Heritage Oaks Bancorp Announces Q1 2012 Results & Termination of the Bank's Consent Order - 04/23/12

Simone Lagomarsino, CEO
Thomas Tolda, CFO

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

Heritage Oaks Bancorp Announces Results for the First Quarter, 2012 and Termination of the Bank's Consent Order With the California Department of Financial Institutions and the FDIC

  • First quarter net income was $1.6 million, $2.5 million below fourth quarter, 2011
  • Provision for loan losses was $3.3 million, up $2.6 million due primarily to a single loan relationship
  • Allowance for loan losses was $19.8 million or 3.07% of gross loans reflecting119% coverage over non-performing loans
  • Net interest margin increased to 4.72%, 5 basis points above prior quarter
  • Total deposits increased $20.2 million or 2.6% over fourth quarter, 2011 to $806.4 million while gross loans remained flat to prior quarter at $645 million
  • The Company released $0.8 million from its deferred tax asset valuation reserve in first quarter 2012 as compared to $1.5 million released in fourth quarter, 2011
  • Effective April 16, 2012, the FDIC and California Department of Financial Institutions terminated the Joint Consent Order issued on March 4, 2010

Paso Robles, California, April 23, 2012 (GLOBE NEWSWIRE) -- Heritage Oaks Bancorp (the "Company"), (Nasdaq:HEOP), the parent company of Heritage Oaks Bank (the "Bank"), today reported net income of $1.6 million, $2.5 million less than fourth quarter, 2011 and $1.1 million higher than first quarter, 2011. The decrease in net income from prior quarter was driven by a $2.6 million increase in provision for loan losses, which resulted from deterioration in one loan relationship. Also contributing to the linked-quarter decrease was a $0.7 million decline in the level of deferred tax asset valuation allowance reversal in the first quarter of 2012 as compared to the prior quarter. The net income in first quarter represented six consecutive quarters of profitability. After incorporating accrued dividends and accretion on preferred stock of $0.4 million, the net income applicable to common shareholders for first quarter was $1.2 million. Net income per basic and diluted common share was $0.05 in the first quarter; $0.11 and $0.10 less than the basic and diluted earnings per share, respectively, reported in the fourth quarter, 2011.

On a pre-tax, pre-loan loss provision basis, the Company earned $4.5 million in the first quarter, $0.4 million less than the fourth quarter, 2011. This decrease was due to $0.2 million less net interest income and $0.7 million less in non-interest income, due to $0.5 million less gain on sale of securities and $0.2 million less in mortgage gain on sale and origination fees. Partly offsetting these declines was $0.5 million less in non-interest expenses.

The increase in the provision for loan losses in the first quarter of 2012 is largely attributable to deterioration in a single credit relationship, which aggregates to over $10.0 million. Although the borrower had been performing under the terms of the related loans, it became apparent during the first quarter that repayment in full upon the loans' maturity date in the second quarter of 2012 would not occur. Accordingly, the related loans were downgraded to substandard, transferred to non-accrual status, determined to be impaired and an appropriate provision was recorded according to a collateral-based specific reserve analysis. In addition, this single credit relationship also drove higher levels of classified and non-accrual loans which have been declining over the past four quarters. Both the level of special mention loans and delinquent loans greater than 30 days declined in first quarter.

Effective April 16, 2012, the FDIC and California Department of Financial Institutions ("DFI") terminated the Joint Consent Order ("Order") issued March 4, 2010. In connection with the termination of the Order, the Bank's Board of Directors executed a Memorandum of Understanding ("MOU") with the FDIC and DFI. Under the MOU, the Bank committed to continue to: maintain a minimum Tier 1 Leverage Ratio of 10%; obtain regulatory approval for any dividend payments from the Bank; obtain regulatory approval for the opening of new branch locations; and continue to make progress in improving credit quality and processes. The lifting of the Order reflects the progress the Bank has made in improving credit quality, strengthening capital, enhancing oversight and hiring qualified management as stated in the terms of the Order. "The removal of the Order is testament to the hard work of the entire Heritage Oaks Bank team in addressing the requirements of the Order. Our capital position has been strengthened, the Bank's profitability has improved, and we will continue to focus on improving credit quality and operating efficiency," said Simone Lagomarsino, CEO and President.

"In line with our strategic objectives, first quarter progress was notable in several areas including termination of the Consent Order, improving operating efficiency and growing the business. We are on track to consolidate three of our smaller branches into other nearby branches in second quarter and we have continued to rationalize and flatten the organizational structure. We have also completed the acquisition of our Paso Robles headquarters' building, main branch and 2 other branches at favorable terms that will help lower operating costs today and, increasingly over the longer term. From a business growth perspective, our branches had excellent success in contributing to the $20.2 million increase in deposits this quarter. We also identified and leased a new location as our entry point into Ventura County with a new loan production office which will open in June, 2012. The size and opportunity in the Ventura County market is greater than the size and opportunity in Santa Barbara and San Luis Obispo Counties combined. In addition, we have just hired a team of 5 seasoned loan officers to accelerate growth in our SBA and agricultural lending portfolios," concluded Ms. Lagomarsino.