Heritage Oaks Bancorp Announces Results for the Second Quarter 2012 - 07/26/12

Simone Lagomarsino, CEO
Thomas Tolda, CFO

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Heritage Oaks Bancorp Announces Results for the Second Quarter, 2012

  • Net income was $1.9 million, $0.3 million more than in the first quarter of 2012, and $0.9 million more than in the second quarter of 2011, marking the seventh consecutive quarter of profitability.
  • Total deposits increased $27.6 million from the end of the first quarter 2012 of which $22.4 million was non-interest bearing demand deposits (DDA). Total deposits increased by $47.7 million from year-end 2011, representing an annualized growth rate of 12.2%.
  • Gross loans grew $18.2 million in the second quarter to $663.7 million, representing the first quarterly net growth in the loan portfolio since the fourth quarter of 2009.
  • The Company released $0.7 million from its deferred tax asset (DTA) valuation reserve in the second quarter as compared to $0.8 million released in the first quarter. The remaining DTA valuation reserve at June 30, 2012 is $4.1 million.
  • On May 25, 2012, the Company paid all of its previously deferred interest and dividends on its trust preferred and TARP securities, bringing both of these obligations current.
  • Effective July 19, 2012, the Federal Reserve Bank (FRB) of San Francisco terminated its Written Agreement with the Company, which was issued on March 4, 2010. This followed the Federal Deposit Insurance Corporation (FDIC) and California Department of Financial Institutions (DFI) termination of the Bank's Consent Order on April 16, 2012.

PASO ROBLES, Calif., July 26, 2012 (GLOBE NEWSWIRE) -- Heritage Oaks Bancorp (the "Company") (Nasdaq:HEOP), the parent company of Heritage Oaks Bank (the "Bank"), today reported net income of $1.9 million for the quarter ended June 30, 2012, $0.3 million more than in the first quarter 2012 and $0.9 million more than in the second quarter 2011. The increase in net income during the second quarter of 2012 was primarily driven by greater non-interest income due to $0.8 million more of gain on securities sold and $0.2 million of additional mortgage business related revenues resulting from increased loan origination volume in comparison to first quarter.

Also contributing to the improvement in net income compared to the prior quarter was the decline in the provision for loan losses of $0.3 million. Partly offsetting these earnings improvements was a $0.3 million decrease in net interest income due to a decline in earning asset yields. The Company also experienced an increase in non-interest expense of $0.4 million mainly due to a $0.7 million provision for potential losses on certain mortgages sold by the Bank in 2007. The Bank has recently been notified of the buyer's intent to require the Bank to repurchase the mortgages pursuant to the terms of the agreement under which the mortgages were originally sold. After incorporating accrued dividends and accretion on preferred stock of $0.4 million in the aggregate, net income available to common shareholders for the second quarter was $1.5 million. Net income per basic and diluted common share was $0.06 in the second quarter, $0.01 more than the basic and diluted income per share reported in the first quarter 2012.

On a pre-tax basis, second quarter earnings were $1.7 million, $0.5 million higher than the first quarter. The second quarter earnings before income taxes and provision for loan losses were $4.8 million, $0.3 million higher than the first quarter's $4.5 million, and $1.2 million or 32% higher than the second quarter 2011.

Second quarter results were largely impacted by a $3.1 million provision for loan losses. The Company recently migrated to a more granular loan risk grading scale after completing a grade recertification and full review of all loan relationships equal to or greater than $500 thousand, which represents 74% of gross loans. While this review was primarily focused on ensuring existing loans were properly graded based on the new methodology, it provided additional insights on the overall credit quality of this portion of the portfolio. In the second quarter, net loan charge-offs totaled $4.7 million, the majority of which were related to updated specific reserve calculations.

"We remain on track to achieve our strategic goals of further improving the overall risk profile of our credit portfolio and building greater profitability and efficiency in the Company," said Simone Lagomarsino, CEO and President. "We believe that the second quarter results mark an inflection point for us as business growth is evident. Loans outstanding increased $18.2 million, marking the first time the loan portfolio has grown since the fourth quarter of 2009. We made great progress in the second quarter gathering low cost deposits, which increased 3.4%, or $27.6 million from the first quarter, and are now up 12.2% on an annualized basis, growing $47.7 million since year-end 2011. Operating efficiency, excluding provisions for potential mortgage repurchases, was 64.0% in the second quarter, reflecting improvement from the first quarter's 64.8%. The second quarter operating results reflect progress with the cost savings and top-line growth initiatives we outlined earlier in the year, which we have and will continue to focus on," said Ms. Lagomarsino.

Effective July 19, 2012, the FRB of San Francisco terminated its Written Agreement with the Company, which was issued March 4, 2010. This action follows the termination by the FDIC and DFI on April 16, 2012 of their Consent Order, which was issued to the Bank on March 4, 2010. The Company and the Bank are now operating under less formal Memoranda of Understanding (MOUs) with the FDIC, DFI and FRB. "The termination of the formal agreements is further testament to the progress the Company has made addressing its regulatory issues. We continue to focus on executing on our strategic plan, including improving credit quality and earnings, in an effort to eliminate the MOUs and build greater value for our customers and shareholders," said Ms. Lagomarsino.