For Immediate Release
04/29/2008 8:00am
Lawrence P. Ward, CEO
Margaret Torres, CFO
805.369.5200

Paso Robles, CA – April 24, 2008 – Heritage Oaks Bancorp (NASDAQ: HEOP), the parent company of Heritage Oaks Bank, today reported that continued loan growth and aggressive deposit re-pricing, contributed to increased profits for the quarter ended March 31, 2008. In the first quarter net income increased 11% to $1.7 million, or $0.22 per diluted share, compared to $1.5 million, or $0.23 per diluted share, in the first quarter of 2007. The decrease in earnings per share is related to the October 2007 acquisition of Business First National Bank ("Business First") of Santa Barbara, in which, Heritage Oaks Bank issued 850,213 shares, resulting in a 13% increase in the number of average diluted shares outstanding compared to the first quarter of 2007.

"Following the acquisition of Business First in October 2007, we have been focusing our resources on reshaping the balance sheet of our combined organization and integrating our core processing systems. The results of those efforts are evident with our profit growth during the first quarter," stated Lawrence P. Ward, President and CEO. "Although the current economic environment is very difficult for the entire banking industry, the Company is poised to address these uncertain times from a position of strength with capital levels at "well capitalized." Asset quality continues to be our driving focus as we work to identify any and all weakness within our loan portfolio. At this time, asset quality remains acceptable and we continue to benefit from a well diversified loan portfolio that is balanced with commercial real estate and commercial loans. The liability side of our balance sheet is well positioned with DDA, NOW, Savings and Money Market core accounts representing 78% of our total deposits. .We are continuing to build a strong platform for growth in the attractive Central Coast markets."

First Quarter 2008 Highlights:

• Net income increased 11% to $1.7 million, or $0.22 per diluted share.
• Net interest income climbed 30% to $9.1 million.
• Asset quality remained strong, with non-performing assets at 0.20% of total assets.
• Core deposits increased 45% over a year ago, and represent 78% of total deposits.
• Gross loans grew 37% to $640 million.
• Net interest margin was 5.33%, unchanged from 4Q07 and only a 33 basis point decrease from 5.66% in 1Q07.

Balance Sheet

"Our strategy of funding loans with our variable interest rate money market account is proving to be very successful. Consequently, savings, NOW and money market balances have climbed 78% and total deposits increased 33% since the end of March 2007," said Ward. "Additionally, these deposits vary with market rate changes, and are a much more complementary funding source for our primarily floating rate loan portfolio than time deposits."

Total deposits grew 33% to $590 million at March 31, 2008, compared to $445 million a year earlier. The Business First acquisition accounts for approximately 23% of total deposit growth on a year over year basis. Core deposits increased 45% to $459 million at March 31, 2008, compared to $316 million a year ago, and now represent 78% of total deposits. "We chose to call and not renew approximately $8.7 million and $2.1 million, respectively, of brokered certificates of deposit during the quarter, which were at an average rate of 5.4%. This resulted in slower deposit growth compared to the linked quarter, however, our retail deposit growth for the quarter was very encouraging," added Ward. Heritage Oaks increased its Federal Home Loan Bank (FHLB) borrowings by $63.5 million during the first quarter of 2008 to fund its loan growth. FHLB borrowings were a significantly lower cost funding source than funding loan growth with brokered CD, balance sheet CDs or higher interest rate money market account balances. This strategy allowed us to maintain our net interest margin at 5.33%, equal to the fourth quarter of 2007.

Net loans grew 37% to $632 million at March 31, 2008, from $460 million a year earlier. The Business First acquisition accounts for approximately 35% of total net loan growth on a year over year basis. "The loans added from Business First are primarily real estate loans, all of which have undergone a thorough due diligence by both our external credit review firm and our internal credit department. At March 31, 2008, the loans acquired from Business First that are non-performing represent only 0.03% of total assets," added Ward.

Total assets increased 32% to a record $761 million at March 31, 2008, compared to $579 million a year earlier.

Asset Quality

Non-performing assets totaled $1.5 million, or 0.20% of total assets at March 31, 2008, compared to $145,000, or 0.03% of total assets a year earlier.

Loans on non-accrual status totaled $1.5 million and $338,000 at March 31, 2008 and December 31, 2007, respectively. At March 31, 2008, non-performing loans consisted of twelve loans to nine clients. A description of these loans is as follows: two loans that are less than $20 thousand each are paying as agreed, one loan for approximately $255 thousand that is real estate secured has a Loan To Value (LTV) of < 65% and is current, two loans for approximately $250 thousand that are in foreclosure with no anticipated loss, six loans for three clients with total loan balances of approximately $1 million are currently on the books for their assessed value and are being closely monitored for any deterioration, and one government guaranteed loan of less than $14 thousand is in the process of collection on the guarantee. At this time, Management believes that there may be some loss potential in the non-performing assets, however, not of a substantial amount. Interest income that would have been recognized on non-accruing loans if they had performed in accordance with the terms of the loans was approximately $31 thousand and $65 thousand at March 31, 2008 and December 31, 2007, respectively.

Heritage Oaks Bank has increased its allowance for loan losses to $6.3 million, or 0.99% of total loans at March 31, 2008, compared to $4.3 million, or 0.92% of total loans at March 31, 2007. Approximately $1.4 million of the increase is attributable to the credit from the purchase of Business First. "Management is aggressively monitoring the entire loan portfolio to identify areas of deterioration and to that end, we are experiencing an increase to the internal watch and classified list," said Ward. "While there is no guarantee that the Bank will not experience an increase in non-performing loans, historically the Bank has been able to work through impaired credits with minimal net charge off history. Given the economic environment of the banking industry, we will take a proactive stance on loan deterioration and add to our reserves as Management deems appropriate throughout the rest of 2008."

Heritage Oaks Bank has no direct exposure to the subprime mortgage lending.

Operating Results

The net interest margin was 5.33% and 5.66% for the quarter ended March 31, 2008 and 2007, respectively. "Our net interest margin remained stable during the first quarter, compared to the previous quarter, despite the 200 basis point decrease in the Fed Funds rate by the Federal Reserve during the first three months of 2008," Ward said. "Core deposit growth, generated as a result of our money market deposit promotion in 2007 contributed to keeping our margin above peer levels." The net interest margin was 5.33% in the first quarter of 2008, the same as in the previous quarter.

Total revenues, consisting of net interest income before the provision for loan losses and non-interest income, climbed 28% to $10.6 million from $8.3 million in the first quarter of 2007. Net interest income grew 30% to $9.1 million in the first quarter compared to $7.0 million in the first quarter a year ago. Interest and fees on loans increased 23% for the first quarter compared to the first quarter a year ago while interest expense increased 13% for the first quarter compared to the first quarter a year ago.

"During the first quarter we completed our data processing conversion of the Business First platform and incurred one-time costs associated with the conversion," said Ward. "Additionally, the increases in salary and employee benefits, coupled with increased occupancy expense, are a direct result of our larger organization due to the acquisition as well as organic growth over the past twelve months." Heritage Oaks Bank’s total non-interest expense increased 34% to $7.6 million in the first quarter of 2008, from $5.7 million in the first quarter a year ago.

Performance Measures

At March 31, 2008, the acquisition of Business First accounts for the addition of nearly $160 million in assets along with approximately $13.8 million in equity over that which was reported at March 31, 2007. Because of this, return on average assets was 0.91% in the first quarter of 2008 compared to 1.10% in the first quarter of 2007. Return on average equity was 9.55% for the first quarter compared to 12.10% in the first quarter a year ago. The pro forma for the acquisition of Business First forecast the transaction to be accretive to earnings per share by the end of 2008.

The efficiency ratio was 72.17% in the first quarter of 2008 compared to 67.26% in the previous quarter and 68.89% in the first quarter a year ago. The efficiency ratio measures operating expenses as a percent of revenues.

Shareholders’ equity increased 39% to $71.0 million at March 31, 2008, compared to $51.2 million a year ago. Book value per share was $9.67 at March 31, 2008, compared to $7.98 per share a year earlier and tangible book value per share was $7.46 at March 31, 2008, compared to $7.06 a year earlier.

Heritage Oaks Bancorp is the holding company for Heritage Oaks Bank which operates as Heritage Oaks Bank and Business First, a division of Heritage Oaks Bank. Heritage Oaks Bank has its headquarters plus two branch offices in Paso Robles, two branch offices in San Luis Obispo, single branch offices in Cambria, Arroyo Grande, Atascadero, Templeton and Morro Bay and three branch offices in Santa Maria. Heritage Oaks Bank conducts commercial banking business in San Luis Obispo County and Northern Santa Barbara County. The Business First division has two branch offices in Santa Barbara. Visit Heritage Oaks Bancorp on the Web at www.heritageoaksbancorp.com.

Statements concerning future performance, developments or events, expectations for growth and income forecasts, and any other guidance on future periods, constitute forward-looking statements that are subject to a number of risks and uncertainties. Actual results may differ materially from stated expectations. Specific factors include, but are not limited to the ability to successfully integrate the operations of Business First National Bank, increased profitability, continued growth, the Bank’s beliefs as to the adequacy of its existing and anticipated allowances for loan losses, beliefs and expectations regarding actions that may be taken by regulatory authorities having oversight of the Bank’s operations, interest rates and financial policies of the United States government, general economic conditions and California’s energy crisis. Additional information on these and other factors that could affect financial results are included in Heritage Oaks Bancorp’s Securities and Exchange Commission filings. If any of these risks or uncertainties materialize or if any of the assumptions underlying such forward-looking statements proves to be incorrect, Heritage Oaks Bancorp’s results could differ materially from those expressed in, implied or projected by such forward-looking statements. Heritage Oaks Bancorp assumes no obligation to update such forward-looking statements.