<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, 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. 1,864,828 shares of common stock as
of June 30 , 2000.
<PAGE> 2
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
JUNE 30, 2000 AND DECEMBER 31, 1999
TABLE OF CONTENTS
PART I
<TABLE>
<S> <C>
FINANCIAL STATEMENTS
Consolidated Balance Sheets
June 30, 2000 and December 31,1999.........................................3
Consolidated Statements of Income
For the Six Months and Three Months Ended June 30, 2000 and 1999...........4
Consolidated Statements of Changes in Stockholders' Equity
For the Six Months Ended June 30, 2000 and 1999............................5
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999............................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 20
<PAGE> 3
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 2000 AND DECEMBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Cash and due from banks $ 8,946,772 $ 7,853,489
Federal funds sold 5,960,000 3,390,000
------------- -------------
Total Cash and Cash Equivalents 14,906,772 11,243,489
------------- -------------
Interest-bearing deposits in other financial institutions 198,000 495,000
Investment securities
Available-for-sale 8,450,394 9,428,297
Loans, net of unearned income 81,835,474 84,881,774
Loans held for sale -- 835,323
Less: Reserve for probable loan and lease losses (758,891) (763,638)
------------- -------------
81,076,583 84,953,459
Bank premises and equipment 5,735,072 6,051,588
Accrued interest 538,234 573,187
Cash surrender value of life insurance 2,262,934 2,262,934
Other real estate owned 93,753 262,714
Federal Reserve Bank and other similar stock at cost 182,431 177,200
Other assets 966,842 780,288
------------- -------------
Total Assets $ 114,411,015 $ 116,228,156
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand deposits 38,632,508 34,208,093
Savings and NOW deposits 25,935,851 28,352,216
Money market deposits 10,497,145 12,125,849
Time deposits in denominations
of $100,000 or more 8,203,328 10,087,216
Other time deposits 19,744,839 19,749,804
------------- -------------
103,013,671 104,523,178
Accrued employee salary benefits 708,729 1,052,156
Accrued interest and other liabilities 2,037,638 2,022,587
------------- -------------
Total Liabilities 105,760,038 107,597,921
------------- -------------
STOCKHOLDERS' EQUITY
Contributed Capital
Common stock - authorized 15,000,000 shares,
no par value, issued and outstanding 1,864,828
shares in 2000 and 1,862,776 in 1999 2,112,243 2,106,258
Additional paid-in capital 3,306,684 3,306,684
Retained earnings 3,264,374 3,256,118
Accumulated other comprehensive income (32,324) (38,825)
------------- -------------
Total Stockholders' Equity 8,650,977 8,630,235
------------- -------------
Total Liabilities and Stockholders' Equity $ 114,411,015 $ 116,228,156
============= =============
</TABLE>
See accompanying notes to financial statements. Page 3 of 20
<PAGE> 4
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans 4,137,829 4,209,756 2,060,640 2,094,347
Interest on Investment Securities
Obligations of U.S. Government Agencies
and Corporations 268,620 212,344 136,983 116,129
Interest on other securities 4,730 4,775 2,372 2,379
Interest on deposits 6,623 19,346 3,107 9,680
Interest on Federal funds sold 119,010 164,062 85,586 102,372
----------- ----------- ----------- -----------
Total Interest Income 4,536,812 4,610,283 2,288,688 2,324,907
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on savings deposits 99,463 92,768 50,523 48,688
Interest on NOW and money market deposits 215,915 232,396 105,951 120,782
Interest on time deposits in denominations
of $100,000 or more 168,624 190,194 82,308 98,289
Interest on other time deposits 547,819 645,330 284,899 311,849
Interest on borrowed money 1,070 --
----------- ----------- ----------- -----------
Total Interest Expense 1,032,891 1,160,688 523,681 579,608
----------- ----------- ----------- -----------
Net Interest Income 3,503,921 3,449,595 1,765,007 1,745,299
PROVISION FOR LOAN AND LEASE LOSSES (256,000) (41,000) (220,000)
----------- ----------- ----------- -----------
Net Interest Income After Provision
for Loan and Lease Losses 3,247,921 3,408,595 1,545,007 1,745,299
----------- ----------- ----------- -----------
OTHER INCOME
Fees and service charges and gain
on sale of loans 606,294 631,066 245,398 281,708
Other Income 131,292 101,967 127,976 95,834
----------- ----------- ----------- -----------
Total Other Income 737,586 733,033 373,374 377,542
----------- ----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits 1,799,353 1,821,772 928,794 915,610
Occupancy expense of premises 311,048 315,776 154,151 164,003
Furniture and equipment expenses 307,048 299,857 168,621 156,168
(Gain)/ Loss on sale of other real estate owned 12,143 (6,462) 12,143 (6,462)
Other expenses (Note #2) 1,541,659 1,243,645 891,892 634,659
----------- ----------- ----------- -----------
Total Other Expenses 3,971,251 3,674,588 2,155,601 1,870,440
----------- ----------- ----------- -----------
INCOME/(LOSS) BEFORE INCOME TAXES 14,256 467,040 (237,220) 258,863
INCOME TAXES (6,000) (189,000) 95,000 (104,000)
----------- ----------- ----------- -----------
NET INCOME/(LOSS) $ 8,256 $ 278,040 $ (142,220) $ 154,863
=========== =========== =========== ===========
BASIC EARNINGS/(LOSS) PER SHARE $ -- $ 0.15 $ (0.08) $ 0.08
=========== =========== =========== ===========
DILUTED EARNINGS/(LOSS) PER SHARE $ -- $ 0.14 $ (0.07) $ 0.08
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements. Page 4 of 20
<PAGE> 5
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Accumulated
Number of Additional other
Shares Common Paid-in Retained comprehensive
Outstanding Stock Capital Earnings income/(loss) 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 278,040 278,040
Unrealized security holding losses
(net of $5,675 tax) (42,072) (42,072)
-----------
Total other comprehensive income/(loss) (42,072)
-----------
Total Comprehensive income 235,968
----------- -----------
BALANCE, June 30,1999 1,862,776 $ 2,106,258 $ 3,306,684 $ 3,559,022 $ (7,837) $ 8,964,127
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Number of Additional other
Shares Common Paid-in Retained comprehensive
Outstanding Stock Capital Earnings income/(loss) 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
----------- ----------- ----------- ----------- ----------- -----------
Stock options exercised 2,052 5,985 5,985
Comprehensive income
Net Income 8,256 8,256
Unrealized security holding gains
(net of $4,334 tax) 6,501 6,501
-----------
Total other comprehensive income 6,501
-----------
Total Comprehensive income 14,757
----------- -----------
BALANCE, June 30,2000 1,864,828 $ 2,112,243 $ 3,306,684 $ 3,264,374 $ (32,324) $ 8,650,977
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements. Page 5 of 20
<PAGE> 6
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
------------ ------------
<S> <C> <C>
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and fees received $ 4,352,092 $ 4,267,444
Service fees and other income received 787,239 733,033
Interest paid (1,025,272) (1,254,229)
Cash paid to suppliers and employees (3,895,833) (3,265,347)
Income taxes paid (297,998) (490,000)
------------ ------------
Net Cash Used by Operating Activities (79,772) (9,099)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities
available-for-sale 2,000,000 2,008,178
Purchase of investment securities available-for-sale (994,872) (6,453,475)
Purchase of FRB & other stock (5,231) --
Net (increase)/decrease in deposits in other financial institutions 297,000 (198,000)
Net loans made to customers and principal collections
of loans 3,813,372 3,847,813
Net decrease in other real estate owned 125,137 31,102
Recoveries on loans previously written off 11,164 78,453
Capital expenditures (25,168) (178,992)
Proceeds from sale of property, plant and equipment 25,175 21,011
------------ ------------
Net Cash Provided/(Used) by Investing Activities 5,246,577 (843,910)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in demand deposits, NOW
accounts savings accounts, and money market deposits 379,346 4,694,823
Net increase/(decrease) in certificates of deposit (1,888,853) (3,258,991)
Proceeds from the exercise of stock options 5,985 --
------------ ------------
Net Cash Provided/(Used) by Financing Activities (1,503,522) 1,435,832
------------ ------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 3,663,283 582,823
CASH AND CASH EQUIVALENTS, Beginning of year 11,243,489 12,288,959
------------ ------------
CASH AND CASH EQUIVALENTS, End of quarter $ 14,906,772 $ 12,871,782
============ ============
</TABLE>
See accompanying notes to financial statements. Page 6 of 20
<PAGE> 7
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
RECONCILIATION OF NET INCOME/(LOSS) TO
NET CASH USED IN OPERATING ACTIVITIES
Net Income $ 8,256 $ 278,040
--------- ---------
Adjustments to Reconcile Net Income to
Net Cash Used by Operating Activities
Depreciation and amortization 262,986 265,928
Provision for probable credit losses 256,000 41,000
Provision for OREO losses 31,681 --
(Gain)/Loss on sale of other real estate owned 12,143 (6,462)
Loss on sale of equipment 37,510 --
Decrease in taxes payable (291,998) (301,000)
Increase in other assets (134,078) (32,781)
Decrease in unearned loan fees (203,660) (315,252)
(Increase)/decrease in interest receivable 34,953 (7,217)
Increase/(decrease) in interest payable 7,619 (93,541)
Increase/(decrease) in accrued expense and other liabilities (101,184) 162,186
--------- ---------
Total Adjustments (88,028) (287,139)
--------- ---------
Net Cash Used by Operating Activities $ (79,772) $ (9,099)
========= =========
SUPPLEMENTARY INFORMATION
Change in valuation allowance for investment securities $ 6,501 $ (42,072)
========= =========
</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 20
<PAGE> 8
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 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 six month period ended June 30, 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 Derivative 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 six month periods
ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Data processing $ 309,259 $ 348,620 $ 155,876 $ 188,606
Marketing expenses 78,334 139,700 29,017 73,311
Office supplies, postage
and telephone 118,472 160,018 61,026 78,841
Professional expenses 433,400 266,931 221,707 134,543
Bank insurance and assessments 69,599 80,443 34,809 39,307
Other 532,595 247,933 389,457 120,051
---------- ---------- ---------- ----------
Total Other Expenses $1,541,659 $1,243,645 $ 891,892 $ 634,659
========== ========== ========== ==========
</TABLE>
Page 8 of 20
<PAGE> 9
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000 AND 1999
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 20
<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 $8,256 for the six months ended June 30,
2000 as compared to $278,040 for the same period in 1999. For the three months
ended June 30, 2000 the Company had a net loss of $(142,220) as compared to net
income $154,863 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 $54,000 or 1.6%
in the six month period ended June 30, 2000, compared to the same period in
1999. The increase was due primarily to approximately a $73,000 decrease in
interest income and approximately a $128,000 decrease in interest expense. The
net change was substantially a result of decreases in loan volume and time, NOW
and money market deposits from June 2000 to June 1999.
For the three-month period ending June 30, 2000 net interest income
increased approximately $20,000 or 1.1% as compared to the same period in 1999.
The net change was primarily a result of decreases in loan volume offset by
larger decreases in time, NOW and money market deposits.
Outstanding loans and leases decreased during the six month period ended
June 30, 2000, by approximately $3,877,000. During this period total deposits
decreased by approximately $1,510,000. The deposit mix changed as demand
deposits increased by approximately $4,424,000, savings and NOW accounts
decreased by approximately $2,416,000, money market accounts decreased
approximately $1,629,000, time deposits in excess of $100,000 decreased
approximately $1,884,000, and other time deposits decreased approximately
$5,000. The net interest margin (net interest income expressed as a percentage
of interest income) was 77 percent for the six month period ended June 30, 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.
Page 10 of 20
<PAGE> 11
The following reflects the Company's net interest income sensitivity analysis as
of June 30, 2000:
<TABLE>
<CAPTION>
Estimated Net
Simulated Interest Income
Rate Changes Sensitivity
---------------
<S> <C>
+200 Basis Points 3.3%
-200 Basis Points -4.3%
</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, 2000, a provision of
approximately $256,000 was made as compared to approximately $41,000 for the
same period in 1999. The net charge-offs on previously granted loans were
approximately $261,000 for the six months ended June 30, 2000, as compared to
$78,000 for the same period in 1999.
During the three month period ended June 30, 2000, a provision of
approximately $220,000 was made as compared to no provision for the same period
in 1999. The net charge-offs on previously granted loans were approximately
$245,000 for the three months ended June 30, 2000, as compared to $13,000 for
the same period in 1999.
OTHER INCOME
The increase of approximately $5,000 in other income in the six month
period ended June 30, 2000, as compared to 1999, was due primarily to the
increase in sales commissions. The decrease of approximately $4,000 in other
income in the three month period ended June 30, 2000, was due primarily to a
decrease of $36,000 in service charges offset by a $32,000 increase in other
income.
Page 11 of 20
<PAGE> 12
OTHER 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 $297,000 or 8.1%, during the six month period ended June 30, 2000,
as compared to the same period in 1999. The increase in other expenses was
primarily a result of an increase in miscellaneous other expenses of
approximately $285,000. The majority of the increase is related to the departure
of the former CEO, which increased the Supplemental Executive Retirement Plan
(SERP) expense and incurred a contract payment expense, both of which totaled
approximately $448,000. In addition OREO expenses increased approximately
$37,000. These increases were partially offset by decreases in salary and other
employee expenses of approximately $234,000 due to staff level reductions.
For the three month period ended June 30, 2000, other expenses
increased $285,000 as compared to the same period in 1999. The explanations
given above apply to the second quarter as well.
FINANCIAL CONDITION AND LIQUIDITY
During the six months ended June 30, 2000, the Company's assets
decreased by approximately $1,817,000 or 1.6%, compared to December 31, 1999.
The Company continued to have adequate cash resources with approximately
$8,947,000 of cash held on deposit at other financial institutions,
approximately $8,450,000 of investment securities, and $5,960,000 in Federal
Funds Sold at June 30, 2000. 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 and Federal Funds Sold,
offset by decreases in Interest-bearing Deposits in Other Financial Institutions
and Investment Securities. The Bank's investment portfolio contains $55,000 of
unrealized losses on estimated fair values when compared to book values at June
30, 2000. The total loans placed on non-accrual status (not generating income
currently) amounted to approximately $61,000 at June 30, 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 approximately $8,651,000 at June 30, 2000, as a result of
net income generated for the six months then ended, stock options exercised and
an increase in accumulated other comprehensive income.
The Company's and the Bank's primary regulators, the Federal Reserve
Board and the Office of the Comptroller of the Currency (OCC) 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, 2000, the Company
had a ratio of capital to risk-weighted assets of 10.36%, a ratio of Tier 1
capital to risk-weighted assets of 9.53%, and a leverage capital ratio of 7.49%.
The Company's management believes that, under current regulations, the Bank will
continue to meet these minimum capital requirements in the foreseeable future.
On May 8, 2000 the Bank entered into a Memorandum of Understanding(MOU)
with the OCC. The MOU contains the following items:
- The Board is to ensure competent management.
- By November 30, 2000, the Board shall prepare, implement, and
thereafter ensure Bank adherence to a written three-year business
plan.
- By November 30, 2000, the Board shall revise, expand, and
thereafter ensure Bank adherence to its three-year capital plan.
- By June 30, 2000, the Board shall develop, implement, and
thereafter ensure Bank adherence to a written program to control
the level of credit risk in the Bank.
Page 12 of 20
<PAGE> 13
- The Board shall review the adequacy of the Bank's Allowance for
Loan and Lease Losses (ALLL) and shall establish a program for
the maintenance of an adequate ALLL.
- By June 30, 2000, the Board shall revise, expand, and thereafter
ensure Bank adherence to a written, comprehensive conflict of
interest policy applicable to the Bank's directors, principal
shareholders, executive officers, affiliates,
institution-affiliated parties, and employees and related
interest of such Insiders.
- The Board shall submit quarterly progress reports to the
Assistant Deputy Comptroller.
The Bank's Board of Directors and management believe that it is in substantial
compliance with the terms and conditions of the MOU.
NON-PERFORMING LOANS
The following table sets forth information regarding the Bank's
non-performing loans at June 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
(dollars in thousands) June 30, December 31,
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 -- 14
-------- --------
Renegotiated loans (2) -- --
Non-accrual loans (3)
Aggregate loan amounts
Commercial, financial and agricultural 61 269
Real estate -- 226
Total Non-Accrual Loans $ 61 495
======== ========
Total Non-Performing Loans $ 61 $ 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 was one loan on non-accrual status totaling approximately $61,000 at
June 30, 2000, and three loans totaling approximately $495,000 at December 31,
1999.
Page 13 of 20
<PAGE> 14
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, 2000, the Bank's classified loans consisted of
approximately $3,116,000 of loans classified as substandard. The Bank's
$3,116,000 of loans classified as substandard consisted of approximately
$3,055,000 of performing loans and approximately $61,000 of non-accrual loans
and loans delinquent 90 days or more but still accruing.
Page 14 of 20
<PAGE> 15
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, 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 June 30, 2000, was
approximately $759,000 or .93% 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>
(dollars in thousands) June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Loans and Lease Loss Reserve Balance,
Beginning of Period $ 764 $ 686
-------- --------
Charge-offs
Domestic
Commercial, financial & agricultural 235 94
Real estate - mortgage -- --
Consumer loans 37 103
-------- --------
272 197
-------- --------
Recoveries
Domestic
Commercial, financial & agricultural -- 27
Real estate - mortgage -- --
Consumer loans 11 82
-------- --------
11 109
-------- --------
Net charge-offs 261 88
Additions charged to operations 256 166
-------- --------
Loan and Lease Loss Reserve Balance, End of Year $ 759 $ 764
======== ========
Ratio of Net Charge-offs/(Recoveries) During the Year
to Average Loans and Leases Outstanding During the Year 0.30% 0.10%
======== ========
Ratio of Reserve for Loan Losses to Loans at Period End 0.93% 0.89%
======== ========
</TABLE>
Page 15 of 20
<PAGE> 16
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 of 20
<PAGE> 17
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 17 of 20
<PAGE> 18
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 14th day of August 2000.
VINEYARD NATIONAL BANCORP
By: /s/ Sara Ahern
------------------------------------
Sara Ahern
Corporate Secretary
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