<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 September 30, 2000.
Page 1 of 18
<PAGE> 2
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
TABLE OF CONTENTS
PART I
FINANCIAL STATEMENTS
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999.....................................3
Consolidated Statements of Income
For the Nine Months and Three Months Ended September 30, 2000 and 1999.......4
Consolidated Statements of Changes in Stockholders' Equity
For the Nine Months Ended September 30, 2000 and 1999........................6
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999........................7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.....................................9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................10
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................17
Exhibit 27. Data Schedule..................................................18
Signatures..................................................................19
Page 2 of 18
<PAGE> 3
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Cash and due from banks $ 8,089,248 $ 7,853,489
Federal funds sold 5,925,000 3,390,000
------------- -------------
Total Cash and Cash Equivalents 14,014,248 11,243,489
------------- -------------
Interest-bearing deposits in other financial institutions 198,000 495,000
Investment securities
Available-for-sale 7,492,808 9,428,297
Loans, net of unearned income 79,989,002 84,881,774
Loans held for sale 1,142,000 835,323
Less: Reserve for probable loan
and leases losses (766,551) (763,638)
------------- -------------
80,364,451 84,953,459
Bank premises and equipment 5,594,700 6,051,588
Accrued interest 513,385 573,187
Cash surrender value of life insurance 2,410,005 2,262,934
Other real estate owned 0 262,714
Federal reserve Bank and Other Stock , at cost 177,200 177,200
Other assets 812,824 780,288
------------- -------------
Total Assets $ 111,577,621 $ 116,228,156
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand deposits 38,975,657 34,208,093
Savings and NOW deposits 26,638,566 28,352,216
Money market deposits 9,612,535 12,125,849
Time deposits in denominations
of $100,000 or more 6,281,530 10,087,216
Other time deposits 19,263,655 19,749,804
------------- -------------
100,771,943 104,523,178
Accrued employee salary benefits 963,586 1,052,156
Accrued interest and other liabilities 770,614 2,022,587
------------- -------------
Total Liabilities 102,506,143 107,597,921
------------- -------------
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 shares in 1999 2,112,243 2,106,258
Additional paid-in capital 3,306,684 3,306,684
Retained earnings 3,668,466 3,256,118
Accumulated other comprehensive income (15,915) (38,825)
------------- -------------
Total Stockholders' Equity 9,071,478 8,630,235
------------- -------------
Total Liabilities and Stockholders' Equity $ 111,577,621 $ 116,228,156
============= =============
</TABLE>
See accompanying notes to compiled financial statements.
Page 3 of 18
<PAGE> 4
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2000
AND 1999
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 6,167,359 $ 6,229,259 $ 2,029,530 $ 2,019,503
Interest on Investment Securities
Obligations of U.S. Government
Agencies and Corporations 390,289 355,676 121,669 143,332
Interest on other securities 7,111 7,154 2,381 2,379
Interest on deposits 10,147 32,018 3,524 12,672
Interest on Federal funds sold 248,089 245,986 129,079 81,924
----------- ----------- ----------- -----------
Total Interest Income 6,822,995 6,870,093 2,286,183 2,259,810
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on savings deposits 151,203 142,250 51,740 49,482
Interest on NOW and
money market deposits 318,024 352,739 102,109 120,343
Interest on time deposits in
denominations of $100,000 or more 332,401 279,249 163,777 89,055
Interest on other time deposits 731,582 917,062 183,763 271,732
Interest on other borrowings 1,070 --
----------- ----------- ----------- -----------
Total Interest Expense 1,534,280 1,691,300 501,389 530,612
----------- ----------- ----------- -----------
Net Interest Income 5,288,715 5,178,793 1,784,794 1,729,198
PROVISION FOR LOAN AND LEASE LOSSES (256,000) (41,000) -- --
----------- ----------- ----------- -----------
Net Interest Income After
Provision for Loan
and Lease Losses 5,032,715 5,137,793 1,784,794 1,729,198
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to compiled financial statements.
Page 4 of 18
<PAGE> 5
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2000
AND 1999
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OTHER INCOME
Fees and service charges $ 1,093,187 $ 1,096,931 $ 365,605 $ 377,818
Other Income 12,380 20,387 2,376 6,467
----------- ----------- ----------- -----------
Total Other Income 1,105,567 1,117,318 367,981 384,285
----------- ----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits 2,505,853 2,717,287 706,500 895,515
Occupancy expense of premises 473,324 464,921 162,276 149,145
Furniture and equipment expenses 380,794 455,357 73,746 155,500
Net (gain)/loss on sale of
fixed assets 33,390 -- 33,390 --
Net (gain)/loss on sale of
other real estate owned 12,143 (6,462) -- --
Other expenses (Note #2) 2,022,430 1,936,531 480,771 692,886
----------- ----------- ----------- -----------
Total Other Expenses 5,427,934 5,567,634 1,456,683 1,893,046
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 710,348 687,477 696,092 220,437
INCOME TAXES (298,000) (282,000) (292,000) (93,000)
----------- ----------- ----------- -----------
NET INCOME $ 412,348 $ 405,477 $ 404,092 $ 127,437
=========== =========== =========== ===========
EARNINGS PER SHARE OF
COMMON STOCK (Note #3)
BASIC $ 0.22 $ 0.22 $ 0.22 $ 0.07
=========== =========== =========== ===========
DILUTED $ 0.22 $ 0.20 $ 0.22 $ 0.06
=========== =========== =========== ===========
</TABLE>
See accompanying notes to compiled financial statements.
Page 5 of 18
<PAGE> 6
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 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 405,477 405,477
Unrealized security holding losses
(net of $16,396 tax) (53,234) (53,234)
Less reclassification adjustments
for gains(net of $2,638 tax) (3,643) (3,643)
----------
Total other comprehensive income (56,877)
Total Comprehensive income 348,600
----------- ----------- ----------- ----------- ----------- ----------
BALANCE, September 30, 1999 1,862,776 $ 2,106,258 $ 3,306,684 $ 3,686,459 $ (22,642) $9,076,759
=========== =========== =========== =========== =========== ==========
Accumulated
Number of Additional other
Shares Common Paid-in Retained comprehensive
Outstanding Stock Capital Earnings income Total
----------- ----------- ----------- ----------- ----------- -----------
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 412,348 412,348
Unrealized security holding gains
(net of $11,525 tax) 22,910 22,910
-----------
Total other comprehensive income 22,910
Total Comprehensive income 435,258
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 2000 1,864,828 $ 2,112,243 $ 3,306,684 $ 3,668,466 $ (15,915) $ 9,071,478
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to compiled financial statements.
Page 6 of 18
<PAGE> 7
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
Increase/(Decrease) in Cash and Cash Equivalents 2000 1999
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Interest and fees received $ 6,382,176 $ 6,296,712
Service fees and other income received 1,151,100 1,117,318
Interest paid (1,511,093) (1,792,484)
Cash paid to suppliers and employees (6,163,143) (4,880,252)
Income taxes paid (582,594) (495,629)
------------ ------------
Net Cash Provided By/(Used In) Operating Activities (723,554) 245,665
------------ ------------
Cash Flows From Investing Activities
Proceeds from maturities of investment securities
available-for-sale 3,000,000 4,008,178
Purchase of investment securities available-for-sale (1,000,170) (8,468,171)
Net(increase)/decrease of deposits in other
financial institutions 297,000 (396,000)
Net loans made to customers and principal collections
of loans 4,789,967 4,683,253
Proceeds from sale of OREO 125,137 31,102
Recoveries on loans previously written off 18,824 94,551
Capital expenditures (25,168) (234,079)
Proceeds from sale of property, plant and equipment 33,973 48,091
------------ ------------
Net Cash Provided By/(Used In) Investing Activities 7,239,563 (233,075)
------------ ------------
Cash Flows From Financing Activities
Proceeds from the exercise of stock options 5,985 --
Net increase in demand deposits, NOW
accounts, savings accounts, and money market
deposits 540,600 4,681,543
Net decrease in certificates of deposit (4,291,835) (5,836,409)
------------ ------------
Net Cash Provided By/(Used In) Financing Activities (3,745,250) (1,154,866)
------------ ------------
Net Increase/(Decrease) in Cash and Cash Equivalents 2,770,759 (1,142,276)
Cash and Cash Equivalents, Beginning of year 11,243,489 12,288,959
------------ ------------
Cash and Cash Equivalents, End of quarter $ 14,014,248 $ 11,146,683
============ ============
</TABLE>
See accompanying notes to compiled financial statements.
Page 7 of 18
<PAGE> 8
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Net Cash Used in Operating Activities
Net Income/(Loss) $ 412,348 $ 405,477
------------ ------------
Adjustments to Reconcile Net Income to
Net Cash Provided By/(Used In) by Operating Activities
Depreciation and amortization 389,790 407,056
Provision for probable credit losses 256,000 41,000
Provision for oreo 31,681
Loss on sale of equipment 33,390 --
(Gain)/Loss on sale of other real estate owned 12,143 (6,462)
Decrease in taxes payable (284,594) (213,629)
Increase in other assets (146,417) (17,944)
Decrease in unearned loan fees (475,718) (430,773)
(Increase)/decrease in interest receivable 59,802 (115,756)
Increase/(decrease) in interest payable 23,187 (101,184)
Increase/(decrease) in accrued expense and other liabilities (1,035,166) 277,880
------------ ------------
Total Adjustments (1,135,902) (159,812)
------------ ------------
Net Cash Provided by/(Used In) Operating Activities $ (723,554) $ 245,665
============ ============
Supplementary Information
Change in valuation allowance for investment securities $ 22,910 $ 56,877
============ ============
</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 18
<PAGE> 9
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 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 nine month period ended September 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 nine and
three-month periods ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Data processing $ 459,053 $ 508,992 $ 149,794 $ 160,372
Marketing expenses 119,056 199,233 40,722 59,533
Office supplies, postage
and telephone 255,500 239,266 82,399 79,248
Professional expenses 656,185 480,183 222,785 213,252
Bank insurance and assessments 101,746 121,272 32,147 40,829
Other 430,890 387,585 (47,076) 139,652
---------- ---------- ---------- ----------
Total Other Expenses $2,022,430 $1,936,531 $ 480,771 $ 692,886
========== ========== ========== ==========
</TABLE>
Page 9 of 18
<PAGE> 10
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000 AND 1999
NOTE #3 - EARNINGS/(LOSS) PER COMMON EQUIVALENT SHARE
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
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 incurred net income of $412,348 for the nine months ended
September 30, 2000 as compared to $405,477 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 $110,000 or 2.1% in the
nine-month period ended September 30, 2000, as compared to the same period in
1999. This increase was due primarily to a $47,000 decrease in interest income
and a $157,000 decrease in interest expense. The net change was substantially a
result of the decrease in interest on loans offset by a decrease in interest on
other time deposits.
Page 10 of 18
<PAGE> 11
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000 AND 1999
The Bank's net interest income increased $56,000 or 3.2% for the
three month period ended September 30, 2000 as compared to the same period in
1999. This increase was due primarily to a $26,000 increase in interest income
and a $29,000 decrease in interest expense. The net change is due to an increase
in interest on federal funds sold offset with a decrease in interest on
obligations of U.S. Government Agencies and Corporations. The decrease in
interest expense is due to decreases in interest on other time deposits and NOW
and money markets offset with an increase in interest on time deposits of
$100,0000 or more.
Outstanding loans decreased during the nine-month period ended
September 30, 2000, by $4,586,000 as a direct result of loans being paid off.
During this period total deposits decreased by $3,751,000. The deposit mix
changed significantly as demand deposits increased by $4,768,000, money market
accounts decreased $2,513,000, savings and NOW accounts decreased by $1,714,000,
time deposits in excess of $100,000 decreased $3,806,000, and other time
deposits decreased $486,000. The net interest margin (net interest income
expressed as a percentage of interest income) was 78 percent in 2000 as compared
to 75 percent 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 September 30, 2000:
(Dollars in Thousands)
Estimated Net
Simulated Interest Income
Rate Changes Sensitivity
----------------- ---------------
+200 Basis Points 3.8%
-200 Basis Points -4.4%
Page 11 of 18
<PAGE> 12
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000 AND 1999
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 nine month period ended September 30, 2000, a provision
was made of $256,000 as compared to $41,000 for the same period in 1999. The net
charge-offs on previously granted loans was approximately $253,000 for the nine
months ended September 30, 2000, as compared to net charge-offs of approximately
$25,000 for the same period in 1999.
During the three month period ended September 30, 2000 and 1999, no
provision was booked. The net recoveries on previously granted loans was
approximately $8,000 for the three months ended September 30, 2000, as compared
to net charge-offs of $10,000 for the same period in 1999.
OTHER INCOME
The decrease of $12,000 or 1.1%, in other income in the nine month
period ended September 30, 2000, as compared to 1999 was due primarily to
decreases in fees and service charges of $8,000 and a decrease in miscellaneous
other income of $4,000. The decrease of $16,000 or 4.2% in the three month
period ended September 30, 2000, as compared to 1999, was due primarily to
decreases in fees and service charges of $12,000 and decreases in other income
of $4,000.
OTHER EXPENSES
Other expenses, consisting primarily of (i) salaries and other
employee expenses, (ii) occupancy expense, (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 $140,000 or 2.5%, during the nine month period ended September 30,
2000, as compared to the same period in 1999. The decrease in other expenses is
related to several factors. The departure of the CEO, which increased
Supplemental Executive Retirement Plan (SERP) expense and incurred a contract
payment expense, both of which totaled approximately $448,000. This was offset
by decreases in salary and other employee expenses of approximately $471,000 due
to staff level reductions. There was an accrued legal expense settled subsequent
to December 1999 for an amount less than the amount accrued which resulted in a
decrease of approximately $102,000 in other expenses.
Page 12 of 18
<PAGE> 13
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000 AND 1999
The $470,000 or 24.8% decrease in other expenses during the
three-month period ended September 30, 2000, was affected by decreases in
salaries and employee benefits of approximately $189,000 due to staff level
reductions. There was a reduction of total other expenses of approximately
$212,000. The majority of the decrease was due to the accrued legal expense
mentioned above and a reduction in miscellaneous other expenses of $63,000 in
administrative expenses which include SERP expense, directors retirement expense
and board fees.
FINANCIAL CONDITION AND LIQUIDITY
During the nine months ended September 30, 2000, the Company's assets
decreased by approximately $4,651,000 or 4.0%, compared to December 31, 1999.
The Company continued to have adequate cash resources with approximately
$8,089,000 of cash held on deposit at other financial institutions, $198,000 of
interest-bearing deposits in other financial institutions, $5,810,000 of
investment securities (net of investments pledged as collateral), and $5,925,000
in Federal Funds Sold at September 30, 2000. The Bank's investment portfolio
contains $39,000 of unrealized losses on estimated fair values when compared to
book values at September 30, 2000. Investment securities totaling $3,000,000
matured during the nine month period ended September 30, 2000. The total loans
placed on non-accrual status (not generating income currently) amounted to
approximately $74,000 at September 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 $9,071,000 at September 30, 2000, primarily as a result of
net income generated for the nine months then ended and a decrease in the
valuation allowance for investment securities.
The Company's and the Bank's primary regulators, the Federal Reserve
Board, and the Office of the Comptroller of the Currency, respectively, adopted
risk-based capital guidelines which require bank holding companies and banks to
maintain minimum total capital of 8% (of which 4% must consist of Tier 1
capital) of risk-weighted assets, respectively. Further, the Federal Reserve
Board and Comptroller generally require bank and bank holding companies to have
a minimum leverage ratio of at least 4% to be considered "adequately
capitalized" for federal regulatory purposes. As of September 30, 2000, the
Company had a ratio of capital to risk-weighted assets of 10.99%, a ratio of
Tier 1 capital to risk-weighted assets of 10.13%, and a leverage capital ratio
of 8.04%. The Company's management believes that, under current regulations, the
Bank will continue to meet these minimum capital requirements in the foreseeable
future.
Page 13 of 18
<PAGE> 14
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000 AND 1999
NON-PERFORMING LOANS
The following table sets forth information regarding the Bank's
non-performing loans at September 30, 2000, and December 31, 1999.
<TABLE>
<CAPTION>
(dollars in thousands) September 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 $ 17 $ 14
--------- ---------
Total Loans Past Due More Than 90 Days 17 14
--------- ---------
Renegotiated loans (2)
Non-accrual loans (3)
Aggregate loan amounts
Commercial, financial and agricultural 74 269
Real estate 226
--------- ---------
Total Non-Accrual Loans $ 74 $ 495
========= =========
Total Non-Performing Loans $ 91 $ 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 two loans on non-accrual status totaling approximately $74,000 at
September 30, 2000, and three loans totaling approximately $495,000 at December
31, 1999.
Page 14 of 18
<PAGE> 15
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000 AND 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 expose the Bank to a significant
degree or risk to warrant classification in a substandard, doubtful or loss but
do possess credit deficiencies or potential weaknesses deserving management's
close attention.
As of September 30, 2000, the Bank's classified loans consisted of
approximately $2,923,000 of loans classified as substandard and doubtful. The
Bank's $2,923,000 of loans classified as substandard and doubtful consisted of
approximately $2,832,000 of performing loans and approximately $91,000 of
non-accrual loans and loans delinquent 90 days or more but still accruing.
RESERVE FOR PROBABLE LOAN AND LEASE LOSSES
The reserve for probable loan and lease losses is a general reserve
established by Management to absorb potential losses inherent in the entire
portfolio. The level of and ratio of additions to the reserve are based on a
continuous analysis of the loan and lease portfolio and, at September 30, 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 September 30,2000,
was $767,000 or .94% 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 losses, which is an operating expense of the
Company.
Page 15 of 18
<PAGE> 16
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000 AND 1999
The following table provides certain information with respect to the
Company's allowance for loan losses as well as charge-off and recovery activity.
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in Thousands) 2000 1999
---- -------
<S> <C> <C>
Allowance for Loan Losses $764 $ 686
---- -------
Balance, Beginning of period
Charge-Offs
Commercial, financial and agricultural 235 94
Real estate mortgage
Consumer loans 38 103
---- -------
Total Charge-Offs 273 197
---- -------
Recoveries
Commercial, financial and agricultural 6 27
Real estate mortgage
Consumer loans 14 82
---- -------
Total Recoveries 20 109
---- -------
Net Charge-Offs 253 88
Provision Charged to Operations 256 166
---- -------
Balance, End of period $767 $ 764
==== =======
Net Charge-Offs During the Period to Average
Loans Outstanding During the Period Ended 0.33% 0.10%
==== =======
Allowance for Loan Losses to Total Loans 0.94% 0.89%
==== =======
</TABLE>
In accordance with SFAS No. 114 (as amended by SFAS No. 118),
"Accounting by Creditors for Impairment of a Loan," loans identified as
"impaired" are measured on the present value of expected future cash flows
discounted at the loan's effective interest rate, except that as a practical
expedient, a creditor may measure impairment based on a loan's observable market
price, or the fair value of the collateral if the loan is collateral dependent.
A loan is impaired when it is probable the creditor will not be able to collect
all contractual principal and interest payments due in accordance with the terms
of the loan agreement. Loan impairment is evaluated on a loan-by-loan basis as
part of normal loan review procedures of the Bank.
Page 16 of 18
<PAGE> 17
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000 AND 1999
PART II
OTHER INFORMATION
Effective October 1, 2000, the Bank and the Bancorp employed Mr. Norman Morales
as the new Chief Executive Officer and President. Mr. Morales served as
Executive Vice President/Chief Operating Officer and Chief Credit Officer of
Cedars Bank, Los Angeles, California from February 1999 through September 2000.
His previous executive experiences include the following: Executive Vice
President and Chief Financial Officer for Hawthorne Savings, F.S.B. in El
Segundo, California for four years, Executive Vice President and Chief Financial
Officer and Chief Administrative Officer of Southern California Bank in La
Mirada, California for seven and a half years, and Vice President of Corporate
Cash Management at Security Pacific National Bank in Los Angeles, California for
two and a half years.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: Data Schedule
b) Reports on Form 8-K: None
Page 17 of 18
<PAGE> 18
VINEYARD NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000 AND 1999
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 November 2000.
VINEYARD NATIONAL BANK
By: /s/ Sara Ahern
--------------------
Sara Ahern
Corporate Secretary
Page 18 of 18
