviving corporation, or
upon a sale of substantially all the property of the Corporation to another
corporation or association, this Plan shall terminate, and any options granted
under it shall terminate, unless provisions are made in connection with the
transaction for the assumption of the options then granted, or the substitution
for the then granted options with new options covering the stock of a successor
corporation, or a parent or subsidiary of it, with appropriate adjustments as to
number and kind of shares and prices.
Adjustments under this section shall be made by the Board, whose
determination as to what adjustments shall be made, and their extent shall be
final, binding, and conclusive. No fractional shares of stock shall be issued
under the Plan on account of any adjustment.
(c) The options which have been granted but have not yet been exercised
have the following purchase prices:
The exercise prices are as follows:
1. 59,473 options at $2.92
2. 6,009 options at $2.60
3. 2,592 options at $6.25
The expiration dates range from July 17, 1997 through June 22, 2001.
ITEM 7
Payment for Securities Offered
(a) The purchase price of any shares purchased as a result of exercise
of an option shall be paid in full in cash or by check at the time of each
purchase at the time an employee may exercise the option.
-5-
<PAGE> 24
(b) Reports are provided for the Plan annually as a part of the Annual
Report and Form 10-K.
ITEM 8
Contributions Under the Plan
Not applicable
ITEM 9
Withdrawal from the Plan--Assignment of Interest
(a) An employee's participation in the Plan will terminate when the
employee ceases to be employed by the Bancorp and/or the Bank. An employee's
participation in the Plan will also terminate upon the death of the employee.
Upon termination of participation in the Plan options which have not
been exercised will expire by the terms of the Plan.
(b) An employee who is eligible to participate in the Plan may not
assign his interest. An option granted under the Plan shall by its terms be
non-transferrable by the option holder other than by will or the laws of decent
and distribution and shall be exercisable during the holder's lifetime only by
the option holder.
ITEM 10
Defaults Under the Plan
The Plan does not specifically list defaults under the Plan. In the
event of default applicable California law applies.
ITEM 11
Administration of the Plan
(a) The names and addresses of the members of the Stock Option
Committee which administers the Plan is as follows:
Frank S. Alvarez
10722 Arrow Route, #110
Rancho Cucamonga, CA 91730
Roland O. Noriega
6070 Ferguson
Commerce, CA 90022
Joel H. Ravitz
11111 Santa Monica Boulevard
Suite 1450
Los Angeles, CA 90025
Jodie Smith
5498 Mission Boulevard
Ontario, CA 91762
-6-
<PAGE> 25
Lester Stroh, M.D.
c/o Vineyard National Bancorp
9590 Foothill Boulevard
Rancho Cucamonga, CA 91730
Renny V. Thomas
Airport Park Plaza
255 North El Clelo
Suite 200
Palm Springs, CA 92262
The Committee administers the Plan as follows:
This Plan shall be administered by the Stock Option Committee, referred
to as the "Committee", consisting of members selected and serving at the
pleasure of the Board of Directors of the Corporation. Any action of the
Committee with respect to the administration of the Plan shall be taken pursuant
to a majority vote of its members.
Subject to the express provisions of the Plan, the Committee shall have
the authority to construe and interpret the Plan; to define the terms used by
it, to prescribe, amend, and rescind rules and regulations relating to the
administration of the Plan; to determine the duration and purposes of leaves of
absence which may be granted to participants without constituting a termination
of their employment for the purposes of the Plan; and to make all other
determinations necessary or advisable for the administration of the Plan. The
determinations of the Committee on the above matters shall be conclusive.
Subject to the express provisions of the Plan, the Committee shall determine
from the eligible class of Corporation and/or Bank employees the individuals who
shall receive options, and the terms and provisions of the options, which need
not be identical; provided, however, that all grants of options shall be by the
Board.
None of the members of the committee are eligible to participate in the
Plan. Therefore there is no relationship other than the stated relationships
above.
(b) The members of the Committee are selected by the Board of Directors
of the Bancorp and the members serve for one (1) year.
They may be removed from the Committee by the Board of Directors at its
discretion.
ITEM 12
Investment of Funds
Not applicable
ITEM 13
Charges and Deductions and Liens
Not applicable
-7-
<PAGE> 26
ITEM 14
Description of the Registrant's Securities
The Bancorp filed a Registration Statement with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. In addition,
the Bancorp and the Bank have filed quarterly and annual reports as required
under the 1934 Act.
ITEM 15
Incorporation of Certain Documents by Reference
All documents subsequently filed by the Bancorp pursuant to Section
13(a)(c) 14 and 15(d) of the Securities Exchange Act of 1934 prior to the filing
of a post-effective amendment which indicates that all securities offered have
been sold or which deregisters all securities then remaining unsold, shall be
deemed to have been incorporated by reference in this statement and be a part
thereof from the date of filing of such documents. Copies of the incorporated
documents are not filed with this registration statement.
ITEM 16
Additional Information
Not applicable
ITEM 17
Interest of Named Experts and Counsel
Not applicable
ITEM 18
Disclosure of Commission Position on Indemnification for Securities Act
and Liabilities
Article VI Indemnification of Directors, Officers, Employees and other
agents contained in the Bylaws of Vineyard National Bancorp states:
"The Corporation shall, to the maximum extent permitted by the
California General Corporation law, have power to indemnify each of its
agents against expenses, judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any
proceeding arising by reason of the fact that any such person is or was
an agent of the corporation, and shall have power to advance to each
such agent expenses incurred in defending any such proceeding to the
maximum extent permitted by that law. For purposes of this Article, an
'agent' of the corporation includes any person whom is or was a
director, officer, employee, or other agent of the
-8-
<PAGE> 27
corporation, or is or was serving at the request of the corporation as
a director, officer, employee, or agent of another corporation,
partnership, joint venturer, trust or other enterprise, or was a
director, officer, employee, or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise
serving at the request of such predecessor corporation".
Section 317 of the California Corporations Code provides for
indemnification of an agent of the corporation in proceedings or actions. This
code section provides for indemnification of officers and directors of a
corporation under certain specified conditions including indemnification against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with the proceeding if the agent acted in good
faith and in a manner the person reasonably believed to be in the best interests
of the corporation and in the case of a criminal proceeding, had no reasonable
cause to believe the conduct of the person who was unlawful.
As far as indemnification by the Registrant for liabilities arising
under the Securities Act of 1933, as amended (the "Act") may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
forgoing provisions or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission (SEC) such indemnification is
against public policy as expressed in the Act and is therefore unenforceable. It
is the stated position of the SEC that:
"Insofar as indemnification for liabilities arising out of the
Securities Act of 1933 may be permitted to directors, officers, or
persons controlling the Registrant, pursuant to the foregoing
provisions, the Registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is therefore unenforceable."
In the event that a claim for indemnification by the Registrant against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of that issue.
-9-
<PAGE> 28
PART II INFORMATION NOT REQUIRED IN PROSPECTUS.
ITEM 19
Indemnification of Directors and Officers
See Item 18 which is incorporated herein by reference.
ITEM 20
Exhibits
Exhibit No. Description
3.1 Articles of Incorporation of Vineyard National
Bancorp
3.2 Bylaws of Vineyard National Bancorp
5 Opinion re legality
10 Vineyard National Bank [now Bancorp] 1987
Incentive Stock Option Plan as extended by a
vote of the shareholders on October 29, 1996
99 Vineyard National Bancorp Annual Report 1995
(which has already been sent to stockholders)
ITEM 21
Undertakings
Employee Plans on Form S-8
1. The undersigned Registrant hereby undertakes to deliver or cause to
be delivered with the prospectus to each participating employee a copy of the
Registrant's annual report to stockholders for its last fiscal year, unless such
employee otherwise has received a copy of such report, in which case the
Registrant shall state in the prospectus that it will promptly furnish without
charge, a copy of such report on written request of the employee. If the last
fiscal year of the Registrant has ended within 120 days prior to the use of the
prospectus, the annual report of the Registrant for the preceding fiscal year
may be so delivered, but within such 120 day period if the annual report for the
last fiscal year will be furnished to each such employee.
2. The undersigned Registrant hereby undertakes to transmit or cause to
be transmitted to all employees participating in the Plan who do not otherwise
receive such material as stockholders of the Registrant, and the time and in the
manner such material is sent to its stockholders, copies of all reports, proxy
statements and other communications distributed to its stockholders generally.
3. Where interests in a Plan are registered herewith, the undersigned
Registrant and Plan hereby undertake to transmit or cause to be transmitted
promptly, without charge, to any participant in the Plan who makes a written
request, a copy of the then latest annual report of the Plan filed pursuant to
Section
-10-
<PAGE> 29
15(d) of the Securities Exchange Act of 1934. If such report is filed separately
on Form 11-K such form shall be delivered upon written request. If such report
is filed as part of the Registrant's annual report on form 10-K, that entire
report (excluding exhibits) shall be delivered upon written request. If such
report is filed as part of the Registrant's annual report to stockholders
delivered pursuant to paragraph 1 or 2 of this undertaking, additional delivery
shall not be required.
[The rest of this page has deliberately been left blank.]
-11-
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized in the City of Rancho Cucamonga, State of California on November 25,
1996.
VINEYARD NATIONAL BANCORP
(Registrant)
By: /s/ Steven R. Sensenbach
--------------------------------------------
Steven R. Sensenbach, President and Chief
Executive Officer
By: /s/ Sara Ahern
--------------------------------------------
Sara Ahern, Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
/s/ Steven R. Sensenbach
Dated: --------------------------------------------
Steven R. Sensenbach, President and Chief
Executive Officer
/s/ Sara Ahern
Dated: --------------------------------------------
Sara Ahern, Chief Financial Officer
/s/ Soule Claude Sensenbach
Dated: --------------------------------------------
Soule Claude Sensenbach, Secretary
/s/ Frank S. Alvarez
Dated: 11/25/96 --------------------------------------------
Frank S. Alvarez, Director
/s/ Roland Noriega
Dated: --------------------------------------------
Roland Noriega, Director
[SIGNATURES CONTINUE ON NEXT PAGE]
-12-
<PAGE> 31
Dated:
____________________________________________
Joel H. Ravitz, Director
Dated:
____________________________________________
Steven R. Sensenbach, Director
Dated:
____________________________________________
Jodie Smith, Director
Dated:
____________________________________________
Lester Stroh, M.D., Director
Dated:
____________________________________________
Renny V. Thomas, Director
Pursuant to the requirements of the Securities Act of 1933, the Plan
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Rancho Cucamonga, State of
California on the 25th day of November, 1996.
VINEYARD NATIONAL BANK [Bancorp]
1987 Incentive Stock Option Plan (as extended)
/s/ Lester Stroh
By: ______________________________________________
Chairman of the Stock Option Committee
-13-
<PAGE> 32
[STATE OF CALIFORNIA OFFICE OF THE SECRETARY OF STATE LETTERHEAD]
CORPORATE DIVISION
I, MARCH FONG EU Secretary of State of the State of California hereby
certify:
That the annexed transcript has been compared with the corporate record
on file in this office of which it purports to be a copy and that same is full,
true and correct.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great
Seal of the State of California this
MAY 7, 1988
----------------------------
[GREAT SEAL OF CALIFORNIA]
/s/ March Fong Eu
-------------------------
<PAGE> 33
EXHIBIT INDEX
Exhibit No. Description
3.1 Articles of Incorporation of Vineyard National
Bancorp
3.2 Bylaws of Vineyard National Bancorp
5 Opinion re legality
10 Vineyard National Bank [now Bancorp] 1987
Incentive Stock Option Plan as extended by a
vote of the shareholders on October 29, 1996
99 Vineyard National Bancorp Annual Report 1995
(which has already been sent to stockholders)
<PAGE> 1
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
VINEYARD NATIONAL BANCORP
I
The name of this Corporation is VINEYARD NATIONAL BANCORP.
II
The purpose of this Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California, other than the banking business, the trust
company business, or the practice of a profession permitted to be incorporated
by the California Corporations Code.
III
The name and address in the State of California of this
Corporation's initial agent for service of process is: David A. Buxbaum, 414
Yale Avenue, Claremont, CA 91711.
IV
This Corporation is authorized to issue only one class of
shares of stock and the total number of shares which this Corporation is
authorized to issue is Fifteen Million (15,000,000).
V
The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
Dated: May 13, 1988
/s/ DAVID A. BUXBAUM
___________________________
DAVID A. BUXBAUM
Incorporator
I hereby declare that I am the person who executed the
foregoing Articles of Incorporation, which execution is my act and deed.
/s/ DAVID A. BUXBAUM
___________________________
DAVID A. BUXBAUM
<PAGE> 1
Exhibit 3.2
BYLAWS
OF
VINEYARD NATIONAL BANCORP
A CALIFORNIA CORPORATION
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I: Offices........................................... 1
Section 1. Principal Executive or Business Offices........... 1
Section 2. Other Offices..................................... 1
ARTICLE II: Meetings of Shareholders ......................... 1
Section 1. Place of Meetings ................................ 1
Section 2 Annual Meetings .................................. 1
Section 3. Special Meetings ................................. 1
Section 4. Notice of Shareholders' Meetings ................. 2
Section 5. Manner of Giving Notice: Affidavit
Of Notice ........................................ 3
Section 6. Quorum ........................................... 3
Section 7. Adjourned Meeting; Notice ........................ 4
Section 8. Voting ........................................... 4
Section 9. Waiver of Notice or Consent
By Absent Shareholders ........................... 5
Section 10. Shareholder Action by Written Consent
Without A Meeting ................................ 6
Section 11. Record Date for Shareholder Notice
Of Meeting, Voting, and Giving Consent ........... 7
Section 12. Proxies .......................................... 8
Section 13. Inspectors of Election ........................... 8
ARTICLE III Directors ........................................ 9
Section 1. Powers ........................................... 9
Section 2. Number and Qualification of Directors ............ 10
Section 3. Election and Term of Office of Directors ......... 10
Section 4. Vacancies ........................................ 10
Section 5. Place of Meetings; Telephone Meetings ............ 11
Section 6. Annual Directors' Meeting ........................ 11
Section 7. Other Regular Meetings ........................... 12
Section 8. Special Meetings ................................. 12
Section 9. Quorum ........................................... 12
Section 10. Waiver of Notice ................................. 12
Section 11. Adjournment to Another Time or Place ............. 13
Section 12. Notice of Adjourned Meeting ...................... 13
Section 13. Action Without a Meeting ......................... 13
Section 14 Fees and Compensation of Directors ............... 13
ARTICLE IV: Committees ....................................... 13
Section 1. Executive and Other Committees
Of the Board ..................................... 13
Section 2. Meetings and Action of Committees ................ 14
i
<PAGE> 3
ARTICLE V: Officers ......................................... 14
Section 1. Officers ......................................... 14
Section 2. Election of Officers ............................. 15
Section 3. Subordinate Officers ............................. 15
Section 4. Removal and Resignation of Officers .............. 15
Section 5. Vacancies in Offices ............................. 15
Section 6. Chairman of the Board ............................ 16
Section 7. President ........................................ 16
Section 8. Vice Presidents .................................. 16
Section 9. Secretary ........................................ 16
Section 10. Chief Financial Officer .......................... 17
ARTICLE VI: Indemnification of Directors, Officers,
And Other Agents ................................. 18
ARTICLE VII: Records and Reports .............................. 18
Section 1. Maintenance of Shareholder Record
And Inspection by Shareholders ................... 18
Section 2. Maintenance and Inspection of Bylaws ............. 19
Section 3. Maintenance and Inspection of Minutes
And Accounting Records ........................... 19
Section 4. Inspection by Directors .......................... 20
Section 5. Annual Report to Shareholders .................... 20
Section 6. Financial Statements ............................. 20
Section 7. Annual Statement of General Information .......... 21
ARTICLE VIII: General Corporate Matters ........................ 21
Section 1. Record Date for Purposes Other
Than Notice and Voting ........................... 21
Section 2. Authorized Signatories for Checks ................ 22
Section 3. Executing Corporate Contracts
And Instruments .................................. 22
Section 4. Certificates for Shares .......................... 22
Section 5. Lost Certificates ................................ 23
Section 6. Shares of Other Corporations: How Voted .......... 23
Section 7. Reimbursement of Corporation
If Payment Not Tax Deductible .................... 24
Section 8. Construction and Definitions ..................... 24
ARTICLE IX: Amendments ....................................... 24
Section 1. Amendment by Board of Directors
Or Shareholders .................................. 24
Certificate of Secretary .................................................... 25
ii
<PAGE> 4
BYLAWS
OF
VINEYARD NATIONAL BANCORP
ARTICLE I
Offices
Section 1. Principal Executive or Business Offices. The Board of
Directors shall fix the location of the principal executive office of the
corporation at any place within or outside the State of California. If the
principal office is located outside California and the corporation has one or
more business offices in California, the board shall fix and designate a
principal business office in California.
The principal executive office of the corporation is hereby
fixed and located at: 9590 Foothill Blvd., Ranch Cucamonga, California 91730.
Section 2. Other Offices. Branch or subordinate offices may be
established at any time and at any place by the Board of Directors.
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meetings. Meetings of shareholders shall be held at
any place within or outside the State of California designated by the Board of
Directors. In the absence of a designation by the board, shareholders' meetings
shall be held at the corporation's principal executive office.
Section 2. Annual Meetings. The annual meeting of the shareholders
shall be held on the last Wednesday of the month of September in each year. If,
however, this day falls on a legal holiday, then the meeting shall be held at
the same time and place on the next succeeding full business day. At this
meeting, directors shall be elected and any other proper business within the
power of the shareholders may be transacted.
Section 3. Special Meetings. A special meeting of the shareholders may
be called at any time by the Board of Directors, by the chairman of the board,
by the president, or vice president, or by one or more shareholders holding
shares
Page 1 of 25
<PAGE> 5
that in the aggregate are entitled to cast ten (10) percent or more of the votes
at that meeting.
If a special meeting is called by anyone other than the Board
of Directors, the person or persons calling the meeting shall make a request in
writing, delivered personally, or sent by registered mail or by telegraphic or
other facsimile transmission, to the chairman of the board or the president,
vice president, or secretary, specifying the time and date of the meeting (which
is not less than 35 nor more than 60 days after receipt of the request) and the
general nature of the business proposed to be transacted. Within 20 days after
receipt, the officer receiving the request shall cause notice to be given to the
shareholders entitled to vote, in accordance with Sections 4 and 5 of this
Article II, stating that a meeting will be held at the time requested by the
person(s) calling the meeting, and stating the general nature of the business
proposed to be transacted. If notice is not given within 20 days after receipt
of the request, the person or persons requesting the meeting may give the
notice. Nothing contained in this paragraph shall be construed as limiting,
fixing, or affecting the time when a meeting of shareholders called by action of
the boar may be held.
Section 4. Notice of Shareholders' Meetings. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not fewer than 10 nor more than 60 days before the date of the
meeting. Shareholders entitled to notice shall be determined in accordance with
Section 11 of this Article II. The notice shall specify the place, date, and
hour of the meeting, and (a) in the case of a special meeting, the general
nature of the business to be transacted, or (b) in the case of the annual
meeting, those matters which the Board of Directors, at the time of giving the
notice, intends to present for action by the shareholders. If directors are to
be elected, the notice shall include the names of all nominees whom the board
intends, at the time of the notice, to present for election.
The notice shall also state the general nature of any proposed
action to be taken at the meeting to approve any of the following matters:
a. A transaction in which a director has a financial
interest, within the meaning of Section 310 of the California Corporations Code;
b. An amendment of the articles of incorporation under
Section 902 of that Code;
Page 2 of 25
<PAGE> 6
c. A reorganization under Section 1201 of that Code;
d. A voluntary dissolution under Section 1900 of that Code;
or
e. A distribution in dissolution that requires approval of
the outstanding shares under Section 2007 of that Code.
Section 5. Manner of Giving Notice: Affidavit of Notice. Notice of any
shareholders' meeting shall be given either personally or by first-class mail or
telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address appearing on the corporation's books or given by the
shareholder to the corporation for purposes of notice. If no address appears on
the corporation's books or has been given as specified above, notice shall be
either (1) sent by first-class mail addressed to the shareholder at the
corporation's principal executive office, or (2) published at least once in a
newspaper of general circulation in the county where the corporation's principal
executive office is located. Notice is deemed to have been given at the time
when delivered personally or deposited in the mail or sent by other means of
written communication.
If any notice or report mailed to a shareholder at the address
appearing on the corporation's books is returned marked to indicate that the
United States Postal Service is unable to deliver the document to the
shareholder at that address, all future notices or reports shall be deemed to
have been duly given without further mailing if the corporation holds the
document available for the shareholder on written demand at the corporation's
principal executive office for a period of one year from the date the notice or
report was given to all other shareholders.
An affidavit of the mailing, or other authorized means of
giving notice or delivering a document, of any notice of shareholders' meeting,
report, or other document sent to shareholders may be executed by the
corporation's secretary, assistant secretary, or transfer agent, and shall be
filed and maintained in the minute book of the corporation.
Section 6. Quorum. The presence in person or by proxy of the holders of
a majority of the shares entitled to vote at any meeting of the shareholders
shall constitute a quorum for the transaction of business. The shareholders
present at a
Page 3 of 25
<PAGE> 7
duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. Adjourned Meeting; Notice. Any shareholders' meeting, annual
or special, whether or not a quorum is present, may be adjourned from time to
time by the vote of the majority of the shares represented at that meeting,
either in person or by proxy, but in the absence of a quorum, no other business
may be transacted at that meeting, except as provided in Section 6 of this
Article II.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice of the adjourned meeting need not be
given if the time and place are announced at the meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than 45 days from the date set for
the original meeting, in which case the board of Directors shall set a new
record date. Notice of any such adjourned meeting, if required, shall be given
to each shareholder of record entitled to vote at the adjourned meeting, in
accordance with Sections 4 and 5 of this Article II. At any adjourned meeting,
the corporation may transact any business that might have been transacted at the
original meeting.
Section 8. Voting. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with Section 11 of this Article
II, subject to the provisions of Sections 702 through 704 of the California
Corporations Code (relating to voting shares held by a fiduciary, in the name of
a corporation, or in joint ownership). Unless the Articles of Incorporation
provide for more or less than one vote per share, and subject to the following
provisions with respect to voting on election of directors, each outstanding
share, regardless of class, shall be entitled to one vote on each matter on
which such share is entitled to be voted.
The shareholders' vote may be by voice vote or by ballot,
provided, however, that any election for directors must be by ballot if demanded
by any shareholder before the voting has begun. On any matter other than the
election of directors, any shareholder may vote part of the shares in favor of
the proposal and refrain from voting the remaining shares or vote them against
the proposal, but, if the shareholder fails to specify the number of shares that
the
Page 4 of 25
<PAGE> 8
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares that the shareholder
is entitled to vote. If a quorum is present (or if a quorum has been present
earlier at the meeting but some shareholders have withdrawn), the affirmative
vote of a majority of the shares represented and voting, provided such shares
voting affirmatively also constitute a majority of the number of shares required
for a quorum, shall be the act of the shareholders unless the vote of a greater
number or voting by classes is required by law or by the Articles of
Incorporation.
At a shareholders' meeting at which directors are to be
elected, no shareholder shall be entitled to cumulate votes (i.e., cast for any
candidate a number of votes greater than the number of votes which that
shareholder normally would be entitled to cast), unless the candidates' names
have been placed in nomination before commencement of the voting and a
shareholder has given notice at the meeting, before the voting has begun, of the
shareholder's intention to cumulate votes. If any shareholder has given such a
notice, then all shareholders entitled to vote may cumulate their votes for
candidates in nomination, and may give one candidate a number of votes equal to
the number of directors to be elected multiplied by the number of votes to which
that shareholder's shares are normally entitled, or distribute the shareholder's
votes on the same principle among any or all of the candidates, as the
shareholder thinks fit. The candidates receiving the highest number of votes, up
to the number of directors to be elected, shall be elected.
Except with respect to election of directors, the affirmative
vote of the majority of the shares represented at the meeting and entitled to
vote on the matter (but not less than a majority of the shares required to
constitute a quorum) shall be the act of the shareholders, unless the vote of a
greater number or voting by classes is required by the California General
Corporation Law or the Articles of Incorporation, provided that whenever under
the California General Corporation Law any shares are disqualified from voting
on any matter, such shares shall not be considered outstanding for purposes of
determining the required vote to approve such matter.
Section 9. Waiver of Notice or Consent by Absent Shareholders. The
transactions at any meeting of shareholders, either annual or special, however
called and noticed and wherever held, shall be as valid as though they were had
at a meeting duly held after regular call and notice, if a quorum is present
either in person or by proxy, and if
Page 5 of 25
<PAGE> 9
each person entitled to vote who was not present in person or by proxy, either
before or after the meeting, signs a written waiver of notice or a consent to
holding the meeting or any approval of the minutes of the meeting. The waiver of
notice or consent need not specify either the business to be transacted or the
purpose of any annual or special meeting of the shareholders, except that if
action is taken or proposed to be taken for approval of any of those matters
specified Section 601(f) of the California Corporations Code, the waiver of
notice or consent is required to state the general nature of the action or
proposed action. All waivers, consents, and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
A shareholder's attendance at a meeting also constitutes a
waiver of notice of that meeting, unless the shareholder at the beginning of the
meeting objects to the transaction of any business on the ground that the
meeting was not lawfully called or convened. In addition, attendance at a
meeting does not constitute a waiver of any right to object to the consideration
of matters required by law to be included in the notice of the meeting which
were not so included, if that objection is expressly made at the meeting.
Section 10. Shareholder Action by Written Consent Without A Meeting.
Any action that could be taken at an annual or special meeting of shareholders
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take that action at a meeting at which all shares
entitled to vote on that action were present and voted.
Directors may be elected by written consent of the
shareholders without a meeting only if the written consents of all outstanding
shares entitled to vote are obtained, except that vacancies on the board (other
than vacancies created by removal) not filled by the board may be filled by the
written consent of the holders of a majority of the outstanding shares entitled
to vote.
All consents shall be filed with the secretary of the
corporation and shall be maintained in the corporate records. Any shareholder or
other authorized person who has given a written consent may revoke it by a
writing received by the secretary of the corporation before written consents of
the number of shares required to authorize the proposed action have been filed
with the secretary.
Page 6 of 25
<PAGE> 10
Unless the consents of all shareholders entitled to vote have
been solicited in writing, prompt notice shall be given of any corporate action
approved by shareholders without a meeting by less than unanimous consent, to
those shareholders entitled to vote who have not consented in writing. As to
approvals required by California Corporations Code Section 310 (transactions in
which a director has a financial interest), Section 317 (indemnification of
corporate agents), Section 1201 (corporate reorganization), or Section 2007
(certain distributions on dissolution), notice of the approval shall be given at
least 10 days before the consummation of any action authorized by the approval.
Notice shall be given in the manner specified in Section 5 of this Article II.
Section 11. Record Date for Shareholder Notice of Meeting, Voting, and
Giving Consent.
a. For purposes of determining the shareholders entitled to
receive notice of and vote at a shareholders' meeting or give written consent to
corporate action without a meeting, the board may fix in advance a record date
that is not more than 60 nor less than 10 days before the date of a
shareholders' meeting, or not more than 60 days before any other action.
b. If no record date is fixed:
(i) The record date for determining shareholders entitled to
receive notice of and vote at a shareholders' meeting shall be the business day
prior to the day on which notice is given, or if notice is waived as provided in
Section 9 of this Article II, the business day prior to the day on which the
meeting is held.
(ii) The record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, if no prior
action has been taken by the board, shall be the day on which the first written
consent is given.
(iii) The record date for determining shareholders for any
other purpose shall be as set forth in Section 1 of Article VIII of these
bylaws.
c. A determination of shareholders of record entitled to
receive notice of and vote at a shareholders' meeting shall apply to any
adjournment of the meeting unless the board fixes a new record date for the
adjourned meeting. However, the board shall fix a new record date if the
Page 7 of 25
<PAGE> 11
adjournment is to a date more than 45 days after the date set for the original
meeting.
d. Only shareholders of record on the corporation's books at
the close of business on the record date shall be entitled to any of the notice
and voting rights listed in subsection a. Of this section, notwithstanding any
transfer of shares on the corporation's books after the record date, except as
otherwise required by law.
Section 12. Proxies. Every person entitled to vote for directors or on
any matters shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly executed proxy that does not state
that it is irrevocable shall continue in full force and effect unless (a)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revoked, or by
attendance at the meeting and voting in person by the person executing the proxy
or by a subsequent proxy executed by the same person and presented at the
meeting; or (b) written notice of the death or incapacity of the maker of that
proxy is received by the corporation before the vote pursuant to that proxy is
counted; provided, however, that no proxy shall be valid after the expiration of
11 months from the date of the proxy, unless otherwise provided in the proxy.
The revocability of a proxy that states on its face that it is irrevocable shall
be governed by the provisions of Sections 705(e) and 705(f) of the California
Corporations Code.
Section 13. Inspectors of Election. Before any meeting of shareholders,
the board of Directors may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may, and on
the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one or three. If inspectors are appointed at a meeting on the request of one or
more shareholders or proxies, the holders of a majority of shares or their
proxies present at the meeting shall determine whether one or three inspectors
are to be appointed. If any person appointed as inspector fails to appear or
fails or refuses to act, the chairman of the meeting may, and upon the
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request of any shareholder or a shareholder's proxy shall, appoint a person to
fill that vacancy.
These inspectors shall: (a) determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, and the authenticity, validity, and effect of
proxies; (b) receive votes, ballots, or consents; (c) hear and determine all
challenges and questions in any way arising in connection with the right to
vote; (d) count and tabulate all votes or consents; (e) determine when the polls
shall close; (f) determine the results; and (g) do any other acts that may be
proper to conduct the election or vote with fairness to all shareholders.
ARTICLE III
Directors
Section 1. Powers. Subject to the provisions of the California General
Corporation Law and any limitations in the articles of incorporation and these
bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
Without prejudice to these general powers, and subject to the
same limitations, the Board of Directors shall have the specific power to:
a. Select and remove all officers, agents and employees of the
corporation; prescribe any powers and duties for them that are consistent with
law, with the articles of incorporation, and with these bylaws; fix their
compensation; and require from them security for faithful service.
b. Change the principal executive office or the principal
business office in the State of California from one location to another; cause
the corporation to be qualified to do business in any other state, territory,
dependency, or country and conduct business within or outside the State of
California; and designate any place within or outside the State of California
for the holding of any shareholders' meeting or meetings, including annual
meetings.
c. Adopt, make, and use a corporate seal; prescribe the forms
of certificates of stock; and alter the form of the seal and certificates.
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d. Authorize the issuance of shares of stock of the corporation
on any lawful terms, in consideration of money paid, labor done, services
actually rendered, debts or securities canceled, or tangible or intangible
property actually received.
e. Borrow money and incur indebtedness on behalf of the
corporation, and cause to be executed and delivered for the corporation's
purposes, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations, and other evidences of debt and
securities.
Section 2. Number and Qualification of Directors. The authorized number
of directors shall be not less than five ( 5 ) nor more than twenty-five ( 25 ).
The exact number of authorized directors shall be eight ( 8 ) until changed,
within the limits specified above, by a bylaw amending this section, duly
adopted by the Board of Directors or by the shareholders. The maximum or minimum
number of directors cannot be changed, nor can a fixed number be substituted for
the maximum and minimum numbers, except by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly approved by a
majority of the outstanding shares entitled to vote. An amendment that would
reduce the minimum number to less than five, however, cannot be adopted if the
votes cast against its adoption at a shareholders' meeting or the shares not
consenting to an action by written consent are equal to more than one-sixth of
the outstanding shares entitled to vote. No amendment may change the stated
minimum number of authorized directors to a number greater than two times the
stated minimum number minus one.
Section 3. Election and Term of Office of Directors. Directors shall be
elected at each annual meeting of the shareholders to hold office until the next
annual meeting. Each director, including a director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
No reduction of the authorized number of directors shall have
the effect of removing any director before that director's term of office
expires.
Section 4. Vacancies. A vacancy in the Board of Directors shall be
deemed to exist (a) if a director dies, resigns, or is removed by the
shareholders or an appropriate court, as provided in Sections 303 or 304 of the
California Corporations Code; (b) if the Board of Directors declares vacant the
office of a director who has been convicted of a felony or declared of unsound
mind by an order of court; (c)
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if the authorized number of directors is increased; or (d) if at any
shareholders meeting at which one or more directors are elected the shareholders
fail to elect the full authorized number of directors to be voted for at that
meeting.
Any directors may resign effective on giving written notice to
the chairman of the board, the president, the secretary, or the Board of
Directors, unless the notice specifies a later effective date. If the
resignation is effective at a future time, the board may elect a successor to
take office when the resignation becomes effective.
Except for a vacancy caused by the removal of a director,
vacancies on the board may be filled by a majority of the directors then in
office, whether or not they constitute a quorum, or by a sole remaining
director. A vacancy on the board caused by the removal of a director may be
filled only by the shareholders, except that a vacancy created when the board
declares the office of a director vacant as provided in clause (b) of the first
paragraph of this section may be filled by the Board of Directors.
The shareholders may elect a director at any time to fill a
vacancy not filled by the Board of Directors.
The term of office of a director elected to fill a vacancy
shall run until the next annual meeting of the shareholders, and such director
shall hold office until a successor is elected and qualified.
Section 5. Place of Meetings; Telephone Meetings. Regular meetings of
the Board of Directors may be held at any place within or outside the State of
California as designated from time to time by the board. In the absence of a
designation, regular meetings shall be held at the principal executive office of
the corporation. Special meetings of the board shall be held at any place within
or outside the State of California designated in the notice of the meeting, or
if the notice does not state a place, or if there is no notice, at the principal
executive office of the corporation. Any meeting, regular or special, may be
held by conference telephone or similar communication equipment, provided that
all directors participating can hear one another.
Section 6. Annual Directors' Meeting. Immediately after each annual
shareholders' meeting, the Board of Directors shall hold a regular meting at the
same place, or at any other place that has been designated by the Board of
Directors, to consider matters of organization, election of officers, and other
business as desired. Notice of this
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meeting shall not be required unless some place other than the place of the
annual shareholders' meeting has been designated.
Section 7. Other Regular Meetings. Other regular meetings of the Board
of Directors shall be held without call at times to be fixed by the Board of
Directors from time to time. Such regular meetings may be held without notice.
Section 8. Special Meetings. Special meetings of the Board of Directors
may be called for any purpose or purposes at any time by the chairman of the
board, the president, any vice president, the secretary, or any two directors.
Special meetings shall be held on five days notice by mail or
forty-eight hours' notice delivered personally or by telephone or telegraph.
Oral notice given personally or by telephone may be transmitted either to the
director or to a person at the director's office who can reasonably be expected
to communicate it promptly to the director. Written notice, if used, shall be
addressed to each director at the address shown on the corporation's records.
The notice need not specify the purpose of the meeting, nor need it specify the
place if the meeting is to be held at the principal executive office of the
corporation.
Section 9. Quorum. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 11 of this Article III. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Directors, subject to
the provisions of California Corporations Code Section 310 (as to approval of
contracts or transactions in which a director has a direct or indirect material
financial interest), Section 311 (as to appointment of committees), and Section
317(e) (as to indemnification of directors). A meeting at which a quorum is
initially present may continue to transact business, notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for that meeting.
Section 10. Waiver of Notice. Notice of a meeting, although otherwise
required, need not be given to any director who (a) either before or after the
meeting signs a waiver of notice or a consent to holding the meeting without
being given notice, (b) signs an approval of the minutes of the meeting, or (c)
attends the meeting without protesting the lack of notice before or at the
beginning of the meeting. Waivers of notice or consents need not specify the
purpose of the meeting. All waivers, consents, and approvals of the minutes
shall be
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filed with the corporate records or made a part of the minutes of the meeting.
Section 11. Adjournment to Another Time or Place. Whether or not a
quorum is present, a majority of the directors present may adjourn any meeting
to another time or place.
Section 12. Notice of Adjourned Meeting. Notice of the time and place
of resuming a meeting that has been adjourned need not be given unless the
adjournment is for more than 24 hours, in which case notice shall be given,
before the time set for resuming the adjourned meeting, to the directors who
were not present at the time of the adjournment. Notice need not be given in any
case to directors who were present at the time of adjournment.
Section 13. Action Without A Meeting. Any action required or permitted
to be taken by the Board of Directors may be taken without a meeting, if all
members of the Board of Directors shall individually or collectively consent in
writing to that action. Any action by written consent shall have the same force
and effect as a unanimous vote of the Board of Directors. All written consents
shall be filed with the minutes of the proceedings of the Board of Directors.
Section 14. Fees and Compensation of Directors. Directors and members
of committees of the board may be compensated for their services, and shall be
reimbursed for expenses, as fixed or determined by resolution of the Board of
Directors. This section shall not be construed to preclude any director from
serving the corporation in any other capacity, as an officer, agent, employee,
or otherwise, and receiving compensation for those services.
ARTICLE IV
Committees
Section 1. Executive and Other Committees of the Board. The Board of
Directors may, by resolution adopted by a majority of the authorized number of
directors, designate an executive committee or one or more other committees,
each consisting of two or more directors. The board may designate one or more
directors as alternate members of any committee, to replace any absent member at
a committee meeting. The appointment of committee members or alternate members
requires the vote of a majority of the authorized number of directors. A
committee may be granted any or all of the powers and authority of the board, to
the extent provided in the
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resolution of the Board of Directors establishing the committee, except with
respect to:
a. Approving any action for which the California Corporations
Code also requires the approval of the Shareholders or of the outstanding
shares;
b. Filling vacancies on the Board of Directors or any committee
of the board;
c. Fixing directors' compensation for serving on the board or a
committee of the board;
d. Adopting, amending, or repealing bylaws;
e. Amending or repealing any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
f. Making distributions to shareholders, except at a rate or in
a periodic amount or within a price range determined by the Board of Directors;
or
g. Appointing other committees of the board or their members.
Section 2. Meetings and Action of Committees. Meetings and action of
committees shall be governed by, and held and taken in accordance with, bylaw
provisions applicable to meetings and actions of the Board of Directors, with
such changes in the context of those bylaws as are necessary to substitute the
committee and its members for the Board of Directors and its members, except
that (a) the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee; (b)
special meetings of committees may also be called by resolution of the Board of
Directors; and (c) notice of special meetings of committees shall also be given
to all alternative members who shall have the right to attend all meetings of
the committee. The Board of Directors may adopt rules for the governance of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE V
Officers
Section 1. Officers. The officers of the corporation shall be a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the Board of Directors, a chairman of the board, one
or more
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vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with the
provision of Section 3 of this Article V. Any number of offices may be held by
the same person.
Section 2. Election of Officers. The officers of the corporation,
except for subordinate officers appointed in accordance with the provisions of
Section 3 of this Article V, shall be chosen annually by the Board of Directors,
and shall serve at the pleasure of the Board of Directors.
Section 3. Subordinate Officers. The Board of Directors may appoint,
and may empower the president to appoint other officers as required by the
business of the corporation, whose duties shall be as provided in the bylaws, or
as determined from time to time by the Board of Directors or the president.
Section 4. Removal and Resignation of Officers. Any officers chosen by
the Board of Directors may be removed at any time, with or without cause or
notice, by a majority of the directors at the time in office at any regular or
special meeting. Subordinate officers appointed by persons other than the board
under Section 3 of this Article V may be removed at any time, with or without
cause or notice, by the Board of Directors or by the officer by whom appointed.
Officers may be employed for a specified term under a contract of employment if
authorized by the Board of Directors; such officers may be removed from office
at any time under this section, and shall have no claim against the corporation
or individual officers or board members because of the removal except any right
to monetary compensation to which the officer may be entitled under the contract
of employment.
Any officer may resign at any time by giving written notice to
the corporation. Resignations shall take effect on the date of receipt of the
notice, unless a later time is specified in the notice. Unless otherwise
specified in the notice, acceptance of the resignation is not necessary to make
it effective. Any resignation is without prejudice to the rights, if any, of the
corporation to monetary damages under any contract of employment to which the
officer is a party.
Section 5. Vacancies in Offices. A vacancy in any office resulting from
an officer's death, resignation, removal, disqualification, or from any other
cause shall be filled in the manner prescribed in these bylaws for regular
election or appointment to that office.
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Section 6. Chairman of the Board. The Board of Directors may elect a
chairman, who shall preside, if present, at board meetings and shall exercise
and perform such other powers and duties as may be assigned from time to time by
the Board of Directors. If there is no president, the chairman of the board
shall in addition be the chief executive officer of the corporation, and shall
have the powers and duties set forth in Section 7 of this Article V.
Section 7. President. Except to the extent that the bylaws or the Board
of Directors assign specific powers and duties to the chairman of the board (if
any), the president shall be the corporation's general manager and chief
executive officer and, subject to the control of the Board of Directors, shall
have general supervision, direction, and control over the corporation's business
and its officers. The managerial powers and duties of the president shall
include, but are not limited to, all the general powers and duties of management
usually vested in the office of president of a corporation, and the president
shall have other powers and duties as prescribed by the Board of Directors or
the bylaws. The president shall preside at all meetings of the shareholders and,
in the absence of the chairman of the board or if there is no chairman of the
board, shall also preside at meetings of the Board of Directors.
Section 8. Vice Presidents. If desired, one or more vice presidents may
be chosen by the Board of Directors in accordance with the provisions for
electing officers set forth in Section 2 of this Article V. In the absence or
disability of the president, the president's duties and responsibilities shall
be carried out by the highest ranking available vice president if vice
presidents are ranked, or if not, by a vice president designated by the Board of
Directors. When so acting, a vice president shall have all the powers of and be
subject to all the restrictions on the president. Vice presidents of the
corporation shall have such other powers and perform such other duties as
prescribed from time to time by the Board of Directors, the bylaws, or the
president (or chairman of the board if there is no president).
Section 9. Secretary.
a. Minutes. The secretary shall be present at all shareholders'
meetings and all Board of Directors' meetings and shall take the minutes of the
meetings. If the secretary is unable to be present, the secretary or the
presiding officer of the meeting shall designate another person to take the
minutes of the meeting.
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The secretary shall keep, or cause to be kept, at the
principal executive office or such other place as designated by the Board of
Directors, a book of minutes of all meetings and actions of the shareholders, of
the Board of Directors, and of committees of the board. The minutes of each
meeting shall state the time and place the meeting was held; whether it was
regular or special; if special, how it was called or authorized; the names of
directors present at board or committee meetings; the number of shares present
or represented at shareholders' meetings; and an accurate account of the
proceedings.
b. Record of Shareholders. The secretary shall keep, or cause
to be kept, at the principal executive office or at the office of the transfer
agent or registrar, a record or duplicate record of shareholders. This record
shall show the names of all shareholders and their addresses, the number and
classes of shares held by each, the number and date of share certificates issued
to each shareholder, and the number and date of cancellation of any certificates
surrendered for cancellation.
c. Notice of Meetings. The secretary shall give notice, or
cause notice to be given, of all shareholders' meetings, board meetings, and
meetings of committees of the board for which notice is required by statute or
by the bylaws. If the secretary or other person authorized by the secretary to
give notice fails to act, notice of any meeting may be given by any other
officer of the corporation.
d. Other Duties. The secretary shall keep the seal of the
corporation, if any, in safe custody. The secretary shall have such other powers
and perform other duties as prescribed by the Board of Directors or by the
bylaws.
Section 10. Chief Financial Officer. The chief financial officer shall
keep or cause to be kept adequate and correct books and records of accounts of
the properties and business transactions of the corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares.
The chief financial officer shall (a) deposit corporate funds
and other valuables in the corporation's name and to its credit with
depositaries designated by the Board of Directors; (b) make disbursements of
corporate funds as authorized by the board; (c) render a statement of the
corporation's financial condition and an account of all transactions conducted
as chief financial officer whenever
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requested by the president or the Board of Directors; (d) have other powers and
perform other duties as prescribed by the Board of Directors or the bylaws.
Unless the Board of Directors has elected a separate
treasurer, the chief financial officer shall be deemed to be the treasurer for
purposes of giving any reports or executing any certificates or other documents.
ARTICLE VI
Indemnification of Directors, Officers,
Employees, and Other Agents
The corporation shall, to the maximum extent permitted by
the California General Corporation Law, have power to indemnify each of its
agents against expenses, judgements, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that any such person is or was an agent of the corporation,
and shall have power to advance to each such agent expenses incurred in
defending any such proceeding to the maximum extent permitted by that law. For
purposes of this Article, an "agent" of the corporation includes any person who
is or was a director, officer, employee, or other agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise, or was a director, officer, employee, or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise serving at the request of such predecessor corporation.
ARTICLE VII
Records and Reports
Section 1. Maintenance of Shareholder Record and Inspection by
Shareholders. The corporation shall keep at its principal executive office or at
the office of its transfer agent or registrar, as determined by resolution of
the Board of Directors, a record of the names and addresses of all shareholders
and the number and class of shares held by each shareholder.
A shareholder or shareholders holding at least five percent in
the aggregate of the outstanding voting shares of the corporation have the right
to do either or both of the following:
a. Inspect and copy the record of shareholders' names and
addresses and shareholdings during usual business
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hours, on five days prior written demand on the corporation, or
b. Obtain from the corporation's transfer agent, on written
demand and tender of the transfer agent's usual charges for this service, a list
of the names and addresses of shareholders who are entitled to vote for the
election of directors, and their shareholdings, as of the most recent record
date for which a list has been compiled or as of a specified date later than the
date of demand. This list shall be made available within five days after (i) the
date of demand, or (ii) the specified later date as of which the list is to be
compiled. The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or holder of a voting trust certificate. Any
inspection and copying under this section may be made in person or by an agent
or attorney of the shareholder or holder of a voting trust certificate making
the demand.
Section 2. Maintenance and Inspection of Bylaws. The corporation shall
keep at its principal executive office, or if its principal executive office is
not in the State of California, at its principal office in California, the
original or a copy of the bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the state of
California and the corporation has no principal business office in this state,
the secretary shall, upon the written request of any shareholder, furnish to
that shareholder a copy of the bylaws as amended to date.
Section 3. Maintenance and Inspection of Minutes and Accounting
Records. The minutes of the proceedings of the shareholders, Board of Directors,
and committees of the board, and the accounting books and records shall be kept
at the principal executive office of the corporation, or at such other place or
places as designated by the Board of Directors. The minutes shall be kept in
written form, and the accounting books and records shall be kept either in
written form or in a form capable of being converted into written form. The
minutes and accounting books and records shall be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate at any
reasonable time during usual business hours, for the purpose reasonably related
to the holder's interests as a shareholder or holder of a voting trust
certificate. The inspection may be made in person or by
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an agent or attorney, and shall include the right to copy and make extracts.
These rights of inspection shall extend to the records of each subsidiary of the
corporation.
Section 4. Inspection by Directors. Every director shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts of documents.
Section 5. Annual Report to Shareholders. If there are fewer than 100
shareholders, the requirement of an annual report to shareholders referred to in
Section 1501 of the California Corporations Code is expressly waived. However,
nothing in this provision shall be interpreted as prohibiting the Board of
Directors from issuing annual or other periodic reports to the shareholders, as
the board considers appropriate.
Section 6. Financial Statements. The corporation shall keep a copy of
each annual financial statement, quarterly or other periodic income statement,
and accompanying balance sheets prepared by the corporation on file in the
corporation's principal executive office for 12 months; these documents shall be
exhibited at all reasonable times, or copies provided, to any shareholder on
demand.
If no annual report for the last fiscal year has been sent to
shareholders, on written request of any shareholder made more than 120 days
after the close of the fiscal year the corporation shall deliver or mail to the
shareholder, within 30 days after receipt of the request, a balance sheet as of
the end of that fiscal year and an income statement and statement of changes in
financial position for that fiscal year.
A shareholder or shareholders holding five percent or more of
the outstanding shares of any class of stock of the corporation may request in
writing an income statement for the most recent three-month, six-month, or
nine-month period (ending more than 30 days before the date of the request) of
the current fiscal year, and a balance sheet of the corporation as of the end of
that period. If such documents are not already prepared, the chief financial
officer shall cause them to be prepared and shall deliver the documents
personally or mail them to the requesting shareholders within 30 days after
receipt of the request. A
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balance sheet, income statement, and statement of changes in financial position
for the last fiscal year shall also be included, unless the corporation has sent
the shareholders an annual report for the last fiscal year.
Quarterly income statements and balance sheets referred to in
this section shall be accompanied by the report, if any, of independent
accountants engaged by the corporation or the certificate of an authorized
corporate officer stating that the financial statements were prepared without
audit from the corporation's books and records.
Section 7. Annual Statement of General Information.
a. Every year, during the calendar month in which the original
articles of incorporation were filed with the California Secretary of State, or
during the preceding five calender months, the corporation shall file a
statement with the Secretary of State on the prescribed form, setting forth the
authorized number of directors; the names and complete business or residence
addresses of all incumbent directors; the names and complete business or
residence addresses of the chief executive officer, the secretary, and the chief
financial officer; the street address of the corporation's principal executive
office or the principal business office in this state; a statement of the
general type of business constituting the principal business activity of the
corporation; and a designation of the agent of the corporation for the purpose
of service of process, all in compliance with Section 1502 of the Corporations
Code of California.
b. Notwithstanding the provisions of paragraph a. of this
section, if there has been no change in the information contained in the
corporation's last annual statement on file in the Secretary of State's office,
the corporation may, in lieu of filing the annual statement described in
paragraph a. of this section, advise the Secretary of State, on the appropriate
form, that no changes in the required information have occurred during the
applicable period.
ARTICLE VIII
General Corporate Matters
Section 1. Record Date for Purposes Other than Notice and Voting. For
purposes of determining the shareholders entitled to receive payment of
dividends or other distributions or allotment of rights, or entitled to exercise
any rights in respect of any other lawful action (other than
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voting at and receiving notice of shareholders' meetings and giving written
consent of the shareholders without a meeting), the Board of Directors may fix
in advance a record date which shall be not more than 60 nor less than 10 days
before the date of the dividend payment, distribution, allotment, or other
action. If a record date is so fixed, only shareholders of record at the close
of business on that date shall be entitled to receive the dividend,
distribution, or allotment of rights, or to exercise the other rights, as the
case may be, notwithstanding any transfer of shares on the corporation's books
after the record date, except as otherwise provided by statute.
If the Board of Directors does not so fix a record date in
advance, the record date shall be at the close of business on the later of (a)
the day on which the Board of Directors adopts the applicable resolution, or (b)
the 60th day before the date of the dividend payment, distribution, allotment of
rights, or other action.
Section 2. Authorized Signatories for Checks. All checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness issued in
the name of or payable to the corporation shall be signed or endorsed by such
person or persons and in such manner authorized from time to time by resolution
of the Board of Directors.
Section 3. Executing Corporation Contracts and Instruments. Except as
otherwise provided in the articles or in these bylaws, the Board of Directors by
resolution may authorize any officer, officers, agent, or agents to enter into
any contract or to execute any instrument in the name of and on behalf of the
corporation. This authority may be general or it may be confined to one or more
specific matters. No officer, agent, employee, or other person purporting to act
on behalf of the corporation shall have any power or authority to bind the
corporation in any way, to pledge the corporation's credit, or to render the
corporation liable for any purpose or in any amount, unless that person was
acting with authority duly granted by the Board of Directors as provided in
these bylaws, or unless an unauthorized act was later ratified by the
corporation.
Section 4. Certificates for Shares. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any of the shares are fully paid.
In addition to certificates for fully paid shares, the Board of
Directors may authorize the issuance of
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certificates for shares that are partly paid and subject to call for the
remainder of the purchase price, provided that the certificates representing
partly paid shares shall state the total amount of the consideration to be paid
for the shares and the amount actually paid.
All certificates shall certify the number of shares and the
class or series of shares represented by the certificate. All certificates shall
be signed in the name of the corporation by (a) either the chairman of the Board
of Directors, the vice chairman of the Board of Directors, the president, or any
vice president, and (b) either the chief financial officer, any assistant
treasurer, the secretary, or any assistant secretary.
Any or all of the signatures on the certificate may be
facsimile. If any officer, transfer agent, or registrar who has signed, or whose
facsimile signature has been placed on a certificate shall have ceased to be
that officer, transfer agent, or registrar before that certificate is issued,
the certificate may be issued by the corporation with the same effect as if that
person were an officer, transfer agent, or registrar at the date of issue.
Section 5. Lost Certificates. Except as provided in this Section 5, no
new certificates for shares shall be issued to replace old certificates unless
the old certificate is surrendered to the corporation for cancellation at the
same time. If share certificates or certificates for any other security have
been lost, stolen or destroyed, the Board of Directors may authorize the
issuance of replacement certificates on terms and conditions as required by the
board, which may include a requirement that the owner give the corporation a
bond (or other adequate security) sufficient to indemnify the corporation
against any claim that may be made against it (including any expense or
liability) on account of the alleged loss, theft, or destruction of the old
certificate or the issuance of the replacement certificate.
Section 6. Shares of Other Corporations: How Voted. Shares of other
corporations standing in the name of this corporation shall be voted by one of
the following persons, listed in order of preference: (a) chairman of the board,
or person designated by the chairman of the board; (b) president, or person
designated by the present; (c) other person designated by the Board of
Directors.
The authority to vote shares granted by this section includes
the authority to execute a proxy in the name of the corporation for purposes of
voting the shares.
Page 23 of 25
<PAGE> 27
Section 7. Reimbursement of Corporation if Payment Not Tax Deductible.
If all or part of the compensation, including expenses, paid by the corporation
to a director, officer, employee, or agent is finally determined not to be
allowable to the corporation as a federal or state income tax deduction, the
director, officer, employee, or agent to whom the payment was made shall repay
to the corporation the amount disallowed. The Board of Directors shall enforce
repayment of each such amount disallowed by the taxing authorities.
Section 8. Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in
Sections 100 through 195 of the California Corporations Code shall govern the
construction of these bylaws. Without limiting the generality of this provision
the singular number includes the plural, the plural number includes the
singular, and the term "person" includes both a corporation and a natural
person.
ARTICLE IX
Amendments
Section 1. Amendment by Board of Directors or Shareholders. Except as
otherwise required by law or by the articles of incorporation, these bylaws may
be amended or repealed, and new bylaws may be adopted, by the Board of Directors
or by the holders of a majority of the outstanding shares entitled to vote.
Page 24 of 25
<PAGE> 28
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting secretary of
VINEYARD NATIONAL BANCORP, a California corporation; and
2. That the foregoing bylaws, comprising 25 pages,
constitutes the bylaws of said corporation as duly adopted by action of the
incorporator of the corporation duly taken on May 18, 1988.
In witness whereof, I have executed this certificate as
secretary of the corporation this 18th day of May, 1988.
------------------------------
Secretary
David A. Buxbaum
Page 25 of 25
<PAGE> 1
EXHIBIT 5
OPINION RE LEGALITY
Based upon representations by the Bancorp and a review of its corporate
documents, Buxbaum & Chakmak, a Law Corporation, is of the opinion that shares
of the Bancorp when sold for full price under the stock option Plan upon the
exercise of options under the Plan will be legally issued, fully paid and
non-assessable.
<PAGE> 1
EXHIBIT 10
VINEYARD NATIONAL BANK 1987 INCENTIVE STOCK OPTION PLAN
1. Purpose
The purpose of this Plan is to strengthen Vineyard National Bank,
referred to as the "Bank," by providing an additional means of retaining and
attracting competent full-time officers and employees of the Bank and by
providing to the participating officers and key employees an added incentive
for high levels of performance and for unusual efforts to increase the earnings
of the Bank. The Plan seeks to accomplish these purposes and results by
providing the means whereby such officers and key employees may purchase shares
of the capital stock of the Bank pursuant to options.
2. Administration
This Plan shall be administered by the Stock Option Committee, referred
to as the "Committee," consisting of members selected and serving at the
pleasure of the Board of Directors of the Bank. Any action of the Committee
with respect to the administration of the Plan shall be taken pursuant to a
majority vote of its members.
Subject to the express provisions of the Plan, the Committee shall have
the authority to construe and interpret the Plan, and to define the terms used
therein, to prescribe, amend, and rescind rules and regulations relating to the
administration of the Plan, to determine the duration and purposes of leaves of
absence which may be granted to participants without constituting a termination
of their employment for the purposes of the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan. The
determinations of the committee on the foregoing matters shall be conclusive.
Subject to the express provisions of the Plan, the Committee shall determine
from the eligible class the individuals who shall receive options, and the
terms and provisions of the options (which need not be identical); provided,
however, that all grants of options shall be by the Board.
3. Participation
Officers and key employees of the Bank shall be eligible for selection
to participate in the Plan; provided, however, that members of the Committee
shall not, while members
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<PAGE> 2
of the Committee, be eligible to receive the grant of options under the Plan.
Directors who are not officers and full-time employees of the Bank are not
eligible to participate in the Plan. An individual who has been granted an
option may, if otherwise eligible, be granted an additional option or options
if the Board shall so determine. No options, however, will be granted to any
individual who immediately before or after the grant of the option will own
beneficially more than ten (10) percent of the outstanding stock of the Bank.
4. Stock Subject to the Plan
Subject to adjustments as provided in Section 12 of this Plan, the
stock to be offered under the Plan shall be shares of the Bank's authorized but
unissued common stock, referred to as "stock," and the aggregate amount of
stock to be delivered upon the exercise of all options granted under the Plan
shall not exceed 70,000 shares, subject to adjustment as set forth in Section
12 of this Plan. If any option granted under this Plan shall expire or
terminate for any reason without having been fully exercised in full, the
unpurchased shares subject thereto shall again be available for the purposes of
this Plan. Subject to the general limitations contained in this Plan, the Board
may make any adjustment in the exercise price, the number of shares subject to,
or the term of an option by cancellation of an outstanding option and a
subsequent regranting of an option, amendment, or substitution, or regrant may
have an exercise price which is higher or lower than the prior option, provide
for a greater or lesser number of shares subject to the option, or a longer or
shorter term than the prior option.
5. Option Price
The purchase price of stock covered by each option shall be determined
by the Board of Directors of the Bank but shall not be less in any event than
one hundred (100) percent of the fair market value of such stock on the date of
the granting of the option. The purchase price of any shares purchased shall be
paid in full in cash or by check at the time of each purchase.
6. Option Period
Each option and all rights or obligations thereunder shall expire on
such date as the Committee or the Board shall determine, but not later than the
sixth anniversary of the date on which the option is granted, and shall be
subject to earlier termination as provided in this Plan.
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<PAGE> 3
7. Exercise of Options; Continuation of Employment
Each person to whom an option is granted must agree, at the request of
the Bank, to remain in the continuous employ of the Bank following the date of
the granting of the option for a period of not less than two (2) years. Nothing
contained in the Plan (or in any option granted pursuant to the Plan) shall
confer upon any employee any right to continue in the employ of the Bank or
constitute any contract or agreement of employment or interfere in any way with
the right of the Bank to reduce the person's compensation from the rate in
existence at the time of the granting of an option or to terminate the person's
employment, but nothing contained herein or in any option agreement shall
affect any contractual rights of an employee.
Each option shall become exercisable and the total number of shares
subject thereto shall be purchasable, in such installments, which need not
be equal, as the Committee shall determine; provided, however, that if the
holder of an option shall not in any given installment period purchase all of
the shares which such holder is entitled to purchase in the installment period,
the holder's right to purchase any shares not purchased in the installment
period shall continue until the expiration or sooner termination of the
holder's option. No option or installment shall be exercisable except in
respect of whole shares, and fractional share interests shall be disregarded
except that they may be accumulated in accordance with the next preceding
sentence. Not less than one (1) share may be purchased at one time unless the
number purchased at the time the total number available for purchase under the
option.
8. Nontransferability of Options
An option granted under this Plan shall, by its terms, be
nontransferable by the option holder other than by will or the laws of descent
and distribution, and shall be exercisable during the holder's lifetime only by
the option holder.
9. Termination of Employment
If the option holder ceases to be employed by the Bank because of
discharge for cause, the holder's option shall expire concurrently with the
discharge for cause. If the option holder ceases to be employed by the Bank for
any reason other than death or discharge for cause, the holder's option shall
subject to earlier termination pursuant to Section 6 expire one (1) month
thereafter (or after a shorter period as may be provided in the option), and
during the period after the holder ceases to be an employee, the option shall
be exercisable only as to those
Page 3
<PAGE> 4
shares with respect to which installments, if any, had accrued as of the date
of the cessation of employment.
10. Death of Employee
If any option holder dies while employed by the Bank, during the period
referred to in Section 9 of this Plan, the holder's option shall, subject to
earlier termination pursuant to Section 6, expire one (1) year after the date
of the date (or after a shorter period as may be provided in the option) and
during the period after the death the option may, to the extent that
installments, if any, had accrued as of the date of the termination of the
holder's employment, be exercised by the person or persons to whom the option
holder's rights under the option shall pass by will or by the applicable laws
of the descent and distribution.
11. Right of First Refusal to Purchase Stock
If, at any time, an optionee owns shares in the Bank and desires to
sell or in any way transfer all or any portion of the shares in the Bank, the
optionee shall first offer to sell the shares to the Board of Directors of the
Bank as a group. The Board of Directors shall have a right of first refusal to
buy the offered shares of the optionee at the share's then current fair market
value. The purchase price shall be payable in cash within one hundred twenty
(120) days of the receipt of a notice to the board from the optionee stating
the number of shares he intends to sell or dispose of. If the Board fails to
purchase all of the offered shares within the one hundred twenty (120) day
period, the optionee shall be free to sell the shares to any person on any
terms he or she desires. This restriction must be set forth in full on each and
every share certificate purchased under this Plan.
12. Adjustments Upon Changes in Capitalization
If the outstanding shares of the stock of the Bank are increased,
decreased, or changed into, or exchanged for a different number or kind of
shares or securities of the Bank through reorganization, merger,
recapitalization, reclassification, stock split-up, stock dividend, stock
consolidation, or otherwise, an appropriate and proportionate adjustment shall
be made in the number and kind of shares as to which options may be granted. A
corresponding adjustment changing the number or kind of shares and the exercise
price per share allocated to unexercised options or portions thereof, which
shall have been granted prior to any such change, shall likewise be made. Any
such adjustment, however, in an outstanding option shall be made without change
in the total
Page 4
<PAGE> 5
price applicable to the unexercised portion of the option but with a
corresponding adjustment in the price for each share covered by the option.
Upon the dissolution or liquidation of the Bank, or upon a
reorganization, merger, or consolidation of the Bank with one or more banks as
a result of which the Bank is not the surviving association, or upon a sale or
substantially all the property of the Bank to another bank, this Plan shall
terminate, and any option theretofore granted under it shall terminate, unless
provision be made in connection with the transaction for the assumption of
options granted, or the substitution for the options of new options covering
the stock of a successor bank, or a parent or subsidiary of it, with
appropriate adjustments as to number and kind of shares and prices.
Adjustments under this section shall be made by the Board, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding, and conclusive. No fractional shares of stock shall be
issued under the Plan on account of any adjustment.
13. Amendment and Termination
The Board may at any time suspend, amend, or terminate this Plan and
may, with the consent of an option holder, make such modifications of the terms
and conditions of the holder's option as it shall deem advisable. No option may
be granted during any suspension of the Plan or after the termination. The
amendment, suspension, or termination of the Plan shall not, without the
consent of the option holder, alter or impair any rights or obligations under
any option granted under the Plan.
With respect to the following amendments, the Board may only amend the
Plan with the consent of a majority of the outstanding shareholders of the Bank
and the Comptroller of the Currency:
a. To change the eligibility requirements to participate in the
Plan;
b. To increase the stock allocated to the Plan;
c. To extend the date of the Plan beyond September 30, 1997;
d. To extend or decrease the exercise period of the Plan of six
(6) years;
e. to decrease the option price;
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<PAGE> 6
f. To withdraw the administration of the Plan from the
Committee;
g. To permit any Committee member to participate in the Plan.
14. Time of Granting of Options
The granting of an option pursuant to the Plan shall take place at the
time of the Committee's action, as described in Section 3 of this Plan;
provided, however, that if the appropriate resolutions of the Committee
indicate that an option is to be granted as of and at some future date, the
date of grant shall be the future date.
15. Privileges of Stock Ownership
The holder of an option shall not be entitled to the privilege of stock
ownership as to any shares of stock not actually issued and delivered to him or
her. No shares, however, shall be issued upon the exercise of any option unless
and until all applicable requirement of any regulatory agency having
jurisdiction of the option and issuance of stock have been fully complied with.
16. Effective Date of the Plan
This Plan shall be effective upon approval by the vote or written
consent of the holders of a majority of the Bank's outstanding stock entitled
to vote and with the approval of the Comptroller of the Currency.
17. Termination
Unless previously terminated by the Board of Directors, this Plan shall
terminate at the close of business on September 30, 1997, and no options shall
be granted under it
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<PAGE> 7
after that time, but the termination shall not affect any option theretofore
granted.
The above Plan will be proposed to the outstanding shareholders of
Vineyard National Bank by the Board of Directors of Vineyard National Bank on
September 30, 1987.
/s/ DAVID A. BUXBAUM
----------------------------------
DAVID A. BUXBAUM, Secretary
of the Association
(Seal)
Page 7
<PAGE> 8
CERTIFICATE OF SECRETARY
THIS IS TO CERTIFY:
That I am the duly-elected qualified, acting Secretary of Vineyard
National Bank, A National Banking Association, and that on September 30, 1987,
at the hour of 5:00 p.m., the shareholders of the Association at their meeting
held on such date and time duly adopted the Vineyard National 1987 Stock Option
Plan as recorded in the minutes of the meeting by the majority vote of the
shareholders entitled to exercise the majority of the voting power of said
Association.
Attached hereto and incorporated herein by reference is a true and
correct copy of the final plan entitled "The Vineyard National Bank 1987 Stock
Option Plan" as adopted by the shareholders at the meeting.
IN WITNESS WHEREOF, I have hereunder set my hand and affix the
corporate seal this 30th day of September, 1987.
/s/ DAVID A. BUXBAUM,
--------------------------------
DAVID A. BUXBAUM,
Secretary of the Association
(SEAL)
<PAGE> 1
EXHIBIT 99
[VINEYARD NATIONAL BANK LETTERHEAD]
May 31, 1996
Dear Shareholders:
Enclosed is a copy of Vineyard National Bancorp's 1995 Annual Report. We would
suggest that you take a moment to review it now and then retain it for future
reference.
The letter to the shareholders contained within the Annual Report depicts very
favorable results of operation for the year 1995. Furthermore, we are pleased
to inform you that the Bank has had very positive operating results during the
first five months of 1996. Also, we are pleased to inform you that we remain
very optimistic about the results of operation for the balance of this year.
Earlier this year, the Bank successfully relocated its Lake Arrowhead facility
to a new location in Blue Jay which resulted in a net operating savings of
approximately $10,000 per month. We are also in the process of repurchasing the
head office facility in Ranch Cucamonga from our landlord which will generate
additional savings and further enhance the bottom line. Management continues to
streamline the operation and employ cost-saving measures wherever possible,
while at the same time affording our customers the best there is in banking!
On behalf of the Board of Directors and Management of Vineyard National
Bancorp, we appreciate your continued support and interest in the Bank.
Sincerely,
/s/ Lester Stroh M.D. /s/ Steven R. Sensenbach
- ----------------------------- --------------------------------
Lester Stroh, M.D. Steven R. Sensenbach
Chairman of the Board President and Chief
Executive Officer
<PAGE> 2
VINEYARD NATIONAL BANCORP
ANNUAL REPORT 1995
[PICTURE]
[VNB LOGO]
<PAGE> 3
FINANCIAL HIGHLIGHTS/YEAR AT A GLANCE
- ----------------------------------------------------
<TABLE>
<S> <C> <C>
Total Assets 1994 $107,417,232
1995 $107,559,133
Percent Change .001%
Total Deposits 1994 $ 98,584,479
1995 $ 98,414,447
Percent Change (.172)%
Net Loans 1994 $ 83,495,890
1995 $ 77,482,539
Percent Change (7.20)%
Net Income (Loss) 1994 $(1,538,489)
1995 $ 833,805
Percent Change 154.2%
Net Income (Loss) Per Share 1994 $ (.83)
1995 $ .45
Percent Change 154.2%
Stockholders' Equity 1994 $ 6,860,144
1995 $ 7,752,714
Percent Change 13.01%
</TABLE>
<PAGE> 4
TO OUR STOCKHOLDERS, EMPLOYEES AND FRIENDS
[picture of Steven R. Sensenbach, President and Chief Executive Officer]
[picture of Lester Strom, M.D., Chairman of the Board]
Dear Shareholders:
While Southern California's economy during 1995 continued to show further signs
of a recession, it appears that most banks in Vineyard National's primary
service area made it through the year on a positive note. That also includes
Vineyard National Bank!
As you read this annual report, you will note that total assets for the Bank
remained fairly constant with that of 1994, even thought we sold our Victorville
branch with $3,875,000 in assets. Loan volume throughout the State was extremely
sluggish as consumers and businesses alike continued to fear further investments
or expenditures. Vineyard's loan activity started to rebound the second half of
1995, even after the Victorville sale which represented a runoff of $3 million
in loans.
The Bank as a whole reflected only a $6 million loss over 1994 in loan totals.
We were also pleased with the Bank's deposit base. With the outflow of $4.1
million from Victorville, the Bank remained consistent with its base totals in
deposits for the like period of 1994. Our total deposit loss was approximately
$171,000. Focusing on the income side of the Bank, you will note that the Bank
had $833,805 net income for the year (earnings per share of $.45) which was an
improvement of $2.3 million over 1994.
As previously report to our shareholders, Vineyard suffered a major loan loss in
1994. However, the Bank successfully recovered a major portion of that charge
off in 1995. Other positive events during the year were the successful approval
to relocate our Lake Arrowhead branch to Blue Jay, California, which will have a
very positive savings on the rent for that facility in 1996 and on. The Bank
also consolidated its Lending Departments into one unit, reducing overhead even
more. A decision was made early in 1995 to market our Victorville facility and
its sale to Chino Valley Bank in October, 1995, eliminated an operational loss.
Vineyard National Bank's Board of Directors and Management are pleased with the
operating results for 1995 and, while optimistic about 1996, we are still
concerned about our regional economy. While we are predicting that 1996 will be
an excellent year for the Bank, we are continuing to find ways to cut costs in
operating expenses to further enhance the bottom line. We appreciate your
continued support and interest in Vineyard National Bank.
<PAGE> 5
[picture of Marty Sandercock,
Ontario Auto Truck Plaza]
While you might not be aware of it unless you happen to drive an
18-wheeler, the Ontario Auto Truck Plaza off Interstate 10 is one of the busiest
hubs in the Inland Empire. Since taking over for his father in 1990, Marty
Sandercock of Upland has overseen an operation that now includes a fuel station,
restaurant, and travel store, as well as repair, wash, and scale facilities.
Overnight parking facilities can accommodate approximately 500 trucks, and
during peak times, the plaza will be filled to capacity most nights of the week.
Sandercock and his wife Tina, who manages the travel store, employ about 155
people.
Sandercock's goal is to provide for the needs of interstate truckers.
What he needs, in turn, is a bank that will help him reach that goal. Five years
ago, when he decided the Ontario Plaza should be one of the first truck stops in
the nation to install an automatic teller machine on the premises, he couldn't
get his bank at the time to accommodate him. When he ran out of options, he
turned to a Vineyard National Bank official, serving at the time with Sandercock
on the boards of the Boys and Girls clubs of the Inland Empire.
Sandercock told him that Vineyard Bank could have his account if the
bank would install an ATM. "It didn't take but a couple of days for him to come
back with a `yes,'" Sandercock recalls. "I'm not sure our needs are really any
different from any other customer. But I learned then that Vineyard can get the
job done."
[picture of David Wilson
Right Angle Inc. and Waterfront Gallery]
Advertising is a creative business, one that requires taking more than
a few risks in order to rise above the competition. It's that kind of mindset
that led David Wilson of the Right Angle Inc. advertising firm to defy
conventional wisdom and do the near-unthinkable: relocate his thriving firm from
Westside Los Angeles to Lake Arrowhead.
In retrospect, it wasn't such a bad idea. Wilson estimates his business
has doubled in the three years since pulling up stakes in Los Angeles.
Technological advances--computers, modems, over-night delivery--make it possible
to conduct his business as though his offices still held a view of the Southern
California freeway system rather than the waters of Lake Arrowhead.
With clients located throughout Southern California from Santa Barbara
to San Diego, Right Angle is one of biggest buyers of radio commercial air time
in Southern California. The company also produces 2-3 million pieces of direct
mail marketing materials each month. Plans are underway to build full-scale
radio and production studios. Wilson's long-term dream is to create a Right
Angle ranch, a place where up to two dozen clients can spend three or four days
combining business and pleasure.
Lewis serves as president of the Lake Arrowhead Village merchants
association, and is on the board of directors of the Lake Arrowhead communities
Chamber of Commerce. Other ventures include the Waterfront art gallery, which
Wilson established last year to bridge the gap between graphic and fine arts.
With so many interests and enterprises to juggle, Wilson swears by
doing business with smaller, community banks. That's why he's with Vineyard
National Bank. "If we have a unique or special need, Vineyard will bend over
backwards to meet it," he says. "I really appreciate that they keep a very close
eye on things. If something seems irregular, they're on the phone to you. That's
a level of service you're not going to find just anywhere."
<PAGE> 6
[picture of George D. Goodwin
Goodwin's Market]
Goodwin's Market was founded in the George C. Goodwin family living
room in 1946. Fifty years later, the Crestline enterprise is still very much a
family business, still owned and operated by Goodwins. George D. Goodwin, his
wife Marty, and their six children have all at one time or another worked in the
store. And a new generation is now making an appearance at the three-store
chain.
But don't make the mistake of assuming the old-fashioned, family nature
of their establishment translates into a provincial outlook on business. The
Goodwins are at the forefront of a technological revolution in retail sales
information processing.
Three years ago son Martin Goodwin, finding the available retail
software not only inadequate but expensive, set out to create a better system.
He's now developing a retailing operating system (ROS) containing all the
necessary retail applications in a single computer system with the ease of a
Windows interface.
The key to his success, according to George Goodwin, is actual retail
experience that allows Martin to appreciate the real-world needs of the
shopkeeper. ROS has been used successfully in the Goodwin markets for 18 months
already, while Martin Goodwin and his technical team continue to monitor and
modify the system.
The industry buzz surrounding ROS has already led to national press
interest and support from Microsoft chairman Bill Gates. With plans underway to
market the system around the world, the small-town enterprise is poised at the
brink of something unimaginable 50 years ago.
Goodwin's Market is constantly striving to offer better, more efficient
service for its customers. And so they appreciate the service they receive from
Vineyard National Bank, where they have been customers since the Crestline
branch opened its doors 10 years ago. "We love it," says George Goodwin. "When
we built the present store, it took seven months for [our bank at the time] to
furnish the first dollar. With Vineyard, it takes a matter of weeks. Over the
years we've worked with a lot of banks and a lot of managers. We just really
enjoy doing business with Vineyard."
[picture of Al Schmid
Raymar/Superior Molding]
Al Schmid of Raymar/Superior Molding is a tool and die maker by trade.
He moved into plastic mold-making in 1961 as the Southern California defense
industry was picking up steam. The decline in defense spending in recent years
was difficult to weather, says Schmid, until the company found a new niche
manufacturing medical devises.
That, along with the production of plastic parts for aircraft and
automobile components, gives Schmid the satisfaction of knowing that the
business he and his wife Helga named after their children Raymond and Mary is
still a viable enterprise. (Raymond still works at the Ontario plant, but Mary
has moved on to other ventures.)
Raymar currently employs about 50 people and maintains a Southern
California customer base. In fact, Schmid says, they more or less maintain the
same customer base, since all their former defense industry customers have now
re-aligned themselves into commercial production.
The story of how the Schmids came to bank with Vineyard is a familiar
one to fans of community banks. When Al Schmid was working on the plans and
financing of a new building in the late '80s, he hit more than a few obstacles
along the way. Particularly frustrating was the necessity of dealing with a
faraway bank official too removed from the Schmid's needs. The months dragged
on, and with funding for the building still not released Schmid's patience was
stretched to the limit when he happened to run into a Vineyard National Bank
representative.
Just one day after collecting the necessary paperwork--a task which
itself took only one day, according to Schmid--the Bank notified Raymar that the
loan was approved. "They do in one day what Security Pacific could not do in
eight months," recalls Schmid today. "I know that if I'm ever not satisfied, I
can go to the main man right here, not some manager hidden behind a curtain on
the 40th floor of a building in downtown Los Angeles."
<PAGE> 7
[picture of Rick Lewis
Pro-Turf Professional Landscape Services]
Doubling in size in only four years is no reason to slow down, says
Rick Lewis of Pro-Turf Professional Landscape Services. His next goal is to
become the largest landscape service in the area. The company was founded in
1965 by Rick's father Robert Lewis; Rick assumed the presidency in 1989. The
business includes another son, Ed, who works as the company's estimator.
Operating out of offices in Chino and Mission Viejo, Pro-Turf's work is
nearly 90 percent commercial maintenance, and 10 percent installation. The
commercial contracts include condominiums, apartments, shopping centers,
industrial complexes, and city government buildings. The company, which employs
90 workers, boasts clients throughout Los Angeles, San Bernardino, Orange, and
Riverside counties. Rick Lewis says they are particularly proud of their work on
Mission Viejo's sports facility complex, which includes Olympic training
facilities.
Overseeing operations requires Rick Lewis to stop by his Vineyard Bank
branch nearly on a daily basis. Pro-Turf joined Vineyard when the Chino branch
was still located in a temporary trailer before the current building was
completed in 1988.
Lewis says he had suffered through numerous bad experiences with larger
banks and was looking for something better. He credits Vineyard, and
particularly the Chino branch manager at the time Chuck Parsons, with helping
Pro-Turf through its growth spurt. "A growing business needs loans," says Lewis.
"Chuck went that extra mile to help me out. They know our needs. As far as my
business goes, I don't know if we would be as large as we are without them."
[picture of Gene Fulton
Jensen's Finest Foods]
"My philosophy is to bank with local institutions. I want to show
loyalty to the smaller bank that offers all the services of a large bank.
Vineyard is doing the job."
Service is something Gene Fulton knows something about. As a high
school student he worked as a clean-up boy in Mr. Jensen's Blue Jay grocery
store. Over the years he moved into progressively more responsible positions,
until purchasing the store from Jensen in 1981.
Since then, the business has grown to include six outlets located in
Blue Jay, Wrightwood, Palm Desert, Palm Springs, Rancho Mirage, and Cedar Glen
and employing about 300 people. Two of the stores are known as Jensen's Minute
Shops--small, convenience-store operations with groceries, wine, liquor, and a
deli--while the others, which Fulton describes as upscale grocery stores, are
called Jensen's Finest Foods. His niche, as he sees it, is to provide the
specialized services the large grocery chains cannot.
And indeed, the larger stores, each around 30,000 square feet, offer
full-service meat, seafood, and produce departments as well as delicatessens and
bakeries that produce only from-scratch goods. Jensen's is equally well known
for their fine selections of wines and liquors as well as special services such
as gourmet gift baskets.
Today, even with three sons working alongside him, Fulton has chosen to
keep the Jensen name because of its instant recognition and association with
quality. That's important, he believes, in any business but especially in one
located in resort areas where the steady customers might be former presidents
(Ford) or captains of industry (Annenberg) with pretty good name-recognition
themselves.
<PAGE> 8
[picture of Toshio and Tydon Hashioka
ATMC Inc.]
Toshio and Susan Hashioka sensed an opportunity in the making back in
1981 when the automatic teller machine was first starting to gain recognition
and usage among bank customers. That was the year Toshio, who has a background
in both banking and the development of the ATM, and his wife Susan launched an
automatic teller machine consulting firm out of Gardena, Calif.
What began as a two-person enterprise has grown into ATMC, an
independent ATM servicing and consulting firm. Today the Ontario-based company
services more than 800 machines all over California, Washington, Oregon, Texas
and Colorado and employs approximately 100 people. ATMC also provides ATM
installation, hardware maintenance, and supply sales.
Susan Hashioka estimates their business was one of the first of its
kind west of the Mississippi. They maintain a fleet of about 30 cars and small
trucks, warehousing parts all over the state. She thought the growth in ATM
usage had peaked a few years ago, but predicts substantial growth for ATMC this
year.
It seem fitting that their first contact with Vineyard was when the
bank became one of ATMC's earliest clients. The decision to bank with Vineyard
came not long after. "We found larger banks have no idea of what we do, so they
could care less. We wanted a closer relationship with a community bank with
interest in us," says Susan Hashioka. "We wanted someone assigned to work with
us, to talk to us about what's going on. We have that with Vineyard."
[picture of Dan Fox
Animal Pest Management Services Inc.]
His name is Dan Fox and he's the owner of Animal Pest Management
Services. But please, no puns about his last name. Pest management is serious
business these days. Fox, who has a degree in biology and pest management from
California State Polytechnic University, spends much of his time out in the
field. His operation, 80 percent commercial and 20 percent residential,
maintains offices in Chino and Ventura, covering all of Southern California
except San Diego, from San Luis Obispo to Palm Springs.
Modern pest control methods today include netting, trapping, exclusion
and habitat modification. One of the biggest challenges Fox says he faces is
controlling pests without harming them. The swallow is a case in point. While
many Californians may view the bird nostalgically, the Federally protected
species nonetheless carries eco-parasites harmful to others.
Fox, who considers himself a convert from large, mega-branch banking
institutions, came to Vineyard in 1985. He's impressed with the fact that
Vineyard staff members recognize him when he walks into his branch. Part of the
reason might be that Fox holds an important milestone: He purchased his current
building with the branch's very first Small Business Administration 504 loan. "I
have quite a bit of contact with the bank, since my big expense is purchasing
service trucks," says Fox. "If I've got a problem, or there's something I can't
figure out and I need advice, [they're] super. They understand business and my
needs."
<PAGE> 9
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Trading in the Company's Common Stock has been relatively inactive and
the trades that do occur from time to time cannot be characterized as
constituting an active trading market. The Common Stock is not listed on any
national or regional stock exchange or with NASDAQ. At December 31, 1995, the
Company had approximately 742 shareholders.
The following table summarizes the high and low prices at which the
shares of Common Stock of the Company have traded during the periods indicated,
based upon trades of which management of the Company has knowledge. Quoted
prices reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not necessarily represent actual transactions. This
information has been provided by the Company's securities dealer, Sutro &
Company.
<TABLE>
<CAPTION>
Sales Prices of
Common Stock (1), (2)
-------------------------
High Low
---------- -----------
1994
<S> <C> <C>
First Quarter $3.25 $2.75
Second Quarter 2.75 2.00
Third Quarter 2.75 2.00
Fourth Quarter 3.00 2.75
1995
First Quarter $3.50 3.00
Second Quarter 3.88 3.50
Third Quarter 3.88 3.00
Fourth Quarter 3.50 3.00
</TABLE>
- --------
(1) Adjusted to reflect all stock splits by the Company.
(2) Trades by directors and/or executive officers of the Company did not
account for any of the trades reflected in the above table.
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below for the fiscal years ended December
31, 1995, 1994 and 1993, are derived from the audited consolidated and Bank
financial statements of the Company examined by Vavrinek, Trine, Day & Co.,
Certified Public Accountants, included elsewhere in this Report and should be
read in conjunction with those consolidated financial statements. The selected
financial data for the fiscal years ended December 31, 1992 and 1991, are
derived from audited financial statements examined by Vavrinek, Trine, Day & Co.
which are not included in this Report.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Interest Income $ 6,169,275 $ 6,553,528 $ 7,033,628 $ 7,419,569 $ 8,188,677
(Provision)/Credit for Loan and Lease
Losses 429,000 (1,440,000) (300,000) (2,351,800) (355,000)
Other Income 3,922,117 2,769,679 3,893,329 3,995,952 3,036,943
Other Expenses (9,102,333) (9,791,796) (10,129,534) (10,415,287) (9,851,790)
------------ ------------ ------------ ------------ ------------
Income/(Loss) Before Taxes 1,418,059 (1,908,589) 497,423 (1,351,566) 1,018,830
Income Taxes (584,254) (370,100) 144,800 (269,200) 315,200
------------ ------------ ------------ ------------ ------------
of Accounting Change 833,805 (1,538,489) 352,623 (1,082,366) 703,630
------------ ------------
Cumulative Effect of Change in
Accounting For Income Taxes -- -- 107,000 -- --
------------ ------------ ------------ ------------ ------------
Net Income/(Loss) $ 833,805 $ (1,538,489) $ 459,623 $ (1,082,366) $ 703,630
============ ============ ============ ============ ============
Earnings/(Loss) Per Share of Common
Stock(1)
Income/(Loss) Before Cumulative Effect $ 0.45 $ (0.83) $ 0.19 $ (0.58) $ 0.38
Cumulative Effect -- -- 0.06 -- --
------------ ------------ ------------ ------------ ------------
Net Income/(Loss) $ 0.45 $ (0.83) $ 0.25 $ (0.58) $ 0.38
============ ============ ============ ============ ============
Number of Shares Used in Per Share
Calculation (1) 1,862,643 1,862,643 1,862,643 1,862,643 1,850,303
Stock Splits 6 for 5 -- -- -- 6 for 5
BALANCE SHEET DATA
Assets $107,559,133 $107,417,232 $120,646,469 $137,835,991 $144,936,450
============ ============ ============ ============ ============
Deposits $ 98,414,447 $ 98,584,479 $111,186,106 $127,715,070 $134,377,806
============ ============ ============ ============ ============
Loans and Leases/(Net) $ 77,287,938 $ 83,786,866 $ 83,940,271 $ 94,815,525 $107,386,227
============ ============ ============ ============ ============
Stockholders' Equity $ 7,752,714 $ 6,860,144 $ 8,446,305 $ 7,986,682 $ 9,069,716
============ ============ ============ ============ ============
</TABLE>
- --------
(1) Retroactively adjusted for stock splits.
-28-
<PAGE> 11
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Cash and due from banks (minimum Federal Reserve Balance
at December 31, 1995 was $1,388,000) $ 8,093,749 $ 8,510,019
Federal funds sold 1,925,000 --
------------- -------------
Total Cash and Cash Equivalents 10,018,749 8,510,019
------------- -------------
Interest-bearing deposits in other financial institutions 792,000 99,000
Investment Securities (Notes #1C and #2)
Available for sale 13,431,518 3,053,407
Held to maturity (approximate fair value $4,888,000) -- 4,989,313
Loans, net of unearned income (Notes #1D and #3) 77,482,539 83,495,890
Direct lease financing (Notes #1F and #4) 588,865 1,305,409
Less: Reserve for probable loan and lease
losses (Notes #1E and #6) (783,466) (1,014,433)
------------- -------------
77,287,938 83,786,866
Bank premises and equipment (Note #1G and #7) 3,703,294 3,916,924
Accrued interest 541,975 488,166
Cash surrender value of life insurance 741,834 547,601
Other real estate owned (Notes #1K, #22 and #23) 608,694 848,234
Other assets 433,131 1,177,702
------------- -------------
Total Assets $ 107,559,133 $ 107,417,232
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand deposits 25,691,559 26,310,472
Savings and NOW deposits 26,537,492 32,601,508
Money market deposits 16,295,843 18,745,732
Time deposits in denominations of $100,000 or more 8,932,511 7,364,006
Other time deposits 20,957,042 13,562,761
------------- -------------
98,414,447 98,584,479
Federal funds purchased -- 1,000,000
Accrued employee salary and benefits (Notes #14 and #15) 443,013 486,236
Accrued interest and other liabilities 948,959 486,373
------------- -------------
Total Liabilities 99,806,419 100,557,088
------------- -------------
Stockholders' Equity
Contributed Capital
Common stock - authorized 15,000,000 shares, no par
value, issued and outstanding 1,862,643 shares in
1995 and 1994 (Note #10) 2,106,258 2,106,258
Additional paid in capital 3,306,684 3,306,684
Retained Earnings 2,327,885 1,494,874
Valuation allowance for investments 11,887 (47,672)
------------- -------------
Total Stockholders' Equity 7,752,714 6,860,144
------------- -------------
Total Liabilities and Stockholders' Equity $ 107,559,133 $ 107,417,232
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 12
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans (Note #1D) $ 7,470,066 $ 7,511,170 $ 8,411,963
Interest on Investment Securities (Note #1C)
Obligations of U.S. Government Agencies and Corporations 745,436 662,282 612,789
Obligations of State and Political Subdivisions 271 465 665
Interest on other securities 9,749 9,641 9,461
Interest on deposits 36,022 11,235 28,582
Interest on Federal funds sold 232,159 112,145 167,111
Direct lease financing income (Note #1F) 75,160 165,594 284,180
------------ ------------ ------------
Total Interest Income 8,568,863 8,472,532 9,514,751
------------ ------------ ------------
INTEREST EXPENSE
Interest on savings deposits 258,963 378,918 488,631
Interest on NOW and money market deposits 573,804 856,661 1,136,962
Interest on time deposits in denominations of $100,000 or more 334,410 212,361 239,772
Interest on other time deposits 1,225,710 457,673 598,999
Interest on Federal funds purchased and other interest 6,701 13,391 16,759
------------ ------------ ------------
Total Interest Expense 2,399,588 1,919,004 2,481,123
------------ ------------ ------------
Net Interest Income 6,169,275 6,553,528 7,033,628
PROVISION/CREDIT FOR LOAN AND LEASE LOSSES (NOTE #1E AND #6) 429,000 (1,440,000) (300,000)
------------ ------------ ------------
Net Interest Income After Provision
for Loan and Lease Losses 6,598,275 5,113,528 6,733,628
------------ ------------ ------------
OTHER INCOME
Fees and service charges, gain on sale of loans
and loan servicing income (Note #12) 2,447,100 2,824,731 3,871,517
Sale of mortgage servicing rights (Note #19) 1,488,789 -- --
Sale of branch office (Note #25) 22,984 -- --
Net loss on sale of other real estate owned (39,463) (39,286) (4,142)
Net gain/(loss) on sale of investment securities (8,237) (29,051) 2,344
Other Income 10,944 13,285 23,610
------------ ------------ ------------
Total Other Income 3,922,117 2,769,679 3,893,329
------------ ------------ ------------
OTHER EXPENSES
Salaries and employee benefits 3,991,474 4,090,822 4,664,969
Occupancy expense of premises 1,253,892 1,209,886 1,177,941
Furniture and equipment expenses 646,499 683,351 794,315
Other expenses (Note #12) 3,210,468 3,807,737 3,492,309
------------ ------------ ------------
Total Other Expenses 9,102,333 9,791,796 10,129,534
------------ ------------ ------------
Income/(Loss) Before Income Taxes and Cumulative
Effect of Accounting Change 1,418,059 (1,908,589) 497,423
Income Taxes (Notes #1J and #8) 584,254 (370,100) 144,800
------------ ------------ ------------
Income/(Loss) Before Cumulative Effect of Accounting Change 833,805 (1,538,489) 352,623
Cumulative Effect of Change in Accounting For Income Taxes
(Note #17) -- -- 107,000
------------ ------------ ------------
Net Income/(Loss) $ 833,805 $ (1,538,489) $ 459,623
============ ============ ============
Income/(Loss) Per Share
Earnings/(Loss) Per Share (Note #16)
Income/(Loss) Before Cumulative Effect $ 0.45 $ (0.83) $ 0.19
Cumulative Effect -- -- 0.06
------------ ------------ ------------
Net Income/(Loss) $ 0.45 $ (0.83) $ 0.25
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 13
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 1995, 1994 AND 1993
<TABLE>
<CAPTION>
VALUATION
NUMBER OF ADDITIONAL ALLOWANCE
SHARES COMMON PAID IN RETAINED FOR
OUTSTANDING STOCK CAPITAL EARNINGS INVESTMENTS
-------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance, January 1, 1993 1,552,425 $ 2,106,258 $ 3,306,684 $ 2,573,740 $ -
Net income for the year - - - 459,623 -
-------------- ------------- ------------- -------------- --------------
Balance, December 31, 1993 1,552,425 2,106,258 3,306,684 3,033,363 -
Unrealized loss on investment
securities available-for-sale
(net of tax) - - - - (47,672)
Net loss for the year - - - (1,538,489) -
-------------- ------------- ------------- -------------- --------------
Balance, December 31, 1994 1,552,425 2,106,258 3,306,684 1,494,874 (47,672)
Change in unrealized gain/(loss)
on investment securities
available-for-sale (net of tax) - - - - 59,559
Six-for-five stock split 310,218 - - - -
Cash paid to shareholders in lieu
of fractional shares on six-for-
five stock split - - - (794) -
Net income for the year - - - 833,805 -
-------------- ------------- ------------- -------------- --------------
BALANCE, DECEMBER 31, 1995 1,862,643 $ 2,106,258 $ 3,306,684 $ 2,327,885 $ 11,887
============== ============= ============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 14
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
DECREASE IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and fees received $ 7,543,620 $ 9,569,008 $ 10,079,171
Service fees and other income received 3,944,375 2,838,016 3,881,428
Financing revenue received under leases 75,160 165,594 284,180
Interest paid (2,027,170) (1,950,722) (2,583,173)
Cash paid to suppliers and employees (8,906,657) (9,377,571) (9,720,421)
Income taxes 311,393 134,338 25,513
------------ ------------ ------------
Net Cash Provided By Operating Activities 940,721 1,378,663 1,966,698
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of investment
securities held to maturity 2,797,500 9,500,000 12,007,422
Proceeds from sales and maturities of investment
securities, available for sale 11,055,000 14,955,590 --
Purchase of investment securities held to maturity -- (2,975,156) (19,055,196)
Purchase of investment securities available for sale (18,948,067) (9,866,130) --
Proceeds from maturities of deposits in other
financial institutions 891,000 781,000 2,073,000
Increase in OREO (263,372) (53,025) (1,374,258)
Purchase of deposits in other financial institutions (1,584,000) (391,000) (1,672,000)
Recoveries on loans previously written off 894,920 265,128 578,555
Net (increase)/decrease in loans to customers 5,970,829 (4,039,130) 7,807,203
Net decrease in leases to customers 716,544 1,404,057 1,502,117
Capital expenditures (494,129) (224,977) (403,993)
Proceeds from sale of property, plant and equipment 39,161 1,141 247,687
Proceeds from sale of branch 200,000 -- --
Proceeds from sale of OREO 463,449 143,334 392,287
------------ ------------ ------------
Net Cash Provided By Investing Activities 1,738,835 9,500,832 2,102,824
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand deposits, NOW accounts,
savings accounts, and money market deposits (9,132,818) (13,562,350) (13,033,202)
Net increase/(decrease) in certificates of deposits 8,962,786 960,723 (3,495,762)
Net increase/(decrease) in federal funds purchased (1,000,000) 1,000,000 --
Cash paid in lieu of fractional shares (794) -- --
Decrease in mortgages payable -- -- (887,277)
------------ ------------ ------------
Net Cash Used In Financing Activities (1,170,826) (11,601,627) (17,416,241)
------------ ------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS 1,508,730 (722,132) (13,346,719)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,510,019 9,232,151 22,578,870
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 10,018,749 $ 8,510,019 $ 9,232,151
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 15
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME/(LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Income/(Loss) $ 833,805 $(1,538,489) $ 459,623
----------- ----------- -----------
Adjustments to Reconcile Net Income/(Loss)
to Net Cash Provided by Operating Activities
Depreciation and amortization 249,933 482,375 608,859
Provision/(credit) for probable credit losses (429,000) 1,440,000 300,000
(Gain)/loss on sale of equipment (260) 1,330 (610)
Increase/(decrease) in taxes payable 895,647 (235,762) 63,313
Increase in other assets (157,491) (67,034) (59,662)
Increase/(decrease) in unearned loan fees (654,365) 1,083,350 686,379
(Increase)/decrease in interest receivable (53,809) 186,005 139,902
Increase/(decrease) in interest payable 372,418 (31,718) (102,050)
Decrease in accrued expense and
other liabilities (140,873) (9,731) (130,854)
Gain on sale of branch (22,984) -- --
(Gain)/loss on sale of investment securities 8,237 29,051 (2,344)
Loss on sale of OREO 39,463 39,286 4,142
----------- ----------- -----------
Total Adjustments 106,916 2,917,152 1,507,075
----------- ----------- -----------
Net Cash Provided by Operating Activities $ 940,721 $ 1,378,663 $ 1,966,698
=========== =========== ===========
SUPPLEMENTARY INFORMATION
Change in valuation allowance for
investment securities $ 59,559 $ (47,672) $ --
=========== =========== ===========
Book value of investment securities transferred $ 2,197,960 $ -- $ --
from held-to-maturity to available-for-sale =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 16
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Vineyard National Bancorp (the Company)
and Subsidiary conform to generally accepted accounting principles and to
general practices within the banking industry. A summary of the Company's
significant accounting and reporting policies consistently applied in the
preparation of the accompanying financial statements follows:
A. Principles of Consolidation
The consolidated financial statements include the Company and its
wholly owned subsidiary, Vineyard National Bank. Intercompany balances
and transactions have been eliminated.
B. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and
the valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans. In connection with the determination of
the allowances for losses on loans and foreclosed real estate,
management obtains independent appraisals for significant properties.
While management uses available information to recognize losses on
loans and foreclosed real estate, future additions to the allowances
may be necessary based on changes in local economic conditions. In
addition, regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowances for losses on loans
and foreclosed real estate. Such agencies may require the Bank to
recognize additions to the allowances based on their judgments about
information available to them at the time of their examination. Because
of these factors, it is reasonably possible that the allowances for
losses on loans and foreclosed real estate may change.
C. Investment Securities
The Company adopted SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" on January 1, 1994, which addresses the
accounting for investments in equity securities that have readily
determinable fair values and for investments in all debt securities.
Securities are classified in three categories and accounted for as
follows: debt securities that the Company has the positive intent and
ability to hold to maturity are classified as held-to-maturity and are
measured at amortized cost; debt and equity securities bought and held
principally for the purpose of selling in the near term are classified
as trading securities and are measured at fair value, with unrealized
gains and losses included in earnings; debt and equity securities are
deemed as either available-for-sale and are measured at fair value,
with unrealized gains and losses, reported in a separate component of
stockholders' equity. For 1993, investment securities were stated at
cost and adjusted for amortization of premiums and accretion of
-7-
<PAGE> 17
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
C. Investment Securities, Continued
discounts, which are recognized as adjustments to interest income. Gains or
losses on disposition were based on the net proceeds and adjusted carrying
amount of the securities sold.
D. Loans and Interest on Loans
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees and unearned discounts. Interest income is
accrued monthly as earned on all loans not discounted. The Bank recognizes
loan origination fees to the extent they represent reimbursement for initial
direct costs, as income at the time of loan boarding. The excess of fees
over costs, if any, is deferred and credited to income over the term of the
loan. Unearned discounted on installment loans is recognized as income over
the term of the loans by the sum-of-the-month-digits method (Rule of 78's).
The Bank adopted SFAS No. 114, (as amended by SFAS No. 118), "Accounting by
Creditors for Impairment of a Loan" on January 1, 1995. The statement
generally requires those loans identified as "impaired" to be measured on
the present value of expected future cash flows discounted at the loan's
effective interest rate, except that as a practical expedient, a creditor
may measure impairment based on a loan's observable market price, or the
fair value of the collateral if the loan is collateral dependent. A loan is
impaired when it is probable the creditor will not be able to collect all
contractual principal and interest payments due in accordance with the terms
of the loan agreement.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more.
Any unpaid interest previously accrued on those loans is reversed from
income. Interest income generally is not recognized on specific impaired
loans unless the likelihood of further loss is remote. Interest payments
received on such loans are applied as a reduction of the loan principal
balance.
E. Allowance for Loan Losses
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the
loan portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the loan portfolio, including the nature
of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans, and economic conditions. The allowance
is increased by a provision for loan losses, which is charged to expense and
reduced by charge-offs, net of recoveries.
F. Direct Lease Financing
The investment in lease contracts is recorded using the finance method of
accounting. Under the finance method, an asset is recorded in the amount of
the total lease payments receivable and estimated residual value, reduced by
unearned income. Income, represented by the excess of the total receivable
over the cost of the related asset, is recorded in income in decreasing
amounts over the term of the contract based upon the principal amount
outstanding. The
-8-
<PAGE> 18
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
F. Direct Lease Financing, Continued
financing lease portfolio consists of buses and relocatable buildings, with
terms from three to seven years.
G. Bank Premises, Equipment and Leasehold Improvements
The Company's furniture, equipment and leasehold improvements are stated at
cost less accumulated depreciation. Depreciation is computed on the
straight-line method. Rates of depreciation are based on the following
depreciable lives: furniture, two to fifteen years; leasehold improvements,
fifteen years; and equipment, five to twenty years. Total depreciation
expense for the reporting periods ending December 31, 1995, 1994 and 1993,
was approximately $492,000, $490,000 and $587,000, respectively.
H. Reclassifications
Certain reclassifications have been made to the 1993 and 1994 financial
statements to conform to 1995 classifications.
I. Consolidated Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, and Federal funds sold. Generally, Federal
funds are purchased and sold for one-day periods.
J. Income Taxes
Provisions for income taxes are based on amounts reported in the statements
of income (after exclusion of non-taxable income such as interest on state
and municipal securities) and include deferred taxes on temporary
differences in the recognition of income and expense for tax and financial
statement purposes. Deferred taxes are computed on the liability method as
prescribed in SFAS No. 109, "Accounting for Income Taxes."
K. Other Real Estate Owned
Other real estate owned, which represents real estate acquired through
foreclosure, is stated at the lower of the carrying value of the loan or the
estimated fair value less estimated selling costs of the related real
estate. Loan balances in excess of the fair value of the real estate
acquired at the date of acquisition are charged against the allowance for
loan losses. Any subsequent declines in estimated fair value less selling
costs, operating expenses or income and gains or losses on disposition of
such properties are charged to current operations.
-9-
<PAGE> 19
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
L. New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of." This Statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used for
long-lived assets and certain identifiable intangibles to be disposed of. An
impairment loss shall be measured as the amount by which the carrying amount
of the asset exceeds the fair value of the asset. After an impairment is
recognized, the reduced carrying amount of the asset shall be accounted for
as its new cost.
In May 1995, FASB issued Statement No. 122, "Accounting for Mortgage
Servicing Rights." SFAS No. 122 amends certain provisions of SFAS No. 65
"Accounting for Certain Mortgage Banking Activities" to eliminate the
accounting distinction between rights to service mortgage loans for others
that are acquired through loan origination activities and those acquired
through purchase transactions. When accounting for the cost of mortgage
servicing rights in accordance with SFAS No. 122, regardless of the origin
of those costs, the cost of acquisition includes the cost of the related
mortgage servicing rights. If the mortgage banking enterprise sells a
mortgage and a note and retains servicing rights, the total cost of the
mortgage loan should be allocated to the mortgage servicing rights and the
loan based upon the fair value of each. If the values are not practicably
determinable, the entire cost of the acquisition should be allocated to the
loan only.
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, "Accounting for Stock-based Compensation." This Statement
establishes a fair value based method of accounting for stock-based
compensation plans and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. Under the
fair value based method, compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period,
which is usually the vesting period.
The Bank has not elected early adoption of any of the statements and has not
determined the potential impact of the statements on its financial
statements. The statements are effective for financial statements issued for
fiscal years beginning after December 15, 1995.
NOTE #2 - INVESTMENT SECURITIES
At December 31, 1995 and 1994, the investment securities portfolio was comprised
of securities classified as available-for-sale and held-to-maturity, in
conjunction with the adoption of SFAS No. 115, resulting in investment
securities available-for-sale being carried at fair value and investment
securities held-to-maturity being carried at cost, adjusted for amortization of
premiums and accretions of discounts.
-10-
<PAGE> 20
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #2 - INVESTMENT SECURITIES, CONTINUED
The amortized cost and fair values of investment securities available-for-sale
at December 31, 1995 were:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 6,003,641 $ 8,546 $ 6,012,187
Obligations of other U.S. government
agencies and corporations 7,225,536 11,951 7,237,487
Other securities 181,844 181,844
-------------- -------------- -------------- ---------------
$ 13,411,021 $ 20,497 $ - $ 13,431,518
============== ============== ============== ===============
</TABLE>
The amortized cost and fair values of investment securities available-for-sale
at December 31, 1994 were:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 1,968,755 $ (54,692) $ 1,914,063
Obligations of other U.S. government
agencies and corporations 1,000,000 (27,500) 972,500
Other securities 166,844 166,844
--------------- -------------- -------------- --------------
$ 3,135,599 $ - $ (82,192) $ 3,053,407
=============== ============== ============== ==============
</TABLE>
The amortized cost and fair values of investment securities held-to-maturity at
December 31, 1994 were:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 2,000,737 $ (10,737) $ 1,990,000
Obligations of other U.S. government
agencies and corporations 2,983,558 (90,283) 2,893,275
Obligations of state and
political subdivisions 5,018 $ 12 5,030
--------------- -------------- -------------- --------------
$ 4,989,313 $ 12 $ (101,020) $ 4,888,305
=============== ============== ============== ==============
</TABLE>
-11-
<PAGE> 21
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #2 - INVESTMENT SECURITIES, CONTINUED
The amortized cost and fair values of investment securities available-for-sale
at December 31, 1995, by expected maturity are shown below. Expected maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-
FOR-SALE
------------------------------------
AMORTIZED FAIR
COST VALUE
---------------- ---------------
<S> <C> <C>
Due in one year or less $ 11,018,774 $ 11,032,674
Due after one year but less than five years 2,210,403 2,217,000
---------------- ---------------
13,229,177 13,249,674
Other securities 181,844 181,844
---------------- ---------------
$ 13,411,021 $ 13,431,518
================ ===============
</TABLE>
Proceeds from sales and maturities of investment securities available-for-sale
and held-to-maturity during 1995 were $11,055,000 and $2,797,500, respectively.
Gross losses on those sales and maturities were $8,237. Included in
shareholders' equity at December 31, 1995 is $11,887 of net unrealized losses
(net of $8,611 estimated tax benefit) on investment securities
available-for-sale.
Proceeds from sales and maturities of investment securities available-for-sale
and held-to-maturity during 1994 were $14,955,590 and $9,500,000, respectively.
Gross gains and losses on those sales and maturities were $3,816 and $32,867,
respectively. Included in shareholders' equity at December 31, 1994 is $47,672
of net unrealized losses (net of $34,520 estimated tax benefit) on investment
securities available-for-sale.
Securities with a carrying value of $3,802,906 and $4,295,804 and market value
of $3,802,906 and $4,205,045 at December 31, 1995 and 1994, respectively, were
pledged to secure public monies as required by law.
-12-
<PAGE> 22
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #3 - LOANS
All the Company's loans, commitments, and commercial and standby letters of
credit have been granted to customers in the Company's market area, which
includes the counties of San Bernardino and Los Angeles. These loans are
collateralized in accordance with Company policy. The concentrations of credit
by type of loan are outlined as follows:
<TABLE>
<CAPTION>
1995 1994
---------------- ----------------
<S> <C> <C>
Commercial, financial and agricultural $ 9,256,985 $ 9,150,757
Real Estate - construction 680,085 1,483,921
Real Estate - mortgage
Commercial 22,299,858 18,426,302
Residential 6,580,811 8,464,082
Installment loans to individuals 41,723,335 49,657,401
All other loans (including overdrafts) 69,477 95,804
---------------- ----------------
80,610,551 87,278,267
Unearned income on installment loans (2,796,117) (3,538,061)
Deferred loan fees (331,895) (244,316)
---------------- ----------------
Loans, Net of Unearned Income $ 77,482,539 $ 83,495,890
================ ================
</TABLE>
Non-accruing loans totaled approximately $479,000 and $139,000 at December 31,
1995 and 1994, respectively. Interest income that would have been recognized on
non-accrual loans if they had performed in accordance with the terms of the
loans was approximately $42,000, $13,000 and $134,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. This had the effect of reducing
earnings per share $.02, $.01 and $.07 for the years ended December 31, 1995,
1994 and 1993, respectively.
At December 31, 1995 and 1994, the Company had approximately $320,000 and
$701,000, respectively, in loans past due 90 days or more in interest or
principal and still accruing interest. These loans are well secured and in the
process of collection, or are secured by 1-4 single family residences.
At December 31, 1995, the Bank had loans amounting to approximately $564,000,
that were specifically classified as impaired. The average balance of these
loans amounted to approximately $567,000 for the year ended December 31, 1995.
The allowance for loan losses related to impaired loans amounted to
approximately $67,000 at December 31, 1995. The following is a summary of cash
receipts on these loans and how they were applied in 1995:
<TABLE>
<S> <C>
Cash receipts applied to reduce principal balance $ 8,853
Cash receipts recognized as interest income 24,931
----------
Total Cash Receipts $ 33,784
==========
</TABLE>
-13-
<PAGE> 23
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #4 - DIRECT LEASE FINANCING
The Company leases buses and relocatable buildings to parties under agreements
which range generally from three to seven years. Executory costs are paid by the
lessee and leases do not include any contingent rental features. The net
investment in direct lease financing consists of the following:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Lease payments receivable $ 649,774 $ 1,469,140
Unearned income (60,909) (163,731)
-------------- --------------
Total Direct Lease Financing $ 588,865 $ 1,305,409
============== ==============
</TABLE>
The Company had no outstanding commitments relating to municipal leases at
December 31, 1995 and 1994.
At December 31, 1995, future minimum lease payments receivable under direct
financing leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------
<S> <C>
1996 $ 395,537
1997 168,491
1998 24,837
------------
Total $ 588,865
============
</TABLE>
NOTE #5 - LOANS TO DIRECTORS AND OFFICERS
In the ordinary course of business, the Company has granted loans to certain
directors and officers and the companies with which they are associated. All
such loans were made under the terms which are consistent with the Bank's normal
lending policies.
An analysis of the activity with respect to such aggregate loans to related
parties during 1995 and 1994, is as follows:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
<S> <C> <C>
Outstanding balance, Beginning of year $ 1,936,581 $ 1,539,592
Credit granted, including renewals 448,007 1,463,064
Repayments (928,704) (1,066,075)
--------------- ---------------
Outstanding balance, End of year $ 1,455,884 $ 1,936,581
=============== ===============
</TABLE>
-14-
<PAGE> 24
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #5 - LOANS TO DIRECTORS AND OFFICERS, CONTINUED
Not included in the balances outstanding at December 31, 1995 and 1994 were
undisbursed commitments to lend of approximately $119,000 and $122,000,
respectively. Included in the balances above were loans classified by the
Company's regulatory agency or by the Company for approximately $0 ($0
undisbursed) in 1995 and $431,000 ($89,000 undisbursed) in 1994. There were no
non-accruing loans to Directors and Officers in 1995 and 1994.
NOTE #6 - RESERVE FOR PROBABLE LOAN AND LEASE LOSSES
Transactions in the reserve for loan and lease losses are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance, Beginning of year $ 1,014,433 $ 1,307,105 $ 1,868,295
Recoveries on loans previously charged off 894,920 265,128 578,555
Loans charged off (696,887) (1,997,800) (1,439,745)
Provision charged to operating expense (429,000) 1,440,000 300,000
--------------- --------------- ---------------
Balance, End of year $ 783,466 $ 1,014,433 $ 1,307,105
=============== =============== ===============
</TABLE>
NOTE #7 - PREMISES AND EQUIPMENT
Major classifications of Company premises and equipment are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
<S> <C> <C>
Buildings $ 1,571,635 $ 1,365,572
Furniture and equipment 3,245,193 3,463,908
Leasehold improvements 1,191,835 1,297,533
--------------- ---------------
6,008,663 6,127,013
Less: Accumulated depreciation
and amortization (2,965,369) (2,870,089)
Land 660,000 660,000
--------------- ---------------
Total $ 3,703,294 $ 3,916,924
=============== ===============
</TABLE>
-15-
<PAGE> 25
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #8 - INCOME TAXES
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Tax provision/(credit) applicable to
income before income taxes $ 584,254 $(370,100) $ 144,800
========= ========= =========
Federal Income Tax
Current -- -- (106,134)
Deferred 416,752 (372,500) 185,737
--------- --------- ---------
Total Federal Income Tax 416,752 (372,500) 79,603
--------- --------- ---------
State Franchise Tax
Current 2,400 2,400 1,600
Deferred 165,102 -- 63,597
--------- --------- ---------
Total State Franchise Tax 167,502 2,400 65,197
--------- --------- ---------
Total $ 584,254 $(370,100) $ 144,800
========= ========= =========
</TABLE>
Deferred tax expense/(credits) result from timing differences in the recognition
of revenues and expenses for tax and financial statement purposes. The sources
of these differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------- -------------------------- --------------------------
Federal State Federal State Federal State
------------- ------------ ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tax Effect Of
Revenue and expenses
reported on a different
basis for tax purposes $ 253,602 $ 118,340 $ (495,746) $ (18,559) $ (7,565)
Depreciation computed
differently on tax returns
than for financial
statements 2,740 (6,551) (1,670) (21,021) (2,444)
Deferred compensation
plan 14,550 4,836 (9,344) 25,533 8,341
Provision for loan loss
deduction in tax return
over or/(under) amount
charged for financial
statement purposes 145,860 48,477 134,260 199,784 65,265
------------- ------------ ------------- ----------- ------------- -----------
Total $ 416,752 $ 165,102 $ (372,500) $ - $ 185,737 $ 63,597
============= ============ ============= =========== ============= ===========
</TABLE>
-16-
<PAGE> 26
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #8 - INCOME TAXES, CONTINUED
As a result of the following items, the total income tax expense/(credit) for
1995, 1994 and 1993, was different than the amount computed by applying the
statutory U.S. Federal income tax rate to income before taxes:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------- --------------------------- -------------------------
PERCENT PERCENT PERCENT
OF PRETAX OF PRETAX OF PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
------------ ------------ ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Federal rate $ 482,140 34.0% $ (330,477) (17.4)% $ 169,124 34.0%
Changes due to State
income tax, net of
Federal tax benefit 110,551 7.8 1,584 0.1 43,030 8.6
Exempt interest (21,800) (1.5) (54,200) (2.8) (92,702) (18.6)
Other 13,363 0.9 12,993 0.7 25,348 5.1
------------ ------------ ------------- ------------ -------------------------
Total $ 584,254 41.2% $ (370,100) (19.4)% $ 144,800 29.1%
============ ============ ============= ============ ============ ==========
</TABLE>
As of December 31, 1995, the Company has incurred cumulative timing differences
which result in gross deferred tax assets and liabilities of $475,000 and
$190,000, respectively. Management has determined that a $475,000 valuation
allowance against gross deferred tax assets is appropriate which results in a
net deferred tax liability of $190,000. The net amount is included in the other
liabilities of the Company. The change in the valuation allowance was
attributable to likely non-realization of timing differences associated with
the net operating loss generated for income tax purposes.
NOTE #9 - COMMITMENTS AND CONTINGENCIES
The Company is obligated under leases for equipment and property. The original
terms of the leases range from two to thirty years. The following is a schedule
of future minimum lease payments based upon obligations at year-end.
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -----------------------
<S> <C>
1996 $ 592,383
1997 473,556
1998 37,066
1999 21,264
2000 8,860
--------------
Total $ 1,133,129
==============
</TABLE>
-17-
<PAGE> 27
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #9 - COMMITMENTS AND CONTINGENCIES, CONTINUED
Total property and equipment expenditures charged to leases for the reporting
periods ended December 31, 1995, 1994 and 1993, were approximately $733,000,
$725,000 and $699,000, respectively.
In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk. These financial instruments include
commitments to extend credit and standby letters of credit. To varying degrees,
these instruments involve elements of credit and interest rate risk in excess of
the amount recognized in the statement of financial position. The Company's
exposure to credit loss in the event of non-performance by the other party to
the financial instruments for commitments to extend credit and standby letters
of credit is represented by the contractual amount of those instruments. At
December 31, 1995, the Company had commitments to extend credit of approximately
$5,113,000 and obligations under standby letters of credit of approximately
$294,000.
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 expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, income-producing
commercial properties, residential properties and properties under construction.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
The Company is involved in various other litigation. In the opinion of
Management and the Company's legal council, the disposition of all such other
litigation pending will not have a material effect on the Company's financial
statements.
NOTE #10 - STOCK SPLIT
On August 23, 1995, the Bank's Board of Directors approved a six-for-five stock
split of its common stock. The outstanding shares and related calculations
included in these financial statements reflect retroactive adjustments for this
stock split.
-18-
<PAGE> 28
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #11 - STOCK OPTION PLAN
An incentive stock option plan was approved by the stockholders in 1987 covering
an aggregate of 126,000 shares (after giving retroactive effect for stock
splits) in which the remaining ungranted shares from the 1981 Incentive Stock
Option Plan (12,374 shares) were removed from the plan and added to the shares
of the 1987 Incentive Stock Option Plan (92,626 shares). The Plan provides that
options of the Company's unissued common stock may be granted to officers and
key employees at prices not less than the fair value of such shares at dates of
grant. Options granted expire on such date as the Stock Option Committee or
Board shall determine, but not later than the sixth anniversary of the date on
which the option is granted.
During 1994, the Board of Directors of Vineyard National Bancorp elected to
cancel all existing stock options and reissue new stock options at a price of
$3.50 per share ($2.92 per share after giving retroactive effect for the
six-for-five stock split.)
Transactions for the three years ended December 31, 1995 (after giving
retroactive effect for the six-for-five stock split), are summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------------------
AVAILABLE
FOR GRANTING OUTSTANDING PRICE PER SHARE
--------------- ---------------- -------------------
<S> <C> <C> <C>
Balance, January 1, 1993 37,704 88,748 $5.63 to $6.25
Options canceled 19,980 (19,980) $6.25
Options granted (6,000) 6,000 $4.17
--------------- ----------------
Balance, December 31, 1993 51,684 74,768 $4.17 to $6.25
Options canceled 74,768 (74,768) $4.17 to $6.25
Options granted (80,048) 80,048 $2.92
--------------- ----------------
Balance, December 31, 1994 46,404 80,048 $2.92
Options canceled 9,632 (9,632) $2.92
Options granted (6,000) 6,000 $2.92
--------------- ----------------
Balance, December 31, 1995 50,036 76,416 $2.60 to $2.92
=============== ================
</TABLE>
-19-
<PAGE> 29
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #12 - OTHER INCOME/EXPENSES
The following is a breakdown of other income and expenses for the years ended
December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- --------------
<S> <C> <C> <C>
Other Income
Fees and service charges $ 2,286,071 $ 2,283,054 $ 3,176,816
Gain on sale of loans 10,614 91,023 258,894
Loan servicing 150,415 450,654 435,807
--------------- -------------- --------------
Total $ 2,447,100 $ 2,824,731 $ 3,871,517
=============== ============== ==============
Other Expenses
Data Processing $ 826,520 $ 875,477 $ 881,730
Marketing expenses 326,605 414,098 373,192
Professional expenses 561,825 719,950 611,044
Office supplies, postage and telephone 431,034 463,665 458,213
Insurance and assessment expense 336,096 418,795 477,441
Loan related expense 359,095 582,902 296,400
Administrative expense 99,767 129,828 133,346
Other 269,526 203,022 260,943
--------------- -------------- --------------
Total $ 3,210,468 $ 3,807,737 $ 3,492,309
=============== ============== ==============
</TABLE>
NOTE #13 - RESTRICTION ON TRANSFERS OF FUNDS TO PARENT
There are legal limitations on the ability of the Bank to provide funds to the
Company. Dividends declared by the Bank may not exceed, in any calendar year,
without approval of the Comptroller of the Currency, net income for the year and
the retained net income for the preceding two years. Section 23A of the Federal
Reserve Act restricts the Bank from extending credit to the Company and other
affiliates amounting to more than 20 percent of its contributed capital and
retained earnings. At December 31, 1995, the combined amount of funds available
from these two sources amounted to approximately $1,531,000 or 19.8%.
NOTE #14 - DEFERRED COMPENSATION
During 1987, the Company established a non-qualified, unfunded deferred
compensation plan for certain key management personnel and non-employee
directors whereby they may defer compensation which will then provide for
certain payments upon retirement, death or disability. The plan provides for
payments for fifteen years commencing upon retirement, death or disability. The
plan provides for reduced benefits upon early retirement, disability or
termination of employment.
-20-
<PAGE> 30
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #14 - DEFERRED COMPENSATION, CONTINUED
Effective September 1, 1990 the Company adopted a new deferred compensation plan
with similar provisions of the 1987 plan except that the Company may make
matching contributions of 50% of officers' deferrals up to a maximum of 5% and
100% of senior officers' deferrals to a maximum of 10%. The Company's
contribution, in the aggregate, for all Participants shall not exceed 4% of
compensation of all Company employees. Each Participant contributes a minimum of
$1,000 annually to the plan. The deferred compensation expense was $138,833
($81,911 net of income taxes), $107,057 ($81,214 net of income taxes) and
$90,883 ($53,621 net of income taxes) for the years ended December 31, 1995,
1994 and 1993, respectively.
NOTE #15 - DEFINED CONTRIBUTION PLAN
Effective August 1, 1990, the Company established a qualified defined
contribution plan (401(k) Retirement Savings Plan) for all eligible employees.
Employees contribute from 1% to 12% of their compensation with a maximum of
$7,979 annually. The Company's contributions to the plan is based upon an amount
equal to 25% of each participant's eligible contribution for the plan year not
to exceed 2% of the employee's compensation. The Company's matching contribution
will become vested at 20% per year with full vesting after five years. The
expense was $36,070 ($21,281 net of income taxes) and $34,533 ($26,197 net of
income taxes) and $35,509 ($20,950 net of income taxes) for the years ended
December 31, 1995, 1994 and 1993, respectively.
NOTE #16 - INCOME/(LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
The calculation of the income/(loss) per common share was computed by dividing
net income/(loss) by the weighted average number of shares of common stock
outstanding during each period, retroactively adjusted for the six-for-five
stock split. Stock options granted and warrants issued do not have a dilutive
effect, and they have been excluded from the calculation of income/(loss) per
share.
The weighted average number of shares used to compute income/(loss) per common
share was 1,862,643 in 1995, 1994 and 1993.
NOTE #17 - CHANGE IN ACCOUNTING METHOD
During 1993, the Company changed its method of accounting for income taxes to
conform with the new requirements of SFAS No. 109. The effect of this change was
to increase net income for 1993 by $107,000 ($.06 per share after giving
retroactive effect for the six-for-five stock split). The cumulative effect of
the change of $107,000 ($.06 per share after giving retroactive effect for the
six-for-five stock split) is shown as a one-time credit to income in the 1993
income statement.
-21-
<PAGE> 31
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #18 - CAPITAL ADEQUACY
The Company's and the Bank's primary regulators, the Federal Reserve Board and
Office of the Comptroller of the Currency, respectively, adopted risk-based
capital guidelines which require bank holding companies and banks to maintain
minimum total capital of 8% (of which 4% must consist of Tier 1 capital) of
risk-weighted assets. Further, the Federal Reserve Board and the Comptroller
generally require bank and bank holding companies to have a minimum leverage
ratio of at least 4% to be considered "adequately capitalized" for federal
regulatory purposes. As of December 31, 1995, the Company had a ratio of total
capital to risk-weighted assets of 10.20%, a ratio of Tier 1 capital to total
risk-weighted assets of 9.26% and a leverage capital ratio of 7.24%. This
compares to comparable ratios of 8.80%, 7.67% and 6.29%, respectively, in 1994.
The Company's management believes that, under current regulations, the Bank will
continue to meet these minimum capital requirements in the foreseeable future.
NOTE #19 - MORTGAGE LOAN SERVICING OPERATIONS
The Company originated long term first and second trust deed mortgages for
resale on the Secondary Market to Federal Home Loan Mortgage Corporation (FHLMC)
and Federal National Mortgage Association (FNMA). The gains or losses on the
sales of these loans were generally recognized at the time of sale. The Company
retained servicing rights to these loans. Servicing arrangements provided for
the Company to maintain all records related to the servicing agreement, to
assume responsibility for billing mortgagors, to collect periodic mortgage
payments, and to perform various other activities necessary to the mortgage
servicing function. The Company received as compensation a servicing fee on the
principal balance of the outstanding loans. Servicing fee income amounted to
approximately $150,000, $436,000 and $333,000 in 1995, 1994, and 1993,
respectively. During 1995, the Company sold the servicing rights on loans
totaling approximately $161 million. The mortgage servicing rights were sold
without recourse. The Bank received approximately $1,489,000 from the sale.
NOTE #20 - CAPITAL CONTRIBUTION
During 1993, the Company contributed $300,000 to its wholly owned subsidiary,
Vineyard National Bank, in the form of a capital contribution. This intercompany
transaction was eliminated in the consolidated financial statements.
-22-
<PAGE> 32
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #21 - REGULATORY MATTERS
As a result of an examination by the Office of the Comptroller of the Currency
(OCC) as of August 31, 1992, the Comptroller of the Currency entered into a
Formal Agreement with the Company dated February 25, 1993. The Agreement
required the Bank, among other things: (a) to achieve as of May 31, 1993 and
maintain thereafter Tier 1 capital of at least 8% of risk-weighted assets and
5.5% of adjusted total assets, (b) to take immediate action to protect the
Bank's interest in criticized assets (c) to declare or pay no cash dividends
without prior approval of the OCC, and (d) to alter, amend, develop and
establish various polices and procedures designed to improve the condition of
the Company. On December 2, 1994, the OCC terminated the Formal Agreement.
NOTE #22 - OTHER REAL ESTATE OWNED
As discussed in Note #1K, Other Real Estate Owned is carried at the estimated
fair value of the real estate. An analysis of the transactions for December 31,
were as follows:
<TABLE>
<CAPTION>
1995 1994
------------- ------------
<S> <C> <C>
Balance, Beginning of year $ 848,234 $ 977,829
Additions 284,000 240,954
Sales (578,670) (227,786)
Valuation adjustments and other 55,130 (142,763)
------------- ------------
Balance, End of year $ 608,694 $ 848,234
============= ============
</TABLE>
The balances at December 31, 1995 and 1994 are shown net of reserves.
NOTE #23 - RESERVE FOR POSSIBLE LOSSES ON OTHER REAL ESTATE OWNED
Transactions in the reserve for other real estate owned are summarized for 1995,
1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
Balance, Beginning of year $ 93,263 $ 1,300 $ -
Provision changed to other expense 49,740 137,129 1,300
Charge-offs and other reductions (104,870) (45,166)
------------- ------------- ------------
Balance, End of year $ 38,133 $ 93,263 $ 1,300
============= ============= ============
</TABLE>
-23-
<PAGE> 33
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #24 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the statement of
financial condition. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instruments. Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
The following table presents the carrying amounts and fair values of financial
instruments at December 31, 1995. FASB Statement 107, "Disclosures about Fair
Value of Financial Instruments," defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Assets
Cash and cash equivalents $10,018,749 $10,018,749
Interest bearing deposits 792,000 792,000
Investment securities 13,431,518 13,431,518
Loans receivable 80,415,950 79,717,685
Accrued interest receivable 541,975 541,975
Liabilities
Non-interest bearing deposits 25,691,559 25,691,559
Interest bearing deposits 72,722,888 72,829,888
Accrued interest payable 640,883 640,883
Notional Cost to Cede
Amount or Assume
----------- -----------
Off-balance sheet instruments
Commitments to extend credit and standby letters of credit $ 5,406,803 $ 54,068
</TABLE>
The following methods and assumptions were used by the Bank in estimating fair
value disclosures:
- - Cash and Cash Equivalents
The carrying amounts reported in the balance sheet for cash and cash
equivalents approximate those assets' fair values due to the short-term
nature of the assets.
-24-
<PAGE> 34
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #24 - FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued
- - Interest Bearing Deposits
Fair values for time deposits are estimated using a discounted cash flow
analysis that applies interest rates currently being offered on certificates
to a schedule of aggregated contractual maturities on such time deposits.
- - Investment Securities
Fair values are based upon quoted market prices, where available.
- - Loans
For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair
values for other loans (for example, fixed rate commercial real estate and
rental property mortgage loans and commercial and industrial loans) are
estimated using discounted cash flow analysis, based on interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality. Loan fair value estimates include judgments regarding future
expected loss experience and risk characteristics. The carrying amount of
accrued interest receivable approximates its fair value.
- - Deposits
The fair values disclosed for demand deposits (for example, interest-bearing
checking accounts and passbook accounts) are, by definition, equal to the
amount payable on demand at the reporting date (that is, their carrying
amounts). The fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated contractual maturities
on such time deposits. The carrying amount of accrued interest payable
approximates fair value.
- - Off-balance Sheet Instruments
Fair values of loan commitments and financial guarantees are based upon fees
currently charged to enter similar agreements, taking into account the
remaining terms of the agreement and the counterparties' credit standing.
NOTE #25 - SALE OF BRANCH OFFICE
During 1995, the Company sold certain assets and liabilities of its Victorville
branch. Total assets sold were approximately $1,275,000 and total liabilities
assumed by the buyer were approximately $4,104,000. The transaction resulted in
a gain of approximately $23,000, which has been included in other income in
1995. The Bank is no longer operating the branch in Victorville.
-25-
<PAGE> 35
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #26 - CONDENSED FINANCIAL INFORMATION OF VINEYARD NATIONAL BANCORP (PARENT
COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
<S> <C> <C>
ASSETS
Cash in Vineyard National Bank $ 7,177 $ 7,805
Prepaid expenses 670 517
Investment in subsidiary 7,746,154 6,852,956
--------------- ---------------
Total Assets $ 7,754,001 $ 6,861,278
=============== ===============
LIABILITIES
Due to shareholders in lieu of
fractional shares on stock splits 1,287 1,134
--------------- ---------------
STOCKHOLDERS' EQUITY
Common stock 2,106,258 2,106,258
Additional paid in capital 3,306,684 3,306,684
Retained earnings 2,339,772 1,447,202
--------------- ---------------
Total Stockholders' Equity 7,752,714 6,860,144
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 7,754,001 $ 6,861,278
=============== ===============
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
INCOME
Equity in income/(loss) of subsidiary $ 833,639 $ (1,538,664) $ 495,415
Interest 966 975 5,050
--------------- --------------- ---------------
834,605 (1,537,689) 500,465
--------------- --------------- ---------------
EXPENSE
Other - - 40,042
--------------- --------------- ---------------
- - 40,042
--------------- --------------- ---------------
Operating Income/(Loss) 834,605 (1,537,689) 460,423
INCOME TAXES 800 800 800
--------------- --------------- ---------------
Net Income/(Loss) $ 833,805 $ (1,538,489) $ 459,623
=============== =============== ===============
INCOME/(LOSS) PER COMMON SHARE $ 0.45 $ (0.83) $ 0.25
=============== =============== ===============
</TABLE>
-26-
<PAGE> 36
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, and 1993
NOTE #26 - CONDENSED FINANCIAL INFORMATION OF VINEYARD NATIONAL BANCORP (PARENT
COMPANY), Continued
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
INCREASE IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 966 $ 975 $ 5,050
Cash paid for operating expenses -- -- (35,902)
Income taxes paid (800) (800) (800)
----------- ----------- -----------
Net Cash/(Used) Provided by
Operating Activities 166 175 (31,652)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital contribution to Vineyard National Bank -- -- (300,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash paid for fractional shares (794) -- --
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (628) 175 (331,652)
CASH, BEGINNING OF YEAR 7,805 7,630 339,282
----------- ----------- -----------
CASH, END OF YEAR $ 7,177 $ 7,805 $ 7,630
=========== =========== ===========
RECONCILIATION OF NET INCOME/(LOSS) TO NET CASH
PROVIDED/(USED) BY OPERATING ACTIVITIES
Net Income/(Loss) 833,805 (1,538,489) 459,623
----------- ----------- -----------
Adjustments to Reconcile Net Income/(Loss)
to Net Cash/(Used) Provided by Operating
Activities
(Increase)/decrease in other assets (153) 18 4,172
Undistributed (earnings)/loss of subsidiary (833,639) 1,538,664 (495,415)
Increase/(decrease) in other liabilities 153 (18) (32)
----------- ----------- -----------
Net Cash (Used)/Provided by $ 166 $ 175 $ (31,652)
Operating Activities =========== =========== ===========
</TABLE>
-27-
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Vineyard National Bancorp and Subsidiary
We have audited the accompanying consolidated balance sheets of Vineyard
National Bancorp and Subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of income and changes in stockholders' equity
and statements of cash flows for each of the three years in the period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 Vineyard National
Bancorp and Subsidiary as of December 31, 1995 and 1994, the results of their
operations and changes in their stockholders' equity and their cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Vavrinek, Trine, Day & Co.
Rancho Cucamonga, California
February 2, 1996
-1-
<PAGE> 38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations is intended to provide a better understanding of the significant
changes in trends relating to the Company's financial condition, results of
operations, liquidity and interest rate sensitivity. The following discussion
and analysis should be read in conjunction with the Consolidated Financial
Statements of the Company.
Vineyard National Bancorp is operating as a bank holding company whose
only operating subsidiary is Vineyard National Bank. The Bank was acquired by
the holding company on December 16, 1988 and comprises substantially all of the
Company's revenues and expenses. Accordingly, management's discussion and
analysis is focused on and results from the financial condition and operations
of the Bank.
The Company reported a net profit of $834,000 which equated to $.45 per
common share of stock for 1995, compared to a net loss of $(1,538,000) or $(.83)
per share, for 1994 and a net profit of $460,000 or $.25 per share, for 1993.
The 1995 net profit versus the 1994 net loss was most attributable to one-time
revenues generated from the sale of its mortgage servicing rights, and a
$429,000 credit to the provision for loan and lease losses. The 1994 net loss
versus the 1993 net income was most attributable to (i) reduced interest and fee
income on loans due to decreased volume and reduced yields; (ii) increased
provisions for loan and lease losses; and (iii) reduced income from loans
generated, sold and serviced to and for the secondary market.
A negative provision for loan losses of $(429,000) was recorded in 1995
compared to a provision of $1,440,000 in 1994 and $300,000 in 1993. The
substantial decrease in the provision for loan losses in 1995 is a result of
management's assessment of the potential losses inherent in the loan portfolio
in addition to a decrease in charge-offs and the receipt of a large recovery on
a previously charged off loan. The increase in the provision for loan losses in
1994 compared to 1993 reflects management's assessment of the impact that the
continuing general economic slowdown and declining real estate market in
California has had on the Bank's loan portfolio. The Bank has experienced
substantial charge-offs on loans in the past two out of three years which has
had a very significant impact on the required provisions as well as the net
results of operations.
The Company experienced a .1% increase in total assets during 1995 from
$107,417,000 at December 31, 1994 to $107,559,000 at year-end 1995. This slight
increase is a result of an increase in investment securities and Federal Funds
Sold which was offset by a decrease in net loans. The Bank experienced a
$170,000 decrease in its deposits due to competition, including alternative
investment sources (i.e. mutual funds), and customer limitations associated with
the economy.
On February 25, 1993, the Comptroller of the Currency (OCC) entered
into a formal Agreement with the Bank. The Agreement required, among other
things, for the Bank (i) to achieve on or before May 31, 1993 and thereafter
maintain a ratio of Tier 1 to risk-weighted assets of at least 8.0% and a ratio
of Tier 1 capital to actual adjusted total assets of at least 5.5%; (ii) to
develop a three year capital program; (iii) to refrain from paying cash
dividends without the prior approval of the Comptroller; and (iv) to develop,
adopt and otherwise implement various programs and procedures designed to
improve the condition of the Bank. On December 2, 1994, the OCC terminated the
Formal Agreement.
<PAGE> 39
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income represents the difference between interest income
generated from the Bank's loan, lease and investment portfolios and the interest
expense incurred on its deposits and borrowed funds. Net interest income was
$6,169,000 in 1995, $6,554,000 in 1994, and $7,034,000 in 1993. This represents
decreases of 5.9% in 1995 and 6.8% in 1994, respectively.
The decline in net interest income in 1995 from 1994 was due to the
increase in interest expense exceeding the increase in interest income. Interest
income increased to $8,569,000 in 1995 from $8,473,000 in 1994. This increase
resulted primarily from a change in the composition of the Bank's
interest-earning assets. The Bank's average interest-earning assets declined
2.8% in 1995 compared to 1994. Average loans, the Bank's highest yielding asset,
declined 1.8% from $79,489,000 during 1994 to $78,097,000 in 1995 and average
federal funds sold, the Bank's lowest yielding asset, increased from $2,990,000
during 1994 to $4,156,000 during 1995.
The decline in net interest income in 1994 from 1993 was due to the
decline in interest income exceeding the decline in interest expense. Interest
income declined to $8,473,000 in 1994 from $9,515,000 in 1993. This reduction
resulted primarily from a change in the composition of the Bank's
interest-earning assets. The Bank's average interest-earning assets declined
9.5% in 1994 compared to 1993. Average loans, the Bank's highest yielding asset,
declined 7.1% from $85,537,000 during 1993 to $79,489,000 in 1994 and average
federal funds sold, the Bank's lowest yielding asset, decreased from $5,884,000
during 1993 to $2,990,000 during 1994. The reduction in the total earning assets
is directly attributable to the aforementioned reduction in deposits of $12.6
million.
The following table presents the distribution of the Company's average
assets, liabilities and shareholders' equity in combination with the total
dollar amounts of interest income from average interest-earning assets and the
resultant yields without giving effect for any tax exemption, and the dollar
amounts of interest expense and average interest-bearing liabilities, expressed
both in dollars and rates. Loans include non-accrual loans whereas non-accrual
interest is excluded.
<PAGE> 40
<TABLE>
<CAPTION>
1995 1994
------------------------------- -------------------------------
(Dollars in Thousands) Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
--------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans $ 78,097 $ 7,470 9.6% $ 79,489 $ 7,511 9.4%
Lease financing 928 75 8.1 1,969 166 8.4
Investment securities 13,018 756 5.8 14,962 673 4.8
Federal funds sold 4,156 232 5.6 2,990 112 3.7
Interest-earning deposits with
other financial institutions 568 36 6.3 289 11 3.8
--------- -------- --------- --------- --------- ---------
Total Interest-earning Assets 96,767 8,569 8.9 99,699 8,473 8.6
-------- --------- --------- ---------
OTHER ASSETS 13,683 15,825
Less: Allowance for Loan Losses (967) (1,152)
--------- ---------
Total Average Assets $ 109,483 $ 114,372
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings deposits 46,848 839 1.8 59,265 1,248 2.1
Time deposits 28,203 1,560 5.5 19,423 670 3.4
Other 6 1 12.2 32 1 3.1
--------- -------- --------- --------- --------- ---------
Total Interest-bearing
Liabilities 75,057 2,400 3.2 78,720 1,919 2.4
-------- --------- --------- ---------
Demand deposits 26,082 27,150
Other liabilities 1,065 897
Shareholders' equity 7,279 7,605
--------- ---------
Total Average Liabilities and
Shareholders' Equity $ 109,483 $ 114,372
========= =========
Net Interest Spread (1) 5.7% 6.2%
========= =========
Net Interest Income and $ 6,169 5.7% $ 6,554 6.6%
Net Interest Margin (2) ======== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1993
-------------------------------
(Dollars in Thousands) Average
Average Yield/
Balance Interest Rate
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Loans $ 85,537 $ 8,412 9.8%
Lease financing 3,446 284 8.2
Investment securities 14,874 623 4.2
Federal funds sold 5,884 167 2.8
Interest-earning deposits with
other financial institutions 777 29 3.7
--------- --------- ---------
Total Interest-earning Assets 110,518 9,515 8.6
--------- ---------
OTHER ASSETS 17,571
Less: Allowance for Loan Losses (1,603)
---------
Total Average Assets $ 126,486
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings deposits 64,744 1,626 2.5
Time deposits 22,031 838 3.8
Other 115 17 14.8
--------- --------- ---------
Total Interest-bearing
Liabilities 86,890 2,481 2.9
--------- ---------
Demand deposits 30,166
Other liabilities 1,089
Shareholders' equity 8,341
---------
Total Average Liabilities and
Shareholders' Equity $ 126,486
=========
Net Interest Spread (1) 5.7%
=========
Net Interest Income and $ 7,034 6.4%
Net Interest Margin (2) ========= =========
</TABLE>
- --------
(1) Net interest spread represents the average yield earned on interest-earning
assets less the average rate paid on interest-bearing liabilities.
(2) Net interest margin is computed by dividing net interest income by total
average earning assets.
<PAGE> 41
The following table sets forth changes in interest income and interest
expense for each major category of interest-earning asset and interest-bearing
liability, and the amount of change attributable to volume and rate changes for
the year indicated. The changes due to rate and volume have been allocated in
proportion to the relationship between their absolute dollar amounts.
<TABLE>
<CAPTION>
(Dollars in Thousands) 1995 - 1994 1994 - 1993
---------------------------- --------------------------------
Volume Rate Total Volume Rate Total
---------- ------ ------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE/(DECREASE) IN
Interest Income
Loans(1) $ (137) $ 96 $ (41) $ (580) $ (321) $ (901)
Leases(2) (197) 119 (78) (155) (14) (169)
Investment securities(2) (68) 151 83 2 48 50
Deposits 15 10 25 (19) 1 (18)
Federal funds sold 53 67 120 (158) 103 (55)
---------- ------ ------- ---------- ------- -----------
(334) 443 109 (910) (183) (1,093)
---------- ------ ------- ---------- ------- -----------
INCREASE/(DECREASE) IN
Interest Expense
Savings deposits (239) (170) (409) (130) (248) (378)
Time deposits 381 509 890 (94) (74) (168)
Short-term borrowings - (1) (1) (2) 1 (1)
Note payable - - - (15) - (15)
---------- ------ ------- ---------- ------- -----------
142 338 480 (241) (321) (562)
---------- ------ ------- ---------- ------- -----------
Increase/(Decrease) in
Net Interest Income $ (476) $ 105 $ (371) $ (669) $ 138 $ (531)
========== ====== ======= ========== ======= ===========
</TABLE>
PROVISION FOR PROBABLE LOAN AND LEASE LOSSES
The provision for probable loan and lease losses, which is an operating
expense of the Company, creates an allowance for estimated future loan and lease
losses. When losses occur they are charged against the allowance for probable
loan and lease losses.
A negative provision for loan losses of $(429,000) was recorded in 1995
compared to a provision of $1,440,000 in 1994 and $300,000 in 1993. The
substantial decrease in the provision for loan losses in 1995 is a result of
management's assessment of the potential losses inherent in the loan portfolio
in addition to a decrease in charge-offs and the receipt of a large recovery on
a previously charged off loan. The increase in the provision for loan losses in
1994 compared to 1993 reflects management's assessment of the impact that the
continuing general economic slowdown and declining real estate market in
California has had on the Bank's loan portfolio. The Bank has experienced
substantial charge-offs on loans in the past two out of three years which has
had a very significant impact on the required provisions as well as the net
results of operations.
During 1995, the Bank's non-accrual loans increased while net
charge-offs decreased significantly. For further information regarding
charge-offs, non-performing and classified loans and the allowance for probable
loan and lease losses, see MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION -- "Financial Condition -- Non-performing
Loans" and -- "Reserve for Probable Loan and Lease Losses."
- --------
(1) Does not include interest income which would have been earned on non-accrual
loans. The amount that would have been collected on these loans had they
remained current in accordance with their terms was $42 in 1995, $13 in 1994
and $134 in 1993.
(2) Interest income includes the effects of tax equivalent adjustments on tax
exempt securities and leases using tax rates which approximate 41.2% for
1995, 19.4% for 1994 and 23.9% for 1993.
<PAGE> 42
OTHER OPERATING INCOME
Other operating income increased by $1,152,000 or 41.6% during 1995 as
compared to a $(1,124,000) or (28.9)% decrease in 1994. The large increase
during 1995 is primarily due to income of $1,489,000 received from the sale of
the Bank's mortgage servicing rights. As a result of the sale of these rights,
loan servicing income decreased $300,000. The large decrease during 1994 was due
to the increases in mortgage interest rates over the previous year which had
directly affected the mortgage loan market, particularly as it related to
refinancing of home mortgages. Accordingly, the Company realized a significant
decrease in volume of mortgage loans for sale and servicing.
Other fee and service charge income has remained substantially level
during the three year period.
During 1995, the Company sold certain assets and liabilities of its
Victorville branch. Total assets sold were approximately $1,275,000, and total
liabilities assumed by the buyer were approximately $4,104,000. The transaction
resulted in a gain of approximately $23,000, which has been included in other
income in 1995. The Bank is no longer operating the branch in Victorville.
NON-INTEREST EXPENSES
Non-interest expense decreased in absolute terms from $9.8 million in
1994 to $9.1 million in 1995 which equates to a 7% decline. Occupancy expense of
premises were up but were more than offset by the decrease in salaries and
employee benefits and furniture and equipment and other expenses. During 1994
non-interest expense decreased in absolute terms from $10.1 million in 1993 to
$9.8 million which equates to a 3% decline. Occupancy expense of premises and
other expenses were up but were more than offset by the decrease in salaries and
employee benefits and furniture and equipment expenses. Non-interest expense as
a percentage of total income was 73% in 1995 as compared to 87% in 1994 and 76%
in 1993.
INCOME TAXES
Total income tax expense for 1995 was $584,000 which approximated 41.2%
of pre-tax income. Due to the loss incurred in 1994, the Company realized an
income tax credit of $370,000 which represented approximately 19% of the loss
before said credit. Total income tax expense for 1993 was $145,000 which
approximated 29% of pre-tax income. The Company has a significant amount of
federally tax exempt interest income in its portfolio which resulted in the less
than statutory effective rates of tax for the applicable years.
SECURITIES, GAINS AND LOSSES
The Company had unrealized gains of $20,000 and $0 in 1995 and 1994,
respectively, whereas it had unrealized losses of $0 in 1995 and $183,000 in
1994, respectively. The Company generated losses of $8,000 and $29,000 on sales
of investment securities during 1995 and 1994 and a gain of $2,000 during 1993.
On January 1, 1994 the Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" which addresses the accounting for
investments in equity securities that have readily determinable fair values and
for investments in all debt securities. Securities are classified in three
categories and accounted for as follows: debt and equity securities that the
Company has the positive intent and ability to hold to maturity are classified
as held-to-maturity and securities are measured at amortized cost; debt and
equity securities bought and held principally for the purpose of selling in the
near term are classified as trading securities and are measured at fair value,
with unrealized gains and losses included in earnings; debt and equity
securities not classified as either held-to-maturity or trading securities are
deemed as available-for-sale and are measured at fair value, with unrealized
gains and losses, reported as a separate component of stockholders' equity. For
1993, investment securities were stated at cost and adjusted for amortization of
premiums and accretion of discounts, which are recognized as adjustments to
interest income. Gains or losses on disposition were based on the net proceeds
and adjusted carrying amount of the securities sold.
<PAGE> 43
FINANCIAL CONDITION
ASSETS
Total consolidated assets increased $142,000 or .1% to $107,559,000 as
of December 31, 1995 from $107,417,000 as of December 31, 1994. The increase in
the Company size is mostly attributable to an increase in investment securities
and an increase in Federal Funds Sold which was offset by a decrease in net
loans. The balance of the Company's assets remained relatively comparable to
prior years. Investment securities increased 67% to $13,432,000 as of December
31, 1995 from $8,043,000 at year-end 1994. Federal Funds Sold increased to
$1,925,000 as of December 31, 1995 from $0 as of year-end 1994. Net loans
decreased (7.8)% to $77,288,000 as of December 31, 1995 from $83,787,000 as of
year-end 1994.
The Company's ability to increase its assets in the future is limited
by the minimum capital ratios that the Bank must achieve and maintain. As a
result of an examination by the Office of the Comptroller of the Currency (OCC)
as of August 31, 1992, the Comptroller of the Currency entered into a Formal
Agreement that required the Bank to achieve as of May 31, 1993 and maintain
thereafter Tier 1 capital of at least 8% of risk-weighted assets and 5.5% of
adjusted total assets. As of December 31, 1995, the Bank had a ratio of Tier 1
capital to risk-weighted assets of 10.20% and a ratio of Tier 1 capital to total
risk-weighted assets of 9.26%. On December 2, 1994, the OCC terminated the
Formal Agreement.
<PAGE> 44
NON-PERFORMING LOANS
The following table sets forth information regarding the Bank's
non-performing loans at year-end 1995 and 1994.
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Accruing Loans More Than 90 Days Past Due(1)
Aggregate loan amounts
Commercial, financial and agricultural $ 85 $ 4
Real estate 38 594
Installment loans to individuals 197 103
---------- ----------
Total Loans Past Due More Than 90 Days 320 701
---------- ----------
Renegotiated Loans (2) - -
---------- ----------
Non-accrual Loans (3)
Aggregate loan amounts
Commercial, financial and agricultural 12 139
Real estate 467 -
Installment loans to individuals - -
---------- ----------
Total Non-accrual Loans 479 139
---------- ----------
Total Non-performing Loans $ 799 $ 840
========== ==========
</TABLE>
The policy of the Company is to review each loan in the loan portfolio
to identify problem credits. In addition, as an integral part of its review
process of the Bank, the Comptroller also classifies problem credits. There are
three classifications for problem loans: "substandard", "doubtful" and "loss".
Substandard loans have one or more defined weaknesses and are characterized by
the distinct possibility that the Bank will sustain some loss if the
deficiencies are not corrected. Doubtful loans have the weaknesses of
substandard loans with the additional characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts,
conditions and values, questionable. A loan classified as loss is considered
uncollectible and of such little value that the continuance as an asset of the
institution is not warranted. Another category designated "special mention" is
maintained for loans which do not currently expose the Bank to a significant
degree or risk to warrant classification in a substandard, doubtful or loss but
do possess credit deficiencies or potential weaknesses deserving management's
close attention.
As of December 31, 1995, the Bank's classified loans consisted of
$3,356,000 of loans classified as substandard and $90,000 of loans classified as
doubtful. The Bank's $3,356,000 of loans classified as substandard consisted of
$2,647,000 of performing loans and $709,000 of non-accrual loans and loans
delinquent 90 days or more but still accruing. The Bank's $90,000 of loans
classified as doubtful consisted wholly of non-accrual loans. In addition to
classified loans, the Bank was also monitoring $78,000 of loans designated as
special mention at December 31, 1995.
RESERVE FOR PROBABLE LOAN AND LEASE LOSSES
The reserve for probable loan and lease losses is a general reserve
established by
- --------
(1) Reflects loans for which there has been no payment of interest and/or
principal for 90 days or more. Ordinarily, loans are placed on non-accrual
status (accrual of interest is discounted) when the Bank has reason to
believe that continued payment of interest and principal is unlikely.
(2) Renegotiated loans are those which have been renegotiated to provide a
deferral of interest or principal. The Bank had no renegotiated loans during
1995 and 1994.
(3) There were four loans on non-accrual status totaling approximately $479,000
at December 31, 1995 and four loans totaling approximately $139,000 at
December 31, 1994.
<PAGE> 45
Management to absorb potential losses inherent in the entire portfolio. The
level of and ratio of additions to the reserve are based on a continuous
analysis of the loan and lease portfolio and, at December 31, 1995, reflected an
amount which, in management's judgement, was adequate to provide for known and
inherent loan losses. In evaluating the adequacy of the reserve, management
gives consideration to the composition of the loan portfolio, the performance of
loans in the portfolio, evaluations of loan collateral, prior loss experience,
current economic conditions and the prospects or worth of respective borrowers
or guarantors. In addition, the Comptroller, as an integral part of its
examination process, periodically reviews the Bank's allowance for possible loan
and lease losses. The Comptroller may require the Bank to recognize additions to
the allowance based upon its judgment of the information available to it at the
time of its examination. The Bank was most recently examined by the Comptroller
as of September 30, 1995.
The reserve for probable loan and lease losses at December 31, 1995 was
$783,000 or 1.00%, of total loans and leases, as compared to $1,014,000 or
1.20%, of total credits at December 31, 1994. Additions to the reserve are
effected through the provision for loan and lease losses which is an operating
expense of the Company.
The following table provides certain information with respect to the
Company's allowance for loan losses as well as charge-off and recovery activity.
<TABLE>
<CAPTION>
(Dollars in Thousands) 1995 1994
-------- ---------
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES
BALANCE, Beginning of period $ 1,014 $ 1,307
-------- ---------
Charge-offs
Commercial, financial and agricultural 245 1,469
Real estate construction - -
Real estate mortgage 69 80
Consumer loans 383 449
Lease financing - -
-------- ---------
Total Charge-offs 697 1,998
-------- ---------
Recoveries
Commercial, financial and agricultural 795 134
Real estate construction - -
Real estate mortgage - -
Consumer loans 100 131
Lease financing - -
-------- ---------
Total Recoveries 895 265
-------- ---------
Net Charge-offs/(Recoveries) (198) 1,733
Provision/(Credit) Charged to Operations (429) 1,440
-------- ---------
Balance, End of Period $ 783 $ 1,014
======== =========
Net Charge-offs During the Year to Average Loans
Outstanding During the Year (0.25)% 2.13%
======== =========
Allowance for Loan Losses to Total Losses 1.00% 1.20%
======== =========
</TABLE>
<PAGE> 46
The Bank adopted SFAS No. 114 (as amended by SFAS No. 118), "Accounting
by Creditors for Impairment of a Loan" on January 1, 1995. The statement
generally requires those loans identified as "impaired" to be measured on the
present value of expected future cash flows discounted at the loan's effective
interest rate, except that as a practical expedient, a creditor may measure
impairment based on a loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent. A loan is impaired when it is
probable the creditor will not be able to collect all contractual principal and
interest payments due in accordance with the terms of the loan agreement. Loan
impairment is evaluated on a loan-by-loan basis as part of normal loan review
procedures of the Bank.
SOURCES OF FUNDS
Total deposits decreased during 1995 to $98,414,000 from $98,584,000 in
1994. The $170,000 decrease represents a .2% reduction. The mix of the Bank's
deposits showed a wide fluctuation with decreases in demand and
savings/interest-bearing transaction accounts of 2.4%, and 11.8%, respectively
and an increase in time deposit accounts of 42.8%.
ASSET-LIABILITY MANAGEMENT
The Company relies on asset-liability management to assure adequate
liquidity and maintain an appropriate balance between interest sensitive earning
assets and interest-bearing liabilities. Liquidity management and interest
sensitivity management are key factors in asset-liability management. Liquidity
management involves the ability to meet the cash flow requirements of customers
who may be either depositors wanting to withdraw funds or borrowers needing
assurances that sufficient funds will be available to meet their credit needs.
Interest rate sensitivity management seeks to avoid fluctuating interest margins
to enhance consistent growth of net interest income through periods of changing
interest rates.
The Bank's Asset-Liability Management Committee (ALCO) manages the
Company's liquidity position, the parameters of which are approved by the Board
of Directors. The liquidity position of the Bank is monitored daily and the Bank
had liquid assets (cash, federal funds sold, deposits in other financial
institutions and investment securities) as a percent of total deposits and
borrowed funds of 25% and 17% as of December 31, 1995 and December 31, 1994,
respectively. The Bank's Investment Committee manages the investment portfolio,
based upon the Investment Policy which is approved by the Board of Directors.
Deposits with other institutions and Federal funds sold, when
appropriate, will be maintained as alternative short-term investments.
Management's intention is to maintain an investment portfolio which contributes
an adequate rate of return with minimized market or credit risk.
Interest rate sensitivity varies with different types of
interest-earning assets and interest-bearing liabilities. Vineyard National Bank
intends to maintain interest-earning assets, comprised primarily of both loans
and investments, and interest-bearing liabilities, comprised primarily of
deposits, maturing or repricing evenly in order to minimize or eliminate any
impact from interest rate changes.
Vineyard National Bank, on an unconsolidated basis, had deposits of
$98,422,000 at December 31, 1995. Presently, the holding company derives funds
from interest on deposits with the Bank. Management believes that these deposits
and the interest earned thereon are adequate to meet its current cash flow
needs. Pursuant to the Agreement that the Bank has entered into with the
Comptroller, the Bank cannot declare and pay any dividends to Vineyard National
Bancorp without obtaining prior regulatory approval, and the Bank is required to
achieve and maintain specified capital ratios that exceed the minimums
applicable to banks generally.
CAPITAL RESOURCES
Neither the Company nor the Bank has any significant commitments for
capital expenditures.
<PAGE> 47
The Bank is required to meet certain minimum risk-based and leverage
capital standards promulgated by the bank regulatory authorities. Under federal
regulations, the Bank is currently required to maintain a minimum ratio of total
qualifying capital to risk-weighted assets of 8%, of which at least 4% must
consist of Tier 1 capital (consisting primarily of common stock and retained
earnings, less intangibles). Furthermore, federal regulations require banks to
maintain a minimum leverage ratio of at least 4% to be considered "adequately
capitalized" for federal regulatory purposes. Pursuant to the Agreement entered
into with the Comptroller, the Bank was required to achieve higher ratios than
those otherwise applicable to banks generally. In accordance with the terms of
the Agreement, the Bank was required to maintain its ratio of Tier 1 capital to
risk-weighted assets at a minimum of 8.0% and its ratio of Tier 1 capital to
actual adjusted total assets at a minimum of 5.5% by no later than May 31, 1993.
The following table sets forth the minimum capital ratios required to
be maintained by the Bank as of December 31, 1995:
Required Minimum Ratios Bank
Risk-based Ratios
Tier 1 capital............................... (4.0)% 9.26 %
Total capital................................ (8.0)% 10.20 %
Leverage ratio............................... (4.0)% 7.24 %
ECONOMIC CONCERNS
The Bank concentrates on marketing to, and serving the needs of, small and
medium-sized businesses, professionals and individuals located in San Bernardino
County and the Western portion of Los Angeles County of Southern California. The
general economy in this market area, and particularly the real estate market, is
suffering from the effects of a prolonged recession that has negatively impacted
the ability of certain borrowers of the Bank to perform their obligations to the
Bank.
The financial condition of the Bank has been, and is expected to continue to
be, affected by the overall general economic conditions and the real estate
market in California. The future success of the Bank is dependent, in large
part, upon the quality of its assets. Although management of the Bank has
devoted substantial time and resources to the identification, collection and
workout of non-performing assets, the real estate markets and the overall
economy in California are likely to have a significant effect on the Bank's
assets in future periods and, accordingly, the Company's financial condition and
results of operations.
<PAGE> 48
BOARD OF DIRECTORS
<TABLE>
<S> <C> <C> <C>
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
Frank S. Alvarez C.P.A. Roland Noriega Joel H. Ravitz Steven R. Sensenbach
Retired Owner, Chairman and CEO, President and Chief Executive Officer,
Bawen, McBeth Inc. Merchant's Electric Quincy Cass Associates, Inc. Vineyard National Bank
[PHOTO] [PHOTO] [PHOTO]
Jodie Smith Lester Stroh, M.D. Renny V. Thomas
Co-owner, Chairman of the Board, Executive Vice President
J & J Enterprise Vineyard National Bank and Managing Underwriter
CAL/GROUP and Dentists
Retired Physician
Kaiser Foundation Hospital
DIRECTORS EMERITUS
[PHOTO] [PHOTO]
Catherine Barnes Sebastiano "Buster" Filpi
Retired Banker Industrial Developments
</TABLE>
<PAGE> 49
ADMINISTRATION OFFICERS
<TABLE>
<S> <C>
[PHOTO] [PHOTO]
Gregory S. Sensenbach Robin Sirkegian-Sclimenti Marjorie Matea Jean Smith
Vice President Real Estate Senior Vice President Vice President Vice President
Land Division Manager Branch Administrator Internal Auditor Commercial Loan Officer
Ronald Zurek Robert J. Schoeffler Gregg Buxton Susanne M. Sensenbach
Senior Vice President Executive Vice President Vice President Vice President
Installment Loan Manager Senior Credit Administrator Commercial Loan Director of
Division Manager Human Resources
[PHOTO] [PHOTO]
M. Soule Claude Maureen Bouma Marietta Hix
Executive Vice President Assistant Vice President Assistant Vice President
Chief Financial Officer Administrative Assistant Administrative Assistant
Howard J. Norris Ian Moore
Vice President Assistant Vice President
Compliance Officer Operations Manager
[PHOTO] [PHOTO]
Sara Ahern Don Church John Avalos
Senior Vice President Vice President/ Vice President/
Director of Operations Regional Manager Regional Manager
Paul S. Stratton
Senior Vice President
Regional Manager
</TABLE>
<PAGE> 50
VINEYARD NATIONAL BANCORP
<TABLE>
<CAPTION>
<S> <C> <C>
BOARD OF DIRECTORS OFFICERS STOCK INFORMATION
Frank S. Alvarez, C.P.A. Steven R. Sensenbach Sutro & Co.
Retired President and CEO P.O. Box 1688
Bawen McBeth, Inc. Big Bear Lake, CA 92315
M. Soule Claude 1-800-288-2811
Executive Vice President
Roland Noriega Secretary
Owner TRANSFER AGENT
Merchant's Electric Sara Ahern
Senior Vice President U.S. Stock Transfer Corp.
Cashier 1745 Gardena Avenue
Joel H. Ravitz Suite 200
Chairman and CEO Marietta Hix Glendale, CA 91204-9924
Quincy Cass Associates, Inc. Assistant Secretary
Steven R. Sensenbach AUDIT COMMITTEE
President and Chief Executive Officer
Vineyard National Bank Frank S. Alvarez, Chairman
Roland Noriega
Lester Stroh, M.D.
Jodie Smith
Co-owner
J & J Enterprises LOAN COMMITTEE
Robert J. Schoeffer, Chairman
Lester Stroh, M.D. Frank S. Alvarez
Chairman of the Board Roland Noriega
Joel Ravitz
Retired Physician Steven R. Sensenbach
Kaiser Foundation Hospital Jodie Smith
Renny V. Thomas
Renny V. Thomas
Executive Vice President AUDITORS
and Managing Underwriter
Cal/Group and Dentists Vavrinek, Trine, Day & Co.
Rancho Cucamonga
DIRECTORS EMERITUS
GENERAL COUNSEL
Catherine H. Barnes
Sebastiano 'Buster' Filpi Buxbaum & Chakmak
Claremont and
Newport Beach
</TABLE>
<PAGE> 51
VINEYARD NATIONAL BANK
<TABLE>
<CAPTION>
<S> <C> <C>
BOARD OF DIRECTORS ADVISORY BOARD Linda Maxwell
Frank S. Alvarez, C.P.A. Eduardo Alvarez Alan Menkes
Retired
Bawen, McBeth Inc. Catherine Barnes Keith Mode
Alan Bergen, M.D. Jim Moffatt
Roland Noriega
Owner Marvin Bernstein John R. (Jack) Morgan
Merchant's Electric
Larry Black Esther Ornelas
Joel H. Ravitz Robert Boothe Len Perdue
Chairman and CEO
Quincy Cass Associates, Inc. Art Braeger Jon Peterson
Andy Chan Jim Regan
Steven R. Sensenbach
President and Chief Executive Officer Henry Chavin Walter Reis
Vineyard National Bank
Michael Cobb Karen Rosenthal
Jodie Smith William Dalton Marty Sandercock
Co-owner
J & J Enterprises Betty Davidow Charles Schneider
Mark Davis Wallace Schultz
Lester Stroh, M.D.
Chairman of the Board Herman T. Davis Stephen Shore
Retired Physician Tom Durham Terry Smith
Kaiser Foundation Hospital
Sebastian "Buster" Filpi Richard Steidl, M.D.
Renny V. Thomas Jeanne Fitzgerald Ken Warner
Executive Vice President
and Managing Underwriter Dan Fox Gail Weatherwax
Cal/Group and Dentists
Ron Fredriksen Dale Weaver
DIRECTORS EMERITUS George Goodwin Gary Williams
Catherine H. Barnes Phil Guardia
Sebastiano 'Buster' Filpi
Melvin Hammer
Dave Haringa
OFFICERS
Warren Hawkins
Steven R. Sensenbach
President and Chief Executive Officer Ron Hendrickson
Robert J. Schoeffler Don Hiltabidel
Executive Vice President
Senior Credit Administrator Norm Hunt
M. Soule Claude Joe Ingram
Executive Vice President
Chief Financial Officer Mark Leggio
Sara Ahern Brian Don Levy
Senior Vice President, Cashier
Director of Operations Rick Lewis
Susanne M. Sensenbach Dr. Ray Maghroori
Vice President
Director of Human Resources
</TABLE>
<PAGE> 52
VINEYARD NATIONAL BANK (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
ADMINISTRATION RANCHO CUCAMONGA OFFICE LOAN CENTER
Steven R. Sensenbach Paul S. Stratton Robert J. Schoeffler
President and Chief Executive Officer Senior Vice President/ Executive Vice President/
Regional Manager Senior Credit Administration
M. Soule Claude Kris Voce Ron Zurek
Executive Vice President/ Assistant Vice President/ Senior Vice President/
Chief Financial Officer Branch Manager Installment Loan Manager
Sara Ahern Gregg Buxton
Senior Vice President, Cashier CHINO OFFICE Vice President/
Director of Operations Commercial Loan Division Manager
John Avalos
Robin Sirkegian-Sclimenti Vice President/ Gregory S. Sensenbach
Senior Vice President Regional Manager Vice President/Real Estate
Branch Administrator Loan Division Manager
Sandra McKee
Susanne M. Sensenbach Assistant Vice President/ Jean Smith
Vice President Branch Manager Vice President/
Director of Human Resources Commercial Loan Officer
Charles J. Parson CRESTLINE OFFICE
Vice President BRANCH OFFICES
Director of Marketing Don Church
Vice President/ Rancho Cucamonga
Howard J. Norris Regional Manager 9590 Foothill Blvd.
Vice President (909) 98?-01??
Compliance Officer Stephanie Shackelford
Assistant Vice President/ Chino
Marjorie Matea Branch Manager 5455 Riverside Dr.
Vice President (909) 591-3941
Internal Auditor
DIAMOND BAR OFFICE Crestline
Maureen Bouma 23840 Lake Dr.
Assistant Vice President Charles J. Parson (909) 338-1718
Administrative Assistant Vice President/
Regional Manager Diamond Bar
Marietta Hix 1200 S. Diamond Bar Blvd.
Assistant Vice President Sue Johnson (909) 861-9664
Administrative Assistant Assistant Vice President/
Branch Manager Blue Jay
Jan Moore 2?1?? Highway 189, Suite "G"
Assistant Vice President (909) 33?-8581
Operations Manager BLUE JAY OFFICE
Don Church OFFSITE ATM's
Vice President/
Regional Manager Ontario Auto 6/Truck Plaza ATM
4265 E. Guasti Road
Irene Perry Ontario, CA 91?64
Branch Manager
Jensen's Finest Foods ATM
27264 Highway 189
Blue Jay, CA 9231?
</TABLE>
<PAGE> 53
["WE'RE YOUR BANK!" LOGO]
BRANCH OFFICE
BUSINESS HOURS
RANCHO CUCAMONGA
CHINO
CRESTLINE
DIAMOND BAR
Monday-Friday 8 a.m. - 6 p.m.
Saturday 9 a.m. - 1 p.m.
BLUE JAY
Monday-Friday 8:30 a.m. - 5:30 p.m.
Saturday 9 a.m. - 1 p.m.
Member FDIC
Each depositor insured to $100,000
[LOGO] EQUAL HOUSING
LENDER
Equal Opportunity Lender
NOTE: This statement has not been
reviewed, or confirmed for accuracy
or relevance by the Office of the
Comptroller of the Currency.
<PAGE> 54
[VNB LOGO]
VINEYARD NATIONAL BANCORP
9590 Foothill Boulevard
Rancho Cucamonga, CA 91730
(909) 987-0177
