Heritage Oaks Bancorp Reports Fourth Quarter and Full Year 2012 Results

Heritage Oaks Bancorp Reports Fourth Quarter and Full Year 2012 Results

PASO ROBLES, Calif., Jan. 24, 2013 (GLOBE NEWSWIRE) -- Heritage Oaks Bancorp
(the "Company") (Nasdaq:HEOP), a community bank holding company and parent of
Heritage Oaks Bank (the "Bank"), reported net income of $3.1 million for the
three months ended December 31, 2012, compared with $4.1 million for the same
period a year earlier. The decline in net income is largely attributable to
the reversal of a portion of our deferred tax asset valuation allowance in the
fourth quarter of 2011, whereas, the fourth quarter 2012 reflected a fully
normalized tax provision. Income before taxes was a record $4.8 million for
the three months ended December 31, 2012, a $0.6 million or 15.0% increase,
compared with $4.2 million for the same period a year ago. Net income for the
twelve months ended December 31, 2012 increased $5.3 million or 68.8% to a
record $13.0 million compared with $7.7 million for the year ended December
31, 2011.

Highlights

  *Improved earnings before taxes and provision for loan losses by $3.3
    million, or 21.2%, to $18.9 million for the twelve months ended December
    31, 2012 compared with $15.6 million for the same period a year ago;
    
  *Grew total deposits $84.7 million or 10.8% to $870.9 million at December
    31, 2012 compared with $786.2 million at December 31, 2011.Non-interest
    bearing deposit accounts grew $56.0 million or 25.8% to $273.2 million at
    December 31, 2012 compared with $217.2 million at December 31, 2011;
    
  *Completed the acquisition of the Morro Bay branch of Coast National Bank,
    adding $27.2 million in deposits as of December 31, 2012, which expanded
    the Bank's presence in the markets we serve;
    
  *Increased total gross loans $43.3 million or 6.7% to $689.6 million at
    December 31, 2012 compared with $646.3 million at December 31, 2011.Total
    agriculture lending, inclusive of farmland, and residential mortgage loan
    portfolios each almost doubled in size from a year ago as the Company
    focused on expanding these product lines.Total new loan production was
    $196.1 million for the twelve months ended December 31, 2012 compared with
    $105.5 for the same period a year earlier;
    
  *Reduced classified assets as a percent of Tier I capital plus ALLL to
    35.4% at December 31, 2012 compared with 44.3% at December 31, 2011; and
    
  *Increased regulatory capital ratios to 12.3% and 16.8% for Tier 1 Leverage
    and Total Risk-Based Capital, respectively at December 31, 2012, and
    maintained the allowance for loan losses as a percent of total loans at
    2.6% at December 31, 2012.

"We are very pleased with our achievements in the fourth quarter and for all
of 2012," said Simone Lagomarsino, President and Chief Executive Officer of
Heritage Oaks Bancorp. "We achieved record earnings for 2012, even as we made
significant investments in our operations including the hiring of commercial,
agri-business, and mortgage loan officers; the opening of a new loan
production office in Oxnard; and the completion of the acquisition of the
Morro Bay branch in December.In addition, we have made strides in improving
our overall credit exposure as reflected in the improvement in the ratio of
classified assets to Tier I capital plus ALLL.Today, we are operating from a
position of strength and stability, which allows us to focus on our customers
and to build new relationships throughout our markets."

Net Income Available to Common Shareholders

Net income available to common shareholders was $2.8 million, or $0.10 per
diluted common share, for the three months ended December 31, 2012, compared
with $3.9 million, or $0.15 per diluted common share, for the same three
months ended a year earlier.Net income available to common shareholders for
the year ended December 31, 2012 was $11.6 million, or $0.44 per diluted
common share, compared with $6.4 million, or $0.24 per diluted common share
for the year ended December 31, 2011.The key components of the change in net
income available to common shareholders for the three and twelve month periods
are discussed below.

Net Interest Income

Net interest income was $10.8 million, or 4.35% of average interest earning
assets, for the three months ended December 31, 2012 compared with $10.9
million, or 4.67% of average earning assets, for the same comparable period a
year earlier.For the twelve months ended December 31, 2012, net interest
income was $42.5 million, or 4.46% of average interest earning assets,
compared with $43.2 million, or 4.71% of average interest earning assets, for
the same period a year ago.The decline in net interest margin reflects the
continuing trend of margin compression that has taken place throughout 2012,
as a result of the historically low interest rate environment.

We continue to anticipate net interest margin pressure due to the very low
interest rate environment, a competitive environment for quality loan
relationships, increased refinancing activity of existing loans at lower
rates, and a change in the mix of our loan portfolio.We are working to
mitigate the impact of the pressure on our net interest margin over the short
term through efforts to grow the loan portfolio rather than investing in lower
yielding investment securities, through reductions in non-accrual loan
balances, and through modest reductions in the cost of deposits and
borrowings.

Provision for Loan Losses

We recorded no provision for loan losses for the three months ended December
31, 2012 compared with $0.7 million for the same period a year earlier.The
lack of a provision in the fourth quarter of 2012 was largely driven by
recoveries in the fourth quarter exceeding charge-offs along with continued
improvements in the credit quality of the loan portfolio. For the twelve
months ended December 31, 2012, we recorded $7.7 million of provision for loan
losses compared with $6.1 million for the same period a year ago.The increase
in provision for loan losses in 2012 was largely driven by increased specific
reserve requirements for a few large loans placed on non-accrual status in the
first half of 2012 and to a lesser degree an increase in the overall loan
portfolio, offset by improved historical net charge-offs. Net charge-offs
declined $2.8 million, or 24% to $8.9 million for the twelve months ended
December 31, 2012 compared with $11.7 million for the same period a year
earlier.Net charge-offs as a percent of average loans declined to 1.32% for
the twelve months ended December 31, 2012, compared with 1.75% for the same
period a year earlier.The 2012 ratio of net charge-offs to average loans is
the lowest annual level the Company has reported since 2008.

Non-Interest Income

Non-interest income was $3.5 million for the three months ended December 31,
2012, a $0.3 million or 10% increase, compared with $3.2 million for the same
period a year earlier.For the twelve months ended December 31, 2012,
non-interest income was $12.5 million, a $2.8 million or 29% increase,
compared with $9.7 million for the same period a year ago.The increase in
non-interest income was primarily the result of higher gain on sale of
mortgage loans, investment securities, and Other Real Estate Owned ("OREO").

Non-Interest Expense

Non-interest expense was $9.5 million for the three months ended December 31,
2012 compared with $9.2 million for the same period a year earlier.For the
twelve months ended December 31, 2012, non-interest expense was $36.1 million
compared with $37.3 million for the same period a year earlier.Non-interest
expense has been impacted by an increase in loss provisions for mortgage
repurchases for mortgages sold in 2007; an increase in salaries and employee
benefits due to higher commissions resulting from higher mortgage loan
originations; and the re-establishment of a management incentive compensation
plan in 2012. The Company's operating efficiency ratio slightly improved to
67.9% for the twelve months ended December 31, 2012 compared with 68.0% for
the same period a year ago.The Company's operating efficiency ratio for 2012
was negatively impacted by one-time expense items, as well as net interest
margin compression.

Income Taxes

The provision for income taxes was $1.7 million for the three months ended
December 31, 2012 compared with $0.1 million for the same period a year
earlier, which prior period included a $1.5 million partial reversal of our
deferred tax valuation allowance. For the twelve months ended December 31,
2012, the Company recorded a benefit from income taxes of $1.8 million, which
included a reversal of the remaining $5.6 million of deferred tax asset
valuation allowance.The tax benefit in 2012 compared with a provision for
income taxes of $1.8 million for the same period a year ago, which included
the previously mentioned $1.5 million partial valuation allowance reversal.As
the earnings outlook improved in late 2011 and into 2012, the Company reversed
the valuation allowance based upon our change in expectation of future
profitability and therefore our assessment of our ability to fully realize the
deferred tax asset.Excluding the impact of the valuation allowance reversals
in 2012, the Company's effective tax rate for all of 2012 was 33.9% compared
with 34.8% for the same period a year ago.

Balance Sheet

Total assets increased $110.4 million, or 11.2%, to $1.1 billion at December
31, 2012 compared with $987.1 million at December 31, 2011.The increase in
total assets was primarily the result of growth in total loans and investment
securities.This asset growth was primarily funded by an $84.7 million, or
11%, increase in total deposits; with 66% of the deposit growth coming from
non-interest bearing demand deposit accounts.Total stockholders' equity was
$145.5 million at December 31, 2012, an increase of $15.9 million or 12.3%,
compared with $129.6 million at December 31, 2011.The increase in
stockholders' equity was primarily driven by earnings for the year.

The Company's liquidity ratio (total cash and cash equivalents plus unpledged
marketable securities divided by the sum of total deposits and short-term
liabilities less pledged securities) was 36.4% at December 31, 2012 compared
with 35.1% at December 31, 2011.

The Company and the Bank exceeded the ratios generally required to be
considered a "well capitalized" financial institution for regulatory
purposes.The tier I leverage ratio for the Company and the Bank were 12.3%
and 11.9%, respectively at December 31, 2012.The total risk-based Capital
ratio for the Company and the Bank were 16.8% and 16.3%, respectively at
December 31, 2012.The Company remains current on all obligations, including
its junior subordinated debentures, and preferred stock issued under the U.S.
Treasury's Capital Purchase Program and privately placed preferred stock.

Asset Quality

Classified loans decreased $2.8 million or 5.2% to $51.1 million at December
31, 2012 compared with $53.9 million at December 31, 2011. Classified assets
as a percent of Tier I Capital plus the allowance for loan losses improved to
35.4% at December 31, 2012 compared with 44.3% at December 31, 2011.

Non-accrual loans increased $4.9 million to $17.3 million at December 31, 2012
compared with $12.4 million at December 31, 2011, of which $12.6 million were
still paying per their contractual terms. Non-performing loans to gross loans
increased to 2.5% at December 31, 2012 from 1.9% at December 31, 2011. The
Company held no OREO at December 31, 2012, a decrease of $0.9 million from
December 31, 2011.Total non-performing assets, inclusive of non-accrual
loans, increased $4.0 million to $17.3 million at December 31, 2012 compared
with $13.3 million at December 31, 2011.The percentage of non-performing
assets to total assets was 1.6% at December 31, 2012 compared with 1.4% at
December 31, 2011.

Total troubled debt restructurings ("TDRs") outstanding were $11.6 million at
December 31, 2012 compared with $3.7 million at December 31, 2011.The
increase in the level of reported TDRs in 2012 was largely the result of a
single large loan relationship that was modified in the first quarter of
2012.The ALLL was $18.1 million, or 2.6% of total loans, compared with $19.3
million, or 3.0% of total loans at December 31, 2011. The decrease in the ALLL
to total loans ratio is due to continued decreases in the historical loss
experience of the loan portfolio.

Conference Call

The Company will host a conference call to discuss these fourth quarter
results at 8:00 a.m. PST on January 25, 2013.Media representatives, analysts
and the public are invited to listen to this discussion by calling (877)
363-5052 and entering the conference ID 88232944, or via on-demand webcast.A
link to the webcast will be available on Heritage Oaks Bancorp's website at
www.heritageoaksbancorp.com.A replay of the call will be available on
Heritage Oaks Bancorp's website later that day and will remain on its site for
up to 14 calendar days.By including the foregoing website address, Heritage
Oaks Bancorp does not intend to and shall not be deemed to incorporate by
reference any material contained therein. By including the foregoing website
address, Heritage Oaks Bancorp does not intend to and shall not be deemed to
incorporate by reference any material contained therein.

Annual Report on Form 10-K

The Company intends to file with the U.S. Securities and Exchange Commission
its Annual Report on Form 10-K for the year ended December 31, 2012, on or
before March 18, 2013. This report can be accessed at the U.S. Securities and
Exchange Commission's website, www.sec.gov.Shortly after filing, it is also
available free of charge at the Company's website, www.heritageoaksbancorp.com
or by contacting the Company's Investor Relations Department. By including the
foregoing website address, Heritage Oaks Bancorp does not intend to and shall
not be deemed to incorporate by reference any material contained therein.

About Heritage Oaks Bancorp

With $1.1 billion in assets, Heritage Oaks Bancorp is the holding company for
Heritage Oaks Bank which operates as Heritage Oaks Bank and Business First, a
division of Heritage Oaks Bank. Heritage Oaks Bank has its headquarters and
two branch offices in Paso Robles, two branch offices in San Luis Obispo and
Santa Maria, single branch offices in Cambria, Arroyo Grande, Atascadero,
Templeton, and Morro Bay, as well as a loan production office in Oxnard.
Heritage Oaks Bank conducts commercial banking business in the counties of San
Luis Obispo, Santa Barbara, and Ventura. The Business First division has one
branch office in Santa Barbara. Visit Heritage Oaks Bancorp on the Web at
www.heritageoaksbancorp.com.

The Heritage Oaks Bancorp logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=7045

Forward Looking Statements

This press release contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such forward
looking statements to be covered by the safe harbor provisions for forward
looking statements. All statements other than statements of historical fact
are "forward looking statements" for purposes of federal and state securities
laws, including, but not limited to, statements about anticipated future
operating and financial performance, financial position and liquidity,
business prospects, strategic alternatives, business strategies, regulatory
and competitive outlook, investment and expenditure plans, capital and
financing needs and availability, acquisition and divestiture opportunities,
plans and objectives of management for future operations, and other similar
forecasts and statements of expectation and statements of assumptions
underlying any of the foregoing. Words such as "will likely result," "aims,"
"anticipates," "believes," "could," "estimates," "expects," "hopes,"
"intends," "may," "plans," "projects," "seeks," "should," "will," and
variations of these words and similar expressions are intended to identify
these forward‐looking statements.

Forward looking statements are based on the Company's current expectations and
assumptions regarding its business, the regulatory environment, the economy
and other future conditions. Forward looking statements are subject to a
number of risks and uncertainties that could cause the Company's actual
results to differ materially and adversely from those contemplated by the
forward looking statements. The Company cautions you against relying on any of
these forward looking statements. They are neither statements of historical
fact nor guarantees or assurances of future performance. Important factors
that could cause actual results to differ materially from those in the forward
looking statements, include the following: the ongoing financial crisis in the
United States, including the continuing softness in the California real estate
market, and the response of federal and state government and our regulators
thereto, general economic conditions in those areas in which the Company
operates, competition, fluctuations in interest rates, changes in the
Company's business strategy or development plans, changes in governmental
regulation, changes in the credit quality of our loan portfolio, as well as
economic, political and global changes arising from the war on terrorism,
social unrest and other civil disturbances, the Company's ability to increase
profitability, sustain growth, the Company's beliefs as to the adequacy of its
existing and anticipated allowance for loan losses, beliefs and expectations
about, and requirements to comply with the terms of the Memoranda of
Understanding issued by regulatory authorities having oversight of the
Company's and Bank's operations, and financial policies of the United States
government. 

Additional information on these risks and other factors that could affect
operating results and financial condition are detailed in reports filed by the
Company with the U.S. Securities and Exchange Commission, including the
Company's Annual Report on Form 10-K for the year ended December31, 2011,
filed by the Company with the U.S. Securities and Exchange Commission on
February 28, 2012. Forward looking statements speak only as of the date they
are made, and the Company does not undertake to update forward looking
statements to reflect circumstances or events that occur after the date the
forward looking statements are made, whether as a result of new information,
future developments or otherwise, and specifically disclaims any obligation to
revise or update such forward looking statements for any reason, except as may
be required by law.

Use of Non-GAAP Financial Information

Heritage Oaks Bancorp provides all information required in accordance with
generally accepted accounting principles (GAAP), but it believes that
evaluating its ongoing operating results and in particular, making comparisons
to similar companies, may be enhanced by providing additional measures used by
management to assess operating results. Earnings before income taxes and
provision for loan losses, a non-GAAP financial measure, is presented because
the Company believes adjusting its results to exclude tax and loan loss
provisions provides stockholders with a useful metric for evaluating the core
profitability of the Company. A schedule reconciling our GAAP net income to
earnings before income taxes and provision for loan losses is provided at the
end of the tables below.


Heritage Oaks Bancorp
Consolidated Balance Sheets
(unaudited)
                                                                 
(dollar amounts in thousands)             12/31/2012   9/30/2012    12/31/2011
Assets                                                            
Cash and due from banks                   $23,425    $22,917    $18,858
Interest bearing due from banks           10,691      21,259      16,034
Total cash and cash equivalents           34,116      44,176      34,892
                                                                 
Securities available for sale, at fair    287,682     261,451     236,982
value
Federal Home Loan Bank stock, at cost     4,575       4,575       4,685
Loans held for sale                       22,549      12,590      21,947
Gross loans                               689,608     678,348     646,286
Net deferred loan fees                    (937)       (977)       (1,111)
Allowance for loan losses                 (18,118)    (17,987)    (19,314)
Net loans                                 670,553     659,384     625,861
Property, premises and equipment          15,956      15,238      5,528
Deferred tax assets, net                  21,933      22,897      18,226
Bank owned life insurance                 15,349      15,223      14,835
Goodwill                                  11,237      11,049      11,049
Core deposit intangible                   1,744       1,424       1,682
Other real estate owned                   --         615         917
Other assets                              11,838      10,057      10,534
Total assets                              $1,097,532 $1,058,679 $987,138
                                                                 
Liabilities                                                       
Deposits                                                          
Demand, non-interest bearing              273,242     267,199     217,245
Savings, NOW, and money market            411,274     410,147     376,252
Time deposits under $100                  89,249      88,738      102,628
Time deposits of $100 or more             97,105      88,948      90,083
Total deposits                            870,870     855,032     786,208
Short term FHLB borrowing                 33,000      9,500       29,500
Long term FHLB borrowing                  33,500      36,500      22,000
Junior subordinated debentures            8,248       8,248       8,248
Other liabilities                         6,385       7,114       11,628
Total liabilities                         952,003     916,394     857,584
                                                                 
Stockholders' equity                                              
Preferred stock, 5,000,000 shares
authorized: Series A senior preferred     20,536      20,441      20,160
stock; $1,000 per share stated value
issued and outstanding: 21,000 shares
Series C preferred stock, $3.25 per share
stated value; issued and outstanding:     3,604       3,604       3,604
1,189,538 shares
Common stock, no par value; authorized:
100,000,000 shares; issued and
outstanding: 25,307,110; 25,288,430; and  101,354     101,296     101,140
25,145,717 as of December 31, 2012;
September 30, 2012; and December 31,
2011, respectively
Additional paid in capital                7,337       7,240       7,006
Retained earnings / (accumulated deficit) 8,773       6,004       (2,794)
Accumulated other comprehensive income    3,925       3,700       438
Total stockholders' equity                145,529     142,285     129,554
Total liabilities and stockholders'       $1,097,532 $1,058,679 $987,138
equity
                                                                 
Book value per common share               $4.78      $4.65      $4.17
                                                                 
Tangible book value per common share      $4.27      $4.16      $3.67



Heritage Oaks Bancorp
Consolidated Statements of Income
(unaudited)
                                                                
                                          Three Months Ended
(dollar amounts in thousands except per    12/31/2012  9/30/2012   12/31/2011
share data)
Interest Income                                                  
Interest and fees on loans                 $9,989    $9,716    $10,213
Interest on investment securities          1,585      1,783      1,779
Other interest income                      75         20         20
Total interest income                      11,649     11,519     12,012
Interest Expense                                                 
Interest on savings, NOW and money market  273        288        336
deposits
Interest on time deposits under $100      185        205        310
Interest on time deposits in denominations 215        226        314
of $100 or more
Other borrowings                           213        215        146
Total interest expense                     886        934        1,106
Net interest income before provision for   10,763     10,585     10,906
loan losses
Provision for loan losses                  --        1,286      693
Net interest income after provision for    10,763     9,299      10,213
loan losses
Non-Interest Income                                              
Fees and service charges                   620        611        633
Mortgage gain on sale and origination      1,192      1,181      895
fees
Debit/credit card fee income               460        460        421
Earnings on bank owned life insurance      150        148        152
Gain on sale of investment securities      923        329        796
Gain on sale of other real estate owned    87         102        44
Other Income                               116        153        272
Total non-interest income                  3,548      2,984      3,213
Non-Interest Expense                                             
Salaries and employee benefits             4,782      4,532      4,258
Equipment                                  390        395        412
Occupancy                                  745        728        1,003
Promotional                               258        171        177
Data processing                            642        551        721
OREO related costs                         31         54         115
Write-downs of foreclosed assets           --        53         230
Regulatory assessment costs                358        371        527
Audit and tax advisory costs               206        146        265
Director fees                              116        126        146
Outside services                           821        730        490
Provision for potential mortgage           210        125        (160)
repurchases
Amortization of intangible assets          84         86         89
Other general operating costs              831        727        948
Total non-interest expense                 9,474      8,795      9,221
Income before provision / (benefit from)   4,837      3,488      4,205
for income taxes
Provision / (benefit) for income taxes     1,710      (2,940)    75
Net income                                3,127      6,428      4,130
Dividends and accretion on preferred stock 357        357        251
Net income available to common             $2,770    $6,071    $3,879
shareholders
                                                                
Weighted Average Shares Outstanding                              
Basic                                      25,101,083 25,089,325 25,054,204
Diluted                                    26,485,728 26,430,717 26,261,179
Earnings Per Common Share                                        
Basic                                      $0.11     $0.24     $0.16
Diluted                                    $0.10     $0.23     $0.15



Heritage Oaks Bancorp
Consolidated Statements of Income
(unaudited)
                                                                 
                                                      Twelve Months Ended
(dollar amounts in thousands except per share data)    12/31/2012  12/31/2011
Interest Income                                                   
Interest and fees on loans                             $39,278   $41,345
Interest on investment securities                      6,896      6,794
Other interest income                                  147        88
Total interest income                                  46,321     48,227
Interest Expense                                                  
Interest on savings, NOW and money market deposits     1,147      1,508
Interest on time deposits under $100                  892        1,448
Interest on time deposits in denominations of $100 or  949        1,526
more
Other borrowings                                       830        541
Total interest expense                                 3,818      5,023
Net interest income before provision for loan losses   42,503     43,204
Provision for loan losses                              7,681      6,063
Net interest income after provision for loan losses    34,822     37,141
Non-Interest Income                                               
Fees and service charges                               2,568      2,453
Mortgage gain on sale and origination fees            4,263      2,645
Debit/credit card fee income                           1,782      1,632
Earnings on bank owned life insurance                  602        596
Gain on sale of investment securities                  2,619      1,983
Gain / (loss) on sale of other real estate owned       199        (543)
Other income                                           515        964
Total non-interest income                              12,548     9,730
Non-Interest Expense                                              
Salaries and employee benefits                         18,304     17,630
Equipment                                              1,613      1,739
Occupancy                                              3,287      3,771
Promotional                                           690        668
Data processing                                        2,553      2,975
OREO related costs                                     248        670
Write-downs of foreclosed assets                       86         1,198
Regulatory assessment costs                            1,596      2,360
Audit and tax advisory costs                           679        779
Director fees                                          474        483
Outside services                                       2,393      1,524
Provision for potential mortgage repurchases           1,192      169
Amortization of intangible assets                      342        445
Other general operating costs                          2,674      2,907
Total non-interest expense                             36,131     37,318
Income before (benefit from) / provision for income    11,239     9,553
taxes
(Benefit from) / provision for income taxes           (1,798)    1,828
Net income                                            13,037     7,725
Dividends and accretion on preferred stock             1,470      1,358
Net income available to common shareholders            $11,567   $6,367
                                                                 
Weighted Average Shares Outstanding                               
Basic                                                  25,081,462 25,048,477
Diluted                                                26,401,871 26,254,745
Earnings Per Common Share                                         
Basic                                                  $0.46     $0.25
Diluted                                                $0.44     $0.24

                                                                 
                                                                 
Heritage Oaks Bancorp                                             
Key Ratios                                                        
                                                              
                   Three Months Ended                 Twelve Months Ended
PROFITABILITY /     12/31/2012  9/30/2012  12/31/2011  12/31/2012  12/31/2011
PERFORMANCE RATIOS
Net interest margin 4.35%       4.36%      4.67%       4.46%       4.71%
Return on average   8.59%       18.60%     12.87%      9.49%       6.19%
equity
Return on average   9.16%       21.40%     14.98%      10.26%      6.35%
common equity
Return on average
tangible common     10.23%      24.08%     17.12%      11.55%      7.29%
equity
Return on average   1.17%       2.46%      1.66%       1.27%       0.79%
assets
Non interest income
to total net        24.79%      21.99%     22.76%      22.79%      18.38%
revenue
Yield on interest   4.70%       4.75%      5.15%       4.86%       5.26%
earning assets
Cost of interest    0.55%       0.58%      0.71%       0.60%       0.79%
bearing liabilities
Cost of funds       0.39%       0.42%      0.52%       0.43%       0.60%
Operating
efficiency ratio    70.36%      65.47%     66.17%      67.88%      67.98%
(1)
                                                              
ASSET QUALITY                                                  
RATIOS
                                                              
Non-performing
loans to total      2.51%       3.02%      1.91%                  
gross loans
Non-performing      11.89%      14.39%     9.55%                  
loans to equity
Non-performing
assets to total     1.58%       1.99%      1.35%                  
assets
Allowance for loan
losses to total     2.63%       2.65%      2.99%                  
gross loans
Net charge-offs /
(recoveries)to
average loans       -0.07%      0.85%      1.08%       1.32%       1.75%
outstanding,
annualized
Classified assets   35.40%      41.58%     44.31%                 
to Tier I + ALLL
30-89 Day           0.12%       0.19%      0.12%                  
Delinquency Rate
                                                              
CAPITAL RATIOS                                                 
                                                              
Company                                                        
Leverage ratio      12.32%      12.15%     12.06%                 
Tier I Risk-Based   15.55%      14.92%     14.81%                 
Capital Ratio
Total Risk-Based    16.81%      16.19%     16.07%                 
Capital Ratio
                                                              
Bank                                                           
Leverage ratio      11.93%      11.75%     11.85%                 
Tier I Risk-Based   15.02%      14.40%     14.51%                 
Capital Ratio
Total Risk-Based    16.28%      15.66%     15.77%                 
Capital Ratio
                                                              
(1) The efficiency ratio is defined as total non interest expense as a percent
of the combined net interest income plus non interest income, exclusive of
gains and losses on securities sales, other than temporary impairment losses,
gains and losses on sale of OREO and other OREO related costs and gains and
losses on sale of fixed assets.



Heritage Oaks Bancorp
Average Balances
                                                                                             
             Three Months Ended
             12/31/2012                       9/30/2012                        12/31/2011
(dollar
amounts in    Balance      Yield/Rate Inc/Exp  Balance     Yield/Rate Inc/Exp   Balance    Yield/Rate Inc/Exp
thousands)
Interest
Earning                                                                                       
Assets
Investments
with other    $--       0.00%      $--   $--      0.00%      $--    $--     0.00%      $--
banks
Interest
bearing due   16,006      0.20%      8       13,042     0.15%      5        16,362    0.15%      6
from banks
Investment
securities    203,846     2.07%      1,061   204,291    2.45%      1,256    208,096   2.72%      1,425
taxable
Investment
securities    63,538      3.28%      524     62,634     3.35%      527      36,451    3.85%      354
non taxable
Other         6,479       4.11%      67      6,478      0.92%      15       6,588     0.84%      14
investments
Loans (1)     695,457     5.71%      9,989   678,655    5.70%      9,716    658,397   6.15%      10,213
Total earning $985,326   4.70%      $11,649 $965,100  4.75%      $11,519 $925,894 5.15%      $
assets                                                                                                12,012
Allowance for (18,998)                      (18,207)                      (20,500)            
loan losses
Other assets  96,267                        92,880                        79,171              
Total assets  $1,062,595                   $1,039,773                    $984,565           
                                                                                             
Interest
Bearing                                                                                       
Liabilities
Interest
bearing       $72,490    0.12%      $22    $70,664   0.13%      $23     $63,667  0.10%      $16
demand
Savings       37,312      0.10%      9       36,454     0.10%      9        32,546    0.11%      9
Money market  298,130     0.32%      242     295,792    0.34%      256      278,739   0.44%      312
Time deposits 176,474     0.90%      400     182,138    0.94%      431      199,583   1.24%      623
Total
interest      584,406     0.46%      673     585,048    0.49%      719      574,535   0.66%      960
bearing
deposits
Other
secured       --         0.00%      --     --        0.00%      --      11        0.00%      --
borrowing
Federal Home
Loan Bank     50,266      1.35%      171     45,527     1.48%      169      37,766    1.07%      102
borrowing
Junior
subordinated  8,248       2.03%      42      8,248      2.22%      46       8,248     2.12%      44
debentures
Total
borrowed      58,514      1.45%      213     53,775     1.59%      215      46,025    1.26%      146
funds
Total
interest      642,920     0.55%      886     638,823    0.58%      934      620,560   0.71%      1,106
bearing
liabilities
Non interest
bearing       266,284                       255,241                       225,592             
demand
Total funding 909,204     0.39%      886     894,064    0.42%      934      846,152   0.52%      1,106
Other         8,548                         8,252                         11,098              
liabilities
Total         $917,752                     $902,316                     $857,250           
liabilities
                                                                                             
Stockholders'                                                                                 
Equity
Total
stockholders' 144,843                       137,457                       127,315             
equity
Total
liabilities
and           $1,062,595                   $1,039,773                    $984,565           
stockholders'
equity
                                                                                             
Net interest              4.35%                         4.36%                         4.67%      
margin
                                                                                             
Interest Rate             4.15%      $10,763            4.17%      $10,585           4.44%      $
Spread                                                                                                10,906
                                                                                             
(1) Non-accrual loans have been                                                                 
included in total loans.



Heritage Oaks Bancorp
Average Balances
                                                                
              Twelve Months Ended
              12/31/2012                       12/31/2011
(dollar
amounts in     Balance      Yield/Rate Inc/Exp  Balance    Yield/Rate Inc/Exp
thousands)
Interest                                                         
Earning Assets
Investments
with other     $--       0.00%      $--   $58      1.72%      $1
banks
Interest
bearing due    15,193      0.17%      26      16,343    0.18%      30
from banks
Investment
securities     202,109     2.45%      4,944   187,527   2.83%      5,304
taxable
Investment
securities non 57,065      3.42%      1,952   36,888    4.04%      1,490
taxable
Other          6,519       1.86%      121     7,934     0.72%      57
investments
Loans (1)      672,929     5.84%      39,278  667,606   6.19%      41,345
Total interest $953,815   4.86%      $       $916,356 5.26%      $48,227
earning assets                         46,321
Allowance for  (19,169)                      (22,895)            
loan losses
Other assets   90,315                        83,527              
Total assets   $1,024,961                   $976,988           
                                                                
Interest
Bearing                                                          
Liabilities
Interest       $67,986    0.11%      $77    $64,187  0.15%      $95
bearing demand
Savings        35,769      0.10%      36      32,153    0.14%      46
Money market   289,079     0.36%      1,034   275,278   0.50%      1,367
Time deposits  183,803     1.00%      1,841   214,677   1.39%      2,974
Total interest
bearing        $576,637   0.52%      $2,988 $586,295 0.76%      $4,482
deposits
Other secured  --         0.00%      --     3         0.00%      --
borrowing
Federal Home
Loan Bank      50,153      1.27%      638     38,527    0.97%      372
borrowing
Junior
subordinated   8,248       2.33%      192     8,248     2.05%      169
debentures
Total borrowed 58,401      1.42%      830     46,778    1.16%      541
funds
Total interest
bearing        635,038     0.60%      3,818   633,073   0.79%      5,023
liabilities
Non interest   243,304                       208,646             
bearing demand
Total funding  878,342     0.43%      3,818   841,719   0.60%      5,023
Other          9,227                         10,445              
liabilities
Total          $887,569                     $852,164           
liabilities
                                                                
Stockholders'                                                    
Equity
Total
stockholders'  137,392                       124,824             
equity
Total
liabilities
and            $1,024,961                   $976,988           
stockholders'
equity
                                                                
Net interest               4.46%                        4.71%      
margin
                                                                
Interest Rate              4.26%      $                 4.47%      $43,204
Spread                                 42,503
                                                                 
(1) Non-accrual loans have
been included in total                                            
loans.



Heritage Oaks Bancorp
Loans and Deposits
                                                          
(dollar amounts in thousands)                              
Loans                                  12/31/2012 9/30/2012  12/31/2011
Real Estate Secured                                        
Multi-family residential               $21,467  $16,429  $15,915
Residential 1 to 4 family              41,444    37,837    20,839
Home equity lines of credit            31,863    32,422    31,047
Commercial                             372,592   374,799   357,499
Farmland                               25,642    23,416    8,155
Total real estate secured              493,008   484,903   433,455
Commercial                                                 
Commercial and industrial              125,340   119,496   141,065
Agriculture                            21,663    17,948    15,740
Other                                  61        66        89
Total commercial                       147,064   137,510   156,894
Construction                                               
Single family residential              8,074     11,267    13,039
Single family residential - Spec.      535       420       8
Multi-family                           778       787       1,669
Commercial                             10,329    14,401    8,015
Total construction                     19,716    26,875    22,731
Land                                   24,664    23,633    26,454
Installment loans to individuals       4,895     5,146     6,479
All other loans (including overdrafts) 261       281       273
Total gross loans                      689,608   678,348   646,286
Deferred loan fees                     937       977       1,111
Allowance for loan losses              18,118    17,987    19,314
Total net loans                        $670,553 $659,384 $625,861
Loans held for sale                    $22,549  $12,590  $21,947
                                                          
                                                          
Deposits                               12/31/2012 9/30/2012  12/31/2011
Demand, non-interest bearing           $273,242 $267,199 $217,245
Interest-bearing demand                76,728    75,187    64,298
Savings                                41,021    36,940    33,740
Money market                           293,525   298,020   278,214
Time deposits                          186,354   177,686   192,711
Total deposits                         $870,870 $855,032 $786,208



Heritage Oaks Bancorp
Allowance for Loan Losses, Non-Performing and Classified Assets
                                                             
                                 Three Months Ended
Allowance for Loan Losses         12/31/2012      9/30/2012     12/31/2011
Balance, beginning of period     $17,987       $18,149     $20,409
Provision for loan losses         --            1,286        693
Loans charge-off                                              
Residential 1 to 4 family         11             106          30
Commercial real estate            --            --          161
Commercial and industrial         717            261          254
Agriculture                       145            1,250        115
Construction                      460            92           --
Installment loans to individuals  155            9            5
Total loan charge-offs            1,488          1,718        565
Recoveries of loans previously    1,619          270          437
charged-off
Charge-offs related to loan sales                             
Commercial real estate            --            --          1,268
Farmland                          --            --          392
Net charge-offs related to loan   --            --          1,660
sales
Balance, end of period           $18,118       $17,987     $19,314
                                                             
Net charge-offs / (recoveries)    $(131)        $1,448      $1,788
                                                             
                                 
Non-Performing Assets             12/31/2012      9/30/2012     12/31/2011
Loans on non-accrual status                                   
Residential 1-4 family            $835          $907        $622
Home equity lines of credit       58             381          359
Commercial real estate            928            4,428        4,551
Farmland                          1,077          1,089        --
Commercial and industrial         4,657          3,243        1,625
Agriculture                       907            1,075        2,327
Construction                      1,380          1,840        937
Land                              7,182          7,300        1,886
Installment                       285            206          61
Total non-accruing loans          $17,309       $20,469     $12,368
Total non-performing loans        17,309         20,469       12,368
Other real estate owned (OREO)    --            615          917
Other repossessed assets          --            --          42
Total non-performing assets       $17,309       $21,084     $13,327
                                                             
                                                             
Classified assets                 12/31/2012      9/30/2012     12/31/2011
Loans                             $51,130       $57,553     $53,953
Other real estate owned (OREO)    --            615          917
Other                            308            342          5,166
Total classified assets           $51,438       $58,510     $60,036
                                                             
Classified assets to Tier I +     35.40%          41.58%        44.31%
ALLL
                                                             
Note: Classified assets consists of substandard and non-performing loans,
OREO, non-investment grade securities, other repossessed assets, loans held
for sale that were substandard and substandard letters of credit.



Heritage Oaks Bancorp
Quarter to Date Non-Performing Loan Reconciliation
                                                                                     
            Balance                              Transfers  Returns            Transfers Balance
                                                                to
            September          Net                to         Accrual Net         to Held  December
             30,                                     Foreclosed                               31,
(dollar
amounts in   2012      Additions Paydowns   Advances Collateral Status  Charge-offs for Sale  2012
thousands)
Real Estate                                                                           
Secured
Residential
1 to 4       $907    $100    $(161)   $--   $--     $--  $(11)     $--    $835
family
Home equity
line of      381      --      (323)     --     --       --    --        --      58
credit
Commercial   4,428    389      (3,889)   --     --       --    --        --      928
Farmland     1,089    --      (12)      --     --       --    --        --      1,077
Commercial                                                                            
Commercial
and          3,243    3,036    (905)     --     --       --    (717)      --      4,657
industrial
Agriculture  1,075    --      (23)      --     --       --    (145)      --      907
Other        --      --      --       --     --       --    --         --      --
Construction                                                                          
Commercial   1,840    --      --       --     --       --    (460)      --      1,380
Land         7,300    --      (118)     --     --       --    --         --      7,182
Installment
loans to     206      271      (37)      --     --       --    (155)      --      285
individuals
                                                                                     
Totals       $20,469 $3,796  $(5,468) $--   $--     $--  $(1,488)  $--    $17,309


Heritage Oaks Bancorp
Year to Date Non-Performing Loan Reconciliation
                                                                                        
            Balance                              Transfers  Returns               Transfers Balance
                                                                to
            December           Net                to         Accrual    Net         to Held  December
             31,                                     Foreclosed                                  31,
(dollar
amounts in   2011      Additions Paydowns   Advances Collateral Status     Charge-offs for Sale  2012
thousands)
Real Estate                                                                              
Secured
Residential
1 to 4       $527    $614    $(189)   $--   $--     $--     $(117)    $--    $835
family
Home equity
line of      359      65       (366)     --     --       --       --        --      58
credit
Commercial   4,551    6,981    (4,694)   --     --       (3,556)   (2,354)    --      928
Farmland     --      1,089    (12)      --     --       --       --        --      1,077
Commercial            --      --       --     --       --       --        --      
Commercial
and          1,625    8,272    (1,608)   --     (344)     --       (3,288)    --      4,657
industrial
Agriculture  2,327    484      (59)      --     --       --       (1,845)    --      907
Construction                                                                             
Single
family       937      --      (937)     --     --       --       --        --      --
residential
Commercial   --      2,508    --       --     --       --       (1,128)    --      1,380
Land         1,981    9,217    (1,700)   --     (162)     --       (2,154)    --      7,182
Installment
loans to     61       451      (43)      --     --       --       (184)      --      285
individuals
                                                                                        
Totals       $12,368 $29,681 $(9,608) $--   $(506)   $(3,556) $(11,070) $--    $17,309



Heritage Oaks Bancorp
Quarter to Date OREO Reconciliation
                                                                 
                       Balance                                    Balance
                       September 30,                              December
                                                                      31,
(dollar amounts in      2012          Additions Sales      Writedowns 2012
thousands)
Real Estate Secured                                               
Residential 1 to 4      $400        $--    $(400)   $--     $--
family
Commercial              215          --      (215)     --       --
                                                                 
Totals                  $615        $--    $(615)   $--     $--
                                                                 
                                    
                                                                 
Heritage Oaks Bancorp
Year to Date OREO Reconciliation
                                                                 
                       Balance                                    Balance
                       December 31,                               December
                                                                      31,
(dollar amounts in      2011          Additions Sales      Writedowns 2012
thousands)
Real Estate Secured                                               
Residential 1 to 4      $--        $607    $(576)   $(31)    $--
family
Commercial              215          --      (215)     --       --
Construction                                                      
Single family           423          --      (397)     (26)      --
residential - Spec.
Tract                   100          --      (100)     --       --
Land                    179          162      (300)     (41)      --
                                                                 
Totals                  $917        $769    $(1,588) $(98)    $--



Heritage Oaks Bancorp
Reconciliation of GAAP to Non-GAAP Financial Measure
                                                               
                        Three Months Ended             Twelve Months Ended
(dollar amounts in       12/31/2012 9/30/2012 12/31/2011 12/31/2012 12/31/2011
thousands)
GAAP Net Income         $3,127   $6,428  $4,130   $13,037  $7,725
Adjusted for:                                                   
Provision / (benefit)    1,710     (2,940)  75        (1,798)   1,828
for income taxes
Provision for loan       --       1,286    693       7,681     6,063
losses
                                                               
Non-GAAP earnings before
income taxes and         $4,837   $4,774  $4,898   $18,920  $15,616
provision for loan
losses

CONTACT: Simone Lagomarsino, President & Chief Executive Officer
         1222 Vine Street
         Paso Robles, California 93446
         805.369.5260
         slagomarsino@heritageoaksbank.com
        
         Mark Olson, EVP & Chief Financial Officer
         1222 Vine Street
         Paso Robles, California 93446
         805.369.5107
         molson@heritageoaksbank.com

Heritage Oaks Bancorp Logo
 
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