UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
********
Quarterly Report Under 13 or 15(d)
of Securities Exchange Act of 1934
FOR QUARTER ENDED: June 30, 1997
COMMISSION FILE NUMBER: 0-15365
ORANGE NATIONAL BANCORP
Incorporated under the laws I.R.S. Employer ID No.
of California 33-0190684
1201 East Katella Avenue
Orange, California 92867
(714) 771-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding twelve months ( or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
.
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of Orange National Bancorp as of August
12, 1997 is 1,960,921.
ORANGE NATIONAL BANCORP
CONSOLIDATED BALANCE SHEET
ASSETS 06/30/97 12/31/96
(Unaudited) (Note*)
Time Certificates of Deposit 0 0
Securities Held to Maturity 10,551,987 11,111,231
Securities Available for Sale 10,882,376 28,899,373
Fed Funds Sold 25,000,000 26,800,000
Loans 135,817,491 120,360,458
Less Allowance for Possible Credit Losses 1,479,747 1,369,288
____________ ____________
Total Interest Earning Assets $180,772,107 $185,801,774
Cash & Non-Interest Earning Assets 25,595,440 19,635,829
Bank Premises - At Cost
Building and Land 3,465,408 3,448,756
Leasehold Improvements 2,138,099 2,079,896
Furniture, Fixtures and Equipment 3,438,378 3,285,113
Less Accumulated Depreciation
and Amortization 3,829,632 3,601,171
Accrued Interest Receivable 1,049,611 1,352,331
Other Assets 5,942,063 6,842,841
____________ _____________
TOTAL ASSETS $218,571,474 $218,845,369
LIABILITIES & STOCKHOLDERS EQUITY
Deposits:
Demand, Non-Interest Bearing 78,661,426 77,828,911
Money Market & Now 88,564,939 92,176,073
Savings 11,759,102 10,935,397
Time Deposits of $100,000 or More 8,323,971 8,808,554
Other Time Deposits 9,694,325 8,614,818
____________ ____________
Total Deposits $197,003,763 $198,363,753
Other Liabilities 1,517,055 1,525,629
____________ ____________
TOTAL LIABILITIES $198,520,818 $199,889,382
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY
Common Stock - No Par Value
Authorized: 20,000,000 Shares
Issued and Outstanding: 1,960,921 Shares in 1997
1,952,671 Shares in 1996
7,751,015 7,675,505
Retained Earnings 12,421,595 11,403,180
Unrealized Gain(Loss) on Securities
Available for Sale, Net (121,954) (122,698)
___________ ___________
TOTAL STOCKHOLDERS EQUITY 20,050,656 18,955,987
TOTAL LIABILITIES & STOCKHOLDERS EQUITY $218,571,474 $218,845,369
*NOTE: THE BALANCE SHEET AT DECEMBER 31, 1996, HAS BEEN TAKEN FROM THE AUDITED
FINANCIAL STATEMENTS. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
ORANGE NATIONAL BANCORP
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
QTR ENDING QTR ENDING YTD YTD
6/30/97 6/30/96 6/30/97 6/30/96
Interest Income:
Loans $3,237,775 $2,738,465 $6,214,063 $5,524,116
Taxable Investment Securities 424,111 669,368 988,764 1,230,938
Fed Funds Sold 424,111 361,683 541,884 736,319
Total Interest Income $3,961,589 $3,769,516 $7,744,711 $7,491,373
Interest Expense:
Time Deposits of $100,000 or more 103,709 93,802 207,389 174,912
Other Deposits 713,153 778,230 1,380,074 1,529,200
Total Interest Expense 816,862 872,032 1,587,463 1,704,112
NET INTEREST INCOME $3,144,727 $2,897,484 $6,157,248 $5,787,261
Provision For Possible Credit Losses 40,000 65,000 75,000 135,000
Net Interest Income After Provision for
Possible Credit Losses $3,104,727 $2,832,484 $6,082,248 $5,652,261
Other Income:
Service Charge on Deposit Accounts 283,251 267,314 579,421 541,654
Other 878,021 459,225 1,735,084 1,050,786
Total Other Income $1,161,272 $726,539 $2,314,505 $1,592,440
Other Expense:
Salaries, Wages, Employee Benefits 1,504,406 1,466,880 3,015,893 3,003,522
Occupancy Expense of Bank Premises 282,585 291,538 566,597 558,869
Furniture & Equipment Expense 167,929 157,027 359,422 312,466
Other 1,050,115 902,844 2,052,435 2,004,615
Total Other Expense 3,005,035 2,818,289 5,994,347 5,879,472
Earnings Before Income Taxes 1,260,964 740,734 2,402,406 1,365,229
Applicable Income Taxes (Credits) 501,000 271,000 953,000 480,000
Net Earnings 759,964 469,734 1,449,406 885,229
Earnings Per Share $0.38 $0.24 $0.73 $0.46
Weighted Average Number of Shares 1,985,651 1,950,000 1,984,746 1,950,000
ORANGE NATIONAL BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
YTD YTD
6/30/97 6/30/96
CASH FLOWS FROM OPERATING ACTIVITIES 2,984,918 1,403,737
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (265,247) (106,261)
and leasehold improvements
NET (INCREASE) DECREASE IN:
Fed Funds Sold 1,900,000 (4,000,000)
Securities 18,576,985 (10,492,050)
Loans (15,421,575) 7,420,681
___________ ___________
NET CASH PROVIDED BY (USED IN)INVESTING ACTIVITIES 4,690,163 (7,177,630)
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds From Sale of Common Stock 75,510 78,511
Net Increase (decrease) in deposits (1,359,990) 4,503,416
Dividends Paid (430,990) (484,411)
___________ ___________
NET CASH PROVIDED BY (USED IN)FINANCING ACTIVITIES (1,715,470) (4,097,516)
___________ ___________
INCREASE (DECREASE) IN CASH
AND NON-INTEREST EARNING DEPOSITS 5,959,611 (1,676,377)
CASH AND NON-INTEREST EARNING DEPOSITS
Beginning 19,635,829 22,929,660
End of Period 25,595,440 21,253,283
>PAGE>
Orange National Bancorp & Subsidiary
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet of Orange National Bancorp and its wholly-owned
subsidiaries, Orange National Bank and ONB Mortgage Corporation, as of June 30,
1997, and the consolidated statements of earnings and statements of cash
flows for the three month and six month periods ended June 30, 1997 and 1996,
have been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of management, all
adjustments (which include normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows at June 30,
1997, and 1996, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Management believes that the disclosures
presented are adequate to make the information not misleading. It is
suggested that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's December, 1996, annual report to shareholders. The
results of the operations for the periods ended June 30, 1997 and 1996, are not
necessarily indicative of the operating results for the full years.
2.COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company enters into commitments to fund
loans and extend credit to its customers. These commitments are not reflected
in the accompanying condensed consolidated financial statements and
management does not expect any loss to result from such commitments. Standby
letters of credit at June 30, 1997, and December 31, 1996, amounted to
$236,843 and $1,906,580 respectively.
3.INCOME TAX MATTERS
The gross amounts of deferred tax assets and liabilities are as follows:
Deferred tax assets $1,035,000
Deferred tax liability (678,000)
Valuation allowance for deferred tax asset -0-
Net deferred tax asset 357,000
Management believes no valuation allowance is necessary. There has been no
change in the allowance during the quarter ending June 30, 1997.
4.SECURITIES
The fair value of securities classified as held to maturity as of June 30, 1997
is $10,300,578. The unrealized losses of securities available for sale net of
unrealized gains as of June 30, 1997 is $121,954.
5. ANALYSIS FOR CREDIT LOSSES
An analysis of the change in the allowance for credit losses follows:
Beginning January 1, 1997 1,369,288
Charge offs (5,410)
Recoveries 40,869
Provision for loan losses 75,000
Balance June 30, 1996 1,479,747
At June 30, 1997, the Bank has classified $1,268,337 of its loans as impaired
with a specific loan loss reserve of $326,657 and $211,799 of its loans as
impaired with no related loss reserve as determined in accordance with this
Statement. The average recorded investment in impaired loans during the
quarter ended June 30, 1997 was $1,599,400. The Bank recognizes interest
income on impaired loans using both the cost-recovery method and cash-basis
method, depending in the economic substance of each impaired loan, which applies
cash payments to principal or interest as received. The amount of interest
income recognized during the quarter ended June 30, 1997 on loans classified
as impaired was $8,021 which equals the amount of cash payments received.
ORANGE NATIONAL BANCORP & SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity
The Company maintains substantial liquid and other short-term assets to meet
increases in loan demand, deposit withdrawals and maturities. These assets
include:
6/30/97 Percent
a. Cash on Hand & Deposits with
Correspondent Banks $25,595,440 41.6%
b. Federal Funds Sold $25,000,000 40.7%
c. Marketable Securities
(Available for Sale) $10,882,376 17.7%
Total $61,477,816 100.0%
All of the Bank's installment loans require monthly payments, which provide a
steady return of cash funds. Liquidity needs can also be met through federal
funds purchased from correspondent banks and/or direct borrowing from the
Federal Reserve Bank. As of this date the Bank has never needed to use these
facilities.
The loan-to-deposit ratio at June 30, 1997, was 69.0%, compared to 60.6% at
December 31, 1996. The ratio of liquid assets (cash and due from banks, time
deposits with other banks, fed funds sold and investments with maturities of
one year or less) to non interest bearing demand deposits was 64.3% at
June 30, 1997, compared to 65.2% at December 31, 1996.
Capital Management
Capital management requires that sufficient capital be maintained for
anticipated growth and to provide depositors assurance that their funds are
on deposit with a solvent institution. The ratio of total capital
(Shareholders' equity plus reserve for loan losses) to risk adjusted assets
equaled 13.71% at June 30, 1997, as compared to 13.3% as of December 31,1996.
Primary capital to total loans was 14.8% at June 30, 1997, as compared to
15.8% as of December 31, 1996.
Management believes that the Company and its subsidiary Bank are properly and
adequately capitalized, as evidenced by these two ratios and the strong
liquidity position.
Results of Operations
2nd Quarter 1997 Vs. 2nd Quarter 1996
June 30, 1997 June 30, 1996
Total interest income for the three-month period and quarter ending June 30,
1997, increased $192,073 or 5.1%, over the like period ending June 30, 1996.
Interest and fees on loans increased $499,310 or 18.2%, due to an increase
in the loan portfolio, with a decrease in average loan interest rates. The
average loan totals for the three months ended June 30, 1997 was $130,171,224,
compared to $107,725,349 for the three month period of the prior year.
Because of the difference in loan interest rates between the two periods,
average yield decreased 22 basis points from 10.20% to 9.98% as of June 30,
1997. Investment income decreased $307,237 or 29.8% over the prior period.
This decrease was caused by a 33.1% decrease in investment accounts, with an
increase in average yields. U. S. Government Agencies and Securities
represent 55.6% of the Banks investment portfolio. Because of an increase in
longer term investments and short term interest rates between the two periods,
average yield increased 27 basis points from 5.52% to 5.79% as of June 30, 1997.
Total interest expense decreased $55,170 or 6.3% for the subject period ended
June 30, 1997, compared to the same period ended June 30, 1996, as a result of a
decrease in average interest bearing accounts of $7,925,271 or 6.1%.
The cost of funds averaged 1 basis point less during this current quarter
than the compared quarter in 1996.
Net interest income (total interest income less total interest expense)
increased $247,243 or 8.5%, during the quarter ended June 30, 1997, over the
same period in 1996.
The loan loss provision decreased $25,000 or 38.5%, from $65,000 to $40,000 as
of June 30, 1997, based on the amount to provide for estimated losses. At
June 30, 1997, the reserve level was at 1.09% of total loans and leases as
compared to 1.37% at June 30, 1996. Total charge-offs in the three month
period ended June 30, 1997 were $2,500 and recoveries were $28,123 compared
to $105,915 in charge-offs and $10,924 in recoveries in the same period in
1996. At June 30, 1997, non performing loans were $3,015,618 compared to
$2,463,576 at December 31, 1996. Real Estate loans totaling $2,548,110 represent
84.5% of non performing loans. Management believes, based upon loan quality,
that the current loan loss reserve of $1,479,747 is adequate and is in
conformance with established loan policy and guidelines.
Other income increased $434,733 or 59.8%. No gains or losses were realized on
the sale of securities. Gains of $383,052 were realized on the sale of Small
Business Administration Loans during the quarter ending June 30, 1997,
compared to $66,864 in gains in the same period in 1996. No gains were
realized on the sale of equipment during the quarter ending June 30, 1997.
No gains were realized in the quarter ending June 30, 1996.
Other expense increased $186,746 or 6.6% from $2,818,289 in the second quarter
of 1996, to $3,005,035 in the second quarter of 1997. Salary and benefit costs
increased $37,526 due to normal cost of living increases. Other expense
increased $147,271 or 16.3% as a result of increases of $70,036 in business
referral fees, relating to an increase in Small Business Administration Loans,
and increases in insurance expenses of $79,467.
Operating profits before taxes for the quarter ended June 30, 1997 increased
$520,230 or 70.2% over the like period in 1996. This increase in before tax
profits occurred partially as the result of an increase in average loans
outstanding and an increase in average investment yields.
Net after taxes income for the three month period and quarter ended June 30,
1997, was $759,964 compared to $469,734 for the three month period ending
June 30, 1996.
Current Accounting Development
Effective for financial statements issues after December 15, 1997, the Company
will be required to implement FASB Statement No. 128, Earnings per Share. The
Statement establishes standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or
potential common stock. It replaces the presentation of primary EPS with a
presentation of basic EPS and also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures. The Company has not yet determined the effect this
Statement will have on its 1998 financial statements.
The FASB has also issued Statement No. 131 Disclosures about Segments of an
Enterprise and Related Information. Statement No. 131 modifies the disclosure
requirements for reportable segments and is effective for the Company's year
ending December 31, 1998. The Company has not determined the effect of the
adoption of this Statement would have on the Company's financial statements.
Results of Operations
First Half 1997 Vs. First Half 1996
June 30, 1997 June 30, 1996
Total interest income for the six months ended June 30, 1997, increased $253,338
or 3.4%, over the like period ending June 30, 1996. Interest and fees on loans
increased $689,947 or 12.5%, due to an increase in the loan portfolio, plus
a decrease in average loan interest rates. The average loan totals for the
six-months ended June 30, 1997 was $125,538,128, compared to $108,189,428 for
the six month period of the prior year. Because of the difference in loan
interest rates between the two periods, average yield decreased 32 basis
points from 10.22% to 9.91% as of June 30, 1997. Investment income decreased
$436,609 or 22.2% over the prior period. This decrease was caused by a 26.4%
decrease in the investment accounts, plus an increase in average yields.
U.S. Government Agencies and Securities represent 60.8% of the Bank's
investment portfolio. Because of an increase in longer-term investments and
short term interest rates between the two periods, average yield increased 31
basis points from 5.47% to 5.78% as of June 30, 1997.
Total interest expense decreased $116,649 or 6.8% for the subject period ended
June 30, 1997, compared to the same period ended June 30, 1996, as a result of
a decrease in average interest bearing accounts of $7,709,431 or 6.0%. The
cost of funds averaged 2 basis points less during the six month period ending
June 30, 1997, over the same period in 1996.
Net interest income (total interest income less total interest expense)
increased $369,6.4 or 6.4%, during the six months ended June 30, 1997, over
the same period in 1996.
The loan loss provision decreased $60,000, or 44.4%, from $135,000 as of
June 30, 1996 to $75,000 as of June 30, 1997, based on the amount necessary to
provide for estimated losses. Management believes that the level of reserve
is adequate as of June 30, 1997, and it is within the guidelines of the loan
loss reserve policy as approved by the Board of Directors.
Other income increased $722,065 or 45.3%. Losses of $6,562 were realized on the
sale of securities during the six months ending June 30, 1997. No gains or
losses were realized on the sale of securities in the six month period ending
June 30, 1996. Gains of $790,608 were realized on the sale of Small Business
Administration Loans during the six months ending June 30, 1997. Gains of
$270,456 were realized in the six months ending June 30, 1996. Gains of
$4,769 were realized on the Sale of equipment during the six months ending
June 30, 1997. No gains were realized on the sale of equipment during the six
months ending June 30, 1996.
Other expense increased $114,875, or 2.0% from $5,879,472 in the first half of
1996, to $5,994,347 in the first half of 1997. This increase was partially
caused by a $138,543 increase in business referral fees and a $72,528 decrease
in legal fees and a $45,620 increase in insurance expense.
Operating profits before taxes for the first half of 1997, increased $1,037,177,
or 76.0%, over the same period in 1996. This increase in before tax profits
occurred partially as a result of an increase in average loans outstanding and
an increase in average investment yields.
Net after taxes income for the six-month period ending June 30, 1997, was
$1,449,406 compared to $885,229 for the six month period ending June 30, 1996.
PART II OTHER INFORMATION
ITEM 1. Legal proceedings
No change since 10-K.
ITEM 2. Changes in securities.
None to report.
ITEM 3. Defaults upon senior securities.
Not applicable.
ITEM 4. Submission of matters for vote of securities holders.
A. Annual meeting held at Orange National Bank May 20, 1996.
B. Meeting resulted in the election of the below-listed Directors
for a one-year term:
Charles R. Foulger Michael W. Abdalla
Gerald R. Holte James E. Mahoney
Michael J. Christianson Wayne F. Miller
Kenneth J. Cosgrove Robert W. Creighton
San E. Vacarro
All votes by proxy, resulting in total management nominees
elected. Secondly, there was no solicitation in opposition to
management's nominees.
C. Meeting resulted in the adoption of the Orange national Bancorp
1997 Stock Option Plan by a vote of 969,641 for and 37,145
against the ratification.
D. Meeting resulted in the ratification of the appointment of
McGladrey & Pullen as independent public accountant for Bancorp
and its subsidiaries, Orange National Bank and ONB Mortgage
Corporation for the year 1997 by a vote of 1,175,652 for and
11,271 against the ratification.
ITEM 5. Other information.
None to report.
ITEM 6. Exhibits and reports on Form 8-K.
Proxy Report, which is incorporated herein by reference filed on
4/7/97.
#27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KENNETH J. COSGROVE AUGUST 13, 1997
Kenneth J. Cosgrove Date
Chief Executive Officer
ROBERT W. CREIGHTON AUGUST 13, 1997
R.W. Creighton Date
Secretary & Chief Financial Officer