Heritage Oaks Bancorp Reports Second Quarter Results - 07/28/2014

Heritage Oaks Bancorp Reports Second Quarter Results
Declares Quarterly Dividend of $0.03 per Common Share

Company Release - 07/28/2014 17:45

PASO ROBLES, Calif., July 28, 2014 (GLOBE NEWSWIRE) -- Heritage Oaks Bancorp ("Heritage Oaks" or the "Company") (Nasdaq:HEOP), a bank holding company and the parent of Heritage Oaks Bank (the "Bank"), reported net income available to common shareholders of $2.9 million, or $0.09 per dilutive common share, for the second quarter of 2014 compared to net income available to common shareholders of $2.4 million, or $0.09 per dilutive common share, for the second quarter of 2013, and a net loss allocable to common shareholders of $1.8 million, or $0.06 per dilutive common share for the first quarter of 2014. For the first six months of 2014, net income available to common shareholders was $1.2 million, or $0.04 per dilutive common share, compared with net income available to common shareholders of $5.7 million, or $0.22 per dilutive common share for the same period in 2013. The increase in net income for the second quarter of 2014 as compared to the same quarter a year earlier, was primarily due to the increased pre-tax net income resulting from the inclusion of the operating results of Mission Community Bancorp ("MISN") into the Company's operating results. In addition, during the quarter ended June 30, 2013, the Company incurred $0.4 million in dividends and accretion on preferred stock, which was not incurred during the same period in 2014 because the Company repurchased the TARP Preferred Shares in the third quarter of 2013.

Second Quarter 2014 Highlights

  • Gross loans grew 46.9% to $1.1 billion at June 30, 2014, compared with $746.6 million, at June 30, 2013. Year over year loan growth was primarily due to $280.7 million of loans acquired through the MISN transaction, which occurred on February 28, 2014. After eliminating the impact of the MISN acquisition, gross loans contracted by 2.1% during the three months ended June 30, 2014, and grew by 9.3% during the twelve months ended June 30, 2014.
  • Total deposits grew 57.8% to $1.4 billion at June 30, 2014, compared to a year earlier, primarily as a result of the $371.5 million of deposits acquired through the MISN transaction. Excluding the impact of the MISN acquisition total deposits grew 2.9% during the three months ended June 30, 2014, and 15.8% during the twelve months ended June 30, 2014. Non-interest bearing demand deposits grew 60.8% to $461.6 million compared to the prior year, with the growth largely resulting from the additional non-interest bearing deposits from MISN of $137.6 million. Non-interest bearing demand deposits now represent 33.1% of total deposits at June 30, 2014, compared to 32.5% of total deposits at March 31, 2014.
  • The allowance for loan and lease losses ("ALLL") as a percentage of gross loans declined to 1.52% at June 30, 2014 from 2.40% at June 30, 2013. The decline is due primarily to the inclusion of loans acquired from MISN in the denominator of this ratio; however at June 30, 2014 there is no ALLL attributed to these loans. Loans acquired from MISN were acquired at their fair market value and have not yet required any incremental ALLL. A fair market value discount of $10.0 million was recorded for the loans acquired through the MISN acquisition at the closing of the acquisition. Accretion on the loan discount was $0.9 million for the second quarter of 2014.
  • For the quarter ended June 30, 2014, the Company recorded $1.3 million in merger, restructure, and integration costs related to the MISN acquisition, which were partially offset by a favorable $0.4 million update to the valuation of two former Heritage Oaks Bank branch buildings that are in the process of being sold. Projected merger, restructure and integration costs for 2014 are now estimated to total $10.2 million. This includes $8.0 million of costs that have been incurred in the first six months of this year, and additional costs of $2.2 million that are projected to be recognized over the remainder of this year. Operations attributable to the MISN acquisition increased the Company's pre-tax net income by $1.6 million and provided an additional $4.1 million of net interest income, $0.3 million of non-interest income, and $2.8 million of additional non-interest expenses during the three months ended June 30, 2014.
  • Regulatory capital ratios for the Bank at June 30, 2014 were 9.53% for Tier 1 Leverage Capital and 13.70% for Total Risk Based Capital. The Company had a tangible common equity to tangible assets ratio of 9.54% at June 30, 2014. Tangible book value per common share was $4.76 at June 30, 2014 as compared to tangible book value per common share of $4.61 at March 31, 2014. At June 30, 2014, both the Company and the Bank maintained regulatory capital ratios at levels that would be generally considered "well capitalized" for regulatory purposes, respectively.
  • The Company recorded goodwill of $13.4 million during the first quarter of 2014 for the MISN transaction which represents the excess of consideration paid for the net assets acquired as compared to their fair market values at the closing of the acquisition. In accordance with accounting guidelines we are permitted to refine our initial estimate of goodwill for a period of up to one year after the acquisition date. During the second quarter of 2014 we adjusted our goodwill downward by $0.2 million for a cumulative total goodwill related to the MISN merger of $13.2 million. This adjustment was primarily a result of an increased valuation on former MISN branch buildings, which are in the process of being sold as part of our branch consolidation strategy, thereby decreasing goodwill.

"Since the merger closed on February 28, 2014, our team has focused on the smooth transition and integration of the Mission Community Bank customers and operations into our organization. On July 19th we successfully completed the system conversion for the former Mission customers and we are now all on one system," stated Simone Lagomarsino, President and Chief Executive Officer of Heritage Oaks Bancorp. Ms. Lagomarsino continued, "To date our customer retention has been very high as evidenced by the retention rate on the former MISN deposits of 97%. During the second quarter, we took the opportunity to exit a few loans that were not consistent with our credit standards; these loans totaled approximately $15 million. This positions us well to focus on growth along the Central Coast in the future. I am also proud to announce that we will be paying a cash dividend of $0.03 per share during the third quarter, which equates to a 1.7% annualized yield based on the current market price of our stock. This demonstrates the board's commitment to enhancing shareholder value. It is also a testament to the strength of our core banking activities and financial performance."

Read the complete release at www.HeritageOaksBancorp.com