<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 September 30, 1999 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. 1,862,776 shares of common stock as of
September 30, 1999.
<PAGE> 2
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
TABLE OF CONTENTS
PART I
<TABLE>
<S> <C>
FINANCIAL STATEMENTS
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998....................................................3
Consolidated Statements of Income
For the Nine Months and Three Months Ended September 30, 1999 and 1998......................4
Consolidated Statements of Changes in Stockholders' Equity
For the Nine Months Ended September 30, 1999 and 1998.......................................6
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998.......................................7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......................................................9
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..................................................18
Exhibit 27. Data Schedule.................................................................19
Signatures.................................................................................20
</TABLE>
<PAGE> 3
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1999 1998
----------------- ----------------
<S> <C> <C>
Cash and due from banks $ 7,471,683 $ 6,473,959
Federal funds sold 3,675,000 5,815,000
-------------- --------------
Total Cash and Cash Equivalents 11,146,683 12,288,959
-------------- --------------
Interest-bearing deposits in other financial institutions 1,089,000 693,000
Investment securities
Available-for-sale 10,625,969 6,237,188
Loans, net of unearned income 82,962,518 85,755,246
Loans held for sale 598,126 2,177,692
Less: Reserve for probable loan
and leases losses (701,753) (686,016)
--------------- --------------
82,858,891 87,246,922
Bank premises and equipment 6,188,692 6,436,612
Accrued interest 611,849 496,093
Cash surrender value of life insurance 1,801,984 1,801,984
Other real estate owned 262,714 287,354
Other assets 662,181 374,919
--------------- --------------
Total Assets $ 115,247,963 $ 115,863,031
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand deposits 35,468,324 32,570,373
Savings and NOW deposits 25,719,896 25,003,583
Money market deposits 12,170,946 11,103,667
Time deposits in denominations
of $100,000 or more 9,492,879 9,452,872
Other time deposits 21,308,079 27,184,495
--------------- --------------
104,160,124 105,314,990
Federal funds purchased
Accrued employee salary benefits 616,258 781,629
Accrued interest and other liabilities 1,394,822 1,038,253
--------------- --------------
Total Liabilities 106,171,204 107,134,872
--------------- --------------
STOCKHOLDERS' EQUITY
Contributed Capital
Common stock - authorized 15,000,000
shares, no par value, issued and outstanding
1,862,776 shares in 1999 and 1998 2,106,258 2,106,258
Additional paid-in capital 3,306,684 3,306,684
Retained earnings 3,686,459 3,280,982
Accumulated other comprehensive income (22,642) 34,235
--------------- --------------
Total Stockholders' Equity 9,076,759 8,728,159
--------------- --------------
Total Liabilities and Stockholders' Equity $ 115,247,963 $ 115,863,031
=============== ==============
</TABLE>
See accompanying notes to compiled financial statements.
<PAGE> 4
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- ------------------------
1999 1998 1999 1998
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 6,229,259 $ 6,570,546 $ 2,019,503 $ 2,172,262
Interest on Investment Securities
Obligations of U.S. Government
Agencies and Corporations 355,676 234,641 143,332 93,206
Interest on other securities 7,154 7,422 2,379 2,478
Interest on deposits 32,018 12,517 12,672 7,347
Interest on Federal funds sold 245,986 224,580 81,924 65,806
Direct lease financing income 0 671 - 226
----------- ----------- ----------- -----------
Total Interest Income 6,870,093 7,050,377 2,259,810 2,341,325
----------- ----------- ----------- -----------
Interest Expense
Interest on savings deposits 142,250 156,647 49,482 53,103
Interest on NOW and money market deposits 352,739 337,487 120,343 111,535
Interest on time deposits in
denominations of $100,000 or more 279,249 230,114 89,055 26,225
Interest on other time deposits 917,062 1,187,367 271,732 455,274
Total Interest Expense 1,691,300 1,911,615 530,612 646,137
----------- ----------- ----------- -----------
Net Interest Income 5,178,793 5,138,762 1,729,198 1,695,188
----------- ----------- ----------- -----------
Provision for Loan and Lease Losses (41,000) (142,982) - (19,000)
----------- ----------- ----------- -----------
Net Interest Income After
Provision for Loan and Lease Losses 5,137,793 4,995,780 1,729,198 1,676,188
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to compiled financial statements.
<PAGE> 5
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- ------------------------
1999 1998 1999 1998
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Other Income
Fees and service charges $ 1,096,931 $ 1,088,994 $ 377,818 $ 366,172
Net gain/(loss) on sale of
investment securities 3,281 - -
Net gain/(loss) on sale of
other real estate owned 6,462 -
Other Income 20,387 17,181 6,467 5,135
----------- ----------- ----------- -----------
Total Other Income 1,123,780 1,109,456 384,285 371,307
----------- ----------- ----------- -----------
Other Expenses
Salaries and employee benefits 2,717,287 2,686,477 895,515 915,157
Occupancy expense of premises 464,921 466,479 149,145 165,304
Furniture and equipment expenses 455,357 495,203 155,500 186,820
Other expenses (Note #2) 1,936,531 2,017,102 692,886 682,773
----------- ----------- ----------- -----------
Total Other Expenses 5,574,096 5,665,261 1,893,046 1,950,054
----------- ----------- ----------- -----------
Income Before Income Taxes 687,477 439,975 220,437 97,441
Income Taxes (282,000) (180,000) (93,000) (40,000)
----------- ----------- ----------- -----------
Net Income $ 405,477 $ 259,975 $ 127,437 $ 57,441
=========== =========== =========== ===========
Earnings Per Share of
Common Stock (Note #3)
Basic $ 0.22 $ 0.14 $ 0.07 $ 0.01
=========== =========== =========== ===========
Diluted $ 0.20 $ 0.14 $ 0.06 $ 0.01
=========== =========== =========== ===========
</TABLE>
See accompanying notes to compiled financial statements.
<PAGE> 6
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<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 1,862,776 $2,106,258 $3,306,684 $2,837,599 $ 15,962 $ 8,266,503
Comprehensive income
Net Income 259,975 259,975
Unrealized security holding gains
(net of $33,152 tax) 45,785 45,785
Less reclassification adjustments
for gains(net of $1,378 tax) (1,903) (1,903)
-------------
Total other comprehensive income 43,882
Total Comprehensive income 303,857
----------- ------------ ------------ ------------ --------------- -------------
Balance, September 30, 1998 1,862,776 $2,106,258 $3,306,684 $3,097,574 $ 59,844 $ 8,570,360
=========== ============ ============ ============ =============== =============
<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> <C>
Balance, January 1, 1999 1,862,776 $2,106,258 $3,306,684 $3,280,982 $ 34,235 $ 8,728,159
Comprehensive income
Net Income 405,477 405,477
Unrealized security holding losses
(net of $16,396 tax) (53,234) (53,234)
Less reclassification adjustments
for gains(net of $2,638 tax) (3,643) (3,643)
-------------
Total other comprehensive income (56,877)
Total Comprehensive income 348,600
----------- ------------ ------------ ------------ --------------- -------------
Balance, September 30, 1999 1,862,776 $2,106,258 $3,306,684 $3,686,459 $ (22,642) $ 9,076,759
=========== ============ ============ ============ =============== =============
</TABLE>
See accompanying notes to compiled financial statements.
<PAGE> 7
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
Increase/(Decrease) in Cash and Cash Equivalents 1999 1998
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Interest and fees received $ 6,296,712 $ 5,799,450
Service fees and other income received 1,117,318 1,106,175
Financing revenue received under leases - 671
Interest paid (1,792,484) (1,782,192)
Cash paid to suppliers and employees (4,880,252) (6,009,611)
Income taxes paid (495,629) (153,765)
------------ ------------
Net Cash Provided By/(Used In) Operating Activities 245,665 (1,039,272)
------------ ------------
Cash Flows From Investing Activities
Proceeds from maturities of investment securities
available-for-sale 4,008,178 2,500,000
Proceeds from sales of investment securities
available-for-sale - 503,363
Purchase of investment securities available-for-sale (8,468,171) (5,011,532)
Net increase of deposits in other
financial institutions (396,000) (495,000)
Net loans made to customers and principal collections
of loans 4,683,253 3,550,122
Net decrease in other real estate owned 31,102 173,582
Recoveries on loans previously written off 94,551 44,999
Capital expenditures (234,079) (495,294)
Proceeds from sale of property, plant and equipment 48,091 276,018
------------ ------------
Net Cash Provided By/(Used In) Investing Activities (233,075) 1,046,258
------------ ------------
Cash Flows From Financing Activities
Net increase in demand deposits, NOW
accounts, savings accounts, and money market
deposits 4,681,543 (769,952)
Net increase/(decrease) in certificates of deposit (5,836,409) 2,683,626
------------ ------------
Net Cash Provided By/(Used In) Financing Activities (1,154,866) 1,913,674
------------ ------------
Net Increase/(Decrease) in Cash and Cash Equivalents (1,142,276) 1,920,660
Cash and Cash Equivalents, Beginning of year 12,288,959 9,354,346
------------ ------------
Cash and Cash Equivalents, End of quarter $ 11,146,683 $11,275,006
============ ============
</TABLE>
See accompanying notes to compiled financial statements.
<PAGE> 8
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------- -----------
<S> <C> <C>
Reconciliation of Net Income/(Loss) to
Net Cash Used in Operating Activities
Net Income/(Loss) $ 405,477 $ 259,975
----------- -----------
Adjustments to Reconcile Net Income to
Net Cash Provided By/(Used In) by Operating Activities
Depreciation and amortization 407,056 444,164
Provision for probable credit losses 41,000 142,982
Loss on sale of equipment - -
(Gain)/Loss on sale of other real estate owned (6,462) 31,556
Increase/(decrease) in taxes payable (213,629) 26,235
Increase in other assets (17,944) (764,267)
Decrease in unearned loan fees (430,773) (1,148,055)
Increase in interest receivable (115,756) (65,493)
Increase/(decrease) in interest payable (101,184) 129,423
Increase/(decrease) in accrued expense and other liabilities 277,880 (92,511)
Loss on sale of investments - (3,281)
----------- -----------
Total Adjustments (159,812) (1,299,247)
----------- -----------
Net Cash Provided by/(Used In) Operating Activities $ 245,665 $(1,039,272)
=========== ===========
Supplementary Information
Change in valuation allowance for investment securities $ 97,886 $ 43,882
=========== ===========
</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 compiled financial statements.
<PAGE> 9
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999 AND 1998
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, 1998. The results of
operations for the nine month period ended September 30, 1999, are not
necessarily indicative of the results to be expected for the full year.
In July 1999, the Financial Accounting Standards Board issued Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133- an amendment of FASB No. 133". This
statement defers the effective date to fiscal years beginning after June 15,
2000. In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement supercedes FASB No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments." FASB No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. Management has not determined the potential impact
that this statement will have on the financial statements, however, believes
there will be no material effect on the Bank's financial condition or results of
operations.
NOTE #2 - OTHER EXPENSES
The following is a breakdown of other expenses for each of the nine and
three-month periods ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------- -------------------------
1999 1998 1999 1998
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Data processing $ 508,992 $ 486,974 $160,372 $165,239
Marketing expenses 199,233 202,283 59,533 32,852
Office supplies, postage and telephone 239,266 287,311 79,248 96,486
Professional expenses 480,183 445,302 213,252 121,788
Bank insurance and assessments 121,272 125,275 40,829 45,309
Other 387,585 469,957 139,652 221,099
-------------- ------------- ------------ ------------
Total Other Expenses $1,936,531 $2,017,102 $692,886 $682,773
============== ============= ============ ============
</TABLE>
<PAGE> 10
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999 AND 1998
NOTE #3 - EARNINGS/(LOSS) 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.
NOTE #4 - CONTINGENCY LIABILITY
A former borrower and lessor of the Bank sued the Bank for fraud and
concealment. On October 15, 1999 a jury awarded the plaintiff approximately $3.5
million in connection with this case. As of November 12, 1999, no judgment had
been entered regarding this matter. Management and its legal counsel believe
that the award is without merit and that the case and related jury verdict will
not stand as awarded. It is the opinion of the Bank and its legal counsel that
due to numerous issues relating to the case and trial no ultimate loss will
result to the Bank in the form of damages to the plaintiff. Therefore, no
accrual has been made in these financial statements for any amount of potential
damages to be awarded in the matter. To the degree that any loss is incurred in
the future, the net income, capital and assets of the Bank will be impacted
accordingly. Furthermore, in the unlikely event that the jury verdict of $3.5
million against the Bank is in fact awarded, the Bank would be severely impacted
regarding its operating results and its capital position to the extent that a
significant corrective action would be very likely.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
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 (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 $405,477 for the nine months ended
September 30, 1999, as compared to net income of $259,975 for the same period in
1998. As discussed in Footnote #4 of the accompanying financial statements, the
Company has a substantial contingent liability for litigation in which it is
named defendant that, if concluded unfavorably to the Company, would
significantly impair its results of operations and its capital position.
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 $40,000 or 1.0% in the
nine-month period ended September 30, 1999, as compared to the same period in
1998. This increase was due primarily to a $180,000 decrease in interest income
and a $220,000 decrease in interest expense. The net change was substantially a
result of the decrease in interest on loans offset by a decrease in interest on
other time deposits.
<PAGE> 11
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999 AND 1998
Outstanding loans and leases decreased during the nine-month period ended
September 30, 1999, by $4,372,000 as a direct result of loans being paid off and
the sale of loans. During this period total deposits decreased by $1,155,000.
The deposit mix changed significantly as demand deposits increased by
$2,898,000, money market accounts increased $1,067,000, savings and NOW accounts
increased by $716,000, time deposits in excess of $100,000 increased $40,000,
and other time deposits decreased $5,876,000. The net interest margin (net
interest income expressed as a percentage of interest income) was 75 percent in
1999 as compared to 72 percent in 1998.
The Company's management also utilizes the results of a dynamic simulation model
to quantify the estimated exposure of net interest income to sustained interest
rate changes. The simulation model estimates the impact of changing interest
rates on the interest income from all interest earning assets and the interest
expense paid on all interest bearing liabilities reflected on the Company's
balance sheet. This sensitivity analysis is compared to policy limits, which
specify a maximum tolerance level for net interest income exposure over a
one-year horizon assuming no balance sheet growth, given both a 200 basis point
upward and downward shift in interest rates. A parallel and pro rata shift in
rates over a 12-month period is assumed.
The following reflects the Company's net interest income sensitivity analysis as
of September 30, 1999:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Estimated Net
Simulated Interest Income
Rate Changes Sensitivity
- ------------------------- ---------------
<S> <C>
+200 Basis Points 3.8%
- -200 Basis Points -6.1%
</TABLE>
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".
<PAGE> 12
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999 AND 1998
During the nine month period ended September 30, 1999, a provision was made
of $41,000 as compared to $143,000 for the same period in 1998. The net
charge-offs on previously granted loans was approximately $25,000 for the nine
months ended September 30, 1999, as compared to net charge-offs of approximately
$178,000 for the same period in 1998.
During the three month period ended September 30, 1999, no provision was
booked as compared to $19,000 for the same period in 1998. The net charge-offs
on previously granted loans was approximately $10,000 for the three months ended
September 30, 1999, as compared to net charge-offs of $21,000 for the same
period in 1998.
OTHER INCOME
The increase of $14,000 or 1% in other income in the nine month period
ended September 30, 1999, as compared to 1998, was due primarily to the
increases in fees and service charges and miscellaneous other income. The
increase of $13,000 or 4% in the three month period ended September 30, 1999, as
compared to 1998, was due primarily to an increase in service charges.
OTHER EXPENSES
Other expenses, consisting primarily of (i) salaries and other employee
expenses, (ii) furniture and equipment expenses, and (iii) insurance, data
processing, professional fees and other non-interest expense, decreased by
approximately $91,000 or 2%, during the nine month period ended September 30,
1999, as compared to the same period in 1998.
The $57,000 or 3% decrease in other expenses during the three-month period
ended September 30, 1999, was affected by decreases in salaries and employee
benefits, occupancy and furniture and equipment expenses.
FINANCIAL CONDITION AND LIQUIDITY
During the nine months ended September 30, 1999, the Company's assets
decreased by approximately $615,000 or 1%, compared to December 31, 1998. The
Company continued to have adequate cash resources with approximately $7,472,000
of cash held on deposit at other financial institutions, $1,089,000 of
interest-bearing deposits in other financial institutions, $10,626,000 of
investment securities, and $3,675,000 in Federal Funds Sold at September 30,
1999. The Bank's investment portfolio contains $98,000 of unrealized losses on
estimated fair values when compared to book values at September 30, 1999.
Investment securities totaling $4,000,000 matured during the nine month period
ended September 30, 1999. The total loans placed on non-accrual status (not
generating income currently) amounted to approximately $43,000 at September 30,
1999. All loans on non-accrual status are considered to be impaired.
<PAGE> 13
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999 AND 1998
Total shareholders' equity increased from approximately $8,728,000 at
December 31, 1998, to $9,077,000 at September 30, 1999, as a result of net
income generated for the nine months then ended and a decrease 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 September 30, 1999, the
Company had a ratio of capital to risk-weighted assets of 10.51%, a ratio of
Tier 1 capital to risk-weighted assets of 9.76%, and a leverage capital ratio of
7.71%. The Company's management believes that, under current regulations, the
Bank will continue to meet these minimum capital requirements in the foreseeable
future.
NON-PERFORMING LOANS
The following table sets forth information regarding the Bank's
non-performing loans at September 30, 1999, and December 31, 1998.
<TABLE>
<CAPTION>
(dollars in thousands) September 30, December 31,
1999 1998
-------------- ------------
<S> <C> <C>
Accruing Loans More Than 90 Days Past Due 1
Aggregate loan amounts
Commercial, financial and agricultural $115
Real estate
Installment loans to individuals $ 18 $ 1
---- ----
---- ----
Total Loans Past Due More Than 90 Days 133 1
---- ----
Renegotiated loans 2
Non-accrual loans 3
Aggregate loan amounts
Commercial, financial and agricultural 43 114
Real estate
---- ----
Total Non-Accrual Loans $ 43 $114
==== ====
Total Non-Performing Loans $176 $115
==== ====
</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.
<PAGE> 14
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999 AND 1998
(2) Renegotiated loans are those which have been renegotiated to provide a
deferral of interest or principal. The Bank had no renegotiated loans during
1999 and 1998.
(3) There was one loan on non-accrual status totaling approximately $43,000 at
September 30, 1999, and two loans totaling approximately $114,000 at December
31, 1998.
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 September 30, 1999, the Bank's classified loans consisted of
approximately $1,981,000 of loans classified as substandard. The Bank's
$1,981,000 of loans classified as substandard consisted of approximately
$1,805,000 of performing loans and approximately $176,000 of non-accrual loans
and loans delinquent 90 days or more but still accruing.
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 September 30, 1999,
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 December 31, 1998.
<PAGE> 15
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999 AND 1998
The reserve for probable loan and lease losses at September 30,1999, was
$702,000 or .84% of total loans and leases, as compared to $686,000 or .78% of
total credits at December 31, 1998. 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>
September 30, December 31,
(Dollars in Thousands) 1999 1998
------------- -------------
<S> <C> <C>
Allowance for Loan Losses $686 $695
---- ----
Balance, Beginning of period
Charge-Offs
Commercial, financial and agricultural 60 40
Real estate mortgage
Consumer loans 60 213
---- ----
Total Charge-Offs 120 253
---- ----
Recoveries
Commercial, financial and agricultural 27 8
Real estate mortgage 41
Consumer loans 68 52
---- ----
Total Recoveries 95 101
---- ----
Net Charge-Offs 25 152
Provision Charged to Operations 41 143
---- ----
Balance, End of period $702 $686
==== ====
Net Charge-Offs During the Period to Average
Loans Outstanding During the Period Ended 0.03% 0.18%
==== ====
Allowance for Loan Losses to Total Loans 0.84% 0.78%
==== ====
</TABLE>
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> 16
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999 AND 1998
YEAR 2000 READINESS DISCLOSURE UNDER THE UNITED STATES YEAR 2000 INFORMATION
DISCLOSURE ACT
Certain statements in this section on the Year 2000 constitute forward-looking
statements under the Private Securities Litigation Reform Act of 1995, which
involve risk and uncertainties. The Company's actual results may differ
significantly from the results discussed in these forward-looking statements.
Such factors include but are not limited to the estimated costs of remediation,
the preparedness of third party vendors, timetables for implementation of future
remediation and testing, contingency plans, and estimated future costs due to
business disruption caused by affected third parties.
The financial institutions industry as with other industries, is faced with Year
2000 issues. These issues center around computer programs that use only two
digits for the year. If not corrected, many computer applications could fail or
create erroneous results by or at the Year 2000 or possibly earlier. The Year
2000 issue affects the Company in that the financial services business is highly
dependent on computer applications in a variety of ways, including the following
(a) the Company relies on computer systems in almost all aspects of its
business, including the processing of deposits, loans and other services and
products offered to customers, the failure of which in connection with the Year
2000 could cause systematic disruptions and failures in the products and
services offered by the Company, (b) other banks, clearing houses and vendors
whose products and services the Company uses are at risk of systematic
disruptions and potential failures in the event that such entities have not
adequately addressed their Year 2000 issue prior to the Year 2000, (c) the
creditworthiness of borrowers of the Company might be diminished by significant
disruptions of their business as a result of their own or others failure to
address adequately the Year 2000 issues prior to the Year 2000, and (d) federal
balancing agencies have issued interagency guidance on the business-wide risk
posed to financial institutions by the Year 2000 problem pursuant to which the
federal banking agencies may take supervisory action against financial
institutions that fail to address appropriately Year 2000 issues prior to the
Year 2000, including formal and informal enforcement actions, denial of
applications to the federal banking agencies, civil money penalties and a
reduction in the management component rating of the institution's composite
rating.
The Company has been working on the Year 2000 issues for the last 18 months. A
committee, known as Year 2000 Bank Committee, was established to analyze the
issues and determine compliance with the requirements for Year 2000. To
facilitate a thorough and complete Year 2000 assessment and response to
identified issues, a phased management procedural approach has been adopted as
follows:
Awareness Phase - encompassing the establishment of a budget and project plan.
Assessment Phase - the actual process of identifying all of its systems and
individual components of the systems. Mission-critical systems and equipment
(systems and equipment critical to conducting operations) were identified.
<PAGE> 17
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999 AND 1998
Remediation Phase - changes are made to systems and equipment. This phase deals
primarily with the technical issues of converting existing systems or switching
to compliant systems. During this phase, decisions are made on how to make the
systems or processes Year 2000 compliant, and the required system changes are
made.
Validation / Testing Phase - the actual process of validating and testing the
changes made during the conversion process. The development of test data and
test scripts, the running of test scripts, and the review of test results are
crucial for this state of the conversion process to be successful. If the
testing results show anomalies, the tested area needs to be corrected and
re-tested.
To date the awareness phase, assessment phase, remediation phase, and validation
phase/testing phases have been completed. As part of the Year 2000 process, the
Company has communicated with its vendors, upon whose services the Company
relies, to ensure Year 2000 compliance. In addition, as part of the credit
review process, the Company has communicated with its major borrowers in an
effort to ensure that such borrowers have taken appropriate steps to address
their Year 2000 issues and will not be materially affected by any Year 2000
problems. The Company is communicating with its deposit customers as well.
Contingency plans are being developed to protect the Company in the event that
the Company is unable to attain Year 2000 compliance in certain applications.
These plans are designed to provide minimum levels of service or outputs until
the failed system can be repaired or replaced. Most of these contingency plans
are manual effort systems, which should provide the minimum level of service for
the time needed to repair or replace failed systems. Test results to date
indicate that the original system for each mission critical system should meet
the demands of processing in the Year 2000. However, in the case of failure, the
ultimate impact on financial operations is not known, nor is it known what
impact a regional or nationwide power failure or communications breakdown would
have on the financial performance of the Company.
Although the Company believes that steps being taken regarding the Year 2000 are
adequate to ensure that it will not be materially affected by the Year 2000
problem, there can be no assurance that the Year 2000 plan and the Company's
other Year 2000 remedial and contingency plans will fully protect the Company
from the risks associated with the Year 2000. The analysis of, and preparation
for, the Year 2000 and related problems necessarily rely on a variety of
assumptions about future events and there can be no assurance that the Company's
Management has accurately predicted such future events or the remedial and
contingency plans of the Company will adequately address such future events. In
the event that the business of the Company, of vendors of the Company or of
customers of the Company is disrupted as a result of the Year 2000 problem, such
disruption could have a material adverse effect on the Company.
<PAGE> 18
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999 AND 1998
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> 19
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 12th day of November 1999.
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 SEPTEMBER
30, 1999 UNAUDITED FINANCIAL STATEMENTS OF VINEYARD NATIONAL BANCORP AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,471,683
<INT-BEARING-DEPOSITS> 1,089,000
<FED-FUNDS-SOLD> 3,675,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,625,969
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 83,560,644
<ALLOWANCE> 701,753
<TOTAL-ASSETS> 115,247,963
<DEPOSITS> 104,160,124
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,011,080
<LONG-TERM> 0
0
0
<COMMON> 2,106,258
<OTHER-SE> 6,970,501
<TOTAL-LIABILITIES-AND-EQUITY> 115,247,963
<INTEREST-LOAN> 6,229,259
<INTEREST-INVEST> 362,830
<INTEREST-OTHER> 278,004
<INTEREST-TOTAL> 6,870,093
<INTEREST-DEPOSIT> 1,691,300
<INTEREST-EXPENSE> 1,691,300
<INTEREST-INCOME-NET> 5,178,793
<LOAN-LOSSES> 41,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,574,098
<INCOME-PRETAX> 687,477
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 405,477
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.20
<YIELD-ACTUAL> 9.30
<LOANS-NON> 43,000
<LOANS-PAST> 133,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,981,000
<ALLOWANCE-OPEN> 686,000
<CHARGE-OFFS> 120,000
<RECOVERIES> 95,000
<ALLOWANCE-CLOSE> 702,000
<ALLOWANCE-DOMESTIC> 702,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
