<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, 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
June 30, 1999.
Page 1 of 19
<PAGE> 2
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
JUNE 30, 1999 AND DECEMBER 31, 1998
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL STATEMENTS
Consolidated Balance Sheets
June 30, 1999 and December 31,1998........................................ 3
Consolidated Statements of Income
For the Six Months and Three Months Ended June 30, 1999 and 1998.......... 4
Consolidated Statements of Changes in Stockholders' Equity
For the Six Months Ended June 30, 1999 and 1998........................... 5
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998........................... 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.................................18
Exhibit 27. Data Schedule................................................19
SIGNATURES....................................................................20
</TABLE>
Page 2 of 19
<PAGE> 3
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash and due from banks $ 6,966,782 $ 6,473,959
Federal funds sold 5,905,000 5,815,000
------------ ------------
Total Cash and Cash Equivalents 12,871,782 12,288,959
------------ ------------
Interest-bearing deposits in other financial institutions 891,000 693,000
Investment securities
Available-for-sale 10,630,316 6,237,188
Loans, net of unearned income 83,759,959 85,755,246
Loans held for sale 546,927 2,177,692
Less: Reserve for probable loan and lease losses (711,977) (686,016)
------------ ------------
83,594,909 87,246,922
Bank premises and equipment 6,308,294 6,436,612
Accrued interest 503,310 496,093
Cash surrender value of life insurance 1,801,984 1,801,984
Other real estate owned 262,714 287,354
Other assets 407,700 374,919
------------ ------------
Total Assets $117,272,009 $115,863,031
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand deposits 33,876,668 32,570,373
Savings and NOW deposits 25,830,648 25,003,583
Money market deposits 13,665,130 11,103,667
Time deposits in denominations
of $100,000 or more 9,444,549 9,452,872
Other time deposits 23,933,827 27,184,495
------------ ------------
106,750,822 105,314,990
Accrued employee salary benefits 651,258 781,629
Accrued interest and other liabilities 905,802 1,038,253
------------ ------------
Total Liabilities 108,307,882 107,134,872
------------ ------------
STOCKHOLDERS' EQUITY
Contributed Capital
Common stock - authorized 15,000,000 shares, 2,106,258 2,106,258
no par value, issued and outstanding 1,862,776
shares in 1999 and 1998
Additional paid-in capital 3,306,684 3,306,684
Retained earnings 3,559,022 3,280,982
Accumulated other comprehensive income (7,837) 34,235
------------ ------------
Total Stockholders' Equity 8,964,127 8,728,159
------------ ------------
Total Liabilities and Stockholders' Equity $117,272,009 $115,863,031
============ ============
</TABLE>
See accompanying notes to financial statements. Page 3 of 19
<PAGE> 4
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
-------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $4,209,756 $4,398,284 $ 2,094,347 $ 2,258,307
Interest on Investment Securities
Obligations of U.S. Government
Agencies and Corporations 212,344 141,435 116,129 78,222
Interest on other securities 4,775 4,944 2,379 2,478
Interest on deposits 19,346 5,170 9,680 4,128
Interest on Federal funds sold 164,062 158,774 102,372 88,141
Direct lease financing income 445 224
---------- ---------- ---------- ----------
Total Interest Income 4,610,283 4,709,052 2,324,907 2,431,500
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on savings deposits 92,768 103,544 48,688 53,153
Interest on NOW and money market
deposits 232,396 225,952 120,782 113,413
Interest on time deposits in
denominations of $100,000 or more 190,194 203,889 98,289 101,924
Interest on other time deposits 645,330 732,093 311,849 369,565
Total Interest Expense 1,160,688 1,265,478 579,608 638,055
---------- ---------- ---------- ----------
Net Interest Income 3,449,595 3,443,574 1,745,299 1,793,445
PROVISION FOR LOAN AND LEASE LOSSES (41,000) (123,982) (64,982)
---------- ---------- ---------- ----------
Net Interest Income After
Provision for Loan and
Lease Losses 3,408,595 3,319,592 1,745,299 1,728,463
---------- ---------- ---------- ----------
OTHER INCOME
Fees and service charges and gain
on sale of loans 652,001 660,835 302,643 291,682
Gain on sale of investment securities 3,281
investment securities
Gain on sale of other real estate owned 6,462 6,462
Other Income 81,032 74,033 74,899 67,899
---------- ---------- ---------- ----------
Total Other Income 739,495 738,149 384,004 359,581
---------- ---------- ---------- ----------
OTHER EXPENSES
Salaries and employee benefits 1,821,772 1,771,320 915,610 885,110
Occupancy expense of premises 315,776 301,175 164,003 148,959
Furniture and equipment expenses 299,857 308,383 156,168 156,654
Other expenses (Note #2) 1,243,645 1,334,328 634,659 652,031
---------- ---------- ---------- ----------
Total Other Expenses 3,681,050 3,715,206 1,870,440 1,842,754
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 467,040 342,535 258,863 245,290
INCOME TAXES (189,000) (140,000) (104,000) (101,000)
---------- ---------- ---------- ----------
NET INCOME $ 278,040 $ 202,535 $ 154,863 $ 144,290
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ 0.15 $ 0.11 $ 0.08 $ 0.08
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ 0.14 $ 0.11 $ 0.08 $ 0.08
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements. Page 4 of 19
<PAGE> 5
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 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 1,862,643 $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 (net of $4,998 tax) 6,904 6,904
less reclassification adjustments
for gains (net of $1,378 tax) (1,903) (1,903)
Total other comprehensive income 5,001
----------- ---------- ---------- ---------- ----------- -----------
Total Comprehensive income 207,536
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, June 30, 1998 1,862,643 $2,106,258 $3,306,684 $3,040,134 $ 20,963 $ 8,474,039
=========== ========== ========== ========== =========== ===========
Accumulated
Number of Additional other
Shares Common Paid-in Retained comprehensive
Outstanding Stock Capital Earnings income Total
----------- ---------- ---------- ---------- ------------- -----------
BALANCE, January 1, 1999 1,862,643 $2,106,258 $3,306,684 $3,280,982 $ 34,235 $ 8,728,159
----------- ---------- ---------- ---------- ----------- -----------
Comprehensive income
Net Income 278,040 278,040
Unrealized security holding
losses (net of $5,675 tax) (42,072) (42,072)
-----------
Total other comprehensive income (42,072)
----------- ---------- ---------- ---------- ----------- -----------
Total Comprehensive income 235,968
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, June 30, 1999 1,862,643 $ 2,106,258 $3,306,684 $3,559,022 $ (7,837) $ 8,964,127
=========== ========== ========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements. Page 5 of 19
<PAGE> 6
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
June 30, June 30,
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and fees received $ 4,267,444 $ 3,731,915
Service fees and other income received 733,033 734,868
Financing revenue received under leases 0 445
Interest paid (1,254,229) (1,256,704)
Cash paid to suppliers and employees (3,265,347) (4,365,516)
Income taxes paid (490,000) (122,096)
------------ ------------
Net Cash Used by Operating Activities (9,099) (1,277,088)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities
available-for-sale 2,008,178 2,500,000
Proceeds from sales of investment securities
available-for-sale 0 503,365
Purchase of investment securities available-for-sale (6,453,475) (5,011,532)
Net increase in deposits in other financial institutions (198,000) (495,000)
Net loans made to customers and principal collections
of loans 3,847,813 3,325,685
Net decrease in other real estate owned 31,102 173,582
Recoveries on loans previously written off 78,453 33,637
Capital expenditures (178,992) (160,703)
Proceeds from sale of property, plant and equipment 21,011 38,526
------------ ------------
Net Cash Provided by Investing Activities (843,910) 907,560
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in demand deposits, NOW
accounts savings accounts, and money market deposits 4,694,823 (384,539)
Net increase/(decrease) in certificates of deposit (3,258,991) 543,323
Net Cash Provided by Financing Activities 1,435,832 158,784
------------ ------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 582,823 (210,744)
CASH AND CASH EQUIVALENTS, Beginning of year 12,288,959 9,354,346
------------ ------------
CASH AND CASH EQUIVALENTS, End of quarter $ 12,871,782 $ 9,143,602
============ ============
</TABLE>
See accompanying notes to financial statements. Page 6 of 19
<PAGE> 7
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 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 $ 278,040 $ 202,535
----------- -----------
Adjustments to Reconcile Net Income to
Net Cash Used by Operating Activities
Depreciation and amortization 265,928 294,134
Provision for probable credit losses 41,000 123,982
(Gain)/Loss on sale of other real estate owned (6,462) 31,556
Increase/(decrease) in taxes payable (301,000) 17,904
Increase in other assets (32,781) (732,584)
Decrease in unearned loan fees (315,252) (866,880)
Increase in interest receivable (7,217) (96,272)
Increase/(decrease) in interest payable (93,541) 8,774
Increase/(decrease) in accrued expense and other
liabilities 162,186 (256,956)
Gain on sale of investments -- (3,281)
----------- -----------
Total Adjustments (287,139) (1,479,623)
----------- -----------
Net Cash Used by Operating Activities $ (9,099) $(1,277,088)
=========== ===========
SUPPLEMENTARY INFORMATION
Change in valuation allowance for investment securities $ (42,072) $ 5,001
=========== ===========
</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 7 of 19
<PAGE> 8
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 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 six month period ended June 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 supersedes 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 six month periods
ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
--------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Data processing $ 348,620 $ 321,735 $ 188,606 $ 161,533
Marketing expenses 139,700 169,431 73,311 74,060
Office supplies, postage
and telephone 160,018 190,825 78,841 95,871
Professional expenses 266,931 323,514 134,543 156,949
Bank insurance and assessments 80,443 79,966 39,307 44,798
Other 247,933 248,857 120,051 118,820
----------- ----------- --------- ----------
Total Other Expenses $ 1,243,645 $ 1,334,328 $ 634,659 $ 652,031
=========== =========== ========= ==========
</TABLE>
Page 8 of 19
<PAGE> 9
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999 AND 1998
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 19
<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 $278,040 for the six months ended June 30,
1999, as compared to $202,535 for the same period in 1998. For the three months
ended June 30, 1999 the Company had net income of $154,863 as compared to
$144,290 for the same period in 1998.
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 $6,000 or .2%
in the six month period ended June 30, 1999, as compared to the same period in
1998. The increase was due primarily to approximately a $99,000 decrease in
interest income and approximately a $105,000 decrease in interest expense. The
net change was substantially a result of decreases in loan volume and other time
deposits from June 1999 to June 1998.
For the three-month period ending June 30, 1999 net interest income
decreased approximately $48,000 or 2.7% as compared to the same period in 1998.
The net change was primarily a result of decreases in loan volume and other time
deposits offset by an increase in the volume of investment securities
Outstanding loans and leases decreased during the six month period ended
June 30, 1999, by approximately $3,652,000. During this period total deposits
increased by approximately $1,436,000. The deposit mix changed as demand
deposits increased by approximately $1,306,000, savings and NOW accounts
increased by approximately $827,000, money market accounts increased
approximately $2,561,000, time deposits in excess of $100,000 decreased
approximately $8,000, and other time deposits decreased approximately
$3,251,000. The net interest margin (net interest income expressed as a
percentage of interest income) was 75 percent for the six month period ended
June 30, 1999, as compared to 73 percent for the same period 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 June 30, 1999:
Page 10 of 19
<PAGE> 11
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Estimated Net
Simulated Interest Income
Rate Changes Sensitivity
+200 Basis Points 3.8%
-200 Basis Points (6.1)%
</TABLE>
The estimated sensitivity does not necessarily represent a Company forecast
and the results may not be indicative of actual changes to the Company's net
interest income. These estimates are based upon a number of assumptions
including: the nature and timing of interest rate levels including yield curve
shape, prepayments on loans and securities, pricing strategies on loans and
deposits, replacement of asset and liability cashflows, and other assumptions.
While the assumptions used are based on current economic and local market
conditions, there is no assurance as to the predictive nature of these
conditions including how customer preferences or competitor influences might
change.
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, 1999, a provision of
approximately $41,000 was made as compared to approximately $124,000 for the
same period in 1998. The net charge-offs on previously granted loans were
approximately $15,000 for the six months ended June 30, 1999, as compared to
$152,000 for the same period in 1998.
During the three month period ended June 30, 1999, no provision was made as
compared to approximately $65,000 for the same period in 1998. The net
charge-offs on previously granted loans were approximately $8,000 for the three
months ended June 30, 1999, as compared to $64,000 for the same period in 1998.
OTHER INCOME
The increase of approximately $1,000 in other income in the six month
period ended June 30, 1999, as compared to 1998, was due primarily to the
increase in fees and service charges. The increase of approximately $24,000 in
other income in the three month period ended June 30, 1999, was due primarily to
an increase in fees and service charges and other income and the gain on other
real estate owned as well.
OTHER EXPENSES
Page 11 of 19
<PAGE> 12
Other expenses, consisting primarily of (i) salaries and other employee
expenses, (ii) occupancy expenses, (iii) furniture and equipment expenses, and
(iv) marketing, office supplies, postage and telephone, insurance, data
processing, professional fees and other non-interest expense, decreased by
approximately $34,000 or 1.0%, during the six month period ended June 30, 1999,
as compared to the same period in 1998. The decrease in other expenses was
primarily a result of increases in salaries and employee benefits, occupancy
expense and data processing offset by decreases in furniture and equipment,
marketing, professional and office supplies, postage and telephone expenses.
Other expenses, consisting primarily of (i) salaries and other employee
expenses, (ii) occupancy expenses, (iii) furniture and equipment expenses, and
(iv) ) marketing, office supplies, postage and telephone, insurance, data
processing, professional fees and other non-interest expense, increased by
approximately $28,000 or 1.5%, during the three month period ended June 30,
1999, as compared to the same period in 1998. The increase in other expenses was
primarily a result of increases in salaries and employee benefits expense.
FINANCIAL CONDITION AND LIQUIDITY
During the six months ended June 30, 1999, the Company's assets increased
by approximately $1,409,000 or 1.2%, compared to December 31, 1998. The Company
continued to have adequate cash resources with approximately $6,967,000 of cash
held on deposit at other financial institutions, approximately $10,630,000 of
investment securities, and $5,905,000 in Federal Funds Sold at June 30, 1999.
Liquidity was up and resulted in the increase in liquid assets of approximately
$4,681,000. The increased liquidity resulted primarily from the increases in
Cash and Due From Banks, Federal Funds Sold, Interest-bearing Deposits in Other
Financial Institutions and Investment Securities. The Bank's investment
portfolio contains $73,000 of unrealized losses on estimated fair values when
compared to book values at June 30, 1999. The total loans placed on non-accrual
status (not generating income currently) amounted to approximately $49,000 at
June 30, 1999. All loans on non-accrual status are considered to be impaired.
Total shareholders' equity increased from approximately $8,728,000 at
December 31, 1998, to approximately $8,964,000 at June 30, 1999, as a result of
net income generated for the six 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 June 30, 1999, the Company
had a ratio of capital to risk-weighted assets of 10.28%, a ratio of Tier 1
capital to risk-weighted assets of 9.52%, and a leverage capital ratio of 7.52%.
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 19
<PAGE> 13
NON-PERFORMING LOANS
The following table sets forth information regarding the Bank's
non-performing loans at June 30, 1999, and December 31, 1998.
<TABLE>
<CAPTION>
(dollars in thousands) June 30, December 31,
1999 1998
-------- -----------
<S> <C> <C>
Accruing Loans More Than 90 Days Past Due(1)
Aggregate loan amounts
Commercial, financial and agricultural $ 122
Real estate
Installment loans to individuals 39 $ 1
------- -------
Total Loans Past Due More Than 90 Days 161 1
------- -------
Renegotiated loans(2) -- --
Non-accrual loans(3)
Aggregate loan amounts
Commercial, financial and agricultural 49 114
Real estate -- --
Total Non-Accrual Loans $ 49 114
======= =======
Total Non-Performing Loans $ 210 $ 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.
(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 $49,000 at
June 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 June 30, 1999, the Bank's classified loans consisted of approximately
$1,775,000 of loans classified as substandard. The Bank's $1,775,000 of loans
classified as substandard consisted of approximately $1,565,000 of performing
loans and approximately $210,000 of non-accrual loans and loans delinquent 90
days or more but still accruing.
13 of 19
<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, 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.
The reserve for probable loan and lease losses at June 30, 1999, was
approximately $712,000 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>
(dollars in thousands) June 30, December 31,
1999 1998
-------- ----------
<S> <C> <C>
Loans and Lease Loss Reserve Balance,
Beginning of Period $ 686 $ 695
----- -----
Charge-offs
Domestic
Commercial, financial & agricultural 60 40
Real estate -- mortgage -- --
Consumer loans 33 213
----- -----
93 253
----- -----
Recoveries
Domestic
Commercial, financial & agricultural 27 8
Real estate -- mortgage -- 41
Consumer loans 51 52
----- -----
78 101
----- -----
Net charge=offs/(recoveries) 15 152
Additions/(Reductions) charged to operations 41 143
----- -----
Loan and Lease Loss Reserve Balance, End of Year $ 712 $ 686
===== =====
Ratio of Net Charge-offs/(Recoveries) During the Year
to Average Loans and Leases Outstanding During the Year 0.02% 0.18%
===== =====
Ratio of Reserve for Loan Losses to Loans at Period End 0.84% 0.78%
===== =====
</TABLE>
- ----------
(1) Loans, net of unearned income
14 of 19
<PAGE> 15
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.
15 of 19
<PAGE> 16
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 service 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 systemic 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.
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, 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.
16 of 19
<PAGE> 17
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.
The Company has created a budget specific to Year 2000 readiness. The budget
totals $50,000 and is comprised of the following components: (1) servicer
testing, (2) system upgrades, (3) construction, (4) non-computer equipment, and
(5) computer hardware and software. As of June 30, 1999, approximately $18,000
or 36% has been spent. There is no assurance that additional amounts will not be
added to the amounts already budgeted for the Year 2000 expenditures.
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.
17 of 19
<PAGE> 18
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: Data Schedule
b) Reports on Form 8-K: None
18 of 19
<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 9th day of August 1999.
VINEYARD NATIONAL BANK
By: /s/ Soule Sensenbach
------------------------------------
Soule Sensenbach
Corporate Secretary
19 of 19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,966,782
<INT-BEARING-DEPOSITS> 891,000
<FED-FUNDS-SOLD> 5,905,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,630,316
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 84,306,886
<ALLOWANCE> 711,977
<TOTAL-ASSETS> 117,272,009
<DEPOSITS> 106,750,822
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,557,060
<LONG-TERM> 0
0
0
<COMMON> 2,106,258
<OTHER-SE> 6,857,869
<TOTAL-LIABILITIES-AND-EQUITY> 117,272,009
<INTEREST-LOAN> 4,209,756
<INTEREST-INVEST> 217,119
<INTEREST-OTHER> 183,408
<INTEREST-TOTAL> 4,610,283
<INTEREST-DEPOSIT> 1,160,688
<INTEREST-EXPENSE> 1,160,688
<INTEREST-INCOME-NET> 3,449,595
<LOAN-LOSSES> 41,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,681,050
<INCOME-PRETAX> 467,040
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 278,040
<EPS-BASIC> 0.15
<EPS-DILUTED> 0.14
<YIELD-ACTUAL> 7.0
<LOANS-NON> 121,000
<LOANS-PAST> 1,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,775,285
<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>
