<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997 Commission File No. 0-20862
VINEYARD NATIONAL BANCORP
(Exact Name of Registrant as Specified in its Charter)
California 33-0309110
(State of other jurisdiction of (IRS employer
incorporation or organization) identification number)
9590 Foothill Boulevard
Rancho Cucamonga, California 91730
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909) 987-0177
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
APPLICABLE TO CORPORATE ISSUES
Indicate the number of shares outstanding of the issuer's classes of
common stock on the latest practicable date. 1,862,643 shares of common stock as
of June 30, 1997.
Page 1 of 17
<PAGE> 2
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
JUNE 30, 1997 AND DECEMBER 31, 1996
TABLE OF CONTENTS
PART I
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets
June 30, 1997 and December 31,1996............................................3
Consolidated Statements of Income
For the Six Months and Three Months Ended June 30, 1997 and 1996..............4
Consolidated Statements of Changes in Stockholders' Equity
For the Six Months Ended June 30, 1997 and 1996...............................5
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1997 and 1996...............................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................................8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................10
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................15
Exhibit 27. Data Schedule...................................................16
SIGNATURES.......................................................................17
</TABLE>
Page 2 of 17
<PAGE> 3
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 1997 AND DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Cash and due from banks $ 6,304,011 $ 7,619,307
Federal funds sold 4,970,000
------------- -------------
Total Cash and Cash Equivalents 11,274,011 7,619,307
------------- -------------
Interest-bearing deposits in other financial institutions 594,000 396,000
Investment securities
Available-for-sale 8,176,184 5,899,729
Loans, net of unearned income 93,630,149 97,276,964
Direct lease financing 89,592 188,489
Less: Reserve for probable loan and lease losses (706,803) (727,667)
------------- -------------
93,012,938 96,737,786
Other real estate owned 492,492 710,205
Bank premises and equipment 6,569,030 6,439,982
Accrued interest 483,587 403,126
Cash surrender value of life insurance 845,556 845,556
Other assets 496,375 471,995
------------- -------------
Total Assets $ 121,944,173 $ 119,523,686
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand deposits 28,466,506 25,946,157
Savings and NOW deposits 24,584,265 24,269,489
Money market deposits 14,817,262 13,819,261
Time deposits in denominations of $100,000 or more 6,803,903 9,425,758
Other time deposits 37,614,743 33,142,124
------------- -------------
Total Deposits 112,286,679 106,602,789
Federal funds purchased 3,700,000
Accrued employee salary benefits 463,838 466,226
Accrued interest and other liabilities 1,137,250 903,259
------------- -------------
Total Liabilities 113,887,767 111,672,274
------------- -------------
STOCKHOLDERS' EQUITY
Contributed Capital
Common stock - authorized 15,000,000 shares, 2,106,258 2,106,258
no par value, issued and outstanding 1,862,643
shares in 1997 and 1996
Additional paid-in capital 3,306,684 3,306,684
Retained earnings 2,635,597 2,433,463
Valuation allowance for investments 7,867 5,007
------------- -------------
Total Stockholders' Equity 8,056,406 7,851,412
------------- -------------
Total Liabilities and Stockholders' Equity $ 121,944,173 $ 119,523,686
============= =============
</TABLE>
See accompanying notes to financial statements. Page 3 of 17
<PAGE> 4
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------- ---------------------------
1997 1996 1997 1996
---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $4,426,956 $3,789,432 $2,213,568 $1,952,270
Interest on Investment Securities
Obligations of U.S. Government
Agencies and Corporations 167,017 353,576 106,668 190,314
Interest on other securities 4,913 4,895 2,460 2,449
Interest on deposits 12,721 19,332 7,288 11,715
Interest on Federal funds sold 97,566 110,741 65,252 67,705
Direct lease financing income 4,085 19,598 1,688 8,693
---------- ---------- ---------- ----------
Total Interest Income 4,713,258 4,297,574 2,396,924 2,233,146
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on savings deposits 107,514 110,482 54,896 55,409
Interest on NOW and money
market deposits 233,848 245,130 122,073 117,446
Interest on time deposits in
denominations of $100,000 or more 185,013 172,469 94,042 82,456
Interest on other time deposits 1,029,505 810,288 522,781 461,440
Interest on Federal funds purchased
and other interest 5,459 247 115
---------- ---------- ---------- ----------
Total Interest Expense 1,561,339 1,338,616 793,792 716,866
---------- ---------- ---------- ----------
Net Interest Income 3,151,919 2,958,958 1,603,132 1,516,280
PROVISION FOR LOAN AND
LEASE LOSSES 47,782 116,300 116,300
---------- ---------- ---------- ----------
Net Interest Income After
Provision for Loan and
Lease Losses 3,104,137 2,842,658 1,603,132 1,399,980
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements. Page 4 of 17
<PAGE> 5
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
--------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OTHER INCOME
Fees and service charges $ 809,024 $ 886,640 $ 412,462 $ 442,022
Net loss on sale of investment
securities (1,057)
Other Income 8,010 4,501 4,560 2,748
----------- ----------- ----------- -----------
Total Other Income 815,977 891,141 417,022 444,770
----------- ----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits 1,748,184 1,817,899 845,756 906,221
Occupancy expense of premises 313,211 505,544 155,040 233,300
Furniture and equipment expenses 244,951 263,455 118,055 141,943
Other expenses (Note #2) 1,272,634 1,363,059 649,076 685,911
----------- ----------- ----------- -----------
Total Other Expenses 3,578,980 3,949,957 1,767,927 1,967,375
----------- ----------- ----------- -----------
INCOME/(LOSS) BEFORE
INCOME TAXES 341,134 (216,158) 252,227 (122,625)
INCOME TAXES (139,000) (1,600) (103,000) (1,600)
----------- ----------- ----------- -----------
NET INCOME/(LOSS) $ 202,134 $ (217,758) $ 149,227 $ (124,225)
=========== =========== =========== ===========
EARNINGS/(LOSS) PER SHARE OF
COMMON STOCK (Note #3) $ 0.11 $ (0.12) $ 0.08 $ (0.07)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements. Page 5 of 17
<PAGE> 6
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Number of Additional Allowance
Shares Common Paid-in Retained for
Outstanding Stock Capital Earnings Investments
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 1,862,643 $2,106,258 $3,306,684 $2,327,885 $ 11,887
Change in net unrealized
gain on investment
securities available-
for-sale (26,913)
Net loss for
the six months (217,758)
---------- ---------- ---------- ---------- ----------
Balance, June 30, 1996 1,862,643 $2,106,258 $3,306,684 $2,110,127 $ (15,026)
========== ========== ========== ========== ==========
Balance, January 1, 1997 1,862,643 2,106,258 3,306,684 2,433,463 5,007
Change in net unrealized
gain on investment
securities available-
for-sale 2,860
Net income for
the six months 202,134
---------- ---------- ---------- ---------- ----------
Balance, June 30, 1997 1,862,643 $2,106,258 $3,306,684 $2,635,597 $ 7,867
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements. Page 6 of 17
<PAGE> 7
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and fees received $ 3,830,417 $ 4,875,502
Service fees and other income received 816,456 878,393
Financing revenue received under leases 4,085 19,598
Interest paid (1,551,950) (1,352,553)
Cash paid to suppliers and employees (3,256,090) (3,790,198)
Income taxes paid (1,600) (1,600)
------------ ------------
Net Cash Provided By/(Used In) Operating Activities (158,682) 629,142
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities
available-for-sale 1,350,000
Proceeds from sales of investment securities
available-for-sale 2,386,296 7,000,000
Purchase of investment securities available-for-sale (5,980,652) (7,756,729)
Proceeds from maturities of deposits in other
financial institutions 99,000 99,000
Purchase of deposits in other financial institutions (297,000)
Net loans made to customers and principal collections
of loans 4,233,962 (9,669,145)
Net decrease in leases to customers 98,897 185,217
Net (increase)/decrease in other real estate owned 210,547 (32,848)
Recoveries on loans previously written off 114,235 59,596
Capital expenditures (385,789) (3,193,391)
Proceeds from sale of property, plant and equipment 69,403
------------ ------------
Net Cash Provided By/(Used In) Investing Activities 1,829,496 (13,238,897)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in demand deposits, NOW
accounts savings accounts, and money market deposits 3,833,126 (29,062)
Net increase in certificates of deposit 1,850,764 10,741,435
Decrease in Federal funds purchased (3,700,000)
------------ ------------
Net Cash Provided By Financing Activities 1,983,890 10,712,373
------------ ------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 3,654,704 (1,897,382)
CASH AND CASH EQUIVALENTS, Beginning of year 7,619,307 10,018,749
------------ ------------
CASH AND CASH EQUIVALENTS, End of quarter $ 11,274,011 $ 8,121,367
============ ============
</TABLE>
See accompanying notes to financial statements. Page 7 of 17
<PAGE> 8
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
RECONCILIATION OF NET INCOME/(LOSS) TO
NET CASH USED IN OPERATING ACTIVITIES
Net Income/(Loss) $ 202,134 $(217,758)
--------- ---------
Adjustments to Reconcile Net Income to
Net Cash Provided By/(Used In) Operating Activities
Depreciation and amortization 228,511 241,599
Provision for probable credit losses 47,782 116,300
Loss on sale of equipment 5,821
Loss on sale of other real estate owned 7,166 25,617
Increase/(decrease) in taxes payable 137,400 (11,424)
(Increase)/decrease in other assets (24,380) 111,751
Increase/(decrease) in unearned loan fees (770,027) 653,932
Increase in interest receivable (80,461) (62,596)
Increase/(decrease) in interest payable 9,389 (13,937)
Increase/(decrease) in accrued expense and other liabilities 82,747 (220,163)
Loss on sale of investments 1,057
--------- ---------
Total Adjustments (360,816) 846,900
--------- ---------
Net Cash Provided By/(Used In) Operating Activities $(158,682) $ 629,142
========= =========
SUPPLEMENTARY INFORMATION
Change in valuation allowance for investment securities $ 2,860 $ (26,913)
========= =========
</TABLE>
DISCLOSURE OF ACCOUNTING POLICY
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.
See accompanying notes to financial statements. Page 8 of 17
<PAGE> 9
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997 AND 1996
NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Management, all adjustments considered necessary for a fair
statement of the results for the interim period presented have been included and
are of a normal recurring nature. For further information, refer to the
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. The results of
operations for the six month period ended June 30, 1997, are not necessarily
indicative of the results to be expected for the full year. Effective for years
beginning in 1996, the Company was required to implement SFAS No. 123, "Stock
Based Compensation", which changes the method disclosing the Company's
stock-based compensation. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plan and implemented SFAS No. 123 in its
footnote disclosures.
Effective for years beginning after December 31, 1996, the Company was required
to implement SFAS No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities", as amended by SFAS No. 127 "Deferral
of the Effective Date of Certain Provisions of FASB Statement No. 125",
establishing accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of the financial-components approach. This approach requires the
recognition of financial assets when control is surrendered, and the
derecognition of liabilities when they are extinguished. Specific criteria are
established for determining when control has been surrendered in the transfer of
financial assets. Liabilities and derivatives incurred or obtained by
transferors in conjunction with the transfer of financial assets are required to
be measured at fair value, if practicable. Servicing assets and other retained
interests in transferred assets are required to be measured by allocating the
previous carrying amount between the assets sold, if any, and the interest that
is retained, if any based on the relative fair values of the assets on the date
of the transfer. Servicing assets retained are subsequently subject to
amortization and assessment for impairment.
NOTE #2 - OTHER EXPENSES
The following is a breakdown of other expenses for each of the six and three
month periods ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Data processing $ 344,563 $ 391,111 $ 172,954 $ 191,327
Marketing expenses 192,218 150,842 87,875 82,719
Office supplies, postage and telephone 117,014 139,101 52,754 71,618
Professional expenses 222,185 218,262 119,148 132,766
Bank insurance and assessments 111,088 85,197 50,540 43,622
Other 285,566 378,546 165,805 163,859
---------- ---------- ---------- ----------
Total Other Expenses $1,272,634 $1,363,059 $ 649,076 $ 685,911
========== ========== ========== ==========
</TABLE>
Page 9 of 17
<PAGE> 10
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997 AND 1996
NOTE #3 - EARNINGS/(LOSS) PER COMMON EQUIVALENT SHARE
Earnings/(loss) per share is based upon the weighted average number of shares
outstanding during each period. Stock options have been excluded from the
computation of earnings/(loss) per share, as their effect is immaterial.
The weighted average number of shares used to compute earnings/(loss) per common
share was 1,862,643 in 1997 and 1996.
Page 10 of 17
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Vineyard National Bancorp (the "Company") is a one-bank holding
company. Its principal asset is the common stock of, and its principal
operations are conducted by, Vineyard National Bank, a National banking
association (the "Bank").
RESULTS OF OPERATIONS
The Company incurred net income of $202,134 for the six months ended
June 30, 1997, as compared to a net loss of $(217,758) for the same period in
1996. For the three month period ended June 30, 1997, the Company posted net
income of $149,227 as compared to a net loss of $(124,225) for the same period
in 1996.
NET INTEREST INCOME
The principal determinant of the Bank's net results of operations is
its net interest income. Net interest income is the difference or "margin"
between interest earned on interest-earning assets, such as loans and investment
securities, and interest paid on interest-bearing liabilities, principally
deposits. The Bank's net interest income increased $193,000 or 6.5% in the six
month period ended June 30, 1997, as compared to the same period in 1996. This
increase was due primarily to a $416,000 increase in interest income and a
$223,000 increase in interest expense. The Bank's net interest income increased
$87,000 for the three month period ended June 30, 1997, compared to the same
period for 1996. Interest income increased $163,000 and interest expense
increased $77,000.
The increase in interest income was attributable primarily to an
increase in loan volume of commercial real estate loans. Outstanding loans and
leases increased from June 30, 1996, to the period ended June 30, 1997, by
$7,373,000 as a direct result of increased loan demand. During this period total
deposits increased by $3,160,000. The deposit categories mix changed as demand
deposits increased $311,000, savings and Now accounts decreased $1,910,000,
money market accounts increased $971,000, time deposits in excess of $100,000
increased $923,000, and other time deposits increased $2,865,000. The net
interest margin (net interest income expressed as a percentage of interest
income) was 67 percent as compared to 69 percent in 1996.
PROVISION FOR PROBABLE LOAN LOSSES
The Bank follows the practice of maintaining a reserve for potential
losses on loan and leases (the "Loan Loss Reserve" or the "Reserve") at an
amount which, in Management's judgment, is adequate to absorb potential losses
on total loans and leases outstanding. Losses on loans or leases are charged
against the reserve and the reserve is adjusted periodically to reflect changes
in the volume of outstanding loans and leases and increases in the risk of
potential losses due to a deterioration in the condition of borrowers, in the
value of collateral securing loans or in general economic conditions. Additions
to the reserve are made through a charge against income referred to as the
"Provision for Loan and Lease Losses".
During the six month period ended June 30, 1997, a provision was made
of $48,000 as compared to a provision of $116,000 for the same period in 1996.
The net charge-offs on previously granted loans was approximately $69,000 for
the six months ended June 30, 1997, as compared to net charge-offs of $240,000
for the same period in 1996.
During the three month period ended June 30, 1997, no provision was
made as compared to a provision of $116,000 for the same period in 1996. The net
charge-offs on previously granted loans was approximately $43,000 for the three
months ended June 30, 1997, as compared to net charge-offs of $172,000 for the
three months ended June 30, 1996.
Page 11 of 17
<PAGE> 12
OTHER INCOME
The decrease of $75,000 or 8%, in other income in the six month
period ended June 30, 1997, as compared to 1996, was due primarily to the
decrease in various other income accounts. The decrease of $28,000 or 6%, in
other income in the three month period ended June 30, 1997, as compared to 1996,
was due to a decrease in various other income accounts.
OTHER EXPENSES
Other expenses, consisting primarily of (i) salaries and other
employee expenses, (ii) occupancy expenses, (iii) furniture and equipment
expenses, and (iv) insurance, data processing, professional fees and other
non-interest expense, decreased by approximately $371,000 or 9%, during the six
month period ended June 30, 1997, as compared to the same period in 1996. The
decrease in other expenses was primarily a result of decreases in salary and
employee benefits, and data processing costs due to cost cutting measures taken
by the Bank. In addition, occupancy expenses decreased as a result of the Bank
purchasing the Main branch in 1996.
The $199,000 or 10% decrease in other expenses during the three month
period ended June 30, 1997, was affected by decreases in salaries and benefits,
data processing, office supplies, postage, telephone and professional expenses
due to the cost cutting measures taken by the Bank. Occupancy expense decreased
as well due to the purchase of the Main branch.
FINANCIAL CONDITION AND LIQUIDITY
During the six months ended June 30, 1997, the Company's assets
increased by approximately $2.4 million or 2%, compared to December 31, 1996.
The Company continued to have adequate cash resources with approximately
$6,304,000 of cash held on deposit at other financial institutions, $8,176,000
of investment securities, and $4,970,000 in Federal Funds Sold at June 30, 1997.
Liquidity was up and resulted in the increase in cash and cash equivalents of
$3,700,000. The increased liquidity resulted primarily from the decrease in
total non-liquid assets, an increase in total deposits, and an increase in
federal funds sold. The Bank's investment portfolio contains $14,000 of
unrealized losses on estimated fair values when compared to book values at June
30, 1997. Investment securities totaling $1,350,000 matured during the six month
period ended June 30, 1996. The total loans placed on non-accrual status (not
generating income currently) amounted to approximately $339,000 at June 30,
1997.
All loans on non-accrual status are considered to be impaired.
During the six months ended June 30, 1996, the Company acquired the
corporate headquarters and main branch building. This resulted in an increase in
Bank Premises of approximately $2,471,000.
During the six months ended June 30, 1997, the increase in capital
expenditures was mainly due to costs associated with a data processing
conversion which occurred in July 1997. Additional costs of approximately
$350,000 are anticipated in the third quarter of 1997 to complete the
conversion.
Total shareholders' equity increased from approximately $7,851,000 at
December 31, 1996, to $8,056,000 at June 30, 1997, as a result of net income
generated for the six months then ended and an increase in the valuation
allowance for investment securities.
The Company's and the Bank's primary regulators, the Federal Reserve
Board, and the 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, respectively. Further, the Federal Reserve
Board and 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 June 30, 1997, the Company
had a ratio of capital to risk-weighted assets of 8.57%, a ratio of Tier 1
capital to risk-weighted assets of 7.87%, and a leverage capital ratio of 6.59%.
The Company's management believes that, under current regulations, the Bank will
continue to meet these minimum capital requirements in the foreseeable future.
Page 12 of 17
<PAGE> 13
NON-PERFORMING LOANS
The following table sets forth information regarding the Bank's
non-performing loans at June 30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in Thousands) 1997 1996
------- -----------
<S> <C> <C>
Accruing Loans More Than 90 Days Past Due(1)
Aggregate Loan Amounts
Commercial, financial and agricultural
Real estate
Installment loans to individuals $111 $ 49
---- ----
Total Loans Past Due More Than 90 Days 111 49
---- ----
Renegotiated Loans(2) -- --
---- ----
Non-accrual Loans(3)
Aggregate Loan Amounts
Commercial, financial and agricultural 5
Real estate 339 429
Installment loans to individuals
---- ----
Total Non-accrual Loans 339 434
---- ----
Total Non-Performing Loans $450 $483
==== ====
</TABLE>
(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
1997 and 1996.
(3) There were three loans on non-accrual status totaling approximately $339,000
at June 30, 1997, and five loans totaling approximately $434,000 at December 31,
1996.
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 June 30, 1997, the Bank's classified loans consisted of
$3,267,000 of loans classified as substandard. The Bank's $3,267,000 of loans
classified as substandard consisted of $2,817,000 of performing loans and
$450,000 of non-accrual loans and loans delinquent 90 days or more but still
accruing.
Page 13 of 17
<PAGE> 14
RESERVE FOR PROBABLE LOAN AND LEASE LOSSES
The reserve for probable loan and lease losses is a general reserve
established by 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 June 30, 1997,
reflected an amount which, in management's judgment, 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, 1996.
The reserve for probable loan and lease losses at June 30, 1997, was
$707,000 or .75% of total loans and leases, as compared to $728,000 or .75% of
total credits at December 31, 1996. 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>
June 30, December 31,
(Dollars in Thousands) 1997 1996
------- -----------
<S> <C> <C>
Allowance For Loan Losses
Balance, Beginning of period $728 $783
---- ----
Charge-offs
Commercial, financial and agricultural 101
Real estate mortgage 201
Consumer loans 183 384
---- ----
Total Charge-offs 183 686
---- ----
Recoveries
Commercial, financial and agricultural 16 102
Real estate mortgage 6
Consumer loans 92 112
---- ----
Total Charge-offs 114 214
---- ----
Net Charge-offs 69 472
---- ----
Provision Charged to Operations 48 417
---- ----
Balance, End of period $707 $728
==== ====
Net Charge-offs During the Period to Average Loans
Outstanding During the Period Ended 0.03% 0.55%
==== ====
Allowance For Loan Losses to Total Losses 0.75% 0.75%
==== ====
</TABLE>
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.
Page 14 of 17
<PAGE> 15
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: Data Schedule
b) Reports on Form 8-K: None
Page 15 of 17
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on this 1st day of August 1997.
VINEYARD NATIONAL BANK
By: /s/ Soule Sensenbach
-------------------------------
Soule Sensenbach
Corporate Secretary
Page 16 of 17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997, UNAUDITED FINANCIAL STATEMENTS OF VINEYARD NATIONAL BANCORP AND SUBSIDIARY
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,304,011
<INT-BEARING-DEPOSITS> 594,000
<FED-FUNDS-SOLD> 4,970,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,176,184
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 93,719,741
<ALLOWANCE> 706,803
<TOTAL-ASSETS> 121,944,173
<DEPOSITS> 112,286,679
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,601,089
<LONG-TERM> 0
0
0
<COMMON> 2,106,258
<OTHER-SE> 5,950,147
<TOTAL-LIABILITIES-AND-EQUITY> 121,944,173
<INTEREST-LOAN> 4,431,041
<INTEREST-INVEST> 171,930
<INTEREST-OTHER> 110,287
<INTEREST-TOTAL> 4,713,258
<INTEREST-DEPOSIT> 1,555,880
<INTEREST-EXPENSE> 1,561,339
<INTEREST-INCOME-NET> 3,151,919
<LOAN-LOSSES> 47,782
<SECURITIES-GAINS> (1,057)
<EXPENSE-OTHER> 3,578,980
<INCOME-PRETAX> 341,134
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202,134
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0
<YIELD-ACTUAL> 6.0
<LOANS-NON> 339,000
<LOANS-PAST> 111,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,928,000
<ALLOWANCE-OPEN> 783,466
<CHARGE-OFFS> 183,000
<RECOVERIES> 114,000
<ALLOWANCE-CLOSE> 706,803
<ALLOWANCE-DOMESTIC> 706,803
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
