Heritage Oaks Bancorp Announces Results for the Fourth Quarter and Full Year 2011 - 01/26/12

Simone Lagomarsino, CEO
Thomas Tolda, CFO

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Heritage Oaks Bancorp Announces Results for the Fourth Quarter and Full Year 2011

  • Fourth quarter Net Income was $4.1 million, $2.0 million above third quarter, marking the fifth consecutive quarter of profitability
  • Full Year Net Income of $7.7 million was $25.3 million above the 2010 net loss of $17.6 million
  • The Company decreased its deferred tax asset valuation allowance from $7.1 million to $5.6 million which contributed $1.5 million to net income for both the quarter and the year
  • Asset quality improved with non-performing loans down $2.0 million from the third quarter and $21.7 million since December 31, 2010 to $11.1 million or 1.72% of gross loans. This represents a 66% decline in non-performing loans since 2010 year-end when these loans were 4.85% of gross loans
  • Allowance for loan losses was $19.3 million or 2.99% of gross loans reflecting 174% coverage over non-performing loans
  • Net interest margin for the quarter remained flat to the prior quarter at 4.67%
  • Tier 1 Leverage ratio increased 50 basis points from the prior quarter to 12.06% and Total Risk Based Capital ratio increased 44 basis points to 16.07%

PASO ROBLES, Calif., Jan. 26, 2012 (GLOBE NEWSWIRE) -- Heritage Oaks Bancorp (the "Company"), (Nasdaq:HEOP), the parent company of Heritage Oaks Bank (the "Bank"), today reported its fifth consecutive quarter of profitability with fourth quarter net income of $4.1 million, $2.0 million higher than third quarter's $2.1 million and $3.6 million above fourth quarter 2010. After incorporating accrued dividends and accretion on preferred stock of $0.3 million, net income applicable to common shareholders for fourth quarter was $3.9 million. Net income per basic and diluted common share was $0.16 and $0.15, respectively in the fourth quarter; $0.09 and $0.08 higher than the basic and diluted earnings per share reported in the third quarter. For full year 2011, the Company reported net income of $7.7 million; $25.3 million higher than the $17.6 million net loss reported in 2010. The improvements in quarterly earnings are primarily due to $0.7 million higher non-interest income, a $0.4 million lower provision for loan losses, and a $1.5 million decrease in the $7.1 million deferred tax asset valuation allowance established in 2010. Improvements in full year 2011 earnings as compared to 2010 were driven by lower provisions for loan losses due to improvements in credit quality, lower non-interest expenses and the previously mentioned decrease of the deferred tax asset valuation allowance.

On a pre-tax, pre-loan loss provision basis, the Company earned $4.9 million in the fourth quarter of 2011, $0.5 million above third quarter. This improvement was largely due to a $0.7 million increase in non-interest income partly offset by an increase in non-interest expenses of $0.2 million. The provision for loan losses in the fourth quarter was $0.7 million compared to $1.1 million in the third quarter. Substantially all of fourth quarter's loan loss provision expense related to a mark-to-market adjustment on $5.9 million of classified loans which were charged down to $4.3 million upon transfer to held for sale status as of year-end. These loans were sold in mid-January at substantially the same market value as was reported at year end. Asset quality continued to improve as non-performing loans declined $2.0 million to $11.1 million at year-end. Total classified assets as a percent of Tier 1 Capital plus allowance for loan losses were essentially flat at 44.3% compared to third quarter's 44.4%.

"Through the hard work of all the Heritage Oaks Bank team and through the support of our loyal customers who are weathering the most difficult economic cycle in several decades, the Bank's credit risk profile has substantially improved and driven the major turn-around in the Bank's profitability and future prospects," stated Simone Lagomarsino, CEO and President of Heritage Oaks Bancorp. "We are about to open a new chapter in the Bank's history; one where the organization remains committed to serving and providing even more value to our customers, focused on top-line revenue growth and improving efficiency, all with a focus of building franchise value for our shareholders," continued Ms. Lagomarsino.

Ms. Lagomarsino further commented, "We have already started to implement initiatives that are consistent with these renewed areas of focus. In an effort to further improve efficiency, we have decided to consolidate three of our smaller branches into other nearby branch offices, which will occur over the next 90 days. We have developed a detailed plan to support our valued customers who are affected by this consolidation. In addition, in an effort to flatten the organization structure and reduce administrative costs, a difficult decision was made to eliminate the position of President / Chief Operating Officer of Heritage Oaks Bank, recently held by Ron Oliveira. Mr. Oliveira led the Bank's recovery through a difficult time, and helped to reposition the organization. Under his leadership the Bank undertook new strategic initiatives that will enable us to move ahead with a strong foundation. On behalf of the Board and executive management, we are grateful for Mr. Oliveira's commitment and leadership and wish him well in his new endeavors. His last day was January 26, 2012. I will assume the responsibilities of President, subject to regulatory approval."

Ms. Lagomarsino concluded, "The combination of these two actions will save more than $1.75 million annually, and some of these savings will be redeployed into one or more loan production offices to help spur top-line revenue growth. In fact we are in negotiations for a loan production office in Ventura County and are looking for another potential location in southern Santa Barbara County. We plan to evaluate the organizational structure further to identify additional cost savings and opportunities to increase efficiency in operations. Along these lines, Joanne Funari, previously Chief Lending Officer and President of our Business First Division will assume an expanded role as Market Area President for Santa Barbara and Ventura counties and will lead our efforts to grow loans and deposits in both counties. Bill Filippin, who has led the significant improvement in credit quality over the past few years as our Chief Credit Officer will be rejoining the front line lending area as Market Area President for San Luis Obispo County to grow our deposits and loans in that county. As Bill Filippin makes that transition, I am pleased to announce that Bill Yarbenet will be joining the team as our new Chief Credit Officer to further strengthen the team and continue our focus on improving credit quality and the overall risk profile of the Company. Mr. Yarbenet comes to us with 7 years of experience as a Chief Credit Officer, most recently at PremierWest Bank. While the economic recovery slowly advances and new challenges present themselves, our improving credit quality and efficiency, solid balance sheet and capital structure, strong management team and clear strategic direction position us very well in the months and years ahead for greater success and benefit to our shareholders, customers and the Heritage Oaks team."