NOTE: Transmitted on Prime Zone on April 18, 2006 at 3:30 a.m. PDT.
HERITAGE OAKS BANCORP’S EARNINGS INCREASE 13% IN FIRST QUARTER
Paso Robles, CA - April 18, 2006 — Heritage Oaks Bancorp (Nasdaq: HEOP), the parent company of Heritage Oaks Bank, today reported that an expanding net interest margin and increased loan and deposit volumes contributed to outstanding first quarter profits. For the first quarter of 2006, net income increased 13% to $1.6 million, or $0.24 per diluted share, compared to $1.4 million, or $0.22 per diluted share in the first quarter of 2005.
“We launched 2006 with excellent first quarter profits, fueled by strong loan and core deposit growth and continued outstanding asset quality,” said Lawrence P. Ward, president and CEO. “Our measures of efficiency were steady in the first quarter compared to the year ago despite higher expenses related to initiatives designed to improve future profitability through enhanced customer relationship management, service delivery and branding. Continued strong operating profits have also resulted in higher levels of capital, which moderated returns on equity in contrast to the higher return on assets ratio.”
First Quarter 2006 Year-Over-Year Operating Highlights:
| | · | Net interest margin improved 35 basis points to 5.90%. |
| | · | Net income increased 13% to $1.6 million. |
| | · | Revenues increased 11% to $7.7 million. |
| | · | Efficiency ratio for the quarter was 65.0% |
| | · | Pre-tax income rose 13% to $5.0 million. |
| | · | Return on average equity was 13.9% and return on average assets was 1.33%. |
| | · | Deposits increased 7% to $422 million. |
| | · | Net loans increased 11% to $373 million. |
| | · | Asset quality remained strong, non-performing loans were just 0.01% of total loans. |
“As compared to the fourth quarter of 2005 Heritage Oaks saw a slightly decreasing net interest margin attributable to increasing deposit costs from a “catch-up’ effect in deposit rates as well as changes in the Company’s deposit mix,” stated Ward. “This development, combined with higher costs related to new marketing initiatives, fewer days in the first quarter as compared to the fourth quarter and seasonal variations resulted in the decrease in net income and EPS for the sequential quarters.”
Operating Results
Total revenues, consisting of net interest income before the provision for loan losses and non-interest income, increased 11% to $7.7 million in the first quarter from $6.9 million in the same quarter of 2005. In the first quarter, net interest income increased 12% to $6.5 million, from $5.8 million a year ago. Interest and fees on loans increased 22% to $7.5 million in the first quarter, compared to $6.1 million in the first quarter last year, primarily due to Heritage Oak’s increased loan portfolio. Non-interest income increased 7.5% to $1.2 million in the first quarter of 2006 compared to $1.1 million for the same period in 2005, primarily due to the increased volume of deposit balances and transactions.
First quarter net interest margin was 5.90%, a 35 basis point improvement from 5.55% in the first quarter a year ago, and a slight contraction from net interest margin of 6.06% in the fourth quarter of 2005. “Our focus of adding high quality, higher-yielding credits funded by low-cost deposits has helped us to lower interest rate risk and expand our net interest margin from year ago levels,” said Ward. “We are well positioned to take advantage of continued rising, or stable, short-term interest rates.”
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HEOP first quarter earnings increase 13%
April 18, 2006
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In the first quarter, non-interest expenses increased to $4.9 million, compared to $4.4 million in the first quarter a year ago. The increase was primarily a result of increased expenses related to the development of the new relationship management program, coupled with a new branding initiative which was kicked-off late in the third quarter of 2005. “We expect these initiatives to improve our service delivery, image and profitability in future quarters,” stated Ward. “Salaries and employee benefits related to these initiatives have contributed to the increase as well.” Heritage Oaks Bancorp invested considerable human and capital resources in these new efforts during the first quarter of 2006 and expects to continue to invest in the initiative in future quarters with the expectation of returns on these investments adding to shareholder value in the near-term.
Salaries and employee benefits expense increases also included stock options expense related to the adoption of SFAS 123R, restricted stock awards expenses and higher group health insurance costs as compared to previous quarters.
As a result of the fluctuations in net interest margin and expense increases, the efficiency ratio was 65.02% for the first quarter compared to 64.14 % for the first quarter of 2005 and 60.65% in the fourth quarter of 2005. The efficiency ratio measures non-interest expenses as a percent of revenues.
Return on average assets was 1.33% for the first quarter of 2006 compared to 1.24% in the first quarter a year ago. The Company also generated a return on average equity of 13.9% for the first quarter of 2006 compared to 14.7% during the same period of 2005. The decline was a result of higher capital balances as a percentage of assets for the quarter as compared to the year-ago period.
Balance Sheet
Net loans grew 11% to $373.2 million compared to $337.7 million a year ago. “During the quarter, loan volumes increased as a result of our aggressive efforts to retain existing clientele and compete vigorously for new business,” said Ward. “For the linked quarter, loans were up $10.6 million or 11.6%, annualized, as a result of these efforts.”
Total assets increased 4% to $492.5 million as of March 31, 2006, compared to $472.1 million a year earlier. Total deposits grew 8% to $421.7 million compared to $392.4 million at March 31, 2005. “With 37% of our deposits in non-interest bearing accounts, and an additional 41% of deposits in savings, money market and NOW accounts, 78% of our deposits are no or low-cost, providing us with a very efficient funding source for our loan growth” Ward added.
Asset quality remains strong with only $51,000 of non-performing loans, or 0.01% of net loans at March 31, 2006. The allowance for loan losses was $4.0 million, or 1.06% of net loans held for investment at quarter-end compared to $3.4 million or 1.00% of net loans outstanding at the end of the first quarter of 2005.
Shareholders’ equity increased by 21% to $46.7 million at quarter-end compared to $38.7 million at the end of the first quarter last year. Book value per share was $7.38 at March 31, 2006, compared to $6.29 per share a year earlier. Tangible book value per share was $6.40 at the end of the quarter compared to $5.19 a year earlier.
Heritage Oaks’ capital position has strengthened over the past year as illustrated by the Company’s tier one leverage ratio, which has increased to 10.23%, from 8.77% a year ago. The ratio of equity to assets increased 129 basis points to 9.49% from 8.20% to in the one year period ended March 31, 2006. “Although we are currently retaining higher levels of capital than necessary within the business, we are carefully considering alternative solutions that will optimize returns to shareholders while continuing to provide strategic flexibility in a dynamic business environment,” noted Ward.
Heritage Oaks Bancorp is the holding company for Heritage Oaks Bank. Heritage Oaks Bank has its headquarters plus one branch office in Paso Robles, two branch offices in San Luis Obispo, single branch offices in Cambria, Arroyo Grande, Atascadero and Morro Bay and three branch offices in Santa Maria. Heritage conducts commercial banking business in San Luis Obispo County and Northern Santa Barbara County. Visit Heritage Oaks Bancorp on the Web at www.heritageoaksbancorp.com.
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HEOP first quarter earnings increase 13%
April 18, 2006
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Statements concerning future performance, developments or events, expectations for growth and income forecasts, and any other guidance on future periods, constitute forward-looking statements that are subject to a number of risks and uncertainties. Actual results may differ materially from stated expectations. Specific factors include, but are not limited to, increased profitability, continued growth, the Banks beliefs as to the adequacy of its existing and anticipated allowances for loan losses, beliefs and expectations regarding actions that may be taken by regulatory authorities having oversight of the Banks operations, interest rates and financial policies of the United States government, general economic conditions and California’s energy crisis. Additional information on these and other factors that could affect financial results are included in its Securities and Exchange Commission filings.
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HERITAGE OAKS BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
(Unaudited)
| | | For the Three Months Ended, | |
| | | March 31, | | | December 31, | | | March 31, | |
| | | 2006 | | | 2005 | | | 2005 | |
| Interest and fees on loans | | $ | 7,489 | | $ | 7,605 | | $ | 6,122 | |
| Investment securities | | | 489 | | | 515 | | | 553 | |
| Federal funds sold | | | 226 | | | 227 | | | 70 | |
| Time certificates of deposit | | | 2 | | | 2 | | | 3 | |
| Total interest income | | | 8,206 | | | 8,349 | | | 6,748 | |
| Now, MMDA and Savings | | | 620 | | | 574 | | | 251 | |
| Time deposits of $100 or more | | | 138 | | | 137 | | | 82 | |
| Other time deposits | | | 694 | | | 515 | | | 231 | |
| Other borrowed funds | | | 307 | | | 336 | | | 421 | |
| Total interest expense | | | 1,759 | | | 1,562 | | | 985 | |
| Net interest income before provision | | | 6,447 | | | 6,787 | | | 5,763 | |
| Provision for loan losses | | | 120 | | | 180 | | | 180 | |
| Net interest income after Provision | | | 6,327 | | | 6,607 | | | 5,583 | |
| Service charges on deposit accounts | | | 568 | | | 605 | | | 539 | |
| Gain of Sale of SBA loans | | | 19 | | | - | | | 34 | |
| Other income | | | 631 | | | 617 | | | 559 | |
| Total Non-interest Income | | | 1,218 | | | 1,222 | | | 1,132 | |
| Salaries and employee benefits | | | 2,783 | | | 2,558 | | | 2,248 | |
| Occupancy and equipment | | | 603 | | | 638 | | | 612 | |
| Other expenses | | | 1,599 | | | 1,661 | | | 1,563 | |
| Total Noninterest Expense | | | 4,984 | | | 4,857 | | | 4,423 | |
| Income before provision for income taxes | | | 2,561 | | | 2,972 | | | 2,292 | |
| Provision for applicable income taxes | | | 955 | | | 1,163 | | | 875 | |
| Net Income | | $ | 1,606 | | $ | 1,809 | | $ | 1,417 | |
| Earnings per share: | | | | | | | | | | |
| Basic | | $ | 0.26 | | $ | 0.29 | | $ | 0.23 | |
| Diluted | | $ | 0.24 | | $ | 0.27 | | $ | 0.22 | |
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HEOP first quarter earnings increase 13%
April 18, 2006
Page 4
HERITAGE OAKS BANCORP
CONSOLIDATED BALANCE SHEETS
(in thousands except per share data)
(Unaudited)
| | | March 31, | | | December 31, | | | March 31, | |
| | | 2006 | | | 2005 | | | 2005 | |
Assets | | | | | | | | | | |
| Cash and due from banks | | $ | 17,398 | | $ | 18,279 | | $ | 12,533 | |
| Federal funds sold | | | 20,475 | | | 26,280 | | | 31,420 | |
| Total Cash and Cash Equivalents | | | 37,873 | | | 44,559 | | | 43,953 | |
| Interest-bearing deposits in other financial institutions | | | 318 | | | 298 | | | 498 | |
| Investment securities, available-for-sale | | | 43,847 | | | 44,402 | | | 53,097 | |
| FHLB Stock | | | 1,907 | | | 1,885 | | | 1,810 | |
| Loans held for sale | | | 2,994 | | | 3,392 | | | 5,541 | |
| Loans, net | | | 373,189 | | | 362,635 | | | 337,693 | |
| Property premises and equipment, net | | | 13,055 | | | 11,905 | | | 10,412 | |
| Net deferred tax asset | | | 2,352 | | | 2,358 | | | 2,140 | |
| Cash surrender value of life insurance | | | 7,777 | | | 7,706 | | | 7,491 | |
| Goodwill | | | 4,865 | | | 4,865 | | | 4,865 | |
| Intangible assets | | | 1,373 | | | 1,448 | | | 1,878 | |
| Other assets | | | 2,901 | | | 3,048 | | | 2,694 | |
Total Assets | | $ | 492,451 | | $ | 488,501 | | $ | 472,071 | |
| | | | | | | | | | | |
Liabilities and Stockholders' Equity | | | | | | | | | | |
| Deposits | | | | | | | | | | |
| Demand non-interest bearing | | $ | 156,406 | | $ | 164,014 | | $ | 168,598 | |
| Savings, NOW and money market deposits | | | 173,421 | | | 170,106 | | | 162,767 | |
| Time deposits of $100 or more | | | 17,229 | | | 17,414 | | | 15,035 | |
| Time deposits under $100 | | | 74,663 | | | 66,263 | | | 46,041 | |
| Total Deposits | | | 421,719 | | | 417,797 | | | 392,441 | |
| FHLB advances and other borrowings | | | 10,000 | | | 10,000 | | | 28,500 | |
| Securities sold under agreement to repurchase | | | 1,954 | | | 3,847 | | | 732 | |
| Junior subordinated debentures | | | 8,248 | | | 8,248 | | | 8,248 | |
| Other liabilities | | | 3,801 | | | 3,764 | | | 3,451 | |
Total Liabilities | | | 445,722 | | | 443,656 | | | 433,372 | |
| | | | | | | | | | | |
| Common Stock | | | 29,521 | | | 29,255 | | | 28,352 | |
| Retained earnings | | | 17,354 | | | 15,748 | | | 10,533 | |
| Accumulated other comprehensive income | | | (146 | ) | | (158 | ) | | (186 | ) |
Total Stockholders' Equity | | | 46,729 | | | 44,845 | | | 38,699 | |
Total Liabilities and Stockholders' Equity | | $ | 492,451 | | $ | 488,501 | | $ | 472,071 | |
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HEOP first quarter earnings increase 13%
April 18, 2006
Page 5
HERITAGE OAKS BANCORP
OTHER FINANCIAL DATA
(in thousands except per share data)
(Unaudited)
| | | As of or for the Three Month Period Ended, | |
| | | March 31, | | | December 31, | | | March 31, | |
| | | 2006 | | | 2005 | | | 2005 | |
PER SHARE DATA | | | | | | | | | | |
| Basic Earnings per Share | | $ | 0.26 | | $ | 0.29 | | $ | 0.23 | |
| Diluted Earnings per Share | | $ | 0.24 | | $ | 0.27 | | $ | 0.22 | |
| Weighted Average Shares Outstanding | | | 6,283,890 | | | 6,223,500 | | | 6,080,805 | |
| Weighted Average Diluted Shares | | | 6,643,432 | | | 6,592,000 | | | 6,458,433 | |
| Book Value per Share (EOP) | | $ | 7.38 | | $ | 7.20 | | $ | 6.29 | |
| Tangible Book Value per Share (EOP) | | $ | 6.40 | | $ | 6.18 | | $ | 5.19 | |
| Common Shares Outstanding (EOP) | | | 6,330,523 | | | 6,231,982 | | | 6,154,481 | |
| | | | | | | | | | | |
KEY FINANCIAL RATIOS | | | | | | | | | | |
| Return on Average Equity | | | 13.92 | % | | 16.38 | % | | 14.74 | % |
| Return on Average Assets | | | 1.33 | % | | 1.47 | % | | 1.24 | % |
| Net Interest Margin | | | 5.90 | % | | 6.06 | % | | 5.55 | % |
| Efficiency Ratio | | | 65.02 | % | | 60.65 | % | | 64.14 | % |
| | | | | | | | | | | |
AVERAGE BALANCES | | | | | | | | | | |
| Average Assets | | $ | 481,648 | | $ | 492,304 | | $ | 457,893 | |
| Average Earning Assets | | $ | 436,935 | | $ | 447,805 | | $ | 415,672 | |
| Average Loans | | $ | 370,083 | | $ | 376,095 | | $ | 344,499 | |
| Average Deposits | | $ | 410,536 | | $ | 418,619 | | $ | 371,114 | |
| Average Equity | | $ | 46,134 | | $ | 44,139 | | $ | 38,460 | |
| | | | | | | | | | | |
CREDIT QUALITY DATA | | | | | | | | | | |
| Loan loss allowance | | $ | 4,005 | | $ | 3,881 | | $ | 3,395 | |
| Non-Accruing Loans | | $ | 52 | | $ | 53 | | $ | 472 | |
| Over 90 Days PD and Still Accruing | | | - | | | - | | | - | |
| Other Real Estate Owned | | | - | | | - | | | - | |
| Total Non-Performing Assets | | $ | 52 | | $ | 53 | | $ | 472 | |
| | | | | | | | | | | |
| Non-Performing Loans to Net Loans | | | 0.01 | % | | 0.01 | % | | 0.14 | % |
| Non-Performing Assets to Total Assets | | | 0.01 | % | | 0.01 | % | | 0.10 | % |
| Allowance for Loan Losses to Loans | | | 1.06 | % | | 1.06 | % | | 1.00 | % |
| | | | | | | | | | | |
CAPITAL RATIOS | | | | | | | | | | |
| Leverage Ratio | | | 10.23 | % | | 9.61 | % | | 8.77 | % |
| Tier I Risk-Based Capital Ratio | | | 11.20 | % | | 10.98 | % | | 10.10 | % |
| Total Risk-Based Capital Ratio | | | 12.16 | % | | 11.93 | % | | 11.00 | % |
| | | | | | | | | | | |
OTHER PERIOD-END RATIOS | | | | | | | | | | |
| Shareholders' Equity / Total Assets | | | 9.49 | % | | 9.18 | % | | 8.20 | % |
| Net Loans / Deposits | | | 89.20 | % | | 88.54 | % | | 88.33 | % |
| Non-Interest Bearing Deposits / Total Deposits | | | 37.09 | % | | 39.26 | % | | 42.96 | % |
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NOTE: Transmitted on Prime Zone on April 18, 2006 at 3:30 a.m. PDT.
