Vineyard National Bancorp's disclosure late Monday that it could not guarantee its own survival may not affect its efforts to raise capital, mainly because potential investors have been well aware of its problems, company officials and analysts said.
But many existing shareholders are not sticking around to find out if Vineyard, of Corona, Calif., can raise the capital it said it needs to "continue operations through 2008 and 2009." The shares, which have been in free fall for months as losses on loans to residential developers have mounted, plunged another 44% Tuesday, to close at $1.08.
Vineyard's difficulties surfaced in January, when it announced it lost $41.3 million in the fourth quarter, and have escalated since. Its regulators have designated the $2.4 billion-asset company "troubled" and ordered it to hire a "competent" chief executive and chief credit officer, and it went through a lengthy proxy battle that was just settled this week when a group of dissidents won five of the seven board seats.
Vineyard's biggest problem, however, has been raising capital as its share price has plummeted and loan losses have piled up.
In its quarterly report filed with the Securities and Exchange Commission Monday, Vineyard said that its struggles to raise capital have "cast significant doubt on our ability to continue as a going concern."
It also said that "negative publicity relating to our financial results and the financial results of other financial institutions, together with the seizure of IndyMac Bank by federal regulators in July, has caused a significant amount of customer deposit withdrawals, thus affecting our liquidity and our ability to meet our obligations as they have come due."
But in an interview Tuesday, Glen Terry, the board's newly elected vice chairman, said that the disclosures in its 10-Q were obligatory; that since the second quarter ended, deposits are up slightly, particularly nonbrokered deposits under $100,000 that are insured by the Federal Deposit Insurance Corp.; and that plans are still on track for the company to announce an offering for a "substantial" amount of capital through two investment banks, possibly by the end of next week.
"We're in a challenging situation, but it's not a crisis," Mr. Terry said. "And although it will also be challenging to raise capital, we and our investment bankers believe we are structuring a capital plan that will be appealing to investors."
Vineyard has hired with Friedman, Billings, Ramsey & Co. Inc. and Howe Barnes Hoefer & Arnett Inc. to help it raise capital, he said.
Bert Ely, an independent banking consultant based in Alexandria, Va., agreed with Mr. Terry that the obligatory disclosure should have no effect on the company's attempts to raise capital.
"If it is able to raise capital, it's going to be on terms that are very favorable to the incoming investors, and it's quite possible that Vineyard's stock price is already reflecting an anticipation of a substantial dilution for existing shareholders," Mr. Ely said. "Existing shareholders know they are going to get clobbered, but quite frankly, it's better than owning stock in a bank that fails."
At June 30, Vineyard Bank's Tier 1 capital ratio was 8.76% and its leverage capital ratio was 8.28%. But the holding company's Tier 1 capital ratio was 1.52%, and its leverage capital ratio was 1.43%, both well below regulatory minimums.
But the company said in its earnings report that on balance, Vineyard Bank is considered "adequately capitalized," according to the terms of the consent order the Office of the Comptroller of the Currency put on the bank July 28.
During the second quarter Vineyard obtained $266.3 million in brokered deposits to offset the $226.9 million in deposit runoffs, but then had to stop accepting brokered deposits under the July 22 OCC consent order.
According to Vineyard's June 30 call report, filed with the FDIC on July 31, total deposits were $1.98 billion, including $653.6 million in accounts under $100,000. In Tuesday's interview, Mr. Terry said that deposits are actually slightly up since June 30, particularly in accounts with less than $100,000. "I think we're seeing some benefit from" news reports about the safety of FDIC-insured deposits "after the well-publicized IndyMac" failure, he said.
When the FDIC took over IndyMac on July 11, long lines of anxious depositors formed outside its California branches, prompting scores of banks and trade groups to issue press releases and editorials in media outlets about the safety of deposits under $100,000.
In a research note Tuesday, Aaron J. Deer, an analyst in San Francisco for Sandler O'Neill & Partners LP, lowered his earnings-per-share loss estimate for 2008 by 57 cents, to $8.82, "simply to reflect the higher loss" for the second quarter reported in the filing. Vineyard revised its loss downward, to $7.03 a share, from the $6.46 it initially reported, because of a $5.5 million charge for the lower valuations of securities in its available-for-sale investment portfolio.
