Investor Presentation
March 2006
Certain statements in this presentation, including, without limitation, statements containing
the words “believes”, “anticipates”, “intends”, and “expects”, and words of similar import,
constitute “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such
forward looking statements involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of the Company to
be materially different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among others, the
following; general economic and business conditions in those areas in which the Company
operates, demographic changes, competition, fluctuations in interest rates, changes in
business strategy or developments plans, changes in governmental regulation, credit
quality, the availability of capital to fund the expansion of the Company’s business, and
other factors referenced in the Company’s filings with the SEC and this presentation. The
Company disclaims any obligation to update any such factors or to publicly announce the
results of any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
2
Company Overview
The Leading community bank on California’s
Central Coast
Headquartered in Paso Robles, CA with $490
million in assets as of December 31, 2005
Covering the growing markets of San Luis
Obispo and Northern Santa Barbara Counties
Heritage is Focused on Building Core Deposit Relationships
3
Source: SNL Securities
Market Areas: Branch Locations
11 Branches
Operating in California’s “Sweet Spot”
4
Market Areas: Distinct Markets
Our Growing Home Market – Three Branches
Paso Robles to Atascadero
The Progressive Village – Two Branches
San Luis Obispo
The Gold Coast – Two Branches Cambria to
Morro Bay, One Branch in Arroyo Grande
Sideways Country – Three Branches
Northern Santa Barbara County
Heritage is Capitalizing on Market Diversity and Poised for Growth
5
Market Areas: Our Growing Home Market
Paso Robles, Templeton and Atascadero
Small town environment with transitioning culture and
diversifying industry
A pocket of “relatively” affordable housing and one of
California’s least populated Coastal areas
Halfway between San Francisco and Los Angeles on
US101 and on the main Hwy 46 corridor to the coast
from rapidly growing Fresno and Bakersfield
Heritage Oaks had 23% Market Share in Paso Robles at June 2005
6
Market Areas: Our Growing Home Market
Paso Robles - The Next Napa
What the world’s top wine critic says about Paso Robles:
“… there is vast untapped potential in the limestone
hillsides west of California Route 101. ”
“…a stunning wine that showcases the magnificent
fruit that emerges from some of the vineyards planted
on Paso Robles’ limestone ridges”
- Robert M. Parker, Jr.
The Wine Advocate
The Wine Industry has Sparked Commercial Development and Lending
7
Market Areas: The Progressive Village
San Luis Obispo
California State Polytechnic University – Tops in the
Nation and the CA State University System
Active Real Estate Market – A highly attractive mix
of Culture, Country and Coast
Dynamic environment of growth and cultural evolution
Heritage Effectively Competing in an “Over-Banked” Market by Earning
the Fierce Loyalty of Clients through World-Class Service
8
Market Areas: The Gold Coast
Cambria, San Simeon, Morro Bay, Pismo
Beach and Arroyo Grande
Some of the finest and most underdeveloped and
accessible coastline left in California
At the ocean terminus of Hwy 46 from the Central
Valley, these enclaves have attracted investment by
many living in growing Fresno, Bakersfield and other
Valley communities
Necessary Ingredients Intact for Economic Transition and Development
9
Market Areas: Sideways Country
Santa Maria
Combination of family communities, resort
destinations and agricultural zones
Largest developable coastal area in the region
Santa Maria is the largest city in the Central Coast
region
This Market Presents Market Share and Market Extension Opportunities
in Both Business and Retail Client Relationships
10
Source: SNL Securities and FDIC
Deposit
Deposit
June
Market
Pro
June
Market
1998 Rank
Institution
Share
Forma
2005 Rank
Institution
Share
1
Mid-State Bank*
21.1%
24.1%
1
Mid-State Bank
21.5%
2
Bank of America
19.4%
2
Washington Mutual
17.2%
3
Washington Mutual*
15.0%
23.2%
3
Bank of America
16.2%
4
Home Savings*
8.2%
4
Heritage Oaks Bank
7.9%
5
Wells Fargo
5.5%
5
Wells Fargo
7.5%
6
CalFed
5.4%
6
First Bank of SLO
5.8%
7
First Bank of SLO
5.1%
7
Santa Lucia Bank
4.4%
8
Heritage Oaks Bank*
4.0%
5.9%
8
Los Padres Bank
3.5%
9
Los Padres Bank
3.8%
9
Coast National Bank
3.5%
10
Santa Lucia Bank
3.4%
10
San Luis Trust
3.3%
11
Bank of Santa Maria*
3.0%
11
Downey Savings
3.1%
12
Union Bank
2.0%
12
Mission Community
2.7%
13
Westamerica*
1.9%
13
Citibank
1.8%
14
Coast National Bank
1.8%
14
Union Bank
1.6%
15
Mission Community Bk
0.5%
* Mid-State Bank acquired Bank of Santa Maria; Washington Mutual acquired Home Savings; Heritage Oaks acquired Westamerica's in-market branches
Heritage has Achieved Growth in a Competitive Environment
Deposit Market Share (June 1998 vs. June 2005)
San Luis Obispo County
11
2005 YTD Financial Highlights
Net income increased 45% to $6.6 million
Revenues increased 21% to $30.1 million
Net interest margin improved 68 basis points to 5.78%
Pre-tax income rose 46% to $10.7 million
Return on average equity was 16.06% and return on
average assets was 1.38%
Net loans increased 8% to $363 million
Non-performing loans were just 0.01% of total loans
Non-interest demand deposits increased 14% to $164
million Compared to YTD 2004 results
Heritage Oaks, Earning the Respect of Our Community, Clients,
Employees and Shareholders Alike
12
13
Prime-Based Lending Contributes to an Asset Sensitive Balance Sheet
Loan Portfolio at December 2005
% of
Re-Pricing
Balance
Total
< 1 Year
218,619
$
59%
1-3 Years
92,926
25%
3-5 Years
42,315
11%
> 5 Years
14,273
4%
368,133
$
100%
Non-performing Loans
54
$
% Gross Loans
0.01%
Gross Loans
Deposit Mix at December 2005
Increasing Margins
An 0.87% Average Cost of Deposits for 2005
80% of Deposits are Low-Cost
14
Net Income
24.2%
CAGR
2000-2005
($ in thousands)
17.6%
CAGR
2000-2005
Diluted EPS
Efficiency Ratio
Heritage Oaks has Delivered Shareholder Value through Performance
15
Market Capitalization and Stock Price
(Adj. for Stock Dividend Activity)
At December 31
($ in thousands)
34.8%
CAGR
2000-2005
42.5%
CAGR
2000-2005
Growth in Earnings has Resulted in a Deserved Valuation
16
Financial Targets
17
By Serving the Best Interests of our Clients, We are committed to being
the Best Community Bank in California
200
5
Q4
200
4
Q
4
2005
YTD
2004
YTD
2007
Targets
Return on Average Assets
1.
47
%
1.
18
%
1.
38
%
1.
02
%
1.50%
Return on Average Equity
16.38
%
1
4.77
%
16.06
%
13.15
%
20.00%
Efficiency Ratio
6
0
.6
5
%
6
7
.
64
%
6
2.04
%
6
8.93
%
<60.00%
Leverage Ratio
9
.
4
8%
8.34%
Tier 1 Risk
-
Based Capital Ratio
1
1.01
%
9.78%
Total Risk
-
Based Capital Ratio
11.96
%
10.65%
