<PAGE>
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 June 30, 1999
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) Identification 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 2,002,071 shares of common stock outstanding as of
August 12, 1999.
<PAGE>
<TABLE>
ORANGE NATIONAL BANCORP
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1999
TABLE OF CONTENTS
<S> <C>
PART I . FINANCIAL STATEMENTS
Item 1. Financial statements
Consolidated Balance Sheets as of June 30, 1999 (unaudited)
and December 31, 1998 3
Consolidated Statements of Earnings for the Three and Six
Months Ended June 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Comprehensive Income for the Three
And Six Months Ended June 30, 1999 and 1998 (unaudited) 5
Consolidated Statements of Stockholders' Equity for the
Three Months Ended June 30, 1999 and 1998 (unaudited) 6
Consolidated Statements of Stockholders' Equity for the
Six Months Ended June 30, 1999 and 1998 (unaudited) 7
Consolidated Statements of Cash Flows for the Three and Six
Months Ended June 30, 1999 and 1998 (unaudited) 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submissions of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
</TABLE>
<PAGE>
<TABLE>
ORANGE NATIONAL BANCORP
CONSOLIDATED BALANCE SHEETS
June 30, 1999 (unaudited) and December 31, 1998
<CAPTION>
Jun 30 Dec 31
1999 1998
(unaudited) (audited)
(dollars in thousands)
<S> <C> <C>
Assets
Cash and cash equivalents $ 65,405 $ 74,931
Securities
Held-to-maturity securities (fair value
of $12,263 in 1999 and $17,691 in 1998) 13,418 17,640
Available-for-sale securities 48,084 40,649
Loans, net of allowance for credit losses
of $1,620 in 1999 and $1,524 in 1998 145,420 140,140
Premises and equipment, net 5,386 5,438
Other real estate owned, net - -
Accrued interest receivable 1,375 1,212
Cash value of life insurance 5,137 5,021
Other assets 1,410 831
$285,635 $285,862
Liabilities
Deposits $258,991 $260,334
Accrued interest payable and other liabilities 2,133 1,805
Total liabilities 261,124 262,139
Commitments and Contingencies - -
Stockholders' Equity
Common stock, no par value or stated value;
authorized 20,000,000 shares; issued and
outstanding 2,000,171 in 1999 and 1,996,788 in 1998 8,081 8,036
Retained earnings 16,837 15,718
Unrealized (loss) on available-for-sale
securities, net (407) (31)
Total stockholders' equity 24,511 23,723
$285,635 $285,862
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ORANGE NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF EARNINGS
Three and Six Months Ended June 30, 1999 and 1998 (unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest Income
Loans $3,460 $3,617 $6,757 $6,962
Securities 941 196 1,851 441
Federal funds sold 420 790 877 1,359
Total interest income 4,821 4,603 9,485 8,762
Interest Expense, deposits 1,039 1,033 2,073 1,915
Net interest income 3,782 3,570 7,412 6,847
Provision for Credit Losses 20 20 90 20
Net interest income after
provision for credit losses 3,762 3,550 7,322 6,827
Other Income 867 888 1,573 1,760
Other Expenses 3,035 3,004 6,065 6,097
Earnings before income taxes 1,594 1,434 2,830 2,490
Provision for Income Taxes 627 573 1,111 969
Net earnings $ 967 $ 861 $1,719 $1,521
Basic earnings per share $ 0.48 $ 0.44 $ 0.86 $ 0.77
Weighted average number of common
shares outstanding (in thousands) 2,000 1,991 2,000 1,983
Diluted earnings per share $ 0.46 $ 0.42 $ 0.83 $ 0.74
Weighted average number of common
shares outstanding and diluted
potential common shares (in thousands) 2,113 2,063 2,078 2,053
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ORANGE NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three and Six Months Ended June 30, 1999 and 1998 (unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(dollars in thousands)
<S> <C> <C> <C> <C>
Net earnings $967 $861 $1,719 $1,521
Other comprehensive income
Unrealized gains (losses) on
available-for-sale securities (538) 25 (658) 23
Reclassification adjustment for
losses included in net earnings - - - -
Reclassification adjustment for
losses included in net earnings
for securities transferred 8 8 17 17
Other comprehensive income (loss)
before income taxes (530) 33 (641) 40
Provision for income taxes 219 (13) 265 (16)
Other comprehensive income (loss) (311) 20 (376) 24
Comprehensive income $656 $881 $1,343 $1,545
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ORANGE NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended June 30, 1999 and 1998 (unaudited)
<CAPTION>
Unrealized
Gain (Loss)
Available-
Common Stock Retained For-Sale
Shares Amount Earnings Securities Total
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1999 2,000 $8,081 $16,170 $(96) $24,155
Net earnings - - 967 - 967
Cash dividend paid
($.15 per share) - - (300) - (300)
Exercise of stock options - - - - -
Other comprehensive income - - - (311) (311)
Balance, June 30, 1999 2,000 $8,081 $16,837 $(407) $24,511
Balance, March 31, 1998 1,988 $7,970 $13,746 $(52) $21,664
Net earnings - - 861 - 861
Cash dividend paid
($.10 per share) - - (199) - (199)
Exercise of stock options 5 42 - - 42
Other comprehensive income - - - 20 20
Balance, June 30, 1998 1,993 $8,012 $14,408 $(32) $22,388
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ORANGE NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1999 and 1998 (unaudited)
<CAPTION>
Unrealized
Gain (Loss)
Available-
Common Stock Retained For-Sale
Shares Amount Earnings Securities Total
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 1,997 $8,036 $15,718 $(31) $23,723
Net earnings - - 1,719 - 1,719
Cash dividend paid
($.30 per share) - - (600) - (600)
Exercise of stock options 3 45 - - 45
Other comprehensive income - - - (376) (376)
Balance, June 30, 1999 2,000 $8,081 $16,837 $(407) $24,511
Balance, December 31, 1997 1,970 $7,864 $13,778 $(56) $21,586
Net earnings - - 1,521 - 1,521
Cash dividend paid
($.45 per share) - - (891) - (891)
Exercise of stock options 23 148 - - 148
Other comprehensive income - - - 24 24
Balance, June 30, 1998 1,993 $8,012 $14,408 $(32) $22,388
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
ORANGE NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three and Six Months Ended June 30, 1999 and 1998 (unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(dollars in thousands)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings $ 967 $ 861 $ 1,719 $ 1,521
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 154 133 308 247
Provision for credit losses 20 20 90 20
(Gain) on sale of loans (105) (211) (155) (385)
Proceeds from loan sales 2,797 3,211 3,830 5,782
Origination of loans held for sale (2,692) (3,000) (3,675) (5,396)
(Increase) in other assets (429) (233) (439) (206)
Gain on cash value of life insurance (77) (75) (137) (135)
Increase (decrease) in other liabilities 194 (338) 328 (197)
Net cash provided by
operating activities 829 368 1,869 1,251
Cash Flows from Investing Activities
Proceeds from sales and
maturities of securities 6,265 1,383 17,307 5,770
Purchase of securities (135) (727) (21,179) (727)
Net (increase) decrease in loans (2,327) 965 (5,464) (6,223)
Proceeds from sale of
other real estate owned 94 - 94 126
Purchases of premises and equipment (37) (388) (255) (847)
Net cash provided by
(used in) investing activities 3,860 1,233 (9,497) (1,901)
Cash Flows from Financing Activities
Net increase (decrease) in deposits 6,031 8,161 (1,342) 6,198
Proceeds from exercise of stock options - 42 45 148
Dividends paid (300) (199) (600) (891)
Net cash provided by
(used in) financing activities 5,731 8,004 (1,897) 5,455
Increase (decrease) in
cash and cash equivalents 10,420 9,605 (9,525) 4,805
Cash and cash equivalents
at beginning of period 54,985 76,347 74,930 81,147
Cash and cash equivalents
at end of period $65,405 $85,952 $65,405 $85,952
Supplemental Cash Flow Information
Cash payments for:
Interest $1,036 $1,036 $2,084 $1,911
Income taxes $ 782 $ 748 $ 782 $ 898
Non-cash investing activities:
Loans to finance the
sale of real estate $ - $ - $ - $ -
Loans foreclosed on by the Company $ 94 $ 31 $ 94 $ 31
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
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 June 30, 1999, and
the related consolidated statements (unaudited) of earnings,
comprehensive income, stockholders' equity and cash flows for the three
and six months ended June 30, 1999 and 1998, 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 and six months ended June 30, 1999.
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, 1998, annual report on Form 10-K. The operating
results for the three and six months ended June 30, 1999, are not
necessarily indicative of the operating results for all of 1999.
Note 2. Other income and expense
<TABLE>
Other income and expense for the three and six months ended June 30
consisted of the following:
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(dollars in thousands)
<S> <C> <C> <C> <C>
Other income
Service charges on deposit accounts $377 $362 $ 740 $ 746
Fees for other customer services 182 208 375 407
Gain on sale of loans 105 211 155 385
Increase in cash value of life insurance 77 75 137 135
Other 126 32 166 87
$867 $888 $1,573 $1,760
Other expense
Salaries, wages and employee benefits $1,506 $1,477 $3,032 $2,996
Occupancy 323 331 638 676
Data processing 232 237 481 467
Furniture and equipment 193 175 388 347
Promotion 141 171 268 356
Legal and professional services 190 242 387 476
Stationery and supplies 50 85 100 153
Telephone and postage 111 90 226 216
Other real estate owned 5 1 3 6
Other 284 195 542 404
$3,035 $3,004 $6,065 $6,097
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward Looking Statements
Certain statements in this filing, including without limitation
statements containing the words "believes," "anticipates," "intends,"
"expects," "proforma," and words of similar import, constitute forward-
looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
Such factors include, among other, the following: general economic
conditions in the Company's market areas; variances in interest rates;
changes in or amendments to regulatory authorities' capital
requirements or other regulations applicable to the Company; increased
competition for loans and deposits; and other factors referred to
elsewhere in this filing. Given these uncertainties, shareholders are
cautioned not to place undue reliance on forward-looking statements.
The Company disclaims any obligation to update such factors which are
not considered to be material or to publicly announce the result of any
revisions to any of the forward-looking statements included herein
which are not considered to be material to reflect future events or
developments.
Results of Operations
Total interest income was $4.8 million in the second quarter of
1999, an increase of $0.2 million or 4.7% from the $4.6 million in the
second quarter of 1998. Total interest income was $9.5 million in the
first half of 1999, an increase of $0.7 million or 8.2% from the $8.8
million in first half of 1998. The average interest-earning assets
were $249.6 million in the second quarter of 1999, an increase of $36.2
million or 17.0% from the $213.4 million in the second quarter of 1998.
The average interest-earning assets were $245.5 million in the first
half of 1999, an increase of $40.6 million or 19.8% from the $204.9
million in the first half of 1998. The average yield on interest-
earning assets was 7.7% in the second quarter of 1999, a decrease of
0.9% from the 8.6% in the second quarter of 1998. The average yield on
interest-earning assets was 7.7% in the first half of 1999, a decrease
of 0.9% from the 8.6% in the first half of 1998. The increase in
interest income during the second quarter and the first half of 1999 as
compared to the similar periods in 1998 resulted from a higher level of
interest-earning assets in spite of lower interest rates.
Interest income on loans was $3.5 million in the second quarter of
1999, a decrease of $0.1 million or 4.4% from the $3.6 million in the
second quarter of 1998. Interest income on loans was $6.8 million in
the first half of 1999, a decrease of $0.2 million or 2.9% from the
$7.0 million in the first half of 1998. The increase in interest
income on loans in the second quarter and first half of 1999 as
compared to the similar periods in 1998 resulted from the increase in
the average size of the loan portfolio in spite of lower long-term
interest rates during 1999. The average size of the loan portfolio was
$147.3 million in the second quarter of 1999, an increase of $5.8
million or 4.1% from the $141.5 million in the second quarter of 1998.
The average size of the loan portfolio was $144.8 million in the first
half of 1999, an increase of $5.3 million or 3.8% from the $139.5
million in the first half of 1998. The yield on the loan portfolio was
9.4% in the second quarter of 1999, a decrease of 0.8% from the 10.2%
in the second quarter of 1998. The yield on the loan portfolio was
9.3% in the first half of 1999, a decrease of 0.7% from the 10.0% in
the first half of 1998. The increase in the average size of the loan
portfolio resulted from sustained loan fundings throughout 1998 and the
first six months of 1999. The yield on loans moves with changes in the
prime rate as 65.1% of the loan portfolio are based on variable rates.
<PAGE>
Interest income on securities was $0.9 million in the second quarter
of 1999, an increase of $0.7 million or 380.8% from the $0.2 million in
the second quarter of 1998. Interest income on securities was $1.8
million in the first half of 1999, an increase of $1.4 million or
319.6% from the $0.4 million in the first half of 1998. The increase
in interest income on securities in the second quarter and first half
of 1999 as compared to the similar periods in 1998 resulted from the
increase in the average size of the investment securities portfolio.
The average size of the securities portfolio was $65.2 million in the
second quarter of 1999, an increase of $51.8 million or 386.4% from the
$13.4 million in the second quarter of 1998. The average size of the
securities portfolio was $62.2 million in the first half of 1999, an
increase of $47.1 million or 311.4% from the $15.1 million in the first
half of 1998. The yield on securities was 5.8% in the second quarter
of 1999, a decrease of 0.1% from the 5.9% in the second quarter of
1998. The yield on securities was 5.9% in the first half of 1999, an
increase of 0.1% from the 5.8% in the first half of 1998. The increase
in the size and yield of the investment securities portfolio resulted
from the purchase of a large volume of higher yielding bonds throughout
the latter half of 1998 and the first six months of 1999.
Interest income on federal funds sold was $0.4 million in the second
quarter of 1999, a decrease of $0.4 million or 46.8% from the $0.8
million in the second quarter of 1998. Interest income on federal
funds sold was $0.9 million in the first half of 1999, a decrease of
$0.5 million or 35.5% from the $1.4 million in the first half of 1998.
The decrease in interest income on federal funds sold during the first
half of 1999 as compared to the similar period of 1998 resulted from
the large decrease in the average size of federal funds sold and a
lower yield in 1999. The average balance of federal funds sold was
$37.1 million in the second quarter of 1999, a decrease of $21.3
million or 36.5% from the $58.4 million in the second quarter of 1998.
The average balance of federal funds sold was $38.5 million in the
first half of 1999, a decrease of $11.8 million or 23.5% from the $50.3
million in the first half of 1998. The yield on federal funds sold was
4.5% in the second quarter of 1999, a decrease of 0.9% from the 5.4% in
the second quarter of 1998. The yield on federal funds sold was 4.6%
in the first half of 1999, a decrease of 0.8% from the 5.4% in the
first half of 1998. The decrease in the federal funds sold resulted
from excess funds being invested in investment securities throughout
the latter half of 1998 and into the first half of 1999.
Interest expense was $1.0 million in the second quarter of both 1999
and 1998. Interest expense was $2.1 million in the first half of 1999,
an increase of $0.2 million or 8.3% from the $1.9 million in the first
half of 1998. The increase in interest expense resulted from a larger
average interest-bearing deposit base, particularly in money market
accounts, in spite of a decrease in deposit rates. The average
interest-bearing deposits were $155.0 million in the second quarter of
1999, an increase of $16.1 million or 11.6% from the $138.9 million in
the second quarter of 1998. The average interest-bearing deposits were
$157.2 million in the first half of 1999, an increase of $25.0 million
or 18.9% from the $132.2 million in the first half of 1998. The
average rate paid on interest-bearing deposits was 2.7% in the second
quarter of 1999, a decrease of 0.3% over the 3.0% in the second quarter
of 1998. The average rate paid on interest-bearing deposits was 2.6%
in the first half of 1999, a decrease of 0.3% from the 2.9% in the
first half of 1998. The increase in the deposit base reflects an
overall prosperity of the customer base resulting from an improved
economy.
The provision for credit losses was $20,000 in the second quarter of
both 1999 and 1998. The provision for loan losses was $90,000 in the
first half of 1999, an increase of $70,000 from the $20,000 in the
first half of 1998. The increase in the provision for credit losses
during the first half of 1999 as compared to the first half of 1998
reflects a larger overall loan portfolio while the higher quality of
the loan portfolio results from an improved local economy in Orange
County. The Company continued to experience recoveries in the first
half of 1998 on amounts previously charged-off. These recoveries
offset the need for additional provision during 1998. Management
believes that the current allowance for credit losses is adequate to
provide for potential losses in the portfolio. The current local
economic outlook is promising for the remainder of 1999. 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.
<PAGE>
Other income was $0.9 million in the second quarter of both 1999 and
1998. Other income was $1.6 million in the first half of 1999, a
decrease of $0.2 million or 10.6% from the $1.8 million in the first
half of 1998. The decrease in other income during the first half of
1999 primarily resulted from decreased gains on lower volume of SBA
loans sold as compared to the similar period of 1998. The gain on sale
of SBA loans was $0.2 million in the first half of 1999, a decrease of
$0.2 million or 59.9% from the $0.4 million in the first half of 1998.
Other expenses were $3.0 million in the second quarter of both 1999
and 1998. Other expenses were $6.1 million in the first half of both
1999 and 1998. The increase in other costs was offset by a reduction
in promotional costs and professional fees in the first six months of
1999 compared to the first six months of 1998.
The provision for income taxes was $0.6 million in the second
quarter of both 1999 and 1998. The provision for income taxes was $1.1
million in the first half of 1999, an increase of $0.1 million or 14.7%
from the $1.0 million in the first half of 1998. The increase in the
provision for income taxes in the first half of 1999 results from
larger pretax earnings in the first half of 1999 as compared to the
first half of 1998.
Net earnings were $967,000 in the second quarter of 1999, an
increase of $106,000 or 12.2% from the $861,000 in the second quarter
of 1998. Net earnings were $1,719,000 in the first half of 1999, an
increase of $198,000 or 13.0% from the $1,521,000 in the first half of
1998.
<PAGE>
Financial Condition
The Company experienced a small shrinkage during the first half of
1999. Total assets were $285.6 million as of June 30, 1999, a decrease
of $0.3 million or 0.1% from the $285.9 million as of December 31,
1998.
Total interest-earning assets were $256.6 million as of June 30,
1999, an increase of $0.9 million or 0.4% from the $255.7 million as of
December 31, 1998. The increase resulted from increases in the loan
and securities portfolios in spite of a decrease in federal funds sold.
The Company continues to focus its efforts on originating quality
loans. The new loans originated and securities purchased in the first
six months of 1999 were funded primarily from the federal funds sold.
The investment securities portfolio was $61.5 million as of June 30,
1999, an increase of $3.2 million or 5.5% from the $58.3 million as of
December 31, 1998. The increase in the first six months of 1999
resulted from the continued purchasing of investment securities. 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. The market values decreased in the first six months of
1999 resulting from an increase in short-term and long-term interest
rates.
The loan portfolio was $145.4 million as of June 30, 1999, an
increase of $5.3 million or 3.8% from the $140.1 million as of December
31, 1998. The increase in the first six months of 1999 resulted from
continued 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 $259.0 million as of June 30, 1999, a decrease
of $1.3 million or 0.5% from the $260.3 million as of December 31,
1998. The decrease in the first six months of 1999 resulted from large
withdrawals by customers in the first quarter of 1999. The second
quarter of 1999 reflects a strong economic climate amongst the large
customers of the Bank and the increase in new customers of the Bank.
<PAGE>
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 56.1% and 53.8% as of June 30, 1999
and December 31, 1998, respectively. The slight increase in this ratio
resulted as the loans increased at a higher rate than the deposits.
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 39.1% as of both June 30, 1999 and December 31,
1998. The liquid asset ratio remained unchanged resulting from a
slight decrease in both liquid assets and 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 $54.6 million as of June 30,
1999. The Company has a borrowing capacity of $14.5 million with the
FHLB. The Company would need to pledge certain defined collateral,
consisting of loans and/or securities, with the FHLB prior to
borrowing. Liquidity can also be obtained through federal funds
purchased from correspondent banks and/or direct borrowings from the
Federal Reserve Bank. The Company currently has unused Federal Funds
borrowing lines of $10.0 million with various banks.
Management believes the Bank has sufficient liquidity to meet its
loan commitments, deposit withdrawals and operating costs.
<PAGE>
Investment Securities Portfolio
<TABLE>
There are no securities from a single issuer, other than securities
of the U.S. Government, Agencies and corporations, whose aggregate
market value is greater than 10% of stockholders' equity. The Bank
does not invest in derivative financial instruments. The Bank
purchases mortgage-backed securities of investment grade only. The
following schedule presents the Bank's investment securities portfolio:
<CAPTION>
June 30, 1999 December 31, 1998
Amortized Market Amortized Market
Cost Value Cost Value
(dollars in thousands)
<S> <C> <C> <C> <C>
Held-to-maturity
Mortgage-backed securities $13,418 $12,263 $17,640 $17,691
Available-for-sale
U.S. Government Agency Securities $24,216 $24,061 $14,503 $14,512
Mortgage-backed securities 23,505 22,995 25,241 25,226
Other 1,028 1,028 911 911
$48,749 $48,084 $40,655 $40,649
Total $62,167 $60,347 $58,295 $58,340
</TABLE>
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 broad categories 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 66.6%, 25.3%, and 8.0%, respectively, of the Bank's loan portfolio
as of June 30, 1999. Commercial real estate loans are originated for
terms of up to 25 years. 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.
Variable interest rate loans comprise 65.1% of the loan portfolio as
of June 30, 1999.
The Bank had standby letters of credit of $0.5 million and
commitments to extend credit of $25.0 million as of June 30, 1999. 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.
<PAGE>
Loan Portfolio Composition
<TABLE>
The composition of the Bank's loan portfolio (all domestic) is
presented in the following table:
<CAPTION>
Jun 30 Dec 31
1999 1998
(dollars in thousands)
<S> <C> <C>
Dollars
Real estate
Commercial $ 95,463 $ 86,049
Construction 3,171 5,074
Commercial and industrial 37,429 40,217
Loans to individuals 11,818 11,180
Other 172 241
Total 148,053 142,761
Unearned net loan fees and premiums (1,013) (1,097)
Allowance for credit losses (1,620) (1,524)
Total, net $145,420 $140,140
Percentages
Real estate
Commercial 64.5% 60.3%
Construction 2.1 3.6
Commercial and industrial 25.3 28.2
Loans to individuals 8.0 7.8
Other 0.1 0.1
Total 100.0% 100.0%
</TABLE>
<PAGE>
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 loans
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.
<PAGE>
<TABLE>
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:
<CAPTION>
Jun 30 Dec 31
1999 1998
(dollars in thousands)
<S> <C> <C>
Loans on nonaccrual status $1,218 $1,631
Loans past due 90 days or more and
still accruing interest 75 76
Total $1,293 $1,701
</TABLE>
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 $865,000.
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 June 30, 1999 and December 31, 1998.
<PAGE>
<TABLE>
The following table presents loans outstanding, the activity of the
allowance for credit losses, and pertinent ratios during the three and
six months ended and as of June 30:
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(dollars in thousands)
<S> <C> <C> <C> <C>
Average gross loans $147,307 $142,564 $144,802 $140,489
Total gross loans at end of period $147,039 $140,027 $147,039 $140,027
Allowance for credit losses:
Balance, beginning of period $1,596 $1,553 $1,524 $1,581
Charge-offs (3) (16) (5) (56)
Recoveries 7 10 11 22
Net (charge-offs) recoveries 4 (6) 6 (34)
Provisions charged to operations 20 20 90 20
Balance, end of period $1,620 $1,567 $1,620 $1,567
Net (charge-offs) recoveries
during the period to average
gross loans outstanding
during period 0.00% (0.00%) 0.00% (0.02%)
</TABLE>
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.
<PAGE>
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 and other borrowing facilities. 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 regularly sells such excess funds
as federal funds sold to other financial institutions.
The Bank's deposits are attracted primarily from commercial
enterprises and individuals. 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, nor does the Bank currently expect to obtain future funding
through these types of deposits. The Bank had noninterest-bearing
demand deposits of $94.1 million, interest-bearing Negotiable Orders of
Withdrawal Accounts ("NOW") and Money Market Deposit Accounts ("MMDA")
of $118.6 million, time deposits of $33.3 million, and savings accounts
of $13.0 million as of June 30, 1999.
The Company had interest-bearing deposits of 63.7% and 61.7% of
total deposits as of June 30, 1999 and December 31, 1998, respectively.
While the Bank does not experience material seasonal fluctuations in
deposit levels, the Bank's relative growth in deposits and loans and
level of liquidity may be affected by seasonal and economic changes of
its customers. Management believes it has sufficient liquidity to fund
loan commitments, deposit demands and operating costs.
<TABLE>
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 first six months of 1999 and for the
year 1998:
<CAPTION>
MMDA Total
Demand and NOW Savings Time Deposits
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
June 30, 1999
Average balance $91,290 $111,667 $12,755 $32,774 $248,486
Percent of total 36.7% 44.9% 5.1% 13.3% 100.0%
Average interest
rate paid 0.0% 2.2% 2.0% 4.4% 1.7%
December 31, 1998
Average balance $84,499 $103,142 $12,186 $28,088 $227,915
Percent of total 37.1% 45.3% 5.3% 12.3% 100.0%
Average interest
rate paid 0.0% 2.4% 2.0% 5.0% 1.8%
</TABLE>
<PAGE>
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 June
30, 1999.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
June 30, 1999
Total capital
(to risk-weighted
assets) $25,718 13.9% $14,840 8.0% $18,549 10.0%
Tier 1 capital
(to risk-weighted
assets) 24,098 13.0% 7,420 4.0% 11,130 6.0%
Tier 1 capital
(to average assets) 24,098 8.7% 11,098 4.0% 13,873 5.0%
December 31, 1998
Total capital
(to risk-weighted
assets) $24,484 13.7% $14,314 8.0% $17,893 10.0%
Tier 1 capital
(to risk-weighted
assets) 22,960 12.8% 7,157 4.0% 10,736 6.0%
Tier 1 capital
(to average assets) 22,960 8.4% 10,942 4.0% 13,678 5.0%
</TABLE>
Management believes that the Bank is properly and adequately
capitalized, as evidenced by these ratios as of June 30, 1999. 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.
<PAGE>
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.
<PAGE>
Year 2000 Issue
The "Year 2000 issue" results from the fact that many computer
programs use only two digits to represent a year, such as "98" to
represent "1998," which means that in the Year 2000 such programs could
incorrectly treat the Year 2000 as the year 1900. This issue has grown
in importance as the use of computers and microchips has become more
pervasive throughout the economy, and interdependencies between systems
have multiplied. The issue must be recognized as a business problem,
rather than simply a computer problem, because of the way its effects
could ripple through the economy. The Year 2000 issue could materially
and adversely affect the Company either directly or indirectly. This
could happen if any of its critical computer systems or equipment
containing embedded logic fail, if the local infrastructure (electric
power, phone system, or water system) fails, if its significant vendors
are adversely impacted, or if its borrowers or depositors are adversely
impacted by their internal systems or those of their customers or
suppliers. Failure of the Company to complete testing and renovation
of its critical systems on a timely basis could have a material adverse
effect on the Company's financial condition and results of operations,
as could Year 2000 problems faced by others with whom the Company does
business.
Federal banking regulators have responsibility for supervision and
examination of banks to determine whether each institution has an
effective plan for identifying, renovating, testing and implementing
solutions for Year 2000 processing and coordinating Year 2000
processing capabilities with its customers, vendors and payment system
partners. Bank examiners are also required to assess the soundness of
a bank's internal controls and to identify whether further corrective
action may be necessary to assure an appropriate level of attention to
Year 2000 processing capabilities.
The Company has a written plan to address its risks associated with
the impact of the Year 2000. The plan directs the Company's Year 2000
compliance efforts under the framework of a five-step program mandated
by the Federal Financial Institutions Examination Council ("FFIEC").
The FFIEC's five-step program consists of five phases: awareness,
assessment, renovation, validation and implementation. In the
awareness phase, which the Company has completed, the Year 2000 problem
is defined and executive level support for the necessary resources to
prepare the Company for Year 2000 compliance is obtained. In the
assessment phase, which the Company has also completed, the size and
complexity of the problem and details of the effort necessary to
address the Year 2000 issues are assessed. Although the awareness and
assessment phases are completed, the Company continues to evaluate new
issues as they arise. In the renovation phase, which the Company has
completed, the required incremental changes to hardware and software
components are installed. In the validation phase, which the Company
has also completed, the hardware and software components are tested.
In the implementation phase, which the Company has also completed,
changes to hardware and components are brought on line and re-testing
of such changes are completed.
<PAGE>
The Company has used both internal and external resources to
identify, correct or reprogram, and test its systems for Year 2000
compliance. The Company has identified 25 vendor or software
applications which management believes are material to its operations.
Based on information received from its vendors and testing results, the
Company believes that substantially all material applications of its
operations are Year 2000 compliant as of June 30, 1999. The Company
has not identified any material applications that the Company does not
believe are fully Year 2000 compliant as of June 30, 1999.
The Company is also making efforts to ensure that its customers,
particularly its significant customers, are aware of the Year 2000
problem. The Company has either sent Year 2000 correspondence to, or
met personally with its significant deposit and loan customers. A
customer of the Company is deemed significant if the customer possesses
either of the following characteristics: (1) total indebtedness to the
Company of $500,000 or more, or (2) an average ledger deposit balance
greater than $500,000.
The Company has amended its credit authorization documentation to
include consideration of the Year 2000 problem. The Company assesses
its significant customer's Year 2000 readiness and assigns the customer
an assessment of "low," "medium" or "high" risk. Risk evaluation of
the Company's significant customers was completed in September 1998.
The Company evaluates any depositor or lending customer determined to
have a high or medium risk on an ongoing basis. Currently, 2% of loan
customers are considered high risk and are being monitored closely for
progress. Substantially all deposit customers are either low risk or
compliant, the exception being those loan customers considered high
risk.
It is impossible to quantify the total potential cost of Year 2000
problems or to determine the Company's worst-case scenario in the event
the Company's Year 2000 remediation efforts or the efforts of those
with whom it does business are not successful, due to the wide range of
possible issues and large number of variables involved. In order to
deal with the uncertainty associated with the Year 2000 problem, the
Company has developed a contingency plan to address the possibility
that efforts to mitigate the Year 2000 risk are not successful either
in whole or part. These plans include but are not limited to manual
processing of information for critical information technology systems
and having increased cash on hand. The contingency plan will be
validated, after which the appropriate implementation training will be
scheduled.
The Company incurred and expensed $0.1 million of Year 2000 costs
through June 30, 1999. These Year 2000-related costs have been funded
from the continuing operations of the Company. These costs were
approximately 7% of the Company's information systems budget. The
Company currently estimates its costs to complete its Year 2000
compliance at approximately $0.3 million. This estimate includes the
cost of purchasing hardware and software licenses, the cost of the time
of internal staff and the cost of consultants. Testing is not expected
to add significant incremental costs.
<PAGE>
Current Accounting Developments
In June 1998, FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company does not invest in derivative
instruments nor engage in hedging activities.
Management does not believe the application of the Statement to
transactions of the Bank that have been typical in the past will
materially affect the Bank's financial position and results of
operations.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
<TABLE>
The following table presents the repricing periods for interest-
earning assets and interest-bearing liabilities and the related
repricing gaps as of June 30, 1999:
<CAPTION>
After one
Due within Due within but within After
0-3 months 4-12 months five years five years Total
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning
assets (1) $145,907 $ 19,428 $46,579 $40,850 $252,764
Interest-bearing
liabilities 156,791 6,689 1,434 - 164,914
Repricing gap (10,884) 12,739 45,145 40,850 87,850
Cumulative
repricing gap $(10,884) $ 1,855 $47,000 $87,850
Cumulative gap
as a percent
of earning assets (4.3%) 0.7% 18.6% 34.8%
<FN>
(1) Includes collateralized mortgage obligations in the one-year to
five-year maturities based on the average expected lives.
</FN>
</TABLE>
The Company had interest-earning assets of $145.9 million and
interest-bearing demand and savings deposits of $131.6 million as of
June 30, 1999 that are able to reprice overnight.
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 $0.9 million.
<PAGE>
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
A. The Annual Meeting of Stockholders was held on May 17,
1999.
B. The Stockholders elected the following Directors for a
one-year term during the Annual Meeting:
Michael W. Abdalla
Michael J. Christianson
Kenneth J. Cosgrove
Robert W. Creighton
Charles R. Foulger
Gerald R. Holte
James E. Mahoney
Wayne F. Miller
San E. Vaccaro
All votes, including those by proxy, resulted in the
election of all management nominees. Additionally,
there was no solicitation in opposition to management's
nominees.
C. The Stockholders ratified the appointment of McGladrey &
Pullen, LLP as independent public accountants for the
Company for the year 1999 during the Annual Meeting.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
During the second quarter of 1999, the Company a filed a
report on Form 8-K dated June 2, 1999. The Form 8-K was filed
pursuant to Item 5 of the report, whereby the Company entered
into a merger agreement with CVB Financial Corp. The Bank
will be merged into Citizen Business Bank, a subsidiary of CVB
at the close of the transaction. The transaction is expected
to be accounted for using the "pooling-of-interests" method of
accounting.
<PAGE>
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: AUGUST 13, 1999
Kenneth J. Cosgrove, President
and Chief Executive Officer
By: /s/ ROBERT W. CREIGHTON Date: AUGUST 13, 1999
Robert W. Creighton, Secretary
and Chief Financial Officer
By: /s/ JERRO M. OTSUKI Date: AUGUST 13, 1999
Jerro M. Otsuki, Vice President
and Controller
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000801443
<NAME> ORANGE NATIONAL BANCORP
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 16105
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 49300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48084
<INVESTMENTS-CARRYING> 13418
<INVESTMENTS-MARKET> 12263
<LOANS> 145420
<ALLOWANCE> 1620
<TOTAL-ASSETS> 285635
<DEPOSITS> 258991
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2133
<LONG-TERM> 0
0
0
<COMMON> 8081
<OTHER-SE> 16430
<TOTAL-LIABILITIES-AND-EQUITY> 285635
<INTEREST-LOAN> 6757
<INTEREST-INVEST> 1851
<INTEREST-OTHER> 877
<INTEREST-TOTAL> 9485
<INTEREST-DEPOSIT> 2073
<INTEREST-EXPENSE> 2073
<INTEREST-INCOME-NET> 7412
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6065
<INCOME-PRETAX> 2830
<INCOME-PRE-EXTRAORDINARY> 2830
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1719
<EPS-BASIC> 0.86
<EPS-DILUTED> 0.83
<YIELD-ACTUAL> 7.73
<LOANS-NON> 1218
<LOANS-PAST> 75
<LOANS-TROUBLED> 154
<LOANS-PROBLEM> 431
<ALLOWANCE-OPEN> 1524
<CHARGE-OFFS> 5
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 1620
<ALLOWANCE-DOMESTIC> 1620
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
