Calif. Bank Needs Capital (Update)

Vineyard Bank, NA, reported nonperforming assets comprising a very high 9.37% of total assets as of June 30. The annualized ratio of net charge-offs to average loans for the first half of 2008 was 6.23%. Loan-loss reserves covered 2.67% of total loans as of June 30. While this would normally be considered a high level of coverage, it's not enough to handle continued charge-offs at the same pace.

Liquidity

The holding company reported significant outflows of deposits during the second quarter, citing negative publicity and the failure of IndyMac Bank. According to the 10-Q, "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."

Vineyard National Bancorp went on to point out that the OCC's consent order barred it from accepting additional deposits or renewing deposits from brokers, without a waiver of this restriction by the FDIC. The waiver had already been requested, but there was no assurance it would be granted.

It is unfortunate that the consent order serves to limit the bank's liquidity while simultaneously addressing the bank's need to maintain sufficient liquidity.

The holding company also stated that the bank had drawn on most of its available credit line with the Federal Home Loan Bank of San Francisco. With additional borrowings of $126 million on July 24, the bank's remaining borrowing FHLB potential was $2.2 million. With the July 24 borrowings invested in federal funds sold, liquidity was boosted. Total federal funds sold were $178 million as of July 24.