<PAGE> 1
x 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, 1998 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 91730
Rancho Cucamonga, California (Zip Code)
(Address of principal executive offices)
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 , 1998.
Page 1 of 17
<PAGE> 2
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
TABLE OF CONTENTS
PART I
FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets
June 30, 1998 and December 31,1997.........................................3
Consolidated Statements of Income
For the Six Months and Three Months Ended June 30, 1998 and 1997...........4
Consolidated Statements of Changes in Stockholders' Equity
For the Six Months Ended June 30, 1998 and 1997............................5
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997............................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
<TABLE>
<CAPTION>
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 1998 AND DECEMBER 31, 1997
ASSETS
June 30, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
Cash and due from banks $ 6,033,602 $ 6,404,346
Federal funds sold 3,110,000 2,950,000
------------- -------------
Total Cash and Cash Equivalents 9,143,602 9,354,346
------------- -------------
Interest-bearing deposits in other financial institutions 495,000
Investment securities
Available-for-sale 6,735,101 4,701,490
Loans, net of unearned income 85,691,700 88,675,135
Loans held for sale 759,271 424,950
Direct lease financing 14,354 14,354
Less: Reserve for probable loan and lease losses (662,190) (694,880)
------------- -------------
85,803,135 88,419,559
Other real estate owned 287,354 492,492
Bank premises and equipment 6,555,803 6,741,300
Accrued interest 541,305 445,033
Cash surrender value of life insurance 1,655,873 981,467
Other assets 433,303 375,125
------------- -------------
Total Assets $ 111,650,476 $ 111,510,812
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand deposits 30,153,573 29,455,497
Savings and NOW deposits 25,967,745 25,562,601
Money market deposits 10,680,614 12,168,373
Time deposits in denominations
of $100,000 or more 8,019,836 7,522,574
Other time deposits 27,078,372 27,032,311
------------- -------------
101,900,140 101,741,356
Accrued employee salary benefits 412,262 781,712
Accrued interest and other liabilities 864,035 721,241
------------- -------------
Total Liabilities 103,176,437 103,244,309
------------- -------------
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 1998 and 1997
Additional paid-in capital 3,306,684 3,306,684
Retained earnings 3,040,134 2,837,599
Accumulated other comprehensive income 20,963 15,962
------------- -------------
Total Stockholders' Equity 8,474,039 8,266,503
------------- -------------
Total Liabilities and Stockholders' Equity $ 111,650,476 111,510,812
============= =============
</TABLE>
See accompanying notes to financial statements.
Page 3 of 17
<PAGE> 4
<TABLE>
<CAPTION>
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Six Months Ended June 30, Three Months Ended June 30,
---------------------------- -----------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 4,398,284 $ 4,426,956 $ 2,258,307 $ 2,205,520
Interest on Investment Securities
Obligations of U.S. Government Agencies
and Corporations 141,435 167,017 78,222 106,668
Interest on other securities 4,944 4,913 2,478 2,460
Interest on deposits 5,170 12,721 4,128 7,288
Interest on Federal funds sold 158,774 97,566 88,141 65,252
Direct lease financing income 445 4,085 224 1,688
----------- ----------- ----------- -----------
Total Interest Income 4,709,052 4,713,258 2,431,500 2,388,876
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on savings deposits 103,544 107,514 53,153 54,896
Interest on NOW and money market deposits 225,952 233,848 113,413 122,073
Interest on time deposits in denominations
of $100,000 or more 203,889 185,013 101,924 94,042
Interest on other time deposits 732,093 1,029,505 369,565 522,781
Interest on Federal funds purchased
and other interest 5,459 0
----------- ----------- ----------- -----------
Total Interest Expense 1,265,478 1,561,339 638,055 793,792
----------- ----------- ----------- -----------
Net Interest Income 3,443,574 3,151,919 1,793,445 1,595,084
PROVISION FOR LOAN AND LEASE LOSSES (123,982) (47,782) (64,982) 0
----------- ----------- ----------- -----------
Net Interest Income After Provision .
for Loan and Lease Losses 3,319,592 3,104,137 1,728,463 1,595,084
----------- ----------- ----------- -----------
OTHER INCOME
Fees and service charges and gain
on sale of loans 722,822 809,024 353,669 419,894
Net gain/(loss) on sale of
investment securities 3,281 (1,057) 0 0
Other Income 12,046 8,010 5,912 4,560
----------- ----------- ----------- -----------
Total Other Income 738,149 815,977 359,581 424,454
----------- ----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits 1,771,320 1,748,184 885,110 846,105
Occupancy expense of premises 301,175 313,211 148,959 155,040
Furniture and equipment expenses 308,383 244,951 156,654 118,055
Other expenses (Note #2) 1,334,328 1,272,634 652,031 648,111
----------- ----------- ----------- -----------
Total Other Expenses 3,715,206 3,578,980 1,842,754 1,767,311
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 342,535 341,134 245,290 252,227
INCOME TAXES (140,000) (139,000) (101,000) (103,000)
----------- ----------- ----------- -----------
NET INCOME $ 202,535 $ 202,134 $ 144,290 $ 149,227
=========== =========== =========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.11 $ 0.11 $ 0.08 $ 0.08
=========== =========== =========== ===========
See accompanying notes to financial statements.
Page 4 of 17
</TABLE>
<PAGE> 5
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Number of Additional other
Shares Common Paid-in Retained comprehensive
Outstanding Stock Capital Earnings income Total
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 1,862,643 $ 2,106,258 $ 3,306,684 $ 2,433,463 $ 5,007 $77,851,412
--------- ----------- ----------- ----------- ----------- -----------
Comprehensive income
Net Income 202,134 202,134
Unrealized security holding gains 3,474 3,474
less reclassification
adjustments for losses (614) (614)
Total other comprehensive income 2,860
--------- ----------- ----------- ----------- ----------- -----------
Total Comprehensive income 204,994
--------- ----------- ----------- ----------- ----------- -----------
BALANCE, June 30,1997 1,862,643 $ 2,106,258 $ 3,306,684 $2,635,597 $ 7,867 $78,056,406
========= =========== =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Grossup of change in unrealized gain or loss
Gross Taxes Net
-------- -------- -------
<S> <C> <C> <C>
Net unrealized appreciation, January 1, 1997 $ 8,636 $ (3,629) $ 5,007
Unrealized gains arising during the period 5,984 (2,510) 3,474
Realized losses (1,057) 443 (614)
-------- -------- -------
Ending Balance, June 30, 1997 $ 13,563 $ (5,696) $ 7,867
======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Number of Additional other
Shares Common Paid-in Retained comprehensive
Outstanding Stock Capital Earnings income Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1998 1,862,643 $ 2,106,258 $ 3,306,684 $ 2,837,599 $ 15,962 $ 8,266,503
--------- ----------- ----------- ----------- ----------- -----------
Comprehensive income
Net Income 202,535 202,535
Unrealized security holding gains 6,904 6,904
less reclassification adjustments
for gains (1,903) (1,903)
Total other comprehensive income 5,001
--------- ----------- ----------- ----------- ----------- -----------
Total Comprehensive income 107,536
--------- ----------- ----------- ----------- ----------- -----------
BALANCE, June 30,1998 1,862,643 $ 2,106,258 $ 3,306,684 $ 3,040,134 $ 20,963 $ 8,474,039
========= =========== =========== =========== =========== ===========
</TABLE>
Grossup of change in unrealized gain or loss
<TABLE>
<CAPTION>
Gross Taxes Net
-------- --------- --------
<S> <C> <C> <C>
Net unrealized appreciation, January 1, 1998 $ 27,523 $ (11,561) $ 15,962
Unrealized gains arising during the period 11,902 (4,998) 6,904
Realized gains (3,281) 1,378 (1,903)
-------- --------- --------
Ending Balance, June 30, 1998 $ 36,144 $ (15,181) $ 20,963
======== ========= ========
</TABLE>
See accompanying notes to financial statements.
Page 5 of 17
<PAGE> 6
<TABLE>
<CAPTION>
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and fees received $ 3,731,915 $ 3,830,417
Service fees and other income received 734,868 816,456
Financing revenue received under leases 445 4,085
Interest paid (1,256,704) (1,551,950)
Cash paid to suppliers and employees (4,365,516) (3,256,090)
Income taxes paid (122,096) (1,600)
------------ ------------
Net Cash Used by Operating Activities (1,277,088) (158,682)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities
available-for-sale 2,500,000 1,350,000
Proceeds from sales of investment securities
available-for-sale 503,365 2,386,296
Purchase of investment securities available-for-sale (5,011,532) (5,980,652)
Net increase in deposits in other financial institutions (495,000) (198,000)
Net loans made to customers and principal collections
of loans 3,325,685 4,233,962
Net decrease in leases to customers 98,897
Net decrease in other real estate owned 173,582 210,547
Recoveries on loans previously written off 33,637 114,235
Capital expenditures (160,703) (385,789)
Proceeds from sale of property, plant and equipment 38,526
------------ ------------
Net Cash Provided by Investing Activities 907,560 1,829,496
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in demand deposits, NOW
accounts savings accounts, and money market deposits (384,539) 3,833,126
Net increase in certificates of deposit 543,323 1,850,764
Decrease in Federal funds purchased (3,700,000)
------------ ------------
Net Cash Provided by Financing Activities 158,784 1,983,890
------------ ------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (210,744) 3,654,704
CASH AND CASH EQUIVALENTS, Beginning of year 9,354,346 7,619,307
------------ ------------
CASH AND CASH EQUIVALENTS, End of quarter $ 9,143,602 $ 11,274,011
============ ============
</TABLE>
See accompanying notes to financial statements.
Page 6 of 17
<PAGE> 7
<TABLE>
<CAPTION>
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 1997
1998 1997
------------ ------------
<S> <C> <C>
RECONCILIATION OF NET INCOME/(LOSS) TO
NET CASH USED IN OPERATING ACTIVITIES
Net Income $ 202,535 $ 202,134
----------- -----------
Adjustments to Reconcile Net Income to
Net Cash Provided/(Used) by Operating Activities
Depreciation and amortization 294,134 228,511
Provision for probable credit losses 123,982 47,782
Loss on sale of other real estate owned 31,556 7,166
Increase in taxes payable 17,904 137,400
Increase in other assets (732,584) (24,380)
Decrease in unearned loan fees (866,880) (770,027)
Increase in interest receivable (96,272) (80,461)
Increase in interest payable 8,774 9,389
Increase/(Decrease) in accrued expense and other liabilities (256,956) 82,747
(Gain)/Loss on sale of investments (3,281) 1,057
----------- -----------
Total Adjustments (1,479,623) (360,816)
----------- -----------
Net Cash Used by Operating Activities $(1,277,088) $ (158,682)
=========== ===========
SUPPLEMENTARY INFORMATION
Change in valuation allowance for investment securities $ 5,001 $ 2,860
=========== ===========
</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.
. Page 7 of 17
<PAGE> 8
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998 AND 1997
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, 1997. The results of
operations for the six month period ended June 30, 1998, 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.
Effective for years beginning after December 31, 1997, the Company was required
to implement SFAS No. 130 "Reporting Comprehensive Income." This statement
establishes standards of disclosure and financial statement display for
reporting comprehensive income and its components.
NOTE #2 - OTHER EXPENSES
The following is a breakdown of other expenses for each of the six month periods
ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------------- ----------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Data processing $ 321,735 $ 344,563 $ 161,533 $ 172,954
Marketing expenses 169,431 192,218 74,060 87,875
Office supplies, postage
and telephone 190,825 117,014 95,871 52,754
Professional expenses 323,514 222,185 156,949 119,148
Bank insurance and assessments 79,966 111,088 44,798 50,540
Other 248,857 285,566 118,820 164,840
---------- ---------- --------- ---------
Total Other Expenses $1,334,328 $1,272,634 $ 652,031 $ 648,111
========== ========== ========= =========
</TABLE>
Page 8 of 17
<PAGE> 9
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998 AND 1997
NOTE #3 - EARNINGS PER COMMON EQUIVALENT SHARE
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
Page 9 of 17
<PAGE> 10
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 had net income of $202,535 for the six months ended June
30, 1998, as compared to $202,134 for the same period in 1997.
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 approximately $292,000 or
9.3% in the six month period ended June 30, 1998, as compared to the same period
in 1997. The increase was due primarily to approximately a $4,000 decrease in
interest income and approximately a $296,000 decrease in interest expense. The
net change was substantially a result of decreases in loan volume and other time
deposits from June 1998 to June 1997.
Outstanding loans and leases decreased during the six month period
ended June 30, 1998, by approximately $2,584,000. During this period total
deposits increased by approximately $159,000. The deposit mix changed as demand
deposits increased by approximately $698,000, savings and NOW accounts increased
by approximately $405,000, money market accounts decreased approximately
$1,488,000, time deposits in excess of $100,000 increased approximately
$497,000, and other time deposits increased approximately $46,000. The net
interest margin (net interest income expressed as a percentage of interest
income) was 73 percent for the six month period ended June 30, 1998, as compared
to 67 percent for the same period in 1997.
PROVISION FOR PROBABLE LOAN AND LEASES 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, 1998, a provision of
approximately $124,000 was made as compared to approximately $48,000 for the
same period in 1997. The net charge-offs on previously granted loans were
approximately $156,000 for the six months ended June 30, 1998, as compared to
$26,000 for the same period in 1997.
During the three month period ended June 30, 1998, a
provision of approximately $65,000 was made as compared to no provision for the
same period in 1997. The net charge-offs on previously granted loans were
approximately $64,000 for the three months ended June 30, 1998, as compared to
$26,000 for the same period in 1997.
Page 10 of 17
<PAGE> 11
OTHER INCOME
The decrease of approximately $78,000 in other income in the six month
period ended June 30, 1998, as compared to 1997, was due primarily to the
decrease in fees and service charges. The decrease of approximately $65,000 in
other income in the three month period ended June 30, 1998, was due primarily to
the decrease in fees and service charges as well.
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, increased by approximately $136,000 or 3.8%, during the six month
period ended June 30, 1998, as compared to the same period in 1997. The increase
in other expenses was primarily a result of increases in equipment and
professional 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, increased by approximately $75,000 or 4.3%, during the six month period
ended June 30, 1998, as compared to the same period in 1997. The increase in
other expenses was primarily a result of increases in equipment and salaries and
employee benefits expense.
FINANCIAL CONDITION AND LIQUIDITY
During the six months ended June 30, 1998, the Company's assets
increased by approximately $140,000 or .13%, compared to December 31, 1997. The
Company continued to have adequate cash resources with approximately $6,034,000
of cash held on deposit at other financial institutions, approximately
$6,735,000 of investment securities, and $3,110,000 in Federal Funds Sold at
June 30, 1998. Liquidity was up and resulted in the increase in liquid assets of
approximately $2,318,000. The increased liquidity resulted primarily from the
decrease in total non-liquid assets and increases in Federal Funds Sold and
Investment Securities. The Bank's investment portfolio contains $36,000 of
unrealized gains on estimated fair values when compared to book values at June
30, 1998. The total loans placed on non-accrual status (not generating income
currently) amounted to approximately $121,000 at June 30, 1998. All loans on
non-accrual status are considered to be impaired.
Total shareholders' equity increased from approximately $8,267,000 at
December 31, 1997, to $8,474,000 at June 30, 1998, 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, 1998, the Company
had a ratio of capital to risk-weighted assets of 9.58%, a ratio of Tier 1
capital to risk-weighted assets of 8.88%, and a leverage capital ratio of 7.40%.
The Company's management believes that, under current regulations, the Bank will
continue to meet these minimum capital requirements in the foreseeable future.
Page 11 of 17
<PAGE> 12
NON-PERFORMING LOANS
The following table sets forth information regarding the Bank's
non-performing loans at June 30, 1998, and December 31, 1997.
<TABLE>
<CAPTION>
(dollars in thousands) June 30, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
Accruing Loans More Than 90 Days Past Due(1)
Aggregate loan amounts
Commercial, financial and agricultural
Real estate $109
Installment loans to individuals $ 1 107
---- ----
Total Loans Past Due More Than 90 Days 1 216
---- ----
Renegotiated loans(2)
Non-accrual loans(3)
Aggregate loan amounts
Commercial, financial and agricultural 54 28
Real estate 67 201
---- ----
Total Non-Accrual Loans $121 $229
==== ====
Total Non-Performing Loans $122 $445
==== ====
</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
1998 and 1997.
(3) There were two loans on non-accrual status totaling approximately $121,000
at June 30, 1998, and four loans totaling approximately $229,000 at December 31,
1997.
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, 1998, the Bank's classified loans consisted of
approximately $1,756,000 of loans classified as substandard. The Bank's
$1,756,000 of loans classified as substandard consisted of approximately
$1,634,000 of performing loans and approximately $122,000 of non-accrual loans
and loans delinquent 90 days or more but still accruing.
Page 12 of 17
<PAGE> 13
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, 1998,
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, 1997.
The reserve for probable loan and lease losses at June 30, 1998, was
approximately $662,000 or .77% of total loans and leases, as compared to
$695,000 or .78% of total credits at December 31, 1997. 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) June 30, December 31,
1998 1997
----------- ---------
<S> <C> <C>
Loans and Lease Loss Reserve Balance,
Beginning of Period $695 $728
---- ----
Charge-offs
Domestic
Commercial, financial & agricultural 37 34
Real estate - mortgage 14
Consumer loans 154 309
---- ----
191 357
---- ----
Recoveries
Domestic
Commercial, financial & agricultural 2 18
Real estate - mortgage 6
Consumer loans 32 156
---- ----
34 180
---- ----
Net charge-offs/(recoveries) 157 177
Additions/(Reductions) charged to operations 124 144
---- ----
Loan and Lease Loss Reserve Balance, End of Year $662 $695
==== ====
Ratio of Net Charge-offs/(Recoveries) During the Year
to Average Loans and Leases Outstanding During the Year 0.18% 0.19%
==== ====
Ratio of Reserve for Loan Losses to Loans at Period End 0.77% 0.78%
==== ====
</TABLE>
(1) Loans, net of unearned income
Page 13 of 17
<PAGE> 14
In accordance with SFAS No. 114 (as amended by SFAS No. 118),
"Accounting by Creditors for Impairment of a Loan," loans identified as
"impaired" are 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 8th day of August 1998.
VINEYARD NATIONAL BANK
By: /s/ Soule Sensenbach
---------------------------------
Soule Sensenbach
Corporate Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,033,602
<INT-BEARING-DEPOSITS> 495,000
<FED-FUNDS-SOLD> 3,110,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,735,101
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 86,465,325
<ALLOWANCE> 662,190
<TOTAL-ASSETS> 111,650,476
<DEPOSITS> 101,900,140
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,276,297
<LONG-TERM> 0
0
0
<COMMON> 2,106,258
<OTHER-SE> 6,367,781
<TOTAL-LIABILITIES-AND-EQUITY> 111,650,476
<INTEREST-LOAN> 4,398,729
<INTEREST-INVEST> 146,379
<INTEREST-OTHER> 163,944
<INTEREST-TOTAL> 4,709,052
<INTEREST-DEPOSIT> 1,265,478
<INTEREST-EXPENSE> 1,265,478
<INTEREST-INCOME-NET> 3,443,574
<LOAN-LOSSES> 123,982
<SECURITIES-GAINS> 3,281
<EXPENSE-OTHER> 3,715,206
<INCOME-PRETAX> 342,535
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202,535
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
<YIELD-ACTUAL> 7.0
<LOANS-NON> 121,000
<LOANS-PAST> 1,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,634,292
<ALLOWANCE-OPEN> 694,000
<CHARGE-OFFS> 190,000
<RECOVERIES> 34,000
<ALLOWANCE-CLOSE> 662,000
<ALLOWANCE-DOMESTIC> 662,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
