Regulators try to stabilize Vineyard
Seeking to shore up its finances, federal regulators have ordered Vineyard National Bank of Corona to stop accepting so-called hot-money deposits that are considered too risky for the money-losing bank.
Vineyard is among the growing group of Southland lenders battered by a wave of housing defaults, including mortgage giants Countrywide Financial Corp., which was acquired by Bank of America in January, and IndyMac Bancorp, which failed last month and was taken over by regulators.
Vineyard, with 16 branches, has been crunched by giant losses suffered by home builders and developers. In its quarterly report Wednesday, the bank said the Office of the Comptroller of the Currency had ordered it not to accept or renew any brokered deposit accounts -- one in a series of measures designed to improve the bank’s stability.
The brokered deposit accounts are known as hot-money accounts because they are arranged through financial intermediaries and chase the highest-yielding certificates of deposit. They are considered unstable because of their high cost and the fact that they can quickly be shifted to other institutions offering higher rates.
The regulators’ conditions also include a requirement to find “experienced and competent individuals” as chief executive and chief credit officer. Vineyard fired its CEO in January.
Vineyard has nearly $2 billion in deposits, with branches in Orange, Los Angeles, Marin, Riverside, San Bernardino and San Diego counties.
Despite troubles with loans to builders in the Inland Empire and developers in downtown Los Angeles, executives say the bank’s main business -- financing luxury beach homes in Southern California -- has so far held up well.
Its parent company, Vineyard National Bancorp, said Wednesday that it lost $62.5 million in the second quarter. That amount, far greater than analysts had foreseen just a week ago, follows losses totaling $70 million in the two previous quarters.
The parent company and the bank have been placed on a list of problem institutions by their respective regulators, the Federal Reserve and the Office of the Comptroller, which is part of the Treasury Department.
Interim CEO James G. LeSieur said the company already was complying with the regulators’ demands by cutting back lending, especially for housing tracts, and trying to reduce its dependence on high-cost deposits by establishing traditional relationships with depositors. He emphasized that the bank continued to “work diligently” to maintain its lower-cost deposits.
Vineyard had nearly $2 billion in loans as of June 30, of which 48% were to home builders and developers. It has taken $70 million in charges to reflect soured loans this year and has reached out to large depositors and retired people to discuss their accounts and deposit insurance, executives said.
Vineyard had $289 million in brokered deposits on June 30 -- funds that will now run off its books over the next six months to a year unless the Federal Deposit Insurance Corp. grants the bank’s appeal to keep them.
By emphasizing customer service and setting CD rates competitively, “our new deposit generation has been very good” and should help offset losses in brokered deposits, the bank’s chief risk officer, Louie Couro, said in an interview.
The issue of available funds arose recently at IndyMac Bancorp, where heavy withdrawals by depositors caused federal regulators to seize the Pasadena savings and loan, which had racked up huge losses on mortgage loans.
The $62.5-million loss at Vineyard amounted to $6.46 a share, compared with a profit of $6 million, or 53 cents a share, a year earlier. Its stock, which lost 2 cents Wednesday to $2.68, is down 86% over the last year.
Vineyard had disclosed the larger-than-expected deficit on Monday in a report to regulators, causing RBC Capital Markets analyst Joe Morford to downgrade the stock to “sector underperform,” the lowest rating for the stocks he covers. Sandler O’Neill analyst Aaron Deer had downgraded the bank to “sell” in May.
“[W]e believed Vineyard would ultimately be able to manage through this downturn after hitting the trough,” Morford wrote in a note to clients. “We now have our doubts, however, based on the significant credit deterioration . . . and the fact that the company has still not raised additional capital.”
All Vineyard accounts are insured for up to $100,000 ($250,000 for retirement accounts) by the Federal Deposit Insurance Corp. In its filing with regulators Monday, Vineyard estimated that about $660 million of its nearly $2 billion in deposits are above those standard insured limits.
The actual amount of uninsured funds “is far less,” Couro said, because many large deposits are joint accounts or trust accounts for which the FDIC provides insurance on larger sums.
Donald H. Pelgrim, Vineyard executive vice president and chief administrative officer, said customers with uninsured deposits or questions about whether their deposits are insured “should talk with their Vineyard representative or visit one of our branches.” Many already have done so in the wake of the news about IndyMac’s collapse.
“Our representatives are working with customers to determine whether they’ve maximized their FDIC insurance coverage,” Pelgrim said. “If they still have uninsured funds, the Vineyard representatives can address their questions . . . so that customers can make informed decisions.”
The company had its annual shareholder meeting Tuesday, after a proxy battle in which one slate was backed by former CEO Norman Morales, who was fired in January. Morales said he had a plan to raise capital “significantly above the levels necessary to operate safely,” but the bank said it had hired investment bankers to raise funds.
The results of the proxy clash were not announced Wednesday.
Morales had been trying to get reappointed to the board and the CEO post but disclosed Monday that the Federal Reserve had quashed that notion.
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