Vineyard National Bancorp reports $62 million loss
Vineyard National Bancorp reported a loss of $62.5 million on Wednesday for the second quarter -- more than four times the company's losses in the first quarter of this year.
Vineyard -- the financial parent of Vineyard Bank -- is shoring up capital to stay afloat amid its mounting losses stemming from the Inland Empire's imploding real-estate market.
The Corona-based company borrowed $126 million from the Federal Home Loan Bank on July 24, according to Wednesday's statement.
Vineyard also recently entered into an agreement with the Federal Reserve Bank of San Francisco to borrow money through the reserve's discount window, a federal finance program that several banks are taking advantage of these days as liquidity becomes a major concern.
Now Vineyard has about $300 million in liquid assets to work with as it continues "pursuing strategic alternatives for raising capital," the statement says.
--matthew.wrye@inlandnewspapers.com
Look below to read Vineyard National Bancorp's news release:
SOURCE: Vineyard National Bancorp
Aug 06, 2008 09:30 ET
Vineyard National Bancorp Reports Results of Operations for the Second Quarter 2008
CORONA, CA--(Marketwire - August 6, 2008) - Vineyard National Bancorp (the "company") (
James LeSieur, interim chief executive officer, stated, "Despite the current economic environment and additional challenges arising in the second quarter, Vineyard continues to make significant strides toward the resolution of our asset quality issues and the implementation of other risk mitigation measures. Payoffs of our luxury home construction loans, loan sales and the sale of other real estate owned properties have made positive contributions. We continue to work diligently to maintain core deposit relationships and have been successful in attracting new deposits. Management remains committed to executing the strategies necessary to reduce risk, fulfill the requirements established with our regulators, and meet our internal objectives. Therefore, although there are still significant challenges, Vineyard is starting to see positive results from the strategies that have been put in place."
Liquidity
Effective April 21, 2008, the Federal Home Loan Bank ("FHLB") reduced Vineyard's borrowing capacity from 40% to 30% of Vineyard's total assets. However, the reduction had limited impact as Vineyard's borrowing availability was already limited to the amount of eligible collateral that can be pledged to secure that borrowing facility. At June 30, 2008, based on its eligible pledged loan and investment collateral, that availability was $289.4 million of which $155.0 million was outstanding. Therefore, Vineyard had a remaining borrowing availability of $134.4 million.
On July 24, 2008, Vineyard borrowed $126.0 million from the FHLB, consisting of four $31.5 million advances with terms ranging from 9 months to 1 year. As a result of these term borrowings, Vineyard had a remaining borrowing availability of $2.2 million available against its loan and investment collateral pledged at the FHLB. The proceeds from the FHLB advances were invested in federal funds sold for liquidity needs. At July 24, 2008 Vineyard had an aggregate of $178.0 million invested in federal funds sold.
On August 1, 2008, Vineyard entered into an intercreditor agreement with the FHLB and Federal Reserve Bank of San Francisco ("FRB") establishing a borrowing facility under the FRB Discount Window program whereby certain eligible loans pledged to the FRB, and approved by the FHLB, may be used to support any advances from the FRB Discount Window.
Vineyard currently has no unsecured correspondent banking facilities with borrowing availability.
As a result of the issuance of the Consent Order by the Office of the Comptroller of the Currency ("OCC") on July 22, 2008, Vineyard will no longer be able to accept, renew or rollover brokered deposits unless and until such time as we receive a waiver from the FDIC. Vineyard has requested a waiver from the FDIC, but there can be no assurance that such a waiver will be granted, or granted on the terms requested.
2008 Operating Objectives
As disclosed previously, the company has established the following five primary objectives as a basis to reduce risk, refocus on core operations and reposition the company to achieve the long-term success of the franchise:
1) Reduce the Overall Risk Profile of the company. This objective includes the significant reduction of SFR tract construction lending and related land development projects, enhanced borrower sponsorship requirements, increased and expanded core deposit growth, business and commercial real estate lending in supportive sub-markets, and enhanced balance sheet management; 2) Loan Portfolio Management. In order to produce a base of stabilized long-term earnings, the company will seek to proactively rebalance the existing loan portfolio and diversify new business generation to reduce its risk profile, meet its targeted concentration ranges within sub-markets and sub-portfolios, and maintain an overall portfolio yield consistent with quality and sustainable returns; 3) Liquidity Enhancement and Funding Cost Reduction. The company will seek to reduce its funding costs by an intensified focus on lower cost core deposits, cash management driven business relationships, the effective repricing of its time deposit portfolio in a decreasing interest rate environment, and reduction of its reliance on higher costing liabilities; 4) Corporate Reallocation and Reorganization. To improve its operating efficiencies, the company will continually review its resource allocation to ensure the optimum allocation of talent among functions. The company seeks to continue to deploy and redeploy resources, both personnel and other operating costs, toward achievement of our objectives; and 5) Protection and Preservation of Capital. The company will focus on protecting and preserving capital. Income from Vineyard, in the long term, is expected to be a contributor to increasing capital and accretive to the company's risk based capital ratios. In light of current economic conditions and to address the deterioration in the loan portfolio, the company has significantly curtailed new loan generation, which combined with loan sales and repayments may make additional capital available. In addition, in order to address the financial impact of the abrupt and severe decline in real estate values and the potential continuing deterioration in the loan portfolio, the company will also pursue strategic alternatives, which may include a significant capital raise, to strengthen its capital.
Balance Sheet
As part of the operating objectives described above, the company implemented actions to manage its loan production levels resulting in a net contraction of its balance sheet during the first half of 2008. The company compressed its balance sheet by $118.8 million during the six months ended June 30, 2008, or 5%, from $2.5 billion at December 31, 2007 to $2.4 billion at June 30, 2008. During the six months ended June 30, 2008, Vineyard decreased its loan balance, including loans held-for-sale, by $169.8 million. This loan balance decrease was comprised primarily of $413.3 million in loan payoffs and paydowns, $64.1 million of net charge-offs and $31.0 million of net loan sales, offset by $338.2 million in disbursements on new and existing loan commitments.
Following its exit from the tract lending business, the company continues to work to reduce its existing portfolio exposure in the tract construction market. At June 30, 2008, Vineyard's outstanding tract construction loans, including those SFR tract loans held for sale, totaled $105.3 million, a decrease of $24.7 million, or 19.0% since March 31, 2008. This second quarter 2008 decrease was primarily related to the charge-off of $21.5 million of tract construction loans, and $12.1 million of principal paydowns and payoffs, net of $7.9 million of disbursements on existing loans. Unfunded commitments for the tract construction portfolio totaled $15.3 million at June 30, 2008, a decrease of $17.1 million, or 52.7%, from March 31, 2008.
The company had a net increase of $146.4 million in deposits during the second quarter of 2008, related primarily to an increase in time deposit accounts, of which $266.3 million came from brokered CDs. There was also a $5.0 million increase in exchange balances, which are 1031 exchange balances associated with 1031 Exchange Advantage, Inc. and 1031 Funding & Reverse Corp. (collectively, the "exchange companies"). As a result of the increase in funding deposits and loan paydowns, the company decreased its FHLB borrowings from $227.0 million at March 31, 2008 to $155.0 million at June 30, 2008.
Asset Quality
Non-accrual loans
During the second quarter of 2008, non-accrual loans increased to $192.6 million at June 30, 2008 from its $105.2 million level at March 31, 2008. The increase is principally associated with loans originated between 2005 and 2007. Of the balance of non-accrual loans at June 30, 2008, $12.3 million relates to commercial real estate construction loans, $39.7 million relates to land loans, $56.1 million relates to luxury construction loans and $73.5 relates to SFR tract construction loans. The company had a loss of $3.4 million of interest income associated with new non-accrual loans in the second quarter of 2008. Loans are placed on non-accrual status if there is reasonable doubt as to the collectability of principal and interest in accordance with the original credit terms.
(Dollars in Thousands) June 30, 2008 March 31, 2008
------------------------- -------------------------
Non-accrual Specific Non-accrual Specific
Loan Type Balance Reserve Balance Reserve
------------ ------------ ------------ ------------
Construction and Land:
Single-family tract $ 73,485 $ 2,050 $ 87,042 $ 2,227
Single-family luxury 56,140 3,456 4,523 46
CRE Construction 12,321 - - -
Land 39,660 9,698 6,205 -
Commercial and
residential real
estate 4,642 908 4,965 1,133
SBA 1,569 - 1,533 -
Other 4,832 2,000 903 -
------------ ------------ ------------ ------------
Total $ 192,649 $ 18,113 $ 105,171 $ 3,406
============ ============ ============ ============
Charged-off loans
During the quarter ended June 30, 2008, the company recorded $36.5 million in net charge-offs, which equates to 1.79% of average gross loans for the quarter. Of the charge-offs, $21.5 million relate to tract construction loans and $13.1 million relate to land loans.
Other Real Estate Owned
During the second quarter of 2008, other real estate owned ("OREO"), which consists of properties obtained through foreclosure, decreased from $12.6 million to $6.2 million.
The decrease is due primarily to the tract land project, which encompassed one hundred finished residential lots in a 1,788 unit planned development project within the Temecula Valley region of southern California, sold during the second quarter of 2008 at its then book value of $6.1 million resulting in no further loss.
The balance of OREO at June 30, 2008 includes $1.1 million in a SFR tract construction loan and $0.4 million in a SBA loan, which was transferred to OREO at the end of second quarter of 2008, and $4.6 million in a SFR tract construction loan which was transferred to OREO in the fourth quarter of 2007. That OREO was written down further by $0.6 million during the second quarter of 2008.
The company is actively pursuing disposition of the foreclosed assets.
Deferred Tax Asset
Deferred tax assets and liabilities are recognized for future tax consequences of the difference between the carrying amount of assets and liabilities and their respective tax bases, as well as operating loss and tax credit carry forwards. A valuation allowance is established against deferred tax assets when, in the judgment of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
During the second quarter of 2008, the company provided a full valuation allowance against its deferred tax asset, due to uncertainty related to its eventual realizability. The ultimate realizability of the deferred tax asset is dependent upon the Company's ability to derive benefits for the tax deductions inherent in the deferred tax asset by getting refunds for taxes paid in the past or by reducing future tax obligations. Accordingly, management's judgments regarding the nature of future reversals of existing temporary differences, future taxable income and available tax planning strategies impact the degree to which a valuation allowance is determined to be necessary. These judgments are based in part on factors that may or may not be entirely within the control of management, such as judgments regarding future economic conditions and changes within the business environment in which we operate. Depending on how these factors change in the future, management's judgment regarding the need for a valuation allowance against its deferred tax asset could change.
Current Tax Receivable
As of June 30, 2008, we had a current net income tax receivable of $23.8 million primarily reflecting the impact of utilizing net operating losses generated during the current year to reduce our tax liabilities in prior tax years. Any remaining net operating losses generated in the current year, which would expire in 2028, remain available to offset future taxable income. The utilization of these net operating loss carryforwards to offset future taxable income could have a positive impact on our future net income by reducing the amount of income taxes recognized in our consolidated statements of operations.
Extension of Maturity Date and Subsequent Default on Line of Credit
As previously disclosed, the company and First Tennessee Bank, National Association ("First Tennessee") entered into the Fourth Modification and Covenant Waiver Agreement (the "Agreement") on July 1, 2008 which, among other things, extended the maturity date of the company's line of credit from First Tennessee from June 30, 2008 to August 29, 2008 at an annual interest rate of LIBOR plus 3.50%, and granted and/or extended the waiver by First Tennessee of certain financial and other covenant failures of the company through August 29, 2008. The outstanding balance of the line of credit, which is secured by 100% of Vineyard's common stock, was $48.3 million at June 30, 2008. The company paid First Tennessee a lender fee equal to 0.25% of the outstanding balance of the line of credit, or $0.1 million, in connection with the Agreement.
Also as previously disclosed, the company notified First Tennessee on July 24, 2008 of, and requested a waiver with respect to, an event of default under the line of credit which occurred by virtue of the Consent Order that was issued by the OCC on July 22, 2008. As a result, unless First Tennessee subsequently waives this event of default, First Tennessee will be entitled to accelerate the maturity date of the line of credit and otherwise exercise its rights as a secured party against the collateral to collect, enforce or satisfy the obligations under the line of credit.
Results of Operations
For the quarter ended June 30, 2008, gross loan interest income was $34.9 million, a decrease of $9.6 million, or 22% as compared to the same period in 2007. The effective yield of the loan portfolio in the second quarter of 2008 was 6.9%, as compared to 8.8% for the same period in 2007. The increase in non-accrual loans negatively impacted our gross interest income and loan yield due to $3.4 million of interest income lost associated with new non-accrual loans in the second quarter. Had all existing non-accrual loans performed during the second quarter of 2008, interest income would have been greater by $9.8 million.
Total net revenues (net interest income plus other operating income) for the quarter ended June 30, 2008 were $17.8 million, a decrease of $7.0 million, or 28%, as compared to the same period in 2007.
These results of operations produced a net interest margin of 3.14% for the second quarter of 2008, as compared to 4.13% for the same period in 2007 and 3.47% for the first quarter of 2008.
Total operating expenses for the quarter-ended June 30, 2008 were $19.5 million, as compared to $14.2 million for the same period in 2007. The increase from 2007 is primarily attributable to additional professional services fees of approximately $3.5 million which include audit and legal expenses and approximately $2.0 million in the write down of assets including Goodwill.
Capital Resources
At June 30, 2008, stockholders' equity of the company totaled $29.5 million, a decrease of $83.5 million, or 74% as compared to December 31, 2007. In addition, the company's Tier 1 Risk-Based and Leverage capital ratios of 1.52% and 1.43%, respectively, were below the minimum regulatory ratio requirement of 4.0%. Management is currently addressing capital concerns at the company and is actively pursuing strategic alternatives for raising capital. The company also expects to enter into an agreement with the FRB to address the capital needs of the company as well as other risk management and operational matters.
Despite the impact of the additional provision and charge-offs, Vineyard has $186.4 million in common equity and was mathematically considered to be "well capitalized" at June 30, 2008. At June 30, 2008, Vineyard's Tier 1 Risk-Based and Leverage capital ratios were 8.76% and 8.28%, respectively, as compared to the "well capitalized" minimum ratios of 6.0% and 5.0%, respectively. It is intended that the continued effort to strategically contract assets will assist in bolstering Vineyard's capital.
By virtue of the Consent Order that was issued by the OCC on July 22, 2008, Vineyard is now classified as "adequately capitalized" notwithstanding the fact that its actual capital ratios at June 30, 2008 met the criteria for being considered "well capitalized."
Payment of Dividends
The company's ability to pay cash dividends is limited by California law. With certain exceptions, a California corporation may not pay a dividend to its shareholders unless (i) its retained earnings equal at least the amount of the proposed dividend, or (ii) after giving effect to the dividend, the corporation's assets would equal at least 1.25 times its liabilities and, for corporations with classified balance sheets, the current assets of the corporation would be at least equal to its current liabilities or, if the average of the earnings of the corporation before taxes on income and before interest expense for the two preceding fiscal years was less than the average of the interest expense of the corporation for those fiscal years, at least equal to 1.25 times its current liabilities.
At June 30, 2008, the company had an accumulated deficit of $81.2 million and did not otherwise satisfy the minimum asset to liability ratios for paying dividends under California law. As a result, the company is legally prohibited from paying dividends on both its common stock and preferred stock. The company expects that it will be legally prohibited from paying dividends on both its common stock and preferred stock for the foreseeable future.
In addition, the company's primary regulator, the FRB, on May 16, 2008, advised the company that in light of the company's obligation to serve as a source of financial and managerial strength to Vineyard, the company may not make payments to third parties, without prior approval from the FRB, including, without limitation, dividend payments to the holders of its common stock and preferred stock.
About Vineyard National Bancorp
The company is a $2.4 billion bank holding company headquartered in Corona and the parent company of Vineyard and the exchange companies. Vineyard, also headquartered in Corona, operates through sixteen full-service banking centers and four regional financial centers in the counties of Los Angeles, Marin, Monterey, Orange, Riverside, San Bernardino, San Diego, Santa Clara and Ventura, Calif. The exchange companies are headquartered in Encinitas, Calif. The company's common stock is traded on the NASDAQ Global Market System under the symbol "VNBC." For additional information on the company visit www.vnbcstock.com or for additional information on Vineyard and to access internet banking, please visit www.vineyardbank.com. For additional information on the exchange companies, please visit www.1031exchangeadvantage.com.
This press release contains forward-looking statements as referenced in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently unreliable and actual results may vary. Factors which could cause actual results to differ from these forward-looking statements include changes in the competitive marketplace, changes in the interest rate environment, economic conditions, outcome of pending litigation, risks associated with credit quality and other factors discussed in the company's filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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