UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C 20549 FORM 10-Q X		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 		EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1998 OR 		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 		EXCHANGE ACT OF 1934 For the transition period from....................................... to............................................. Commission File No. 33-8743 ORANGE NATIONAL BANCORP (Exact Name of Registrant as Specified in Charter) 							 1201 East Katella Avenue 							 Orange, California 92867 				California	 	 (714) 771-4000 	 	33-0190684 (State of Incorporation) (Address and Telephone Number (I.R.S. Employer 	 					 of Principal Executive Offices) ID No.) 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 12 months (or for such shorter periods 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 Registrant had 1,987,996 shares of common stock outstanding as of April 30, 1998. ORANGE NATIONAL BANCORP QUARTERLY REPORT ON FORM 10-Q MARCH 31, 1998 TABLE OF CONTENTS PART I	.	FINANCIAL STATEMENTS Item 1.	Financial statements 			Consolidated Balance Sheets as of March 31, 1998 (unaudited) 			and December 31, 1997				 	3 			Consolidated Statements of Earnings for the 			Three Months Ended March 31, 1998 and 1997 (unaudited)		 4 			Consolidated Statements of Comprehensive Income for the 			Three Months Ended March 31, 1998 and 1997 (unaudited)	 	5 			Consolidated Statements of Stockholders' Equity for the 			Three Months Ended March 31, 1998 and 1997 (unaudited)		 6 			Consolidated Statements of Cash Flows for the 			Three Months Ended March 31, 1998 and 1997 (unaudited)		 7 			Notes to Consolidated Financial Statements			 8 Item 2.	Management's Discussion and Analysis 			of Financial Condition and Results of Operations		 9 PART II.	OTHER INFORMATION Item 1.	Legal Proceedings					 18 Item 2.	Changes in Securities					 18 Item 3.	Defaults Upon Senior Securities				 18 Item 4.	Submissions of Matters to a Vote of Security Holders		 18 Item 5.	Other Information					 18 Item 6.	Exhibits and Reports on Form 8-K				 18 SIGNATURES					 19 ORANGE NATIONAL BANCORP CONSOLIDATED BALANCE SHEETS March 31, 1998 (unaudited) and December 31, 1997 										Mar 31 	Dec 31 		 								1998 	1997 									 	 (unaudited)	 (audited) 										 (dollars in thousands) Assets Cash and cash equivalents	 			$ 76,347	 $ 81,147 Securities 	Held-to-maturity securities (fair value of 		$7,599 in 1998 and $8,972 in 1997)	 7,650 	 9,037 	Available-for-sale securities 	 			 6,146	 9,146 Loans, net of allowance for credit losses of 	 $1,553 in 1998 and $1,581 in 1997 	 	138,376 	 131,189 Premises and equipment, net			 	5,402	 5,057 Other real estate owned, net 	 	 		- 	 126 Accrued interest receivable	 		 	872	 985 Cash value of life insurance 	 		 	4,858	 4,808 Other assets			 			 884	 784 								 		$240,535 	$242,279 Liabilities 	 	 	 	 Deposits		 			 	 	 $216,828	 $218,792 Accrued interest payable and other liabilities 			 2,043	 1,901 			Total liabilities	 			218,871	 220,693 Commitments and Contingencies		 		- 	- Stockholders' Equity 	Common stock, no par value or stated value; 		authorized 20,000,000 shares; issued and 		outstanding 1,987,996 in 1998 and 1,970,046 in 1997		 	7,970	 7,864 	Retained earnings 			 	13,746 	13,778 	Unrealized (loss) on available-for-sale securities, net	 		 (52) (56) 			Total stockholders' equity 	 			 21,664	 21,586 										$240,535	 $242,279 See Notes to Consolidated Financial Statements. ORANGE NATIONAL BANCORP CONSOLIDATED STATEMENTS OF EARNINGS Three Months Ended March 31, 1998 and 1997 (unaudited) 										 1998	 1997 								 			(in thousands, except per share data) Interest Income 	Loans							 $3,345 	$2,976 	Securities						 245 	565 	Federal funds sold 				 569 	 242 			Total interest income 			 	4,159 	3,783 Interest Expense, deposits 				 881	 771 			Net interest income 			 	3,278 	3,012 Provision for Credit Losses				 - 	 35 			Net interest income after provision for credit losses 			 3,278 2,977 Other Income		 				871 	1,153 Other Expenses				 	3,093	 2,989 			Earnings before income taxes		 	 	1,056 	1,141 Provision for Income Taxes 				 396 	 452 			Net earnings			 	 $ 660	 $ 689 Basic earnings per share				 $ 0.33 	$ 0.35 Weighted average number of common shares outstanding (in thousands)		 		 1,976	 1,955 Diluted earnings per share				 $ 0.32	 $ 0.35 Weighted average number of common shares outstanding and diluted potential common shares (in thousands)			 2,043	 1,984 See Notes to Consolidated Financial Statements. ORANGE NATIONAL BANCORP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended March 31, 1998 and 1997 (unaudited) 										 1998 1997 (dollars in thousands) Net earnings					 	$660	 $689 Other comprehensive income 	Unrealized gains (losses) on available-for-sale securities, net of tax		 4 	 (94) Comprehensive income 				 $664 	$595 See Notes to Consolidated Financial Statements. ORANGE NATIONAL BANCORP CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Three Months Ended March 31, 1998 and 1997 (unaudited) 										Unrealized 									Gain (Loss) 										Available- 							 	 Common Stock 	Retained 	For-Sale 							 Shares 	Amount 	Earnings Securities Total (in thousands, except per share data) Balance, December 31, 1997 	 1,970 	 $7,864 	 $13,778	 $(56) 	$21,586 Net earnings		 	- 	- 	660 	- 	660 Cash dividend paid ($.35 per share) 	- 	 - 	(692) 	- 	(692) Exercise of stock options	 18 	106 	- 	- 	106 Net change in unrealized (loss) 	on available-for-sale 	securities		 	 - 	 - 	 - 	 4	 4 Balance, March 31, 1998 	1,988 	$7,970 	$13,746 	$(52) 	$21,664 Balance, December 31, 1996 	1,953 	$7,676 	$11,403 	$(123) 	$18,956 Net earnings		 	- 	- 	689 	- 	689 Cash dividend paid ($.22 per share) 	- 	- 	(431) 	- 	(431) Exercise of stock options 	 8 	75 	- 	- 	75 Net change in unrealized (loss) 	on available-for-sale 	securities		 	 - - 	 - 	 (94)	 (94) Balance, March 31, 1997 	1,961 	$7,751	 $11,661 	$(217) 	$19,195 See Notes to Consolidated Financial Statements. ORANGE NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 1998 and 1997 (unaudited) 										 1998	 1997 							 		 (dollars in thousands) Cash Flows from Operating Activities 	Net earnings					 $ 660 	$ 689 	Adjustments to reconcile net earnings to net cash 		provided by operating activities: 		Depreciation and amortization 			 	114 	 137 		Provision for credit losses 			 	- 	35 		(Gain) on sale of loans 			 	(174) 	 (408) 		Proceeds from loan sales 			 	2,571 	4,105 		Origination of loans held for sale 			 	(2,397) 	(3,697) 		(Increase) decrease in other assets 				 28 	(48) 		Gain on cash value of life insurance				 (59) 	(46) 		Increase in other liabilities 				 141	 11 			Net cash provided by operating activities 			 884 	 778 Cash Flows from Investing Activities 	Proceeds from maturities of held-to-maturity securities			 1,386 	 271 	Proceeds from sales and maturities of available-for-sale securities		 3,001 	8,000 	Net increase in loans made to customers 			 	(7,188) 	(1,687) 	Proceeds from sale of other real estate owned		 	126 	77 	Purchases of bank premises and equipment 			 (459) 	 (126) 			Net cash provided by (used in) investing activities 	 	 	(3,134) 	 6,535 Cash Flows from Financing Activities 	Net (decrease) in deposits 			 	(1,964) 	(3,860) 	Proceeds from exercise of stock options				 106 	75 	Dividends paid				 (692) 	 (431) 			Net cash (used in) financing activities 	 		(2,550) 	(4,216) 			Increase (decrease) in cash and cash equivalents 	 		(4,800) 	 3,097 Cash and cash equivalents at beginning of period		 	81,147	 46,436 Cash and cash equivalents at end of period			 	$76,347 	$49,533 Supplemental Cash Flow Information 	Cash payments for: 		Interest					 	$875	 $748 		Income taxes			 	$150	 $ 75 	Non-cash investing activities: 		Loans to finance the sale of other real estate owned			 $ - 	 $682 		Loans foreclosed on by the Company				 $ - 	$ 74 See Notes to Consolidated Financial Statements. ORANGE NATIONAL BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1.	Basis of Presentation 		The consolidated financial statements include the accounts of Orange National Bancorp ("Company") and its wholly-owned subsidiary, Orange National Bank ("Bank"). 		The consolidated balance sheet (unaudited) as of March 31, 1998, and the related consolidated statements (unaudited) of earnings, comprehensive income, stockholders' equity and cash flows for the three months ended March 31, 1998 and 1997, have been prepared in accordance with generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary have been made to present fairly the financial position, results of operations and cash flows as of and for the three months ended March 31, 1998. 		Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's December 31, 1997, annual report on Form 10-K. The operating results for the three months ended March 31, 1998, are not necessarily indicative of the operating results for all of 1998. Note 2.	Other income and expense 		Other income for the three months ended March 31 consisted of the following: 										 1998	 1997 										 (dollars in thousands) 	Service charges on deposit accounts				 $384 	$ 407 	Fees for other customer services 			 	199 	173 	Gain on sale of loans 			 	174 	408 	Increase in cash value of life insurance		 		59 	46 	Other 								 55 	 119 										 $871 	$1,153 		Other expense for the three months ended March 31 consisted of the following: 1998 1997 (dollars in thousands) 	Salaries, wages and employee benefits 				 $1,520 	$1,511 	Occupancy expense 			 	345 	284 	Data processing expense				 230 	224 	Furniture and equipment expense 			 	172 	192 	Promotion expense 			 	185 	200 	Legal and professional services 			 	233 	210 	Stationery and supplies 			 	68 	58 	Telephone and postage 			 	126	 94 	Other real estate owned 			 	6	 50 	Other								 208 	 166 										$3,093 	$2,989 ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 				RESULTS OF OPERATIONS 		This filing contains forward-looking statements, which involve risks and uncertainties. The Company's actual future results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause a difference include, but are not limited to, interest rates, particularly the spread between loan rates and deposit rates, loan demand, deposit withdrawals, the effect of the Southern California economy and real estate values, and other general business risks. Results of Operations 		Total interest income was $4.2 million in the three months ended March 31, 1998, an increase of $0.4 million or 9.9% from the $3.8 million in three months ended March 31, 1997. The average interest- earning assets were $196.4 million in the first quarter of 1998, an increase of $19.7 million, or 11.2% from the $176.7 million in the first quarter of 1997. The average yield was 8.5% in the first quarter of 1998, a decrease of 0.1% from the 8.6% in the first quarter of 1997. The increase in interest income in the first quarter of 1998 resulted from a higher level of interest-earning assets in spite of slightly lower interest rates. 		Interest income on loans was $3.3 million in the three months ended March 31, 1998, an increase of $0.3 million or 12.4% from the $3.0 million in the three months ended March 31, 1997. The increase in the first quarter of 1998 resulted from the increase in the average size of the loan portfolio, in spite of lower long-term interest rates during the first quarter of 1998 as compared to the first quarter of 1997. The average loan portfolio was $137.5 million in the first quarter of 1998, an increase of $16.6 million or 13.7% from the $120.9 million in the first quarter of 1997. The yield on the loan portfolio was 9.7% in first quarter of 1998, a decrease of 0.1% from the 9.8% in the first quarter of 1997. The increase in the average size of the loan portfolio resulted from increased loan fundings throughout 1997 and into the first quarter of 1998. The yield on loans moves with changes in the prime rate as approximately 71% of the loan portfolio are based on variable rates. 		Interest income on securities was $0.3 million in the three months ended March 31, 1998, a decrease of $0.3 million or 56.5% from the $0.6 million in the three months ended March 31, 1997. The decrease in interest income on securities in the first quarter of 1998 resulted from the decrease in the average size of the investment securities portfolio. The average balance of securities was $16.9 million in the first quarter of 1998, a decrease of $19.9 million or 54.7% from the $36.8 million in the first quarter of 1997. The yield on securities was 5.8% in the first quarter of 1998, a decrease of 0.3% from the 6.1% in the first quarter of 1997. The decrease in the size and yield of the investment securities portfolio resulted from several higher yielding bonds being called throughout 1997 and into the first quarter of 1998. 		Interest income on federal funds sold was $0.6 million in the three months ended March 31, 1998, an increase of $0.3 million or 134.9% from the $0.3 million in the three months ended March 31, 1997. The increase in interest income on federal funds sold resulted from an increase in the average size of federal funds sold and a higher yield in the first quarter of 1998. The average balance of federal funds sold was $42.0 million in the first quarter of 1998, an increase of $23.0 million or 120.7% from the $19.0 million in the first quarter of 1997. The yield on federal funds sold was 5.4% in the first quarter of 1998, an increase of 0.3% from the 5.1% in the first quarter of 1997. The increase in the federal funds sold resulted from excess funds not being invested in investment securities throughout 1997 and into the first quarter of 1998 due to the extremely flat yield curve. 		Interest expense was $0.9 million in the three months ended March 31, 1998, an increase of $0.1 million or 14.4% from the $0.8 million in the three months ended March 31, 1997. The increase in interest expense resulted from a larger average interest-bearing deposit base and a slight increase in deposit rates. The average interest-bearing deposits were $125.4 million in the first quarter of 1998, an increase of $7.3 million or 6.2% from the $118.1 million in the first quarter of 1997. The average rate paid on interest-bearing deposits was 2.8% in the first quarter of 1998, an increase of 0.2% over the 2.6% in the first quarter of 1997. The increase in the deposit base reflects an increase in the overall prosperity of the customer base. 		A provision for credit losses was not deemed necessary for the three months ended March 31, 1998. The provision for credit losses was $35,000 in the three months ended March 31, 1997. The decreased provision for credit losses in the first quarter of 1998 from the first quarter of 1997 reflect a higher quality loan portfolio resulting from an improved local economy in Orange County. The Company continued to experience sizable recoveries in the first quarter of 1998 on amounts previously charged-off. These recoveries offset the need for additional provision. Management believes that the current allowance for credit losses is adequate to provide for potential losses in the portfolio. The current local economic outlook for the remainder of 1998 is promising. However, an assurance cannot be made as to its realization and, accordingly, future provisions for credit losses cannot be estimated at this time. While management is optimistic about the future, the effects of current economic conditions on the collectibility of loans cannot be predicted with absolute certainty and its effects on future profitability cannot be determined. 		Other income was $0.9 million in the three months ended March 31, 1998, a decrease of $0.3 million or 24.5% from the $1.2 million in the three months ended March 31, 1997. The decrease in other income in the first quarter of 1998 resulted from decreased gains on lower sales volume of SBA loans as compared to the first quarter of 1997. The gain on sale of SBA loans was $0.2 million in the first quarter of 1998, a decrease of $0.2 million from the $0.4 million in the first quarter of 1997. 		Other expenses were $3.1 million in the three months ended March 31, 1998, an increase of $0.1 million or 3.5% from the $3.0 million in the three months ended March 31, 1997. The increase in other expense in the first quarter of 1998 resulted from the relocation costs associated with moving a branch office and consolidating several administrative offices. 		Provision for income taxes was $0.4 million in the three months ended March 31, 1998, a decrease of $0.1 million or 12.4% from the $0.5 million in the three months ended March 31, 1997. The decrease results from lower pretax earnings in the first quarter of 1998 as compared to the first quarter of 1997. 		Net earnings were $660,000 in the three months ended March 31, 1998, a decrease of $29,000 or 4.3% from the $689,000 in the three months ended March 31, 1997. Financial Condition 		The Company experienced a slight decrease in assets during the three months ended March 31, 1998. Total assets were $240.5 million as of March 31, 1998, a decrease of $1.8 million or 0.7% from the $242.3 million as of December 31, 1997. 		Total interest-earning assets were $207.5 million as of March 31, 1998, an increase of $7.5 million or 4.1% from the $200.0 million as of December 31, 1997. The growth resulted from an increase in the loan portfolio. The Company continues to focus its efforts on originating quality loans. The new loans originated in the first quarter of 1998 were funded primarily from the maturities of investment securities and federal funds sold. 		The investment securities portfolio was $13.8 million as of March 31, 1998, a decrease of $4.4 million or 24.1% from the $18.2 million as of December 31, 1997. The decrease in the first quarter of 1998 resulted from the maturity of investment securities. The Company did not purchase investment securities throughout 1997 and into the first quarter of 1998 due to the extremely flat yield curve. Thus funds that in the past might have been used to purchase investment securities were kept in federal funds sold. The Company believes securities are the best available investment after its liquidity needs are met through cash, cash due from banks and federal funds sold. Generally, mortgage- backed securities are classified as held-to-maturity and U.S. Treasury and Government Agency securities are classified as available-for-sale. The market values decreased slightly in the first quarter of 1998 resulting from a slight increase in short-term and long-term interest rates. 		The loan portfolio was $138.4 million as of March 31, 1998, an increase of $7.2 million or 5.5% from the $131.2 million as of December 31, 1997. The increase in the first quarter of 1998 resulted from increased loan demand, primarily SBA lending on commercial real estate. The quality of the loan portfolio continues to improve resulting from a healthier Orange County economy. 		Total deposits were $216.8 million as of March 31, 1998, a decrease of $2.0 million or 0.9% from the $218.8 million as of December 31, 1997. The decrease in deposits in the first quarter of 1998 reflects a historical cycle of slightly lower first quarter balances maintained by large depositors. Liquidity 		The Company maintains substantial liquid and other short-term assets to meet the funding of loan demand, deposit withdrawals and maturities, and operating costs. The Company currently meets its funding needs from its deposit base, and cash flow from operations, loan sales, maturities of investment securities and loan principal reductions. 		The loan-to-deposit ratio was 63.8% and 60.0% as of March 31, 1998 and December 31, 1997, respectively. The increase in this ratio resulted from the increase in loans and the decrease in the deposit base. The ratio of liquid assets (cash, cash due from banks, federal funds sold, and investment securities with maturities of one year or less) to demand deposits was 42.9% and 44.5% as of March 31, 1998 and December 31, 1997, respectively. The decrease of the liquid asset ratio resulted from a larger decrease in liquid assets than the decrease in demand deposits. 		The Company has a relatively stable and significant base of core deposits. Thus, the Company has not used brokered deposits and avoids using other wholesale, highly rate-sensitive, short-term funds. 	Other funding sources available to the Company include reduction of its federal funds sold, sale of its available for sale securities, increasing deposits, and borrowing from its established credit resources. The Company may borrow funds under securities sold with agreements to repurchase such securities that have not been pledged. The Company had unpledged securities of $8.9 million as of March 31, 1998. Liquidity can also be obtained through federal funds purchased from correspondent banks and/or direct borrowings from the Federal Reserve Bank. The Company has established Federal Funds borrowing lines with various banks up to $3.0 million. The Company has yet to use these facilities. The Company is currently negotiating with an additional borrowing source. 		Management believes the Bank has sufficient liquidity to meet its loan commitments, deposit withdrawals and operating costs. Loan Portfolio 		A major part of the Bank's objective is serving the credit needs of customers in Orange County and surrounding areas. Credit decisions are based upon the judgement of the Bank's lending personnel and Loan Committee. The legal lending limit to each customer is restricted to a percentage of the Bank's total capital, the exact percentage depends on the nature of the particular loan and the collateral involved. Credit risk is inherent to any loan portfolio and it is the management of this risk, which defines the quality of the portfolio. The Bank has a policy to obtain collateral for loans under most circumstances. The Bank has a highly diversified portfolio, a solid underwriting process, a loan review program and an active loan service function which management believes serves to minimize the possibility of material loss in the loan portfolio. 		The three general areas in which the Bank has directed virtually all of its lending activities are (a) real estate loans, (b) commercial loans, and (c) loans to individuals. These three categories accounted for 57.9%, 33.9%, and 8.1%, respectively, of the Bank's loan portfolio as of March 31, 1998. The Bank's commercial loans are primarily funded to small- and medium-sized businesses for terms ranging from 30 days to 5 years. Consumer installment loans are for a maximum term of 48 months on unsecured loans and for a term of the depreciable life of tangible property used as collateral on secured loans. Commercial real estate loans are originated for terms of up to 25 years. 		Variable interest rate loans comprise 71% of the loan portfolio as of March 31, 1998. 		The Bank had standby letters of credit of $0.5 million and commitments to extend credit of $23.0 million as of March 31, 1998. The Bank presently has sufficient liquidity to fund all loan commitments. 		A loan is impaired when it is probable the creditor will be unable to collect all contractual principal and interest payments due in accordance with terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for credit losses. Loan Portfolio Composition 		The composition of the Bank's loan portfolio (all domestic) is presented in the following table: 												Mar 31	Dec 31 												 1998 	 1997 							 				 (dollars in thousands) Dollars Real estate 	Commercial 							$ 81,334 	$ 78,534 	Construction					 		236 	118 Commercial and industrial					 	47,814 	44,301 Loans to individuals				 		11,352 	10,586 Other											 189	 122 Total									 		140,925 	133,661 Unearned net loan fees and premiums				 	(996) 	(891) Allowance for credit losses						 (1,553)	 (1,581) Total, net							 		$138,376	 $131,189 Percentages Real estate 	Commercial			 			 	57.7%	 58.8% 	Construction						 	0.2 	0.1 Commercial and industrial					 	33.9 	33.1 Loans to individuals					 	8.1 	7.9 Other		 									 0.1 	 0.1 Total	 										100.0% 	100.0% Credit Risk Management 		The Bank manages its loan portfolio through a process designed to assure acceptable quality of loans entering the portfolio and to bring any potential losses or potential defaults in existing loans to the attention of the appropriate management personnel. Each lending officer has primary responsibility to conduct credit and documentation reviews of the loans for which he is assigned. The Bank's Senior Vice President and Senior Credit Officer are responsible for general supervision of the loan portfolio and adherence by the loan officers to the loan policies of the Bank. The Bank currently engages an outside consulting firm to periodically review the loan portfolio to provide suggested risk rating of selected loans. Bank management reviews the suggested ratings along with all other available information to properly monitor the loan portfolio, including all loan evaluations made during periodic examinations by the OCC. 		In accordance with the Bank's loan policies, management presents a written report to the Bank's Board of Directors at its monthly meeting. The Directors review the delinquency report listing of all loans 30 days or more past due and the watch list report including loans having increased credit risk, both delinquency and other factors, over the rest of the portfolio. Additionally, the Directors review a monthly report including all loans originated during the prior month. 		The Bank maintains an allowance for credit losses to provide for potential losses in the loan portfolio. Additions to the allowance for credit losses are either charged to operations in the form of a provision for possible credit losses, or recovered from loan previously charged-off. All loans that are judged to be uncollectible are charged against the allowance. The allowance for credit losses is maintained at a level determined by management to be adequate, based on the performance of loans in the Bank's portfolio, evaluation of collateral for such loans, the prospects or worth of the prospective borrowers or guarantors, and such other factors which, in the Bank's judgement, deserve consideration in the estimation of possible losses. The allowance for credit losses is established and maintained after analyzing loans identified by management with certain unfavorable features affixing a risk of loss attributable to each loan. An inherent risk of loss in accordance with industry standards and economic conditions is then allocated to specific loan pools and to the remainder of the portfolio on an aggregate basis. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic or other conditions. In addition, the OCC periodically reviews the Company's allowance for credit losses as an integral part of their normal recurring examination process, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations. 		The following table presents loans on nonaccrual status or contractually past due 90 days or more as to interest or principal payments and still accruing interest: 												Mar 31	 Dec 31 												 1998	 1997 											 	(dollars in thousands) Loans on nonaccrual status						 $2,636	 $2,447 Loans past due 90 days or more and still accruing interest						 7	 660 Total					 		 				$2,643 	$3,107 		Loans are generally placed on nonaccrual status when principal or interest payments are past due 90 days or more. Certain loans are placed on nonaccrual status earlier if there is reasonable doubt as to the collectibility of interest or principal. Loans that are in the renewal process, have sufficient collateral, or are in the process of collection continue to accrue interest. 		Had the loans on nonaccrual status paid according to their original terms, the gross interest income to date on such loans would have been approximately $840,000. 		Management does not have knowledge of any additional loans not disclosed in this section as nonaccrual, past due, or troubled debt restructuring that may be potential problem loans. The Bank has no loans to foreign borrowers. The collateral value of certain nonaccrual loans are large enough that management believes all principal and interest will be collected on those loans and therefore do not meet the definition of impaired. A loan is impaired when it is probable the creditor will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Impaired loans are valued primarily at the fair value of the underlying collateral. 		There were no loan concentrations to individual borrowers exceeding 10% of the total loan portfolio and no other interest-bearing assets that would be required to be in the paragraphs above, if such assets were classified as loans as of March 31, 1998 and December 31, 1997. 		The following table presents loans outstanding, the activity of the allowance for credit losses, and pertinent ratios during the three months ended and as of March 31: 												 1998	 1997 											 	(dollars in thousands) Average gross loans					 	$138,391	 $131,077 Total gross loans at end of period					 	$140,925	 $133,661 Allowance for credit losses: Balance, beginning of period				 		$1,581 	$1,369 Charge-offs 								(40) 	(3) Recoveries									 12	 13 Net (charge-offs) recoveries		 				(28) 	10 Provisions charged to operations						 - 	 35 Balance, end of period					 	$1,553 	$1,414 Net (charge-offs) recoveries during the period to average gross loans outstanding during year				 	(0.02%) 	0.01% 		Included in the Bank's allocation of its allowance for credit losses are specific reserves on certain identified loans and general reserves for unknown potential losses. Management classifies loans through its internal loan review system that is supplemented by an independent third party reviewer and review of loans from its regulators. None of these classifications indicate trends or uncertainties, which will materially impact future operating results, liquidity, or capital resources. The allowance provides for the potential adverse effects of current economic conditions. However, the full effects of the economy on the loan portfolio cannot be predicted with any certainty. Any loans which management doubts the ability of borrowers to comply with loan repayment terms are provided for in the allowance. Summary of Deposits 		Deposits are currently the Bank's sole source of funds. The Bank can obtain additional funds when needed to meet occasional declines in deposits or other short-term liquidity needs, through the overnight purchase of federal funds. However, the Bank does not currently use these sources of funds. Generally, the Bank has funds in excess of its needs for deposit withdrawals and other short-term liquidity. The Bank sells such excess funds as federal funds sold to other financial institutions. 		The Bank's deposits are attracted primarily from individuals and commercial enterprises. The Bank also attracts some deposits from municipalities and other government agencies. The Bank does not have foreign deposits, brokered deposits or variable rate fixed-term deposits. The Bank does not expect to obtain future deposits through the use of brokered deposits. The Bank had noninterest-bearing demand deposits of $85.0 million, interest-bearing NOW and money market deposit accounts of $94.8 million, time deposits of $24.6 million, and savings accounts of $12.4 million as of March 31, 1998. 		The Company had interest-bearing deposits of 60.8% of total deposits as of both March 31, 1998 and December 31, 1997. While the Bank does not experience material repeated seasonal fluctuations in deposit levels, the Bank's relative growth in deposits and loans may be affected by seasonal and economic changes, which, in turn, may impact liquidity. Management believes it has sufficient liquidity to meet loan commitments and deposit demands. 		The following table presents the Bank's average balances of deposits, as a percentage of average total deposits and average interest paid by category for the three months ended March 31 and for the year ended December 31: 										MMDA		 	 Total 				 					Demand 	and NOW	 Saving	 Time 	 Deposits 										(dollars in thousands) March 31, 1998 Average balance			 	$82,673 	$90,250 	$11,750 	$23,353 	$208,026 Percent of total			 	39.7% 	43.4% 	5.7%	 11.2% 	100.0% Average interest rate paid		 	0.0% 	2.3% 	2.0% 	5.0% 	1.7% December 31, 1997 Average balance				 $76,444 	$91,931 	$11,485 	$19,423 	$199,283 Percent of total		 		38.4% 	46.1% 	5.8% 	9.7% 	100.0% Average interest rate paid			 0.0%	 2.3% 	2.0% 	5.0% 	1.7% 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 Bank is subject to various regulatory capital requirements. The Bank must meet specific capital guidelines that involve certain measurements of the Bank's assets and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification of these assets and certain off-balance sheet items are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Tier 1 capital for the Bank under the regulations is defined as stockholders' equity before any unrealized gains or losses on its available-for-sale securities portfolio, less defined portions of intangible assets. Total capital is defined as Tier 1 capital plus the allowance for credit losses, subject to certain limitations. The table below presents the Bank's actual capital ratios, the minimum capital required for adequacy purposes and to be categorized as "well capitalized" for the capital ratios of total risk-based, Tier 1 risk-based and Tier 1 leverage. The Bank's capital ratios exceeded the "well capitalized" threshold prescribed in the rules of its principal federal regulator as of March 31, 1998. 											 To Be Well 											 Capitalized Under 									 For Capital	 Prompt Corrective 				 				Actual	 Adequacy Purposes	 Action Provisions 								Amount	Ratio 	Amount	Ratio 	Amount	Ratio 									 	(dollars in thousands) March 31, 1998 Total capital (to risk-weighted assets)	 $22,513	 13.4%	 $13,428	 8.0%	 $16,785 	10.0% Tier 1 capital (to risk-weighted assets) 	20,957 	12.5% 	6,714 	4.0% 	10,071 	6.0% Tier 1 capital (to average assets)	 	20,957 	9.1% 	9,247 	4.0%	 11,559 	5.0% December 31, 1997 Total capital (to risk-weighted assets)	 $22,563 	13.9% 	$12,962	 8.0% 	$16,202 	10.0% Tier 1 capital (to risk-weighted assets) 	20,982 	13.0% 	6,481 	4.0% 	9,721 	6.0% Tier 1 capital (to average assets)	 	20,982 	9.0% 	9,368 	4.0% 	11,710 	5.0% 		Management believes that the Bank is properly and adequately capitalized, as evidenced by these ratios as of March 31, 1998. The most recent notification from the Office of the Comptroller of the Currency categorized the Bank as "well capitalized" as of June 30, 1997 under the regulatory framework for prompt corrective action. Interest Rate Sensitivity 		The Company uses asset liability management on its balance sheet to minimize the exposure of interest rate movements on its net interest income. The principal function of asset liability management is to manage the interest rate risk in the balance sheet by maintaining a proper balance, match and mix between rate-sensitive interest-earning assets and rate-sensitive interest-bearing liabilities. The term "rate-sensitive" refers to those assets and liabilities that are "sensitive" to fluctuations in interest rates. When interest rates fluctuate, earnings may be affected in many ways as the interest rates of assets and liabilities change at different times or by different amounts. 		The Company minimizes its interest rate risk in the balance sheet by emphasizing the origination of variable interest rate loans that have the ability to reprice overnight and maintaining a high balance of federal funds sold to offset the deposits that may potentially reprice overnight. 		A repricing gap is the difference between total interest-earning assets and total interest-bearing liabilities available for repricing during a given time interval. 	A positive repricing gap exists when total interest-earning assets exceed total interest-bearing liabilities within a repricing period and a negative repricing gap exists when total interest-bearing liabilities are in excess of interest-earning assets within a repricing period. 		Generally, a positive repricing gap increases net interest income in a rising rate environment and decreases net interest income in a falling rate environment. A positive repricing gap may increase net interest income in a falling rate environment depending on the amount of the excess repricing gap and extent of the drop in interest rates. A negative repricing gap tends to increase net interest income in a falling rate environment and decrease net interest income in a rising rate environment. The net interest income of the Company will benefit from a rising rate environment based on the positive repricing gap. 		The following table presents the repricing periods for interest- earning assets and interest-bearing liabilities and the related repricing gaps as of March 31, 1998: 												After one 										Due within	 Due within 	but within 	After 										 0-3 months	 4-12 months 	five years 	five years 							 (dollars in thousands) Interest-earning assets (1)			 $158,963 	 $ 4,586 	 $25,065	 $18,881 Interest-bearing liabilities				124,665 	 5,685	 1,400	 - Repricing gap			 			 34,298 	(1,099) 	23,665 	18,881 Cumulative repricing gap		 	 	$ 34,298	 $33,199	 $56,864	 $75,745 Cumulative gap as a percent of earning assets	 		16.5%	 16.0%	 27.4% 	36.5% (1)	Includes collateralized mortgage obligations in the one-year to five-year maturities based on the average expected lives. 		The Company had $156.0 million of interest-earning assets and $103.1 million of interest-bearing demand and savings deposits as of March 31, 1998 that are able to reprice overnight. 		The Company had available-for-sale securities of $6.1 million recorded at market value as of March 31, 1998. The available-for-sale securities consist of U.S. government agency medium-term notes. The Company also had held-to-maturity securities at amortized cost of $7.7 million as of March 31, 1998. The held-to-maturity securities are collateralized mortgage obligations that may be repaid without penalties. The value of these securities is subject to fluctuation based upon current medium-term and long-term interest rates. 		The estimated effect on net interest income for a 10% decrease from prevailing interest rates over a one-year period would be a decline of approximately $1.0 million. Off-Balance Sheet Analysis 		The contractual amounts associated with certain financial transactions are not recorded as assets or liabilities on the balance sheet. Off-balance sheet treatment is generally considered appropriate either where exchange of the underlying asset or liability has not occurred or is not assured, or where contractual amounts are used solely to determine cash flows to be exchanged. 	The Company's off- balance sheet financial instruments consist of commitments to extend credit and standby letters of credit. A majority of these commitments are written with variable interest rates. Impact of Inflation and Changing Prices 		The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services. In the current interest rate environment, the liquidity and the maturity structure of the Company's assets and liabilities are critical to the maintenance of acceptable performance levels. Year 2000 Issue 		The Company is currently conducting a comprehensive review of its computer, including third-party vendors, and environmental systems to identify the systems that could be affected by the "Year 2000" issue and is developing an implementation and monitoring plan to resolve the issue. The Year 2000 is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any of the vendor programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. The Company presently believes that, with modifications to existing vendor software and upgrading to new software packages, the Year 2000 problem will not pose significant operational problems for the Company's computer systems as so modified and converted. The Company is also actively monitoring the Year 2000 progress of its third-party data processing vendor. The Company also believes the costs of these modifications and upgrading will not have a material adverse impact on its results of operations. However, if such modifications and upgrades are not completed timely, the Year 2000 may have a material impact on the operations of the Company. Effect of FASB Statements 		In June 1997, FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires a publicly-held entity to disclose financial and descriptive information about all of its operating segments. SFAS 131 will require disclosure of net earnings or loss, certain specific revenue and expense items, and assets for each segment presented and disclosure of a reconciliation of this information with the corresponding amounts recognized in the financial statements of the entity. SFAS 131 will also require disclosure of other pertinent segment information, including the products and services provided by its operating segments and the method by which the operating segments were determined. SFAS 131 is effective for years beginning after December 15, 1997 and will require comparative information of earlier years presented to be restated. The Company has not determined if the adoption of SFAS 131 will require it to report segment information. 		Management does not believe the application of this Statement to transactions of the Company that have been typical in the past will materially affect the Company's financial position and results of operations. PART II. OTHER INFORMATION ITEM 1.		LEGAL PROCEEDINGS 					None ITEM 2.		CHANGES IN SECURITIES 					None ITEM 3.		DEFAULTS UPON SENIOR SECURITIES 					None ITEM 4.		SUBMISSION OF MATTERS FOR VOTE OF SECURITIES HOLDERS 					None ITEM 5.		OTHER INFORMATION 					None ITEM 6.		EXHIBITS AND REPORTS ON FORM 8-K 					None Signatures 		Pursuant to the requirements of Section 13 or 25(d) 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. 		ORANGE NATIONAL BANCORP By:		/s/ KENNETH J. COSGROVE			Date: 	 MAY 4, 1998	 		 Kenneth J. Cosgrove, President 		 and Chief Executive Officer By:		/s/ ROBERT W. CREIGHTON			Date: 	 MAY 4, 1998	 		 Robert W. Creighton, Secretary 		 and Chief Financial Officer By:		/s/ JERRO M. OTSUKI			Date: 	 MAY 4, 1998	 		 Jerro M. Otsuki, Vice President 		 and Controller 10 6