<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 March 31, 2000 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
March 31 , 2000.
Page 1 of 17
<PAGE> 2
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
MARCH 31, 2000 AND DECEMBER 31, 1999
TABLE OF CONTENTS
PART I
<TABLE>
<S> <C>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT.................................................3
FINANCIAL STATEMENTS
Consolidated Balance Sheets
March 31, 2000 and December 31,1999................................................4
Consolidated Statements of Income
For the Three Months Ended March 31, 2000 and 1999.................................5
Consolidated Statements of Changes in Stockholders' Equity
For the Three Months Ended March 31, 2000 and 1999.................................6
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2000 and 1999.................................7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................................9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................11
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..........................................16
Exhibit 27. Data Schedule.........................................................17
SIGNATURES............................................................................18
</TABLE>
Page 2 of 17
<PAGE> 3
Board of Directors and Shareholders of
Vineyard National Bancorp
INDEPENDENTS ACCOUNTANTS' REPORT
We have reviewed the accompanying financial information on Form 10-Q of Vineyard
National Bancorp and Subsidiary as of March 31, 2000, and for the three-month
period then ended. This financial information is the responsibility of the
company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial information for it to be in conformity
with generally accepted accounting principles.
/s/ VAVRINEK, TRINE, DAY & CO., LLP
Rancho Cucamonga, California
May 11, 2000
Page 3 of 17
<PAGE> 4
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, 20000 AND DECEMBER 31, 1999
ASSET
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Cash and due from banks $ 7,502,468 $ 7,853,489
Federal funds sold 5,660,000 3,390,000
------------- -------------
Total Cash and Cash Equivalents 13,162,468 11,243,489
------------- -------------
Interest-bearing deposits in other financial institutions 99,000 495,000
Investment securities
Available-for-sale 9,434,597 9,428,297
Loans, net of unearned income 84,954,013 84,881,774
Loans held for sale 742,527 835,323
Less: Reserve for probable loan losses (783,580) (763,638)
------------- -------------
84,912,960 84,953,459
Bank premises and equipment 5,925,210 6,051,588
Accrued interest 596,304 573,187
Cash surrender value of life insurance 2,262,934 2,262,934
Other real estate owned 262,714 262,714
Federal Reserve Bank and other stock at cost 177,200 177,200
Other assets 973,890 780,288
------------- -------------
Total Assets $ 117,807,277 $ 116,228,156
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand deposits 38,414,704 34,208,093
Savings and NOW deposits 26,866,119 28,352,216
Money market deposits 11,063,107 12,125,849
Time deposits in denominations of $100,000 or more 9,205,126 10,087,216
Other time deposits 20,578,216 19,749,804
------------- -------------
106,127,272 104,523,178
Accrued employee salary and benefits 832,615 1,052,156
Accrued interest and other liabilities 2,067,619 2,022,587
------------- -------------
Total Liabilities 109,027,506 107,597,921
------------- -------------
Stockholders' Equity
Contributed capital
Common stock - authorized 15,000,000 shares, no par
value, issued and outstanding 1,862,776 shares in
2000 and 1999 2,106,258 2,106,258
Additional paid-in capital 3,306,684 3,306,684
Retained earnings 3,406,594 3,256,118
Accumulated other comprehensive income (39,765) (38,825)
------------- -------------
Total Stockholders' Equity 8,779,771 8,630,235
------------- -------------
Total Liabilities and Stockholders' Equity $ 117,807,277 $ 116,228,156
============= =============
</TABLE>
See accompanying notes to financial statements.
Page 4 of 17
<PAGE> 5
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
------------ -----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,077,189 $ 2,115,409
Interest on Investment Securities
Obligations of U.S. Government Agencies and Corporations 131,637 96,215
Interest on other securities 2,358 2,396
Interest on deposits 3,516 9,666
Interest on Federal funds sold 33,424 61,690
----------- -----------
Total Interest Income 2,248,124 2,285,376
----------- -----------
INTEREST EXPENSE
Interest on savings deposits 48,940 44,080
Interest on NOW and money market deposits 109,964 111,614
Interest on time deposits in denominations of $100,000 or more 86,316 91,905
Interest on other time deposits 262,920 333,481
Interest on borrowed funds 1,070
----------- -----------
Total Interest Expense 509,210 581,080
----------- -----------
Net Interest Income 1,738,914 1,704,296
PROVISION FOR LOAN AND LEASE LOSSES (36,000) (41,000)
----------- -----------
Net Interest Income After Provision
for Loan and Lease Losses 1,702,914 1,663,296
----------- -----------
OTHER INCOME
Fees and service charges 360,896 349,358
Other income 3,316 6,133
----------- -----------
Total Other Income 364,212 355,491
OTHER EXPENSES
Salaries and employee benefits 870,559 906,162
Occupancy expense of premises 156,897 151,773
Furniture and equipment expense 138,427 143,689
Other expenses (Note #2) 649,767 608,986
----------- -----------
1,815,650 1,810,610
----------- -----------
Income Before Income Taxes 251,476 208,177
Income Taxes 101,000 85,000
----------- -----------
Net Income $ 150,476 $ 123,177
=========== ===========
Basic Earnings Per Share $ 0.08 $ 0.07
=========== ===========
Diluted Earnings Per Share $ 0.07 $ 0.06
=========== ===========
</TABLE>
See accompanying notes to financial statements.
Page 5 of 17
<PAGE> 6
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<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, 1999 1,862,776 $2,106,258 $3,306,684 $3,280,982 $ 34,235 $8,728,159
Comprehensive income
Net Income 123,177 123,177
Unrealized security holding losses
(net of $8,268 tax) (20,167) (20,167)
---------
Total other comprehensive income (20,167)
Total Comprehensive income 103,010
--------- ---------- ---------- ---------- -------- ----------
BALANCE, March 31, 1999 1,862,776 $2,106,258 $3,306,684 $3,404,159 $ 14,068 $8,831,169
========= ========== ========== ========== ======== ==========
<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, 2000 1,862,776 $2,106,258 $3,306,684 $3,256,118 $(38,825) $8,630,235
Comprehensive income
Net Income 150,476 150,476
Unrealized security holding losses
(net of $679 tax) (940) (940)
----------
Total other comprehensive income (940)
Total Comprehensive income 149,536
--------- ---------- ---------- ---------- --------- ----------
BALANCE, March 31, 2000 1,862,776 $2,106,258 $3,306,684 $3,406,594 $(39,765) $8,779,771
========= ========== ========== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
Page 6 of 17
<PAGE> 7
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and fees received .............................. $ 2,117,358 $ 2,110,122
Service fees and other income received .................. 364,212 355,491
Interest paid ........................................... (502,473) (579,796)
Cash paid to suppliers and employees .................... (2,015,917) (1,735,358)
Income taxes paid ....................................... (135,000) (330,000)
------------ ------------
Net Cash Used In Operating Activities .............. (171,820) (179,541)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities,
available-for-sale .................................... 500,000
Purchase of investment securities available-for-sale .... (1,979,510)
Net decrease in deposits in other financial institutions 396,000
Recoveries on loans previously written off .............. 4,414 7,870
Net loans made to customers and principal
collections of loans ................................. 99,751 879,072
Capital expenditures .................................... (13,460) (20,568)
Proceeds from sale of property, plant and equipment ..... 1,227
------------ ------------
Net Cash Provided By Investing Activities .......... 486,705 (611,909)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in demand deposits, NOW accounts,
savings accounts, and money market deposits ........... 1,657,772 1,292,649
Net increase/(decrease) in certificates of deposits ..... (53,678) (1,337,704)
------------ ------------
Net Cash Provided By Financing Activities .......... 1,604,094 (45,055)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................. 1,918,979 (836,505)
CASH AND CASH EQUIVALENTS, Beginning of year .............. 11,243,489 12,288,959
------------ ------------
CASH AND CASH EQUIVALENTS, End of quarter ................. $ 13,162,468 $ 11,452,454
============ ============
</TABLE>
See accompanying notes to financial statements.
Page 7 of 17
<PAGE> 8
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
---------- ---------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Income $ 150,476 $ 123,177
--------- ---------
Adjustments to Reconcile Net Income/(Loss)
to Net Cash Provided by Operating Activities
Depreciation and amortization 131,855 130,639
Provision for probable credit losses 36,000 41,000
Decrease in taxes payable (34,000) (245,000)
Increase in other assets (173,991) (185,771)
Decrease in unearned loan fees (99,666) (172,583)
(Increase(/decrease in interest receivable (23,117) 6,500
Increase in interest payable 6,737 1,284
Increase/(decrease) in accrued expense and other liabilities (166,114) 121,213
Total Adjustments (322,296) (302,718)
--------- ---------
Net Cash Provided By Operating Activities $(171,820) $(179,541)
========= =========
SUPPLEMENTARY INFORMATION
Change in valuation allowance for investment securities $ (940) $ (20,167)
========= =========
</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 8 of 17
<PAGE> 9
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000 AND 1999
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, 1999. The results of
operations for the three month period ended March 31, 2000, are not necessarily
indicative of the results to be expected for the full year.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities. This new standard was originally effective for 2000. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivatives Instruments
and Hedging Activities - Deferral of the effective Date of FASB Statement No.
133". This Statement establishes the effective date of SFAS 133 for 2001 and is
not expected to have a material impact on the Bank's financial statements.
NOTE #2 - OTHER EXPENSES
The following is a breakdown of other expenses for each of the three month
periods ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
----------- -----------
<S> <C> <C>
Data processing $ 153,383 $ 160,014
Marketing expenses 49,317 66,389
Office supplies, postage and telephone 57,446 81,177
Professional expenses 211,693 132,388
Bank insurance and assessments 34,790 41,136
Other 143,138 127,882
----------- -----------
Total Other Expenses $ 649,767 $ 608,986
=========== ===========
</TABLE>
Page 9 of 17
<PAGE> 10
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000 AND 1999
NOTE #3 - EARNINGS PER 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 10 of 17
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Vineyard National Bancorp (the "Company") is a one-bank holding company.
Its principal asset is the common stock of, and its principal operations are
conducted by, Vineyard National Bank, a National banking association (the
"Bank").
RESULTS OF OPERATIONS
The Company had net income of $150,476 for the quarter ended March 31,
2000, as compared to $123,177 for the same period in 1999.
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 $35,000 or 2.0%
in the three month period ended March 31, 2000, as compared to the same period
in 1999. The increase was due primarily to approximately a $37,000 increase in
interest income and approximately a $72,000 decrease in interest expense. The
net change was substantially a result of decreases in loan volume, fed funds,
and other time deposits offset by an increase in investments from March 2000 to
March 1999.
Outstanding loans and leases decreased during the three month period ended
March 31, 2000, by approximately $40,000. During this period total deposits
increased by approximately $1,604,000. The deposit mix changed as demand
deposits increased by approximately $4,207,000, savings and NOW accounts
decreased by approximately $1,1486,000, money market accounts decreased
approximately $1,063,000, time deposits in excess of $100,000 decreased
approximately $882,000, and other time deposits increased approximately
$828,000. The net interest margin (net interest income expressed as a percentage
of interest income) was 77 percent for the three month period ended March 31,
2000, as compared to 75 percent for the same period in 1999.
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 March 31, 2000
<TABLE>
<CAPTION>
(Dollars in Thousands)
-------------------------
Estimated Net Market Market
Simulated Interest Income Value of Value of
Rate Changes Sensitivity Assets Liabilities
------------ ----------- -------- -----------
<S> <C> <C> <C>
+200 Basis Points 4.9% 115,770 107,586
-200 Basis Points -7.2% 120,438 110,482
</TABLE>
Page 11 of 17
<PAGE> 12
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 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 three month period ended March 31, 2000, a provision of $36,000
was made as compared to $41,000 for the same period in 1999. The net charge-offs
on previously granted loans were approximately $16,000 for the three months
ended March 31, 2000, as compared to $65,000 for the same period in 1999.
OTHER INCOME
The increase of approximately $9,000 in other income in the three month
period ended March 31, 2000, as compared to 1999, was due to an increase in fees
and service charges of $12,000 offset by a decrease in other income of $3,000.
OTHER EXPENSES
Other expenses, consisting primarily of (i) salaries and other employee
expenses, (ii) occupancy expenses, (iii) furniture and equipment expenses, and
(iv) data processing, marketing, office supplies, postage and telephone,
professional fees , bank insurance and assessments, and other non-interest
expense, increased by approximately $5,000 or .3%, during the three month period
ended March 31, 2000, as compared to the same period in 1999. The increase in
other expenses was primarily a result of increases in professional and other
miscellaneous expenses offset by decrease in salaries and employee benefits,
marketing, office supplies, postage and telephone, and bank insurance and
assessments.
FINANCIAL CONDITION AND LIQUIDITY
During the three months ended March 31, 2000, the Company's assets
increased by approximately $1,579,000 or 1.4%, compared to December 31, 1999.
The Company continued to have adequate cash resources with approximately
$7,601,000 of cash held on deposit at other financial institutions including
time deposits, approximately $4,424,000 of investment securities (net of
investments pledged as collateral), and $5,660,000 in Federal Funds Sold at
March 31, 2000. Liquidity increased and resulted in an increase in cash and cash
equivalents of approximately $1,919,000. The Bank's investment portfolio
contains $40,000 of unrealized losses on estimated fair values when compared to
book values at March 31, 2000. The total loans placed on non-accrual status (not
generating income currently) amounted to approximately $538,000 at March 31,
2000. All loans on non-accrual status are considered to be impaired.
Total shareholders' equity increased from approximately $8,630,000 at
December 31, 1999 to $8,780,000 at March 31, 2000, as a result of net income
generated for the three months then ended and a decrease in accumulated other
comprehensive income.
Page 12 of 17
<PAGE> 13
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 March 31, 2000, the Company
had a ratio of capital to risk-weighted assets of 10.05%, a ratio of Tier 1
capital to risk-weighted assets of 9.23%, and a leverage capital ratio of 7.69%.
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 March 31, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in Thousands) 2000 1999
--------- -----------
<S> <C> <C>
Accruing Loans More Than 90 Days Past Due(1)
Aggregate Loan Amounts
Commercial, financial and agricultural
Real estate
Installment loans to individuals -- $ 14
---- ----
Total Loans Past Due More Than 90 Days 0 14
---- ----
Renegotiated Loans(2) -- --
---- ----
Non-accrual Loans(3)
Aggregate Loan Amounts
Commercial, financial and agricultural 312 269
Real estate 226 226
---- ----
Total Non-accrual Loans 538 495
---- ----
Total Non-Performing Loans $538 $509
==== ====
</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 2000 and 1999.
(3) There were three loans on non-accrual status totaling approximately
$538,000 at March 31, 2000, and three loans totaling approximately $495,000
at December 31, 1999.
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
Page 13 of 17
<PAGE> 14
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 March 31, 2000 the Bank's classified loans consisted of $3,733,000 of
loans classified as substandard and $250,000 of loans classified as doubtful.
The Bank's $3,733,000 classified as substandard consisted of approximately
$3,194,000 of performing loans and approximately $538,000 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 March 31, 2000,
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, 1999.
The reserve for probable loan and lease losses at March 31, 2000, was
approximately $784,000 or .91% of total loans and leases, as compared to
$764,000 or .89% of total credits at December 31, 1999. 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>
March 31, December 31,
(Dollars in Thousands) 2000 1999
----------- ---------------
<S> <C> <C>
Allowance For Loan Losses
Balance, Beginning of period $ 764 $ 686
------- ----------
Charge-offs
Commercial, financial and agricultural 94
Real estate mortgage
Consumer loans 20 103
------- ----------
Total Charge-offs 20 197
------- ----------
Recoveries
Commercial, financial and agricultural 27
Real estate mortgage
Consumer loans 4 82
------- ----------
Total Charge-offs 4 109
------- ----------
Net Charge-offs 16 88
------- ----------
Provision Charged to Operations 36 166
------- ----------
Balance, End of period $ 784 $ 764
======= ==========
Net Charge-offs During the Period to Average Loans
Outstanding During the Period Ended 0.02% 0.10%
======= ==========
Allowance For Loan Losses to Loans at Quarter End /Year End 0.91% 0.89%
======= ==========
</TABLE>
Page 14 of 17
<PAGE> 15
In accordance with SFAS No. 114 (as amended by SFAS No. 118), "Accounting
by Creditors for Impairment of a Loan," those 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 15 of 17
<PAGE> 16
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
John Setlich sued Vineyard National Bank ("VNB") in a case entitled Setlich v.
Vineyard National Bank et al., Case No. RCV 05925, in the Superior Court of
California, County of San Bernardino. The lawsuit was tried before a jury on
claims of fraud and concealment involving one of several loans from VNB to
Setlich. The disputed loan was secured by a building which Setlich constructed
and leased to VNB as a business office in Chino, California. Setlich alleged
that the obtaining of the note and deed of trust and subsequent foreclosure upon
his default were improper. The jury trial resulted in a verdict on October 25,
1999 for $3,541,522.00. However, no punitive damages were awarded.
Subsequently, the judge reduced the award to $860,000.00 and entered judgment
for that amount on March 27, 2000. VNB has appealed the rulings denying
post-trial motions which appeal is pending. In addition, VNB will be filing an
appeal of the judgment with the California Court of Appeal, Fourth Appellate
District.
ITEM 5. OTHER INFORMATION
Steven R. Sensenbach as President and Chief Executive Officer and Soule
Sensenbach as Secretary and Chief Financial Officer of the Bank have left the
Bank's employment. The Board has appointed Robert J. Schoeffler, As Acting
Chief Executive Officer and Sara F. Ahern as Secretary and Acting Chief
Financial Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: Data Schedule
b) Reports on Form 8-K: None
Page 16 of 17
<PAGE> 17
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 15th day of May 2000.
VINEYARD NATIONAL BANK
By: /s/ Sara Ahern
---------------------------------
Sara Ahern
Corporate Secretary
Page 17 of 17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE MARCH 31, 2000
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,502,468
<INT-BEARING-DEPOSITS> 99,000
<FED-FUNDS-SOLD> 5,660,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,434,597
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 85,696,540
<ALLOWANCE> 783,580
<TOTAL-ASSETS> 117,807,277
<DEPOSITS> 106,127,272
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,900,234
<LONG-TERM> 0
0
0
<COMMON> 2,106,258
<OTHER-SE> 6,673,513
<TOTAL-LIABILITIES-AND-EQUITY> 117,807,277
<INTEREST-LOAN> 2,077,189
<INTEREST-INVEST> 133,995
<INTEREST-OTHER> 36,940
<INTEREST-TOTAL> 2,248,124
<INTEREST-DEPOSIT> 508,140
<INTEREST-EXPENSE> 509,210
<INTEREST-INCOME-NET> 1,738,914
<LOAN-LOSSES> 36,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,815,650
<INCOME-PRETAX> 251,476
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,476
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.07
<YIELD-ACTUAL> 8.90
<LOANS-NON> 538,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,983,000
<ALLOWANCE-OPEN> 764,000
<CHARGE-OFFS> 20,000
<RECOVERIES> 4,000
<ALLOWANCE-CLOSE> 662,000
<ALLOWANCE-DOMESTIC> 662,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
