-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PqCHIEAkd9RdDaiYf6bpePOCyzXmICBhU0wpYwySaORdCzs3mSrUXFEkBnz/SR7q QqdFrE2hmzyzNWrVW3Y+Mw== 0000801443-96-000002.txt : 19960402 0000801443-96-000002.hdr.sgml : 19960402 ACCESSION NUMBER: 0000801443-96-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORANGE NATIONAL BANCORP CENTRAL INDEX KEY: 0000801443 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 330190684 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15365 FILM NUMBER: 96542563 BUSINESS ADDRESS: STREET 1: P O BOX 6040 CITY: ORANGE STATE: CA ZIP: 92613-6040 BUSINESS PHONE: 7147714000 MAIL ADDRESS: STREET 1: P O BOX 6040 CITY: ORANGE STATE: CA ZIP: 92613-6040 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from....................................... to............................................. Commission File No. 33-8743 Orange National Bancorp (Exact Name of Registrant as Specified in Charter) California (State or Other Jurisdiction of Incorporation or Organization) 33-0190684 (I.R.S. Employer Identification No.) 1201 E. Katella Avenue Orange, California (Address of Principal Executive Offices) 92667 (Zip Code) Registrant's telephone number, including area code (714) 771-4000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock (Title of Class) 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 No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. As of February 15,1996, the aggregate market value of the voting shares held by nonaffiliates of the Registrant was approximately $13,638,353. The aggregate market value of the voting shares held by nonaffiliates includes all stockholders except officers and directors and was computed based on a market price which resulted from a recent trade. 1,937,646 Shares of Common Stock were outstanding at March 15, 1996. DOCUMENTS INCORPORATED BY REFERENCE Document Incorporated Part of Form 10-K into which incorporated Definitive Proxy Statement for the Annual Meeting of Stockholders to be filed within 120 days of the fiscal year ended December 31, 1995 Part III TABLE OF CONTENTS PART I ITEM Page 1. Business 4-20 2. Properties 20 3. Legal Proceedings 20 4. Submissions of Matters to a Vote of Security Holders 20 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters21 6. Selected Financial Data 21 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 22-27 8. Financial Statements and Supplementary Data 27 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 27 PART III 10. Directors and Executive Officers of the Registrant 28 11. Executive Compensation 28 12. Security Ownership of Certain Beneficial Owners and Management28 13. Certain Relationships and Related Transactions 28 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K29 Signatures 30-31 Index to Exhibits 32 PART I. ITEM 1. BUSINESS General Orange National Bancorp (the "Bancorp") was organized and incorporated under the laws of the State of California on July 28, 1986, at the direction of the Board of Directors of Orange National Bank (the "Bank") and for the purpose of becoming a bank holding company to acquire all the outstanding capital stock of the Bank. The principal location of the Bancorp and its operations is at the head office of the Bank located at 1201 East Katella Avenue, Orange, CA 92667. On January 16, 1987, with the approval of the Comptroller of the Currency and the Federal Reserve Bank of San Francisco, the Bank became a wholly-owned subsidiary of the Bancorp, and the Bancorp commenced operations as a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended, and became subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. Substantially all consolidated operating income and net income is presently derived from banking related activities. For the foreseeable future, it is expected that such banking related activities will continue to represent the Bancorp's primary source of operating income and net income. In 1992, the Bancorp formed a new subsidiary to perform mortgage brokerage services. In 1993, the Company began mortgage banking operations including origination, sale and servicing of mortgage loans. During 1994, the Company ceased its mortgage banking operations and there were no gains or losses on the disposal of the Segment. The Bank was organized and chartered as a national banking association on October 31, 1979 and opened for business on the same date. The Bank currently has six offices. Its head office is located at 1201 East Katella Avenue, Orange, California 92667 and the five branch offices are located at 77 Plaza Square, Orange, California 92666; 2019 West Orangewood Avenue, Orange, California 92668; 7510 East Chapman Avenue, Orange, California 92669; 800 Glenneyre Road, Laguna Beach, California 92651; and 25255 Cabot Road, Laguna Hills, California 92653. Additional administration offices are located at 2117 West Orangewood Avenue, Orange, California 92668 and at 115 and 274 North Glassell Street, Orange, California 92666. Narrative Description of Business The Bancorp is engaged in the ownership of one commercial bank. During 1993 and 1994 the Bancorp was involved in mortgage banking operations. These operations were discontinued in 1994. The Bancorp does not consider its business to be seasonal nor is any material part of the business of the Bancorp and its subsidiaries dependent upon a single customer or a few customers and the loss of any one customer would not have a material adverse effect upon the Bancorp or its subsidiary. Neither the Bancorp nor its subsidiary are engaged in operations outside the United States or derive a portion of revenues from customers located outside of the United States. Losses from the discontinued mortgage banking operations totaled $224,000 in 1994 and $258,000 in 1993. The Bank offers a full range of commercial banking services, including the acceptance of demand, savings and time deposits, and the making of commercial, real estate, Small Business Administration, personal, home improvement, automobile, and other installment and term loans. It also offers travelers' checks, safe deposit boxes, notary public, international banking, and other customary bank services to its customers, except trust services. The Bank's lobby is open from 9:00 a.m. to 5:00 p.m., Monday through Thursday, and 9:00 a.m. through 6:00 p.m. on Friday. In addition, drive-up services are available at the Bank's main office. The Bank is insured by Federal Deposit Insurance Corporation and is a member of the Federal Reserve System. Narrative Description of Business (Continued) The Bank currently does not issue VISA or MASTERCARD credit cards but honors merchant drafts under both types of cards, and its customers are offered MASTERCARD and VISA credits cards through one of its correspondent banks. In addition, although management of the Bank believes there is a need for trust services in its service area, the Bank does not operate or have any present intention to seek authority to operate a trust department since management of the Bank believes that the costs of establishing and operating such a department would not be justified by the potential income to be gained therefrom. The three general areas in which the Bank has directed virtually all of its lending activities are (I) commercial loans, (ii) loans to individuals, and (iii) residential, commercial, and construction real estate loans. As of December 31, 1995, these three categories accounted for approximately 36.2%, 9.1%, and 53.7%, respectively, of the Bank's loan portfolio. The Bank's commercial loans are primarily to small and medium sized businesses and are for terms ranging primarily from 30 days to 5 years, with the majority of loans being due within one year. Consumer installment loans are for a maximum term of 48 months for unsecured loans and for a term of the depreciable life of tangible property used as collateral for secured loans. Commercial real estate loans are generally for terms of up to 5 years. Approximately 85% of loans are written with variable interest rates. As of December 31, 1995, the Bank has total unused loan and credit commitments of $25,272,000 of which $1,533,000 were standby letters of credit and $23,739,000 were commitments to grant loans. The Bank presently has sufficientliquidity to fund all loan commitments. Although the loan portfolio is diversified, as of December 31, 1995, the Bank is the creditor for approximately $4.8 million of loans to companies or individuals and approximately $6.3 million in loan commitments which are unsecured. The Bank's policy for requiring collateral is to obtain collateral whenever it is available or desirable, depending upon the degree of risk the Bank is willing to undertake. 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 nor does it anticipate originating any brokered deposits. As of December 31, 1995, the Bank had approximately $70.2 million in total noninterest bearing demand deposits, $12.5 million in savings, $14.6 million in time deposits for individuals and corporations, and $91.7 million in NOW and money market accounts. As of December 31, 1995, the Bank had total deposits of approximately $189.0 million. This total accounted for approximately 13% of the total deposits in the City of Orange and surrounding service area, and approximately 1% of the total deposits in the Laguna Beach area. The principal source of the Bank's income are interest and fees and other charges from the Bank's loan portfolio and interest income on the Bank's investments. For 1995, these sources comprised approximately 66.9% and 18.7%, respectively, of the Bank's total income for this period. The remaining significant sources of income are from fees on deposit accounts and other customer services. Distribution of Assets, Liabilities, and Stockholders' Equity The following schedule shows the average balance of the Bancorp's assets, liabilities, and stockholders' equity accounts and the percentage distribution of the items, computed using the average daily balances for the periods indicated. Percentages indicated below are percentages of total average assets. (In thousands of dollars, except percent amounts.):
Year Ended December 31, ASSETS 1995 1994 Cash and due from banks $19,679 9.5% $18,934 9.8% Interest bearing deposits at financial institutions 0 0 2 0 Securities 43,073 20.8 32,960 17.0 Federal funds sold 20,372 9.9 19,944 10.3 Loans 114,820 55.4 114,718 59.3 Less allowance for loan losses (1,601) (0.7) (1,562) (0.8) Net loans 113,219 54.7 113,156 58.5 Bank premises and equipment, net 5,483 2.7 5,492 2.8 Accrued interest receivable and other assets 5,101 2.4 3,143 1.6 TOTAL ASSETS $206,927 100.0% $193,631 100.0% LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing, demand $64,372 31.1% $59,628 30.8% Market rate and money market, demand 99,182 47.9 90,734 46.9 Savings 13,474 6.5 14,229 7.3 Time 12,511 6.1 13,650 7.1 Total deposits 189,539 91.6 178,241 92.1 Other liabilities 1,286 0.6 869 0.4 Total liabilities 190,825 92.2 179,110 92.5 Stockholders' equity: Common stock 7,109 3.4 6,848 3.5 Retained earnings 8,993 4.4 7,673 4.0 Total stockholders' equity 16,102 7.8 14,521 7.5 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $206,927 100.0% $193,631 100.0%
ASSETS 1993 Cash and due from banks $18,812 10.1% Interest bearing deposits at financial institutions 4,266 2.3 Securities 8,930 4.8 Federal funds sold 28,522 15.3 Loans 118,774 63.7 Less allowance for loan losses (1,732) (0.9) Net loans 117,041 62.8 Bank premises and equipment, net 5,619 3.0 Accrued interest receivable and other assets 3,213 1.7 TOTAL ASSETS $186,403 100.0% LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing, demand $51,141 27.4% Market rate and money market, demand 88,661 47.6 Savings 14,354 7.7 Time 14,923 8.0 Total deposits $169,079 90.7 Other liabilities 2,540 1.4 Total liabilities 171,619 92.1 Stockholders' equity: Common stock 6,848 3.5 Retained earnings 7,936 4.2 Total stockholders' equity 14,784 7.9 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $186,403 100.0%
Interest Income Rates Certain information concerning average interest-earning assets and yields thereon is set forth in the following chart. Amounts outstanding are the average daily balances for the respective periods. Yields and amounts earned include loan origination fees. Non-accrual loans have been included for the purposes of this analysis. Tax exempt income is not presented on a tax equivalent basis as the amounts are not material. (In thousands of dollars, except percent amounts.):
Year Ended December 31, Category 1995 1994 1993 Interest bearing deposits at financial institutions: Average outstanding $- $2 $4,266 Average yield - - 3.59% Amount of interest earned - - $153 Securities: Average outstanding $43,073 $32,960 $8,930 Average yield 5.74% 4.87% 4.87% Amount of interest earned $2,471 $1,606 $435 Federal funds sold: Average outstanding $20,372 $19,944 $28,522 Average yield 5.63% 4.12% 2.82% Amount of interest earned $1,146 $822 $805 Net loans: Average outstanding $113,219 $113,156 $117,041 Average yield 11.44% 10.15% 9.42% Amount of interest and fees earned $12,954 $11,480 $11,022 Total earning assets: Average outstanding $176,664 166,062 $158,759 Average yield 9.38% 8.38% 7.82% Amount of interest earned $16,571 $13,908 $12,415
Interest Expense Rates The following table sets forth the Bancorp's amount of savings and time deposits and other borrowings and the average rate paid on such deposits and borrowings for the periods indicated. (In thousands of dollars, except percent amounts.) Amounts outstanding are the average daily balances outstanding for the respective periods:
Category Year Ended December 31, 1995 1994 1993 Market rate and money market deposits(1) Average outstanding $99,182 $90,734 $88,661 Average rate paid 2.34% 2.01% 2.10% Amount of interest paid or accrued $2,325 $1,826 $1,865 Savings: Average outstanding $13,474 $14,229 $14,354 Average rate paid 1.98% 2.00% 2.30% Amount or interest paid or accrued $267 $285 $330 Time: Average outstanding $12,511 $13,650 $14,923 Average rate paid 4.39% 2.90% 2.87% Amount of interest paid or accrued $549 $396 $428 Total interest-bearing liabilities: Average outstanding $125,167 $118,613 $117,938 Average rate paid 2.51% 2.11% 2.22% Interest expense $3,141 $2,507 $2,623 (1) Market rate and money market deposits include only interest-bearing transaction accounts. Net Yield on Interest- Earning Assets 7.60% 6.87% 6.17%
Rate/Volume Analysis of Net Interest Income The following table sets forth the cause and amounts of change in interest earned and paid for the periods indicated (In thousands of dollars):
1995 over 1994 (1) Volume Rate Total Increase (decrease) in: Interest income: Interest-bearing deposits at financial institutions $-0- $-0- $-0- Investment securities 493 372 865 Federal funds sold 18 306 324 Net loans 6 1,468 1,474 Total earning assets $517 $2,146 $2,663 Interest expense: Market rate and money market deposits $170 $329 $499 Savings deposits (15) (3) (18) Time deposits (33) 186 153 Total Interest-bearing liabilities $122 $512 $634
Increase (decrease) in: Interest income: Interest-bearing deposits at financial institutions $(153) $-0- $(153) Investment securities 1,170 1 1,171 Federal funds sold (242) 259 17 Net loans (366) 824 458 Total earning assets $409 $1,084 $1,493 Interest expense: Market rate and money market deposits $44 $(83) $(39) Savings deposits (3) (42) (45) Time deposits (37) 5 (32) Total Interest-bearing liabilities $4 $(120) $(116)
(1)The variance not solely due to rate or volume is allocated to the rate variances. Non-accrual loans have been included for the purpose of this analysis. Loan fees of approximately $1,089,000 for 1995 , $1,153,000 for 1994, and $1,042,000 for 1993 have been included for purposes of this analysis. Tax exempt income is not presented on a tax equivalent basis as the amounts are not material. Securities The Bank's Board of Directors reviews all securities transactions on a monthly basis. 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 following schedule summarizes the amounts and the distribution of the Bank's securities held to maturity as of the dates indicated (in thousands of dollars)
December 31, 1995 1994 Amortized Market Amortized Market Cost (1) Value Cost (1) Value Mortgage-backed securities $12,479 $12,421 $12,857 $11,745 U.S. Treasury securities and obligations of other U.S. Government agencies and corporations -0- -0- 8,873 8,649 Other 174 174 174 174 Total $12,653 $12,595 $21,904 $20,568
1993 Amortized Market Cost (1) Value Mortgage-backed securities $9,076 $8,959 U.S. Treasury securities and obligations of other U.S. Government agencies and corporations 999 975 Other 174 174 Total $10,249 $10,108
(1)Securities held to maturity are stated at cost as disclosed in the notes to financial statements, adjusted for amortization of premium and accretion of discount. The securities classified as available for sale as of the dates indicated are as follows (in thousands of dollars):
December 31, 1995 1994 Amortized Market Amortized Market Cost Value (2) Cost Value(2) U.S. Treasury securities and obligations of other U.S. Government agencies and corporations $24,984 $24,914 $15,940 $15,377 Mortgage-backed securities 2,018 1,994 4,024 3,871 Total $27,002 $26,908 $19,964 $19,248
1993 Amortized Market Cost Value (2) (2)Securities available for sale are stated at market value with unrealized gains and losses being reported as an adjustment to stockholders' equity net of the related tax effect. None of the mortgage-backed securities are classified as "high risk" by the Bank's regulators. On March 31, 1994, the Company transferred certain securities from available for sale to held to maturity. The amortized cost and fair value of the securities at date of transfer were $5,972,000 and $5,701,000, respectively. Amortized cost of held to maturity securities is presented net of approximately $192,000 of unrealized loss on the securities transferred from available for sale. Securities (continued) On December 29, 1995 the Company reassessed the appropriateness of the classification of all securities in accordance with the issuance of Financial Accounting Standards Board Guide to Implementation of Statement No. 115 on Accounting for Certain Investments in Debt and Equity Securities. As a result, the Company transferred debt securities at their fair value of $4,995,483 on December 29, 1995 previously classified as held-to-maturity into available-for-sale securities and recorded an unrealized holding loss of $3,827. Maturity of Investment Securities The following table summarizes the maturity of the Bancorp's and Bank's securities and weighted average yield as of December 31 1995 (in thousands of dollars, except percent amounts):
Principal Amount Book Value(1) Average Yield(2) Mortgage-backed securities(3) $14,641 $14,473 5.28% U.S. Treasury Securities and obligations of U.S. Government Agencies and corporations: Due within one year 6,000 6,004 5.62% Due after one year but within five years 19,000 18,910 5.77% Other 174 174 5.87% Total Securities $39,815 $39,561 5.57%
(1)Securities held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts, securities available for sale are recorded at quoted market values. (2)Weighted average yield is the yield on the book value of the security computed on the coupon rate and amortization of premium and accretion of discount. (3)Mortgage-backed securities are not scheduled for maturities due to the periodic principal payments received and unknown amount of expected prepayments. Loan Portfolio A major part of the Bank's objective is serving the legitimate credit needs of clientele in central Orange County and surrounding areas. Credit decisions have been based upon the best judgement of the Bank's lending personnel, giving full recognition to the needs and limitations of the Bank due to its size and staff. Legal lending limits to each customer are restricted to a percentage of the Bank's total stockholders' equity, the exact percentage depending upon 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 highly diversified portfolio and a loan review procedure which management believes serves to minimize the possibility of material loss. The allowance for credit losses is established through a provision for credit losses charged to expense. Loans are charged against the allowance for credit losses when management believes that collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb estimated losses on existing loans that may become uncollectible, based on evaluation of the collectibility of loans and prior loan loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower's ability to pay. 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 Office of the Comptroller of the Currency (OCC), as an integral part of their examination process, periodically reviews the Company's allowance for credit losses, 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. 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. 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. Types of Loans The types of the Bank's total loans (all domestic) as of the dates indicated are shown in the following table (in thousands of dollars, except percent amounts):
December 31, 1995 1994 TYPE OF LOAN Real estate, mortgage (includes only loans secured primarily by real estate $61,084 53.5% $61,345 53.7% Mortgage loans held for sale - - - - Real estate, construction 242 0.2% 2,286 2.0% Commercial and industrial 41,361 36.2% 40,976 35.9% Loans to individuals 10,343 9.1% 9,384 8.2% Other 1,207 1.0% 177 0.2% TOTAL LOANS $114,237 100% $114,168 100% Less allowance for possible loan losses (1,513) (1,465) TOTAL NET LOANS $112,724 $112,703
December 31, 1993 1992 TYPE OF LOAN Real estate, mortgage (includes only loans secured primarily by real estate $64,310 55.9% $61,816 52.1% Mortgage loans held for sale 2,050 1.8% - - Real estate, construction 3,473 3.0% 7,097 6.0% Commercial and industrial 34,376 29.8% 38,432 32.4% Loans to individuals 10,127 8.8% 10,455 8.8% Other 858 0.7% 890 0.7% TOTAL LOANS $115,194 100% $118,690 100% Less allowance for possible loan losses (1,524) (1,425) TOTAL NET LOANS $113,670 $117,265
[CAPTION] December 31, 1991 [S] [C] [C] TYPE OF LOAN Real estate, mortgage (includes only loans secured primarily by real estate $51,527 44.8% Mortgage loans held for sale - - Real estate, construction 5,472 4.7% Commercial and industrial 42,710 37.2% Loans to individuals 11,225 9.8% Other 4,007 3.5% TOTAL LOANS $114,941 100% Less allowance for possible loan losses ( 950) TOTAL NET LOANS $113,991 [/TABLE] Included in the loans above are approximately $4,753,000, $3,743,000, $4,236,000, $4,037,000 and $5,385,000 from companies or individuals which are unsecured as of December 31, 1995,1994,1993, 1992 and 1991, respectively. Loan Maturities and Sensitivity to Changes in Interest Rates The following table (in thousands of dollars) sets forth the maturity distribution of the Bank's total net loans by category as of December 31 1995. In addition, the table shows the distribution between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates. Floating rates generally fluctuate with changes in the Bank's interest cost:
Within one After one but After year (1) within five five years years Commercial and industrial $34,755 $5,864 $742 Real estate construction 242 -0- -0- Distribution between fixed and floating interest rates after one year: Fixed interest rates 403 50 Floating interest rates 5,561 692
(1)Demand loans and overdrafts are shown as "within one year" and scheduled repayments are reported in the maturing periods in which the final payments are due. Credit Risk Management In managing its loan portfolio, the Bank utilizes procedures designed to assure acceptable quality and to bring any potential losses or potential defaultsin 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 responsible. The Bank's Senior Vice President and Senior Credit Officer is responsible for general supervision of the loan portfolio and adherence by the loan officers to the loan policy of the Bank. The Bank has an outside consulting firm to periodically review the loan portfolio to provide suggested risk rating of the loans. Bank management reviews the suggested ratings along with all other available information to properly monitor the loan portfolio. In accordance with the Bank's policies, management presents a written report to the Bank's Board of Directors at the monthly Board of Directors meeting. The Directors review the list of all loans which are 30 days or more past due and the loans on the Bank's watch list which include loans having increased credit risk over the rest of the portfolio. Additionally, the report incudes a listing of all loans made the prior month. Management and the Board of Directors also review all loan evaluations made during periodic examinations by the Officer of the Comptroller of the Currency. Credit Risk Management (continued) As previously noted, the Bank maintains an allowance for credit losses to provide for losses in the loan portfolio. Additions to the allowance for credit losses are made by charges to operating expenses in the form of a provision for possible credit losses. All loans which are judged to be uncollectible are charged against the allowance while any recoveries are credited to 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 feature 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. The following table sets forth information with respect to loans which were accounted for on a non-accrual basis or contractually past due 90 days or more as to interest or principal payments, or restructured (in thousands of dollars):
At December 31, 1995 1994 1993 1992 1991 Loans on non-accrual basis $3,055 $3163 $2,744 $3,100 $310 Loans past due 90 days or more and still accruing interest 33 158 46 958 347 Troubled debt restructuring, and not included above -0- -0- -0- -0- -0- Total $3,088 $3,321 $2,790 $4,058 $657
If all such loans had been current in accordance with their original terms during the year ended December 31, 1995, approximately $273,000 would have been the gross interest income. The amount of interest income included in income on these non-accrual loans during the year ended December 31, 1995 was approximately $68,000. Loans are generally placed on non-accrual status when principal or interest payments are past due 90 days or more. Certain loans are placed on non-accrual status earlier if there is reasonable doubt as to the collectibility of interest or principal. Loans which are in the process of renewal in the normal course of business, or are well secured, and in the process of collection, continue to accrue interest Management has no knowledge of any additional loans not disclosed in this section on non-accrual, past due, or troubled debt restructuring that may be potential problem loans. The Bank has no loans to foreign borrowers. As of December 31, 1995, 1994, 1993, 1992 and 1991 there was no concentration of loans exceeding 10% of total loans which was not otherwise disclosed as a category in the loan portfolio table and there were no other interest bearing assets that would be required to be in the paragraphs above, if such assets were classified as loans. Credit Risk Management (continued) The following table shows loans outstanding, actual charge-offs, recoveries on loans previously charged-off, the allowance for credit losses, and pertinent ratios during the periods and as of the dates indicated (in thousands of dollars, except percent amounts):
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES Year Ended December 31 1995 1994 1993 Average loans $114,820 $114,718 $118,774 Total gross loans at end of period $114,237 $114,168 $115,194 Reserve for loan losses: Balance, beginning of period $1,465 $1,524 $1,425 Charge-offs: Commercial and industrial $302 $459 $232 Real estate - construction -0- -0- 30 Real estate - mortgage 70 25 76 Installment 16 4 27 $388 $488 $365 Recoveries Commercial and industrial $63 $129 $67 Leases 45 -0- -0- Real estate - construction -0- -0- -0- Real estate - mortgage 8 -0- -0- Installment -0- 2 3 $116 $131 $70 Net charge-offs (recoveries) $272 $357 $295 Additions charge to (reductions in) operations $320 $298 $394 Acquired by purchase of Laguna Bank $-0- $-0- $-0- Balance, end of period $1,513 $1,465 $1,524 Net charge-offs(recoveries)during the period to average gross loans outstanding during period 0.24% 0.31% 0.25%
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES Year Ended December 31, 1992 1991 Average loans $120,028 $106,670 Total gross loans at end of period $118,690 $114,941 Reserve for loan losses: Balance, beginning of period $ 950 $ 900 Charge-offs: Commercial and industrial $582 $312 Real estate - construction -0- -0- Real estate - mortgage -0- 59 Installment 2 18 $584 $389 Recoveries Commercial and industrial $34 $7 Leases -0- 502 Real estate - construction -0- -0- Real estate - mortgage -0- -0- Installment 4 4 $38 $513 Net charge-offs (recoveries) $546 $(124) Additions charge to (reductions in) operations $790 $(74) Acquired by purchase of Laguna Bank $231 $-0- Balance, end of period $1,425 $950 Net charge-offs(recoveries)during the period to average gross loans outstanding during period 0.45% (0.12)%
Credit Risk Management (continued) The Bank has allotted the allowance for loan losses according to the amount deemed reasonably necessary to provide for the possibility of losses being incurred within categories of loans set forth in the table below (in thousands of dollars, except percent amounts):
December 31, 1995 1994 Allowance Percent of Allowance Percent of Amount Loans in Each Amount Loans in Each Category to Category to Total Loans Total Loans Commercial and Industrial $831 36.2% $744 35.9% Real Estate - construction 3 0.2 124 2.0 Mortgage loans held for sale -0- 0.0 -0- 0.0 Real estate - mortgage 594 53.5 468 53.7 Installment 62 9.1 108 8.2 Other 23 1.0 21 0.2 $1,513 100.0% $1,465 100.0% 1993 1992 Commercial and Industrial $550 29.8% 550 32.4% Real Estate - construction 75 3.1 417 6.0 Mortgage loans held for sale -0- 1.8 -0- 0.0 Real estate - mortgage 837 55.9 400 52.1 Installment 40 8.8 56 8.8 Other 22 0.7 2 0.7 $1,524 100.0% $1,425 100.0% 1991 Commercial and Industrial $370 37.2% Real Estate - construction 33 4.7 Mortgage loans held for sale -0- 0.0 Real estate - mortgage 256 44.8 Installment 67 9.8 Other 224 3.5 $950 100.0%
Included in the Bank's allocation of its allowance for loan losses are provisions for specific loans, current economic conditions and a general reserve for unknown potential losses. Bank management considers loans classified by its internal loan review system, an independent third party reviewer and its regulators. None of these classifications indicate trends or uncertainties which will materially impact future operating results, liquidity, or capital resources. The Bank has provided 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. See discussion in item 7. Any loans which management doubts the ability of borrowers to comply with loan repayment terms are provided for in the allowance. On January 1, 1995, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 114, Accounting by Creditors for Impairment of a Loan, as amended by FASB Statement No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures. There was no effect on the Company's financial statements for this change, which generally requires impaired loans to be measured on the present value of the expected future cash flows discounted at the loan's effective interest rate, or as an expedient at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The entire change in the present value of the expected future cash flows is recorded as an increase or decrease in provision for credit losses. 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. Generally, interest income is not recognized until all principal amounts are received. At January 1, 1995, the Bank has classified $3,409,000 of its loans as impaired with a specific loss reserve of $404,000. Summary of Deposits Deposits are the Bank's primary source of funds. The Bank can obtain additional funds when needed to meet occasional declines in deposits to satisfy cash reserve requirements, or for other short-term liquidity needs, through the overnight purchase of federal funds. However, the Bank does not use these sources of funds. Regularly, the Bank has more funds than it needs for its reserve requirements or short-term liquidity needs, and it, therefore, sells federal funds to other financial institutions, places funds in certificates of deposit with other financial institutions, or invests in short-term securities. At December 31, 1995 and 1994, the aggregate amount of interest-bearing deposits was 62.8% and 64.1%, respectively, of total deposits. The Bank has no foreign deposits. 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. The Bank does not have any brokered deposits. As of December 31, 1995, the Bank has deposit concentrations of $28,158,000 from four customers. Management believes it has sufficient liquidity to meet loan commitments and deposit demands. The following table sets forth information for the periods indicated regarding the average balances of the Bank's deposits by category and as a percentage of average total deposits (in thousands of dollars, except percent amounts):
Year Ended Demand MoneyMarket Savings Time TotalDeposits December 31 (noninterest and Now Bearing 1995 Average balance $64,372 $99,182 $13,474 $12,511 $189,539 Percent of total 34.0% 52.3% 7.1% 6.6% 100.0% Average rate paid 0.0% 2.3% 2.0% 4.4% 1.7% 1994 Average balance $59,628 $90,734 $14,229 $13,650 $178,241 Percent of total 33.5% 50.9% 8.0% 7.6% 100% Average rate paid 0.0% 2.0% 2.0% 2.9% 1.4% 1993 Average balance $51,141 $88,661 $14,354 $14,923 $169,079 Percent of total 30.3% 52.4% 8.5% 8.8% 100% Average rate paid 0.0% 2.1% 2.3% 2.9% 1.6%
The following table indicates the amount (in thousands of dollars, except percent amounts) and maturity of the Bank's time certificates of deposit over $100,000 as of December 31 1995. 1995 Balance Percent of Total Less than three months $4,017 60.6% Three months through six months 1,611 24.3 Six months through twelve months 1,004 15.1 Over twelve months -0- 0.0 $6,632 100.0%
Return on Equity and Assets The following table indicates the key financial ratios of the Bank for the periods indicated:
Year Ended December 31, 1995 1994 1993 Profitability ratios: Rate of return on average total assets 1.22% 0.43% 0.11% Rate of return on average stockholders' equity 15.68% 5.75% 1.35% Capital Ratios: Dividend payment ratio to net income (1) 19.23% 11.00% 0.0% Average stockholders' equity to average total assets 7.78% 7.50% 7.93%
(1) Dividends declared exclude stock dividends Competition The banking business in California and the market areas served by the Bank are highly competitive with respect to both loans and deposits and are dominated by a relatively small number of major banks with many offices operating over a wide geographic area. The Bank is one of five locally owned independent banks located in the Bank's primary service area. The Bank also competes for loans and deposits with other commercial banks, including many which are much larger than the Bank, as well as with savings and loan associations, finance companies, credit unions, and other financial institutions. Larger commercial banks offer certain services (such as trust and investment services) which the Bank does not offer directly (but some of which it offers indirectly through correspondent institutions). By virtue of their greater total capitalization, such banks also have substantially higher lending limits than the Bank has or will have. In addition, as a result of recently enacted legislation, it is anticipated that there will be increased competition between banks, savings and loan associations, and credit unions for the deposit and loan business of individuals. The growth of money market funds and quasi-financial institutions, such as certain activities of retailers and other which are not subject to the same regulatory controls, also presents a source of competition for the Bank. With the decline in interest rates, depositors have been seeking alternative investments to earn higher yields than the Bank is currently paying. The Bank's primary service area encompasses the boundaries delineated by the Orange Unified School District. The same area constitutes the community covered by the Bank's Community Reinvestment Act Statement. This service area is currently serviced by banking offices which may provide competition for the Bank. In order to compete with the other financial institutions in its primary service area, the Bank relies principally upon local promotional activities, personal contact by its officers, directors, employees, and stockholders, extended hours, and specialized services. For customers whose loan demands exceed the Bank's lending limit, the Bank has attempted and will continue in the future to attempt to arrange for such loans on a participation basis with other banks. The Bank also assists customers requiring other services not offered by the Bank in obtaining such services from its correspondent banks. Supervision and Regulation The Company is subject to the regulation of the Federal Reserve Bank Holding Company Act of 1965, as amended, and the Board of Governors of the Federal Reserve System. Orange National Bank is subject to the regulation of the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (OCC). Among other regulations, the OCC establishes minimum capital requirement which the Bank exceeds as of December 31, 1995. Employees As of December 31, 1995, the Bank employed 126 full-time and 10 part-time persons, including 28 principal officers. None of the Bank's employees are represented by a union or covered by a collective bargaining agreement. The management of the Bank believes that, in general, its employee relations are good. ITEM 2. PROPERTIES The Bank and the Bancorp's head office is located in a two-story building located at 1201 East Katella Avenue, Orange, California. The Bank owns this building and the land the building is situated on. This building is approximately 16,000 square feet of interior and exterior floor space and is located on a lot of approximately 55,000 square feet. The facility has adequate parking and an automated teller machine. The Bank leases the building and land at its branch offices offering all banking services, at the following locations: 77 Plaza Square, Orange, California; 2019 West Orangewood Avenue, Orange, California; 7510 East Chapman Avenue, Orange, California; 800 Glenneyre, Laguna Beach, California; and 25255 Cabot Road, Laguna Hills, California. The branch offices have approximately 27,000 square feet of interior and exterior floor space. Each branch has an automated teller machine. The Bank also leases the building and land for administrative purposes at three additional locations at 115 and 274 North Glassell Street, Orange, California, and 2117 West Orangewood Avenue, Orange, California. These offices have approximately 8,400 square feet of floor space. ITEM 3 LEGAL PROCEEDINGS To the best of management's knowledge, there are no pending or threatened legal proceedings to which the Bank, or the Bancorp is or may become a party which may have a materially adverse effect upon the Bank, the Bancorp or their property. However, in the normal course of business, the Bank, or the Bancorp may initiate actions to protect their interests and may occasionally be made a party to actions relating thereto seeking to recover damages from the Bank, or the Bancorp. ITEM 4 SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information Stock market information and history of cash and stock dividends and stock splits is set forth in item 7 of this Form 10-K on page 26 and 27. ITEM 6 SELECTED FINANCIAL DATA ORANGE NATIONAL BANCORP FINANCIAL HIGHLIGHTS SELECTED FINANCIAL DATA
1995 1994 1993 Results of operations(000's except per share amounts): Total Interest income $16,571 $13,908 $12,416 Net Interest Income 13,430 11,400 9,792 Provisions for possible loan and lease losses 320 298 394 Non Interest Income 2,781 2,612 2,279 Non Interest Expense 12,187 11,962 11,744 Income from continuing operations before cumulative effect of change in accounting principle 3,703 1,060 457 Cumulative effect in change in accounting principle - - - Income from continuing operation 3,703 1,060 457 Loss from discontinued operations - (225) (258) Net Income 2,524 835 199 Earnings per common share: Primary $1.30 $0.43 $0.10 Fully diluted 1.30 0.43 0.10 Cash dividends per share 0.25 0.05 - Weighted average number of common shares outstanding: Primary 1,941 1,931 1,931 Fully diluted 1,941 1,931 1,931 Financial condition (000's): Total assets $207,928 $206,510 $193,290 Loans (net) 112,724 112,703 113,670 Deposits 188,991 190,406 177,571 Mandatory convertible debentures - - - Stockholders' equity 17,262 14,782 14,543 ORANGE NATIONAL BANCORP FINANCIAL HIGHLIGHTS SELECTED FINANCIAL DATA 1992 1991 Results of operations(000's except per share amounts): Total Interest income $12,436 $14,339 Net Interest Income 8,917 8,635 Provisions for possible loan and lease losses 790 (74) Non Interest Income 2,381 2,228 Non Interest Expense 10,119 8,841 Income from continuing operations before cumulative effect of change in accounting principle 229 1,273 Cumulative effect in change in accounting principle - 900 Income from continuing operations 229 2,173 Loss from discontinued operations - - Net Income 229 2,173 Earnings per common share: Primary $0.13 $1.29 Fully diluted 0.13 1.15 Cash dividends per share 0.29 - Weighted average number of common shares outstanding: Primary 1,638 1,543 Fully diluted 1,745 1,754 Financial condition (000's): Total assets $175,681 $178,380 Loans (net) 117,265 113,991 Deposits 159,118 161,139 Mandatory convertible debentures - 1,762 Stockholders' equity 14,419 12,906
Primary and fully diluted earnings per share in 1991 were increased due to the cumulative effect of the change in accounting principle by $.56 and $.49, respectively. Earnings per share from continuing operations in 1994 and 1993 were $.58 and $.25, respectively. Earnings per share prior to 1995 are restated to reflect 5% stock dividends in 1995. ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition Total interest earning assets decreased approximately $11,300,000 from December 31, 1994 to 1995. The decrease is due to a temporary increase in cash and due from banks, an investment in life insurance and a small decline in deposits. The Company is trying to increase its loan base with quality loans. Interest earning assets increased approximately $11,200 from December 31, 1993 to 1994. In 1994, deposits increased $12,800,000 and that increase was invested primarily in marketable debt securities. The Company has been increasing its investment in securities from 1993 to 1995. Average balances have increased, $24,030,000 in 1994 and $10,113,000 in 1995. The reason for the increase is due to an increase in deposits without being able to increase loans. The Company believes securities are the best available investment after its liquidity needs are met through cash and due from banks and federal funds sold. Generally, mortgage backed securities are classified as held-to-maturity and U.S. Treasury and Agency securities are classified as available-for-sale. The market values of securities declined in 1994 due to an increasing interest rate environment. In 1995 the market values of securities increased almost as much as 1994 values declined due to a decline in interest rates late in the year. Loans decreased 0.02% in 1995 compared to a decrease of 0.85% in 1994. The supply of high quality loans continues to be soft in the Southern California area. Bank premises and equipment, net of depreciation, increased by $139,898 in 1995 and decreased $133,017 in 1994. The Company purchased approximately $300,000 in equipment in 1994 and $675,000 in 1995. The level of capital expenditures in the future is not expected to be substantially different. In the fourth quarter of 1995, the Company entered into deferred compensation agreements with certain officers and directors. These agreements provide a death benefit prior to retirement. The Company also invested $3,500,000 in life insurance policies in conjunction with these agreements. The Company does not anticipate any substantial purchases of life insurance in the future. Total deposits decreased .7% in 1995 compared to an increase of 7.2% in 1994. In the last quarter of 1994 the bank entered into a deposit relationship with a company that administers pension funds. Deposits from the company were approximately $8,900,000 as of December 31, 1994 and $14,000,000 as of December 31, 1995. Deposit differences between the years fluctuate due to balances maintained by large depositors. Overall average deposit balances are up approximately $10,000,000 in 1995 and 1994. Liquidity The Company maintains substantial liquid and other short-term assets to meet increases in loan demands, deposit withdrawals and maturities. The loan-to-deposit ratio at December 31, 1995 was 59.6% compared to 59.2% at December 31, 1994. The ratio of liquid assets (cash and due from banks, interest bearing deposits at financial institutions, federal funds sold, and investments with maturities of one year or less) to demand deposits was 29.4% at December 31, 1995 compared to 30.8% at December 31, 1994. The Company may borrow funds under securities sold with agreements to repurchase for securities that have not been pledged. At December 31, 1995 unpledged securities totaled approximately $35,500,000. All of the Company's installment loans require monthly payments, which provide a steady return of cash funds. Liquidity needs can also be met through federal funds purchased from correspondent banks and/or direct borrowings from the Federal Reserve Bank. The Company has established Federal Funds borrowing lines with various banks up to $3,000,000. As of this date, the Company has never used these facilities. Liquidity (continued) The subsidiary bank has a significant base of core deposits and has not used brokered deposits. The Bank also avoids using other wholesale, highly rate sensitive, short-term funds and believes their deposits represent funding sources which are relatively stable with respect to liquidity. As of December 31, 1995, the Bank has deposit concentrations of $28,000,000 from four customers which include the $14,000,000 referred to above in deposits from a company that administers pension funds. The Company continues to meet its loan demands with cash flow from operations. If loan demand were to substantially increase, the Company would be able to generate cash flow from its federal funds sold, sale of marketable securities which are available for sale, increasing deposits and borrowing on its established credit resources. Management believes the Bank has sufficient liquidity to meet loan commitments and deposit withdrawals. 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 subsidiary Bank has minimum regulatory capital requirements. The parent company and subsidiary Bank have similar capital requirements. At December 31, 1995, minimum core capital is required to be 4% of risk adjusted assets and minimum total capital is required to be 8%. The leverage ratio is required to be 4%. Core capital for the Bank under the regulations is defined as only stockholders' equity and total capital is stockholders' equity plus the allowance for credit losses. Leverage is the ratio of core capital to total average assets. At December 31, 1995 core capital of the Bank was $16,876,000, total capital was $18,388,000. The ratio of core and total capital to risk adjusted assets at December 31, 1995 was 11.7% and 12.8%, respectively. The leverage ratio was 8.2% at December 31, 1995. At December 31, 1995, the Bank's capital ratios exceeded the "well capitalized" threshold prescribed in the rules of its principal federal regulator. Management believes that the Company and its subsidiary are properly and adequately capitalized, as evidenced by these ratios and the strong liquidity position. Results of Operations Total interest income increased 19.2% in 1995, and 12.0% in 1994. The average yield increased in 1995 and in 1994 by 1.00% and .60% respectively. The increase in interest income in 1995 was due primarily to increased rates. The average rate increase on loans in 1995 was 1.29%. The yield on loans will change along with the movements in the prime rate as approximately 85% of the loan portfolio is based on variable rates. The total average balances of interest earning assets increased approximately $10,600,000 in 1995. The average balance in loans increased approximately $65,000 in 1995 and average balances in investment securities increased approximately $10,100,000. Interest income from investment securities increased in 1994 due to the purchase of $13,000,000 of U.S. Treasury and Agency securities in 1994. Interest income from investment securities increased in 1995 due to the increase in the average balances of investment securities. The average balance in federal funds sold increased by $430,000 in 1995. Interest income on federal funds sold increased by 39.6% in 1995 and 2.0% in 1994. The 1995 increase is due primarily to the increase in rates for most of 1995. Total interest expense increased 25.3% in 1995 and decreased 4.4% in 1994. The decrease in 1994 was due to an .11% decline in the average rate paid partially offset by the average interest bearing liabilities increasing by approximately $675,000 or 0.6% in 1994. The increase in 1995 was due to a .40% increase in the average rate paid and average interest bearing liabilities increasing by approximately $6,550,000 or 5.5%. In 1995, 1994 and 1993 the credit loss provisions were $320,000, $298,000 and $394,000 respectively. Management believes that the allowance for credit losses is adequate to provide for potential losses in the portfolio. The economic outlook for 1996 cannot be predicted and, accordingly, future provisions for credit losses cannot be estimated at this time. See Note 1 in the Notes to Consolidated Financial Statements. Results of Operations (continued) Other income increased $169,000 in 1995 compared to an increase of $333,000 in 1994 . The increase in 1994 was primarily due to increased service charges and fees for business accounts which began in 1993. Other expenses such as salaries, promotion expense and professional services decreased in 1995 due to the closure of the mortgage banking department and a restructuring of the bank in 1994. Other expenses has remained fairly consistent for the years ended 1995, 1994 and 1993.Payroll costs are up slightly in 1995 due to increases in the average compensation per person and the accrual of discretionary bonuses, while the total number of full time equivalent employees is declining. Other real estate owned expenses are up in 1995 due to the increased number of properties owned by the Bank. In 1995, the Company reduced its valuation allowance on net deferred tax assets by $483,000. This reduction also reduced income tax expense. Income tax expense in 1994 reflects effective tax rates on taxable earnings which approximates the federal and state statutory tax rates of 40%. In the first quarter of 1993, management determined that a reserve for potential future income tax liabilities was no longer considered necessary and a $500,000 credit to income tax expense was recorded. The Company has approximately $165,000 recorded as a valuation allowance against net deferred tax assets which could reduce future income tax expense if the net assets become realizable. The provisions in statement No. 109 and the effect of alternative minimum tax have the potential for producing, under certain conditions, significant distortions in future income tax provisions and the effective tax rate. Net income in 1995 increased approximately $1,700,000 over 1994 due primarily to an increase in the average rate on interest earning assets and the $483,000 reduction in tax expense and the closure of the mortgage banking operation. 1994 net income increased approximately $635,000 over 1993 due to a decrease in the average rate paid on deposits and an increase in the average rate on interest earning assets. However, 1993 net income included the $500,000 reversal of the income tax contingency reserve provided for in prior years. While management is optimistic about the future, the effects of current economic conditions on the collectability of loans cannot be predicted with absolute certainty and its effects on future profitability cannot be determined. 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 nor is assured, or where contractual amounts are used solely to determine cash flows to be exchanged. Off-balance sheet financial instruments consist of commitments to extend credit and standby letters of credit. A majority of these commitments are with variable interest rates and therefore are not derivative instruments. Additional information about off-balance sheet financial instruments is provided in Note 9 of Notes to Consolidated Financial Statements. Interest Rate Sensitivity The Company manages its balance sheet to minimize the impact of interest rate movements on its earnings. The term "rate sensitive" refers to those assets and liabilities which are "sensitive" to fluctuations in rates and yields. When interest rates move, earnings may be affected in many ways. Interest rates in assets and liabilities may change at different times or by different amounts. Maintaining a proper balance between rate sensitive earning assets and rate sensitive liabilities is the principal function of asset and liability management of a banking organization. Interest Rate Sensitivity (continued) The following table shows the repricing period for interest earning assets and interest bearing liabilities and the related repricing gap in thousands:
Repricing period (000's omitted) Three months Over three months One year through Over Five or less through twelve Five Years Years Months Interest earning assets $119,215 $9,066 $28,674 $15,343 Interest bearing liabilities 111,373 5,523 1,858 - Repricing gap $7,842 $3,543 $26,816 $15,343 Cumulative repricing gap $7,842 $11,385 $38,201 $53,544 Cumulative gap as a percent of earning assets 4.6% 6.6% 22.2% 31.1%
The Company has $26,908,000 in securities classified as available for sale and are recorded at market value. The remaining securities of $12,653,000 are classified as held to maturity and recorded at amortized cost. These securities may be called or repaid without penalties. The value of these securities is subject to fluctuation based upon current long-term interest rates. The Company has approximately $117,416,000 of interest earning loans and federal funds sold and approximately $104,156,000 of interest bearing demand and savings deposits which are able to reprice overnight. Repricing gap equals total interest earning assets less total interest bearing liabilities available for repricing during a given time interval. A positive repricing gap for a given period exists when total interest earning assets exceed total interest bearing liabilities and a negative repricing gap exists when total interest bearing liabilities are in excess of interest earning assets. Generally, a positive repricing gap will result in increased net interest income in a rising rate environment and decreased net interest income in a falling rate environment. A negative repricing gap tends to produce increased net interest income in a falling rate environment and decreased net interest income in a rising rate environment. The Company's repricing gap indicates that it is positioned to benefit from a rising rate environment. 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 inflations. Impact of Inflation and Changing Prices (continued) 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. Effect of FASB Statements Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of: In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Statement 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. Statement No. 121 will first be required for the Company's year ending December 31, 1996. Based on its preliminary analysis, the Bank does not anticipate that the adoption of Statement No 121 will have a material impact on the financial statements. Accounting for Stock-Based Compensation: In 1995, the FASB issued Statement No. 123, Accounting for Stock-based Compensation. Statement No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans such as a stock purchase plan. The statement generally suggests, but does not require, stock-based compensation transactions be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. An enterprise may continue to follow the requirements of Accounting Principles Board (APB) opinion No. 25, which does not require compensation to be recorded if the consideration to be received is at least equal to the fair value at the measurement date. If an enterprise elects to follow APB Opinion No. 25, it must disclose the pro forma effects on net income as if compensation were measured in accordance with the suggestions of Statement No. 123. The Company has determined that it will continue to follow APB Opinion No. 25, therefore, adoption of this pronouncement in 1996 is not expected to have a material impact on the financial statements. Stock Market Information On February 13, 1996 Orange National Bancorp shares of common stock commenced trading on the National Association of Securities Dealers Automated Quotation (NASDAQ), under the symbol OGNB. Active traders for the stock are Everen Securities, 620 Newport Center Drive, Suite 1300, Newport Beach, California 92660 and Smith Barney, 650 Town Center Drive, Suite 100, Costa Mesa, California 92626. The following table summarizes the approximate high and low bid prices for the Company's common stock since the first quarter of 1993. Bid Prices
1993 1994 1995 Calendar Quarter High Low High Low High Low 1st quarter $6.50 $5.75 $6.00 $5.00 $5.95 $4.75 2nd quarter 6.50 5.50 6.00 5.00 7.15 5.45 3rd quarter 6.00 4.50 6.00 5.00 9.50 6.35 4th quarter 5.50 4.25 6.00 5.00 10.50 9.25
Such market quotations reflect inter-dealer prices, without retail markup, markdown, or commission and may not necessarily represent actual transactions. History of Cash and Stock Dividends and Stock Splits The Company has a history of paying cash dividends to its stockholders. At December 31, 1995, the Company had approximately 590 stockholders of record. The following table summarizes the cash dividend history of the Bank:
Dividends* Total Amount of Date Per Share Dividends Paid 1984 $ .09 $143,568 1985 .10 $166,320 1986 .12 $200,584 1987 .16 $250,730 1988 .13 $202,734 1989 .17 $267,329 1990 .18 $290,008 1991 - - 1992 .30 $485,130 1993 - - 1994 .05 $ 91,956 1995 .25 $473,947
Also, the Company declared a three-for-two stock split on October 15, 1985, a 5% stock dividend on November 16, 1988, a three-for-two stock split on November 20, 1989, and a 5% stock dividend on July 31, 1995. The Company's ability to pay dividends is dependent upon the dividend payment it receives from its Bank subsidiary. On February 22nd, 1996, the Company declared a $.25 cent per share dividend on its common stock. Future dividend payments will depend upon future profitability, meeting regulatory requirements and the outlook of economic conditions. *For comparative purposes, dividends per share for all years are computed after the effects of stock splits and stock dividends. Form 10-K Reports A copy of the Company's 10-K reports filed with the Securities and Exchange Commission for the 1995 Fiscal Year can be obtained by writing to: Corporate Secretary's Office, Orange National Bancorp, 1201 E. Katella Avenue, Orange, California 92667. Transfer Agent and Registrar First Interstate Bank, Los Angeles, California 90017. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company are set forth on pages F-2 to F-20 following. The Auditors' Report thereon is set forth on Page F-1 following. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information concerning the directors and executive officers of the Bancorp, see "Election of Directors" included in the Bancorp's definitive proxy statement ("Proxy Statement"), which information is incorporated by reference. The Proxy Statement will be filed with the SEC within the time period specified by General Instruction G to Form 10-K. ITEM 11 EXECUTIVE COMPENSATION For information concerning management remuneration, see "Executive Compensation" included in the Proxy Statement, which information is incorporated herein by reference. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT For information concerning security ownership of beneficial owners and management, see "Stock Ownership of Certain Beneficial Owners and Management" included in the Proxy Statement, which information is incorporated herein by reference. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information concerning related party transactions, see "Certain Transactions" included in the Proxy Statement, which information is incorporated herein by reference. PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES , AND REPORTS ON FORM 8-K The following financial statements of the Bancorp and subsidiaries are included in this Form 10-K. Page number references follow: ORANGE NATIONAL BANCORP AND SUBSIDIARIES Independent auditors' report F-1 Consolidated balance sheets December 31, 1995 and 1994 F-2 Consolidated statements of income for the three years ended December 31, 1995 F-3 Consolidated statement of stockholders' equity F-4 for the three years ended December 31, 1995 Consolidated statement of cash flows for the three years ended December 31, 1995 F-5 Notes to consolidated financial statements F-6 to F-22 Schedules All schedules are omitted as the information is not required , is not material, or is otherwise furnished. Exhibits See Index to exhibits at Page 32 of this Form 10-K Reports on Form 8-K No reports on Form 8-K were filed by the Bancorp during the last quarter for the year ended December 31, 1995. 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: Kenneth J. Cosgrove Kenneth J. Cosgrove Chief Executive Officer Date: March 27, 1996 By: Robert W. Creighton Robert W. Creighton, Secretary Chief Financial Officer Date March 27, 1996 Signed by a majority of the Board of Directors: Date Michael W. Abdalla Date Fred L. Barrera Date Michael J. Christianson March 27, 1996 Kenneth J. Cosgrove Date Kenneth J. Cosgrove March 27, 1996 Robert W. Creighton Date Robert W. Creighton Signatures (continued) Date Armand Durante March 27, 1996 William S. Frantz Date William S. Frantz Date Charles R. Foulger March 27, 1996 Gerald R. Holte Date Gerald R. Holte March 27, 1996 James E. Mahoney Date James E. Mahoney Date Wayne F. Miller March 27, 1996 Harlan A. Smith Date Harlan A. Smith March 27, 1996 San E. Vaccaro Date San E. Vaccaro INDEX TO EXHIBITS Exhibit No. Page No. 3.1 Registrant's Articles of Incorporation (1)N/A 3.2 Bylaws of the Bancorp (2) N/A 10.1 The material contracts of Registrant's subsidiary, Orange National Bank, were each filed as exhibits 10, 10.1, 10.3, 10.4, and 10.5 of the Registrant's Registration Statement on Form S-4, File No. 33-8743, and are hereby incorporated by reference. N/A 23. Consent of Independent Accountants 33 (1) The Articles of Incorporation of Orange National Bancorp were filed as exhibit 3 of the Registrant's Registration Statement on Form S-4, File No. 33-8743, and are hereby incorporated by reference. (2) Filed as exhibit 3.1 to the Registrant's Registration Statement on Form S-1, File No. 33-13162, which exhibits are incorporated herein by reference. (3) Filed as exhibit 2 to the Registrant's Registration Statement on Form S-4, File No. 33-8743, and are hereby incorporated by reference. CONSENT OF INDEPENDENT ACCOUNTANTS To The Board of Directors Orange National Bancorp Orange, California We consent to the incorporation by reference in the Registration Statement on Form S-8, dated ugust 20, 1993, of Orange National Bancorp of our report dated January 24, 1996, appearing in tem 8 in this Annual Report on Form 10-K. McGladrey & Pullen, LLP McGLADREY & PULLEN, LLP Anaheim, California January 24, 1996 EX-13 2 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Orange National Bancorp Orange, California We have audited the accompanying consolidated balance sheets of Orange National Bancorp and subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Orange National Bancorp and subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. McGladrey & Pullen, LLP McGLADREY & PULLEN, LLP Anaheim, California January 24, 1996 ORANGE NATIONAL BANCORP CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994
ASSETS 1995 1994 Cash and due from banks (Note 2) $22,929,660 $15,394,879 Securities (Note 3): Held-to-maturity securities (fair value 1995 $12,595,011;1994 $20,567,668) 12,652,817 21,903,980 Available-for-sale securities 26,908,298 19,247,771 Federal funds sold 18,500,000 28,215,000 Loans, net of allowance for credit losses 1995 $1,512,544; 1994 $1,465,000 (Notes 4, 5 and 12) 112,724,034 112,703,283 Bank premises and equipment, net (Note 6) 5,526,577 5,386,679 Other real estate owned, net (Note 5) 3,784,482 2,007,899 Accrued interest receivable 1,167,707 1,068,744 Cash value of life insurance 3,514,896 - Other assets 219,553 582,215 $207,928,024 $206,510,450 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits (Notes 3 and 7): Noninterest bearing demand $70,237,126 $68,358,671 Interest bearing: Demand 91,698,505 95,972,857 Savings 12,456,884 13,875,405 Time certificates of deposits of $100,000 or more 6,632,038 5,162,248 Other time 7,966,817 7,036,672 Total deposits 188,991,370 190,405,853 Accrued interest payable and other liabilities 1,674,757 1,322,395 Total liabilities 190,666,127 191,728,248 Commitments and Contingencies (Notes 9 and 11) Stockholders' Equity (Notes 10 and 13) Common stock, no par value or stated value; 20,000,000 shares authorized, 1995 1,933,571; 1994 1,839,116 issued and outstanding 7,509,888 6,848,120 Retained earnings 9,920,549 8,513,693 Unrealized (loss) on available-for-sale securities, net (Note 3) (168,540) (579,611) Total stockholders' equity 17,261,897 14,782,202 $207,928,024 $206,510,450
1995 1994 1993 Interest Income Loans $12,953,799 $11,479,904 $11,022,025 Securities 2,470,549 1,605,738 435,578 Federal funds sold 1,146,474 821,299 805,234 Deposits in other financial institutions - 565 152,689 Total interest income 16,570,822 13,907,506 12,415,526 Interest Expense, deposits 3,140,658 2,507,412 2,623,278 Net interest income 13,430,164 11,400,094 9,792,248 Provision for credit losses (Note 5) 320,000 297,907 393,740 Net interest income after provision for credit losses 13,110,164 11,102,187 9,398,508 Other Income Service charges on deposit accounts 1,112,918 1,173,022 811,966 Fees for other customer services 666,802 718,236 799,599 Gain on sale of loans 754,766 651,620 539,224 Other 246,290 68,916 128,202 2,780,776 2,611,794 2,278,991 Other Expenses Salaries, wages and employee benefits 6,251,351 6,148,077 6,016,538 Occupancy expense (Note 9) 1,104,460 1,106,871 1,019,031 Data processing expense 1,069,909 1,154,260 1,174,424 Furniture and equipment expense 706,584 572,628 538,290 Promotion expense 467,519 366,318 359,580 Legal and professional services 507,354 603,782 551,237 Insurance 427,928 592,694 538,564 Stationery and supplies 278,925 252,576 291,616 Telephone and postage 373,674 344,234 270,344 Other real estate owned (Note 5) 424,907 160,675 275,164 Other 574,839 659,748 709,510 12,187,450 11,961,863 11,744,298 Income (loss) from continuing operations before income taxes 3,703,490 1,752,118 (66,799) Income tax expense (credits) (Note 8) 1,179,000 692,200 (523,800) Income from continuing operations 2,524,490 1,059,918 457,001 (Loss) from discontinued operations (Note 17) - (224,432) (258,115) Net income $2,524,490 $835,486 $198,886 Earnings per share from continuing operations $1.30 $0.55 $0.24 Earnings per share $1.30 $0.43 $0.10 Weighted average number of shares 1,941,286 1,931,072 1,931,072
ORANGE NATIONAL BANCORP CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 1995, 1994 and 1993
Unrealized Gain (Loss) Available- Common Stock Retained For-Sale Shares Amount Earnings Securities Total Balance, December 31, 1992 1,839,116 $6,848,120 $7,571,277 $- $14,419,397 Net income - - 198,886 - 198,886 Change in accounting for securities available-for-sale, net - - - (75,089) (75,089) Balance, December 31, 1993 1,839,116 6,848,120 7,770,163 (75,089) 14,543,194 Net income - - 835,486 - 835,486 Cash dividend paid ($.05 per share) - - (91,956) - (91,956) Net change in unrealized (loss) on available-for-sale securities (Note 3) - - - (504,522) (504,522) Balance, December 31, 1994 1,839,116 6,848,120 8,513,693 (579,611) 14,782,202 Net income - - 2,524,490 - 2,524,490 Cash dividend paid ($.25 per share) - - (473,943) - (473,943) Stock dividend paid (5% per share) 91,955 643,691 (643,691) - - Exercise of stock options 2,500 18,077 - - 18,077 Net change in unrealized gain(loss) on available-for-sale securities (Note 3) - - - 411,071 411,071 Balance, December 31, 1995 1,933,571 $7,509,888 $9,920,549 $(168,540 ) $17,261,897
1995 1994 1993 Cash Flows from Operating Activities Net income $2,524,490 $835,486 $198,886 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 535,474 448,448 410,836 Provision for credit losses 320,000 297,907 393,740 Provision for of other real estate owned losses 303,561 31,612 - Proceeds from loan sales 5,428,822 19,073,450 12,209,773 Deferred income taxes (benefits)(309,000) 338,000 687,000 (Gain) on sale of loans (754,766) (759,837) (567,704) Originations of loans held for sale (4,674,056) (18,313,613) (11,642,069) (Increase) decrease in other assets 263,699 1,627,086 (513,807) Increase (decrease) in other liabilities 398,577 137,036 (967,864) Net cash provided by operating activities 4,036,801 3,715,575 208,791 Cash Flows from Investing Activities Net (increase) decrease in interest bearing deposits in other financial institutions - 198,000 (168,000) Purchase of securities to be held-to-maturity - (11,090,000) - Proceeds from maturities of securities held-to-maturity 4,400,000 5,090,000 1,000,000 Purchase of available-for-sale securities (16,883,874) (7,829,879) (28,055,225) Proceeds from sales of available-for-sale securities 14,748,366 - - Change in loans made to customers, net (3,261,938) (1,301,330) 1,644,099 Net (increase) decrease in federal funds sold 9,715,000 800,000 2,985,000 Purchase of life insurance (3,514,896) - - Proceeds from sale of other real estate owned 841,043 - - Purchases of bank premises and equipment (675,372) (315,431) (309,253) Net cash provided by (used in) investing activities 5,368,329 (14,448,640) (22,903,379) Cash Flows from Financing Activities Net increase (decrease) in deposits(1,414,483) 12,834,554 18,453,261 Proceeds from exercise of stock options18,077 - - Dividends paid (473,943) (91,956) - Net cash provided by (used in) financing activities (1,870,349) 12,742,598 18,453,261 Increase (decrease) in cash and due from banks 7,534,781 2,009,533 (4,241,327) Cash and Due from Banks Beginning 15,394,879 13,385,346 17,626,673 Ending $22,929,660 $15,394,879 $13,385,346 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Nature of Banking Activities and Summary of Significant Accounting Policies Nature of Operations _ Orange National Bancorp is a bank holding company which provides a full range of banking services to its commercial and consumer customers through six branches located in Orange County, California. The Company grants commercial, residential and consumer loans to customers, substantially all of whom are middle-market businesses or residents. The Company's business is concentrated primarily in Orange County, California, and the loan portfolio includes a significant credit exposure to the real estate industry of this area. As of December 31, 1995, real estate related loans accounted for approximately 55% of total loans. Substantially all of these loans are secured by first liens with an initial loan to value ratio of generally not more than 75%. The loans are expected to be repaid from cash flows or proceeds from the sale of selected assets of the borrowers. The Company's policy requires that collateral be obtained on substantially all loans. Such collateral is primarily first trust on property. Use of estimates in the preparation of financial statements _ The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of consolidation _ The consolidated financial statements include the accounts of Orange National Bancorp and its wholly-owned subsidiary Orange National Bank. These entities are collectively referred to herein as the Company. All significant intercompany balances and transactions have been eliminated in consolidation. Cash and due from banks and federal funds sold _ For purposes of reporting cash flows, cash and due from banks includes cash on hand and amounts due from banks. Cash flows from loans originated by the Company, deposits and federal funds purchased and sold are reported net. The Company maintains amounts due from banks which exceed federally insured limits. In addition, federal funds sold were placed with two financial institutions. The Company has not experienced any losses in such accounts. Held-to-maturity securities _ Securities classified as held-to-maturity are those debt securities the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost adjusted for amortization of premiums and accretion of discounts, computed by the interest method over their contractual lives. The sale of a security within three months of its maturity date or after at least 85% of the principal outstanding has been collected is considered a maturity for purposes of classification and disclosure. Note 1. Nature of Banking Activities and Summary of Significant Accounting Policies, continued Available-for-sale securities _ Securities classified as available-for-sale are those debt securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company's assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Securities available-for-sale are carried at fair value. Unrealized gains or losses, net of the related deferred tax effect, are reported as increases or decreases in stockholders' equity. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. Transfers _ Transfers of debt securities into the held-to-maturity classification from the available-for-sale classification are made at fair value on the date of transfer . The unrealized holding gains or losses on the date of transfer are retained as a separate component of stockholders' equity and in the carrying value of the held-to-maturity securities. Such amounts are amortized over the remaining contractual lives of the securities by the interest method. Loans _ Loans are stated at the amount of unpaid principal, reduced by unearned fees and allowance for loan losses. The allowance for credit losses is established through a provision for credit losses charged to expense. Loans are charged against the allowance for credit losses when management believes that collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb estimated losses on existing loans that may become uncollectible, based on evaluation of the collectibility of loans and prior loan loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower's ability to pay. 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 Office of the Comptroller of the Currency (OCC), as an integral part of their examination process, periodically reviews the Company's allowance for credit losses, 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. 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. 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. Note 1. Nature of Banking Activities and Summary of Significant Accounting Policies, continued Income taxes _ Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when management determines that it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Fair value of financial instruments _ Management uses its best judgment in estimating the fair value of the Company's financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Bank could have realized in a sales transaction at either December 31, 1995 or 1994. The estimated fair value amounts for 1995 and 1994 have been measured as of their respective year ends, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end. The information in Note 15 should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company's assets. This disclosure of fair value amounts does not include the fair values of any intangibles, including core deposit intangibles or mortgage servicing rights. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimate, comparisons between the Company's disclosures and those of other banks may not be meaningful. The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments _ Cash and short-term instruments _ The carrying amounts reported in the consolidated balance sheets for cash and due from banks, interest bearing deposits and federal funds sold approximate their fair values. Securities _ Carrying amounts approximate fair values for securities available-for-sale. Fair values for securities are based on quoted market prices when available. For certain mortgage backed securities, the Company utilizes a broker to determine fair value. This broker obtains estimates of fair value from up to three pricing services which estimate fair value based on prices for several securities or as pricing matures. There is no guarantee that the prices obtained for these methods can be realized upon ultimate sale of the security. Note 1. Nature of Banking Activities and Summary of Significant Accounting Policies, continued Loans _ For variable-rate loans that reprice frequently and that have experienced no significant change in credit risk, fair values are based on carrying values. At December 31, 1995 and 1994, variable rate loans comprised approximately 85% of the loan portfolio. Fair values for all other loans are estimated based on discounted cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. Prepayments prior to the repricing date are not expected to be significant. Loans are expected to be held-to-maturity and any unrealized gains or losses are not expected to be realized. Off-balance sheet instruments _ Fair values for off-balance sheet instruments (guarantees, letters of credit and lending commitments) are based on quoted fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. Deposit liabilities _ Fair values disclosed for savings and demand deposits equal their carrying amounts, which approximate the amount payable on demand. The carrying amounts for variable-rate money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities on time deposits. Early withdrawals of fixed-rate certificates of deposit are not expected to be significant. Accrued interest receivable and payable _ The fair values of both accrued interest receivable and payable approximate their carrying amounts. Earnings per share _ Earnings per share of common stock are based on the weighted average number of common shares and common equivalent shares outstanding. Financial Instruments _ The Company has purchased collaterialized mortgage obligations (CMO's) which are derivative financial instruments. These financial instruments are held for purposes other than trading. The Company has no off-balance sheet derivative financial instruments. Note 1. Nature of Banking Activities and Summary of Significant Accounting Policies, continued Accounting by Creditors for Impairment of a Loan _ On January 1, 1995, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 114, Accounting by Creditors for Impairment of a Loan, as amended by FASB Statement No. 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures. There was no effect on the Company's financial statements for this change, which generally requires impaired loans to be measured on the present value of expected future cash flows discounted at the loan's effective interest rate, or as an expedient at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The entire change in the present value of expected future cash flows is recorded as an increase or decrease in provision for credit losses. 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. Generally, interest income is not recognized until all principal amounts are received. At January 1, 1995, the Bank has classified $3,409,000 of its loans as impaired with a specific loss reserve of $404,000. Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of _ In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Statement No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. Statement No. 121 will first be required for the Company's year ending December 31, 1996. Based on its preliminary analysis, the Bank does not anticipate that the adoption of Statement No. 121 will have a material impact on the financial statements. Accounting for Stock-Based Compensation _ In 1995 the FASB issued Statement No. 123, Accounting for Stock-Based Compensation. Statement No. 123, establishes financial accounting and reporting standards for stock-based employee compensation plans such as a stock purchase plan. The Statement generally suggests, but does not require, stock-based compensation transactions be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. An enterprise may continue to follow the requirements of Accounting Principles Board (APB) Opinion No. 25, which does not require compensation to be recorded if the consideration to be received is at least equal to the fair value at the measurement date. If an enterprise elects to follow APB Opinion No. 25, it must disclose the pro forma effects on net income as if compensation were measured in accordance with the suggestions of Statement No. 123. The Company has determined that it will continue to follow APB Opinion No. 25, therefore, adoption of this pronouncement in 1996 is not expected to have a material impact on the financial statements. Note 2. Restrictions on Cash and Due from Banks The Company is required to maintain reserve balances in cash or on deposit with Federal Reserve Banks. The total of those reserve balances was approximately $3,053,000 as of December 31, 1995. Note 3. Securities Effective December 31, 1993, the Company adopted FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. The effect of adopting this Statement was to decrease stockholders' equity by $75,089, net of applicable deferred taxes to adjust the carrying value of the portfolio of securities available-for-sale to market. Carrying amounts and fair values of securities being held-to-maturity as of December 31, 1995 and 1994 are summarized as follows:
Amortized Unrealized Unrealized Fair Cost Gains Losses Values 1995 Mortgage-backed securities $12,479,146 $5,416 $(63,222) $12,421,340 Other 173,671 - - 173,671 $12,652,817 $5,416 $(63,222) $12,595,011 1994 U.S. Treasury securities and obligations of other U.S. Government corporations and agencies $8,872,885 $ - $(223,658) $8,649,227 Mortgage-backed securities 12,857,424 - (1,112,654) 11,744,770 Other 173,671 - - 173,671 $21,903,980 $ - $(1,336,312) $20,567,668
Securities being held-to-maturity with a carrying amount of $4,006,440 at December 31, 1995 were pledged as collateral on public deposits and for other purposes as required or permitted by law. No securities at December 31, 1994 were pledged as collateral. Carrying amounts and fair values of available-for-sale securities as of December 31, 1995 and 1994 are summarized as follows:
Amortized Unrealized Unrealized Fair Cost Gains Losses Values 1995 U.S. Treasury securities and obligations of other U.S. Government corporations and agencies $24,984,083 $72,382 $(142,243) $24,914,222 Mortgage-backed Securities 2,018,380 - (24,304) 1,994,076 $27,002,463 $72,382 $(166,547) $26,908,298 1994 U.S. Treasury securities and obligations of other U.S. Government corporations and agencies $15,939,548 $ - $(563,017) $15,376,531 Mortgage-backed securities 4,024,160 - (152,920) 3,871,240 $19,963,708 $ - $(715,937) $19,247,771
Available-for-sale securities with a carrying amount of $3,991,010 and $4,013,226 at December 31, 1995 and 1994, respectively were pledged as collateral on public deposits and for other purposes as required or permitted by law. Note 3. Securities, continued The amortized cost and fair value of investment securities as of December 31, 1995 by contractual maturities are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following maturity summary:
Held-to-Maturity Available-for-Sale Amortized Fair Amortized Fair Cost Value Cost Value Due in one year or less $ - $ - $26,000,000 $6,003,838 Due after one year through five years - - 18,984,083 18,910,384 Mortgage-backed securities 12,479,146 12,421,340 2,018,380 1,994,076 Other 173,671 173,671 - - $12,652,817 $12,595,011 $27,002,463 $26,908,298
On March 31, 1994, the Company transferred certain securities from available-for-sale to held-to-maturity. The amortized cost and fair value of the securities at the date of the transfer were $5,971,740 and $5,701,014, respectively. Amortized cost of held-to-maturity securities is presented net of approximately $192,000 of unrealized loss on the securities transferred from available-for-sale. On December 29, 1995, the Company reassessed the appropriateness of the classification of all securities in accordance with the issuance of Financial Accounting Standards Board Guide to Implementation of Statement No. 115 on Accounting for Certain Investments in Debt and Equity Securities. As a result, the Company transferred debt securities at their fair value of $4,995,483 on December 29, 1995 previously classified as held-to-maturity into available-for-sale securities and recorded an unrealized holding loss of $3,827. Note 4. Loans The composition of the Company's loan portfolio is as follows:
1995 1994 Real Estate Loans Construction $243,402 $2,298,027 Commercial 61,563,940 61,656,242 61,807,342 63,954,269 Commercial and industrial loans 41,686,636 41,799,764 Loans to individuals 10,343,229 9,386,265 Other 1,206,759 177,080 115,043,966 115,317,378 Deduct Unearned net loan fees and premiums (807,388) (1,149,095) Allowance for loan losses (1,512,544) (1,465,000) $112,724,034 $112,703,283 Note 4. Loans, continued Impairment of loans having recorded investments of $1,859,634 at December 31, 1995 has been recognized in conformity with FASB Statement No. 114 as amended by FASB Statement No. 118. The total allowance for credit losses related to these loans was $390,031 on December 31, 1995. Impaired loans for which there is no related allowance for credit losses at December 31, 1995 is $217,260. Average recorded investment for all impaired loans during 1995 was $2,634,317. Interest income of approximately $284,000 was recognized on impaired loans in 1995 of which an insignificant amount was recognized using a cash-basis method of accounting during the time within that period that the loans were impaired. As of December 31, 1995 and 1994, the Company had loans totaling approximately $3,055,000 and $3,163,000, respectively, on which income was not currently being accrued due to their delinquent status. Interest income which would have been earned on such nonaccrual loans was approximately $205,000, $169,000 and $210,000 for the years ended December 31, 1995, 1994 and 1993, respectively. The Company's policy for requiring collateral is to obtain collateral whenever it is available or desirable, depending upon the degree of risk the Company is willing to undertake. Loans serviced _ The Company serviced approximately $56,530,000 and $58,350,000 of loans for others as of December 31, 1995 and 1994, respectively, which are not included in the accompanying balance sheets. Note 5. Allowance for Credit Losses and Reserve for Other Real Estate Owned Changes in the allowance for credit losses are as follows:
Note 6. Bank Premises and Equipment The major classes of bank premises and equipment and the total accumulated depreciation and amortization are as follows:
1995 1994 Land $1,100,000 $1,100,000 Buildings and leasehold improvements 4,384,645 4,155,251 Equipment and furnishings 3,132,999 2,729,040 8,617,644 7,984,291 Less accumulated depreciation and amortization 3,091,067 2,597,612 $5,526,577 $5,386,679
Note 7. Deposits and Concentrations The aggregate amount of short-term jumbo certificates of deposit, each with a minimum denomination of $100,000 was approximately $6,632,000 and $5,162,000 in 1995 and 1994, respectively. At December 31, 1995, substantially all certificates of deposits mature within one year. As of December 31, 1995, the Company has deposit concentrations of approximately $28,158,000 from four customers. Note 8. Income Taxes The cumulative tax effects of the primary temporary differences are shown in the following table:
1995 1994 Deferred Tax Assets Loan loss allowances $378,000 $357,000 Deferred compensation accruals 165,000 138,000 Deferred loan fees 93,000 100,000 Acquired net operating loss carryforward 94,000 101,000 Alternative minimum tax credit - 178,000 Unrealized loss on available-for-sale securities 118,000 388,000 Other real estate allowance 125,000 26,000 State income taxes 133,000 - Total deferred tax assets $1,106,000 $1,288,000 Deferred tax liability, property and equipment 632,000 640,000 Subtotal $474,000 $648,000 Valuation allowance for deferred tax assets 165,000 648,000 Net deferred tax assets $309,000 $ -
The Company recorded valuation allowances on deferred tax assets in excess of deferred tax liabilities at December 31, 1995 and 1994, due to the uncertainty of future taxable income and reversal patterns of temporary differences. Management believes that the remaining deferred tax assets are more likely than not, to be realized. The provision for income taxes charged to operations consists of the following:
1995 1994 1993 Current tax expense (benefit) $1,488,000 $354,200 $(710,800) Deferred tax expense (benefit) (309,000) 338,000 687,000 Benefit resulting from the removal of a loss contingency - - (500,000) $1,179,000 $692,200 $(523,800) Note 8. Income Taxes, continued The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income as follows:
Note 9. Commitments and Contingencies Contingencies _ In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the consolidated financial statements. Financial instruments with off-balance sheet risk _ The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated balance sheets. The Company's exposure to credit loss in the event of nonperformance by the other parties to the financial instrument for these commitments is represented by the contractual amounts of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. A summary of the contract amount of the Company's exposure to off-balance sheet risk as of December 31, 1995 and 1994 is as follows:
1995 1994 Commitments to extend credit $23,739,000 $24,319,000 Standby letters of credit 1,533,000 477,250 $25,272,000 $24,796,250
Note 9. Commitments and Contingencies, continued Commitments to extend credit _ Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. If deemed necessary upon extension of credit, the amount of collateral obtained is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property and equipment, and income-producing commercial properties. Standby letters of credit _ Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which the Company deems necessary. At December 31, 1995, all of the standby letters of credit were collateralized. Lease commitments _ The Company leases certain branch facilities and equipment from nonaffiliates under operating leases expiring at various dates through September 2004. The following is a schedule of future minimum rental payments under these leases are as follows: 1996 $578,000; 1997 $429,000; 1998 $343,000; 1999 $ 303,000; 2000 $ 257,000; thereafter $1,273,000; total $3,183,000. Annual rent expense under these leases and other month-to-month leases for the years ended December 31, 1995, 1994 and 1993, was approximately $ 771,000, $793,000 and $656,000, respectively. In March 1995, the Company contracted with a data processing center to provide computer services. The contract expires in March 2001. Should the Bank terminate the contract prior to the expiration date, the Company is subject to a penalty in the amount of 25% of the amounts that would have been paid to the center for the remainder of the contract term. The expense under this contract for the nine months ended December 31, 1995 was approximately $500,000. Note 10. Stock Option Plans The Company maintains a compensatory incentive stock option plan in which options to purchase shares of the Company's common stock are granted at the Board of Directors' discretion to certain management and other key personnel. The Plan was originally established for a maximum of 193,106 shares of the Company's common stock. Purchase prices associated with the options range from $5.78 to $6.29 and are based on the fair market value of the Company's stock at the time the option is granted. The options, if not exercised, will expire 5 years from the date they were granted. Other pertinent information relating to the Plan follows:
1995 1994 1993 Under option, beginning of year 47,500 41,000 - Granted 20,000 6,500 41,000 Canceled (5,500) - - Effect of 5% stock dividend 3,100 - - Exercised (2,500) - - Under option, end of year 62,600 47,500 41,000 Options exercisable, end of year 62,600 47,500 41,000 Available to grant, end of year 128,006 136,411 142,911 Average price under option, end of year $5.89 $6.07 $6.07 Average price of options granted, during the year $6.17 $6.09 $6.07
Note 11. Employee Benefit Plans Salary deferral 401(k) plan _ The Company has a salary deferral 401(k) plan for all employees who have completed one year of service. The Bank contributes matching funds at its option which amounted to $97,000 and $101,000 for 1995 and 1994, respectively. Contingency contract _ In January 1996, the Company entered into a contingency contract, with the Chief Executive Officer and Chief Financial Officer of the Company, which provides for benefits in the event that the Company experiences a merger, acquisition, or other act wherein they are not retained in similar position with the surviving Company. Note 12. Loans and Other Transactions With Related Parties Stockholders of the Company, and officers and directors, including their families and companies of which they are principal owners, are considered to be related parties. These related parties were loan customers of, and had other transactions with, the Company in the ordinary course of business. In management's opinion, these loans and transactions were on the same terms as those for comparable loans and transactions with nonrelated parties. Total loans to related parties were approximately $2,832,606 and $2,829,182 at December 31, 1995 and 1994, respectively. The activity in such loans is as follows:
1995 1994 Balance, beginning $2,829,182 $2,550,204 New loans, including renewals 4,356,000 505,764 Repayments (4,352,576) (226,786) Balance, ending $2,832,606 $2,829,182
Note 12. Loans and Other Transactions With Related Parties, continued None of these loans are past due, nonaccrual, or restructured to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower. There were no loans to a related party that were considered classified loans at December 31, 1995 and 1994. Note 13. Regulatory Capital Requirements The subsidiary bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory _ and possibly additional discretionary _ actions by regulators that, if undertaken, could have a direct material effect on the bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the bank must meet specific capital guidelines that involve qualitative measures of the bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1995, that the Bank meets all capital adequacy requirements to which it is subject. As of June 30, 1995, the most recent notification from the Office of the Comptroller of the Currency (OCC) categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the table. There are no conditions or events since that management believes have changed the institution's category. Note 13. Regulatory Capital Requirements, continued The bank's actual capital amounts and ratios are presented in the following table (in thousands of dollars):
The Company's capital amounts and ratios are substantially the same as the amounts presented above. Note 14. Statement of Cash Flows
Note 15. Fair Values of Financial Instruments The fair values of the Company's financial instruments are as follows: 1995 1994
Carrying Carrying Amount Fair Value Amount Fair Value Financial Assets Cash and short-term investments $22,929,660 $22,929,660 $15,394,879 $15,394,879 Securities 39,561,115 39,503,309 41,151,751 39,815,529 Loans, net 112,724,034 114,468,551 112,703,283 112,516,467 Accrued interest receivable 1,167,707 1,167,707 1,068,744 1,068,744 Federal funds sold 18,500,000 18,500,000 28,215,000 28,215,000 Financial Liabilities, deposits 188,991,370 188,999,119 190,405,853 190,409,037
Fair value of commitments _ The estimated fair value of fee income on letters of credit at December 31, 1995 and 1994, is insignificant. Note 16. Parent Company Only Condensed Statements CONDENSED BALANCE SHEETS (in 000's) >CAPTION> 1995 1994 Assets Cash $207 $205 Investment in subsidiaries 16,877 14,399 Other assets 178 178 $17,262 $14,782 Stockholders' equity $17,262 $14,782
CONDENSED STATEMENTS OF INCOME (in 000's)
1995 1994 1993 Operating income, dividends from subsidiaries $474 $224 $165 Expenses, professional fees 16 - - Income before equity in subsidiary undistributed income 458 224 165 Equity in net income of subsidiary 2,066 611 34 Net income $2,524 $835 $199
Note 16. Parent Company Only Condensed Statements, continued CONDENSED STATEMENTS OF CASH FLOWS (in 000's)
1995 1994 1993 Cash Flows from Operating Activities Net income $2,524 $835 $199 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net income of subsidiaries (2,066) (611) (34) Decrease in other assets - 149 - Net cash provided by operating activities 458 373 165 Cash Flows from Investing Activities, net cash (used in) capital contributed to subsidiary - (120) (140) Cash Flows from Financing Activities Exercise of stock options 18 - - Dividends paid (474) (92) - Net cash (used in) financing activities (456) (92) - Increase in cash and due from banks 2 161 25 Cash and Due from Banks Beginning 205 44 19 Ending $207 $205 $44 Supplemental Disclosures of Cash Flow Information, cash payments for income taxes $2,005 $(630) $98
Note 17. Discontinued Operations The Company and its subsidiary operate primarily in the banking industry. Operations in the banking industry involve a variety of banking and financial services. In 1993, the Company began a mortgage banking division which consisted of origination of mortgage loans, sale of mortgage loans in the secondary market and servicing of mortgage loans. During 1994, the Company ceased its mortgage banking operations and there was no gain or loss on the disposal of the segment. Segment information for the year ended December 31, 1994 and 1993 is presented on the following table:
Mortgage (Dollar amounts in thousands) Banking Banking Consolidated 1994: Unaffiliated revenue $16,544 $512 $17,056 Income (loss) before income taxes $1,752 $(372) $1,380 Identifiable assets $206,510 $- $206,510 1993: Unaffiliated revenue $14,694 $637 $15,331 (Loss) before income taxes $(67) $(429) $(496) Identifiable assets $191,089 $2,201 $193,290
Income tax (credits) allocated to the loss on discontinued operations were $(148,000) and $(171,000) in 1994 and 1993, respectively. EX-27 3
9 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 22930 0 18500 0 26908 12653 12598 114237 1513 207928 188991 0 1675 0 0 0 7510 0 207928 12954 3617 0 16571 3141 0 13430 320 0 12187 3703 3703 0 0 2524 $1.30 $1.30 9.38 3055 33 0 600 1465 388 116 1513 1513 0 0
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