Heritage Oaks Bancorp Reports Fourth Quarter 2010 Net Income of $517 Thousand - 02/07/11

Lawrence P. Ward, CEO
Thomas Tolda, CFO

Click here, to view the official press release.  (PDF)

Heritage Oaks Bancorp Reports Fourth Quarter 2010 Net Income of $517 Thousand

PASO ROBLES, Calif., Feb. 7, 2011 (GLOBE NEWSWIRE) -- Heritage Oaks Bancorp (the "Company"), (Nasdaq:HEOP), the parent company of Heritage Oaks Bank (the "Bank"), today reported net income of $517 thousand for the fourth quarter of 2010, $11.4 million improved over third quarter's net loss of $10.9 million. For the full year 2010, the Company reported a net loss of $17.6 million compared to a net loss of $7.0 million for full year 2009. Net income in the fourth quarter, 2010 was primarily attributable to a decrease of $3.4 million in the valuation allowance for deferred tax assets offset by $5.8 million in provisions for loan losses and $2.8 million in write-downs on foreclosed assets. After incorporatingaccrued dividends and accretion on preferred stock of $0.5 million, the net income applicable to common shareholders for the fourth quarter of 2010 was $26 thousand. This resultcompares favorably to the $11.3 million in net losses applicable to common shareholders reported for the third quarter, 2010. Net income per basic and diluted common share was$0.00 in the fourth quarter, 2010 compared to a net loss per basic and diluted common share of $0.45 in third quarter, 2010.

"During the fourth quarter, we continued to make progress in working through our problem assets and aggressively providing for loan losses. The Company is reporting a pre-tax pre-provision profit of $143 thousand and, excluding the impact of foreclosed asset write-downs of $2.8 million, the Company's core pre-tax, pre-provision earnings is $3.0 million," said Mr. Ward, Chief Executive Officer for the Company. Mr. Ward also commented "the Company finalized its 2010 tax position and confirmed the amount of tax deductions during the current year which would be subject to IRC Section 382 loss limitations. A by-product of this process was the reversal of a portion of the deferred tax asset valuation allowance established during the third quarter of 2010." Mr. Ward further noted, "Net interest margin continues to remain strong increasing 2bps to 4.58% as additional steps were taken to lower the cost of our core funding base. Importantly, both loan and customer deposit balances increased $3.4 million and $2.6 million respectively during the fourth quarter, as we continue to attract core relationships and originate loans to credit-worthy borrowers." Mr. Ward concluded by saying, "We look forward to continued profitability in 2011 where our focus will be on: continuing to bring resolution to legacy problem loans; driving improvements in operating efficiency; building out our retail mortgage and S.B.A. businesses and increasing market penetration to bring additional core business relationships to the Bank."

Fourth Quarter Financial Highlights:

  • LOANS – for the first time in 2010, the gross loan portfolio reversed its decline and increased $3.4 million to $677.3 million during the fourth quarter 2010, outstripping principal repayments, charge-offs, transfers to OREO and the continued tight credit originations environment. On a year over year basis, total gross loans declined $51.4 million or 7.1% as commercial loan originations slowed, repayments occurred and loans were charged off. In 2010 Heritage Oaks Bank originated a record $165.7 million in consumer mortgages which it sold to investors. Consumer mortgage growth remains an opportunity for Heritage Oaks Bank and we plan to see this business continue to grow in 2011.
  • DEPOSITS – total deposits increased $2.6 million to $798.2 million in the fourth quarter. On a full year basis, non-brokered deposits increased $33.9 million or 4.4% over year-end 2009. Our loan to deposit ratio at the end of 2010 was 84.6% compared to 94.0% at the end of 2009.
  • NET INTEREST INCOME – was $10.8 million in the fourth quarter, 2010. Year over year, total net interest income was $42.7 million, $3.2 million or 8.2% above 2009. For 2010, total revenues, including net interest income and non-interest revenues, totaled $52.2 million, $6.5 million or 14.2% higher than reported for 2009. Our net interest margin remains strong and increased 2 bps to 4.58% in fourth quarter, 2010. The fourth quarter increase in net interest income was largely a result of deposit pricing adjustments, which occurred in the later part of the quarter, and will help to stabilize and maintain net interest income as we head into the first quarter of 2011.
  • ALLOWANCE FOR LOAN LOSSES – was strengthened to $24.9 million, representing 3.68% of total gross loans and a $3.4 million increase over the prior quarter end. The Company provided $5.8 million for loan losses during the fourth quarter while charging-off $3.5 million during the quarter and recovering $1.1 million. Loans were substantially marked down during 2010 which now provides the Bank with multiple alternatives with regard to resolution of these credits (i.e. sale, restructuring, etc.). We expect that the need to provide for problem credits will decline in 2011.
  • NON-PERFORMING ASSETS – were $39.5 million at December 31, 2010, an increase of $3.6 million as compared to September 30, 2010 and an increase of $0.2 million from that reported at December 31, 2009. The ratio of non-performing assets to total assets improved to 3.34% in fourth quarter versus 4.05% at December 31, 2009. The ratio of allowance for loan losses to non-performing loans is 76.0% at December 31, 2010, up from 37.5% at December 31, 2009.
  • DEFERRED TAX ASSETS – during the fourth quarter, the Company recorded a reversal of valuation allowance of $3.4 million for its deferred tax assets leaving a remaining $7.1 million valuation allowance at December 31, 2010. This reversal was recorded because taxable deductions subject to IRC Section 382 limitations were less at yearend than was anticipated at September 30, 2010 when the valuation allowance was first established.