I have noticed that a decent amount of traffic to this site comes from people googling “vineyard bank”.  I posted a few months ago on Vineyard’s health and the post has become the number three search result on Google.

As an update to the original post, I have compiled some numbers below.  Vineyard continues to be in poor financial condition and in fact their regulatory filings seem to show that the bank is basically waiting for the inevitable closure.

My interest in Vineyard stems primarily from my involvement in the Southern California development industry.  Vineyard was heavy into construction lending and their portfolio of construction loans was among the first to be floated last year.  Most of that portfolio never sold, likely due to the rapidly falling values.  So the fate of Vineyard is interesting to me because IndyMac was closed almost a full year ago, while Vineyard’s doors are still open.

Here is an update to the original post.

Vineyard’s Q1-2009 vital signs from the FDIC website.  The numbers are in millions.

See here for explanation of the Texas Ratio.  http://en.wikipedia.org/wiki/Texas_ratio

The following table shows Vineyard’s vital signs over the past four quarters reported.

The drop in Tier 1 capital and steep rise in non-performing loans results in a Texas Ratio that looks like this over the past four quarters.

Vineyard was not able to timely file its Q1 form 10-Q to the SEC.  Below is an excerpt related to their inability to file.  I have added some bold to make it easier to skim.  For full document, click here.

Update on Stock Purchase Agreement, Regulatory Issues and Related Matters

As previously disclosed, we entered into a stock purchase agreement (the “Purchase Agreement”) with Vineyard Bancshares, Inc., a newly formed Minnesota corporation (the “Buyer”), pursuant to which the Company agreed to sell to the Buyer all of the outstanding shares of stock of the Bank.  The Buyer is a newly-formed corporation organized and controlled by the Company’s chairman of the board, Douglas M. Kratz, who serves as president and chief executive officer of the Buyer.

A special committee of the Board composed of disinterested directors was formed to review strategic alternatives and for the purpose of considering and negotiating the terms of a potential transaction with the Buyer because certain directors of the Company would have a material financial interest in the transaction.  The special committee reviewed and negotiated the proposed transaction with the Buyer and unanimously recommended to the Board the approval of the Purchase Agreement.  The Board, excluding interested directors, approved the transaction based on the unanimous recommendation of the special committee.

The Purchase Agreement provides for the ability of the Company to seek competing bids from third parties for the sale of the Bank, a “go shop clause”.  The Company is able to accept a superior proposal from another bidder, subject to paying the Buyer a break-up fee of $600,000 plus the reimbursement of its expenses.

On March 10, 2009 and March 31, 2009 the Company entered into amendments (the "Amendments") to the Purchase Agreement (as amended, the “Amended Purchase Agreement”).  The Amendments extended the date by which both parties can terminate the Purchase Agreement for the failure to satisfy the financing condition to May 22, 2009.  The first of the Amendments also reduced the minimum amount of stockholders’ equity and loan loss reserve required at the Bank as a condition to the Buyer’s obligation to consummate the transaction.

The closing of the proposed transaction is subject to the contingency that the Buyer receive a sufficient amount of financing (the “Financing”).  As of the date of this filing, we have been advised that the Buyer has been unsuccessful in obtaining the necessary subscriptions to satisfy the Financing condition.

Due to the current economic environment for financial institutions, we do not believe that the Buyer will be able raise sufficient private capital necessary to satisfy the Financing condition.  Under the “go-shop” provision of the Amended Purchase Agreement, the Company continues to solicit and will entertain competing offers for the sale of the Bank.  However, at this time, no other viable transactions have materialized.  Unless the economic environment for financial institutions improves or there are major changes in the bank regulatory system that make it more favorable to acquire troubled financial institutions, such as VNBC or the Bank, we believe that it is unlikely that another strategic alternative will materialize or that the Buyer will be able raise the necessary capital to consummate the Financing and satisfy the condition to closing.  Even if a transaction is consummated, there will not be sufficient assets available to the unsecured creditors including holders of trust preferred securities and subordinated debentures, or the common and preferred shareholders of VNBC.

As noted above, we believe that it is unlikely that alternative financing is available in the current environment.  As a result, we are not able to comply with the capital requirements contained in the Consent Order with the Office of the Comptroller of the Currency (the “OCC”) or the Written Agreement with the Federal Reserve.  On May 1, 2009, we have received a further notice from the OCC that the Bank is “significantly undercapitalized” under the regulatory framework for prompt corrective action.  This designation submits the Bank to increased regulatory oversight and requirements, and is likely to lead to the Bank being placed into receivership with the FDIC unless we are able to secure financing for the Bank.

In addition, in connection with extending the May 22, 2009 deadline under the Letter Agreement and the Amended Purchase Agreement, we extended the maturity date of the senior line of credit to May 22, 2009 and the Senior Lender waived certain events of default.   If the proposed transaction does not close before May 22, 2009, the Senior Lender could take action to foreclose on the Bank’s stock.

If the Bank is placed into FDIC receivership or the Senior Lender takes action to foreclose on the Bank’s stock, the Company will be required to cease operations and liquidate or seek bankruptcy protection.  If the Company were to liquidate or seek bankruptcy protection, we do not believe that there would be any assets available to the unsecured creditors, including holders of trust preferred securities and subordinated debentures, or the common and preferred shareholders of VNBC.  Further, the proposed transaction under the Amended Purchase Agreement and any other strategic transaction would be subject to the review and approval of VNBC’s and the Bank’s regulators.  Therefore, given the current financial condition of VNBC, if a transaction involving the sale of the Bank is not forthcoming in the near future and approved by the regulators, the Bank is likely be placed into receivership with the FDIC or the Senior Lender could foreclose on its loan to gain control of 100% of the Bank’s stock. In such event, there would be no assets available to the shareholders of VNBC or the unsecured creditors of VNBC, including holders of trust preferred securities and subordinated debentures.

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