Monday, August 11, 2008

Vineyard National: "Going Concern" Statement, Regulators Impose Limitations

by Bill McBride on 8/11/2008 08:51:00 PM

"significant doubt on our ability to continue as a going concern"
Vineyard National, Aug 11, 2008

Last week, the LA Times reported that regulators ordered Vineyard to stop accepting brokered deposits. Now from the Vineyard 10-Q filed today with the SEC:

On May 5, 2008, the Bank was informed in writing by the Office of the Comptroller of the Currency (the “OCC”) that the Bank has been designated to be in “troubled condition” for purposes of Section 914 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. ...

On July 22, 2008, in cooperation with and at the request of the OCC, the Bank consented to the issuance of a Consent Order. The Consent Order established timeframes for the completion of remedial measures which have been previously identified and are in process towards completion as part of the Board of Directors’ internally developed and independently implemented Risk Mitigation Action Plan. Under the Consent Order, the Bank agreed, among other things, to establish a compliance committee to monitor and coordinate compliance with the Consent Order; identify experienced and competent individuals to serve on a permanent, full-time basis as chief executive officer and chief credit officer; maintain capital ratios above the statutory minimums and develop a three-year capital plan; suspend the payment of dividends without regulatory approval; limit annual loan growth; establish a program for the maintenance of adequate allowances for loan losses; adopt a written asset diversification program; review, revise and adhere to the Bank’s loan policy; ensure the use and reporting of appropriate risk rating of assets; establish an effective, independent and ongoing loan review system; take appropriate action to protect the Bank’s interest in its problem assets; ensure the maintenance of sufficient liquidity to sustain current operations and withstand anticipated or extraordinary demand; and improve the management of the Bank’s information technology activities and to address various deficiencies cited by the OCC.
Insurance premiums will increase:
As a result of the issuance of the Consent Order, among other things, the Bank is no longer deemed to be “well-capitalized” and will be prohibited from renewing existing brokered deposits or accepting new brokered deposits without a waiver from the FDIC. Additionally, as a result of not being deemed “well capitalized,” the Bank’s borrowing costs and terms from the FRB, the Federal Home Loan Bank (“FHLB”) and other financial institutions, as well as the Bank’s premiums to the Deposit Insurance Fund and the Bank’s assessments and application fees paid to the OCC, are expected to increase.
Liquidity issues:
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 2008, 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. During the second quarter of 2008, we obtained $266.3 million in brokered deposits to offset the $226.9 million in run-off of savings, NOW, and money market deposit accounts. As a result of the issuance of the Consent Order by the OCC on July 22, 2008, however, we can no longer accept, renew or rollover brokered deposits unless and until such time as we receive a waiver from the FDIC. The Bank has requested a waiver from the FDIC, but there can be no assurance that such a waiver will be granted, granted on the terms requested, or granted in time for the Bank to effectively utilize brokered deposits as a source of required liquidity. If the Bank does not receive such a waiver, we will be unable to employ the use of readily available brokered deposits as a source of liquidity.
Going concern issues:
The conditions and events discussed above cast significant doubt on our ability to continue as a going concern. We have determined that significant additional sources of liquidity and capital will be required for us to continue operations through 2008 and beyond. We have engaged a financial advisor to explore strategic alternatives, including potential significant capital raises, to address our current and expected liquidity and capital deficiencies. However, there can be no assurance that we will be able to arrange for sufficient liquidity or to raise additional capital in time to satisfy regulatory requirements and meet our obligations as they come due. In addition, our regulators are continually monitoring our liquidity and capital adequacy. Based on their assessment of our ability to continue to operate in a safe and sound manner, our regulators may take other and further action, including assumption of control of the Bank, to protect the interests of depositors insured by the FDIC.
emphasis added