| CONTACTS: | LAWRENCE P. WARD, CEO |
Heritage Oaks Bancorp Reports 3Q07 Profits of $1.6 Million,
Excellent Deposit Growth and Strong Asset Quality Continue
Paso Robles, CA - October 22, 2007 - Heritage Oaks Bancorp (NASDAQ: HEOP), the parent company of Heritage Oaks Bank, today reported that solid core deposit growth and continued strong asset quality contributed to third quarter profits. For the third quarter of 2007 net income was $1.6 million, or $0.24 per diluted share, compared to $1.7 million, or $0.26 per diluted share, in the third quarter of 2006. For the first nine months of 2007, net income was $4.9 million, or $0.74 per diluted share, compared to $5.0 million, or $0.76 per diluted share for the first nine months of 2006.
On October 12, Heritage Oaks Bancorp closed its acquisition of Business First National Bank of Santa Barbara in a stock and cash transaction valued at approximately $20 million. In connection with the transaction, Business First National Bank was merged with and into Heritage Oaks Bank and now operates as a division of Heritage Oaks Bank. The merger is expected to be accretive to earnings in 2008. The financial results presented in this release for the quarter ended September 30, 2007, do not include the assets, liabilities or results of operations for the acquired company.
“Acquiring Business First National Bank of Santa Barbara, a well established and highly respected community bank located in a premium, high-growth area, is consistent with our ongoing strategy of expanding our community banking franchise,” stated Lawrence P. Ward, President and CEO. “Business First establishes us as the #1 publicly owned community bank in the Santa Barbara market. It brings a sizeable loan portfolio, which has been assembled by a skilled team of commercial lenders, a strong deposit base and a healthy share of a robust market.”
Third Quarter 2007 Highlights:
| | · | Core deposits increased by 12% over a year ago, and represent 69% of total deposits. |
| | · | Revenues increased 5% to $8.6 million. |
| | · | Return on average equity was 12.1% and return on average assets was 1.12%. |
| | · | Net interest margin was 5.44%. |
| | · | Gross loans increased 12% to $475 million. |
| | · | Asset quality remained strong, non-performing assets were 0.11% of total assets. |
Balance Sheet
“Despite heavy competition for loans we continue to be very stringent in our underwriting standards, and as a result, we expect our loan portfolio to grow at a more moderate pace,” noted Ward. The loan portfolio grew 12% to $469 million at September 30, 2007, from $419 million a year earlier. The growth was fueled by a 35% increase in commercial, financial and agricultural loans, as well as an 11% increase in commercial real estate loans. Below is a breakout of these loans illustrating the diversification within the particular portfolios:
Construction / Land
| Single Family Residences | Single Family Residences - Spec. | Land | Owner Occupied | Other | |
8% | 8% | 18% | 26% | 40% | |
Commercial Real Estate
| Farmland | Commercial Industrial | Retail | Professional | Hospitality | Other |
5% | 17% | 20% | 23% | 18% | 17% |
HEOP 3Q07 Earnings
October 22, 2007
Page 2
“We implemented a strategy earlier this year of funding our loan demand through a new variable interest rate money market account, also with the intention of replacing higher cost borrowing” said Ward. “We have increased savings, NOW and money market balances 48% and increased total deposits 18% since the end of 2006. Additionally, we are able to re-price these deposits immediately after a rate change, making them a more favorable deposit to the Bank than a long-term CD. We believe that we can save approximately 20-30bp by replacing FHLB borrowings with relationship core deposits. ” Total deposits increased 15% to $496 million at the end of September, compared to $430 million at the end of September 2006. Non-interest bearing accounts represent 26% of total deposits and savings, money market and NOW accounts represent 43% of total deposits.
Due to the significant deposit growth, Heritage Oaks reduced its FHLB borrowings by $30 million during the third quarter, and $50 million year-to-date. On September 20, 2007, the company issued $5.0 million in trust preferred securities. The securities were issued by a special purpose business trust formed by Heritage Oaks and were sold to a pooled investment vehicle sponsored by Keefe, Bruyette & Woods in a private transaction. The Company intends to use the funds for general corporate purposes including the acquisition of Business First.
Notwithstanding the payoff of FHLB borrowing, total assets increased 8% to $573 million at quarter-end, compared to $532 million a year earlier and increased 6% compared to $542 million in total assets at December 31, 2006.
Asset Quality
Asset quality remains strong with non-performing assets totaling $641,000, or 0.11% of total assets at September 30, 2007. Three months earlier, Heritage Oaks’ non-performing assets totaled $555,000, or 0.09% of total assets. The allowance for loan losses increased to $4.7 million, or 0.99% of total loans held for investment at quarter-end compared to $3.9 million or 0.91% of total loans held for investment at September 30, 2006. “Our non-performing loans consist of seven loans to six borrowers, of which, one for approximately $186,000 is in process of refinance, one for approximately $272,000 that is real estate secured and has a loan to value of less than 65% and is current, two loans that are less than $20,000 each and are paying as agreed, one less than $50,000 that is paying and one borrower’s loan is collateralized and is in process of workout. We are keeping a close eye on all delinquent loans, reviewing them weekly and do not see any major changes in the make up or quantity of these loans,” added Ward.
Operating Results
“Core deposit growth, generated by the success of our program to increase money market account balances and continued growth in our banking relationships, is helping to moderate the impact of the yield curve on our margin,” said Ward. Third quarter net interest margin was 5.44% compared to 5.56% in the previous quarter and 6.02% in the third quarter a year ago. Year-to-date, the net interest margin was 5.53% compared to 6.02% for the same period in 2006. “On a percentage basis, the single largest factor that is negatively impacting net income for the Company for both quarter to date and year to date results is the increase in interest expense. Because of the changes made to the balance sheet, specifically on the liability funding side, we can already see improvement on a linked quarter basis,” Ward reported.
“Occupancy expense has increased due primarily to the sale leaseback transaction that was finalized on June 27, 2007. The offset to this additional expense is an increase in interest income from investment of the funds received. As reported in the June 30, 2007 10Q, this continues to be an accretive transaction to the bottom line,” Ward indicated.
“While salary and employee benefits have increased by $273 thousand for the three months ended September 30, 2007 compared to the same period in 2006, it should be noted that on a linked quarter basis, the increase was only $44,000,” noted Ward.
The provision for income tax was approximately 200 basis points higher at 38.2% for the nine months ended September 30, 2007 compared to 36.2% for the same period in 2006. The lower rate in 2006 was impacted by timing differences on certain tax issues that flowed through the Income Statement.
Performance Measures
The efficiency ratio was 66.9% in the third quarter of 2007 compared to 64.3% in the previous quarter and 65.3% in the third quarter a year ago. Year-to-date, the efficiency ratio was 66.7% compared to 64.9% in the first nine months of 2006. The efficiency ratio measures operating expenses as a percent of revenues.
HEOP 3Q07 Earnings
October 22, 2007
Page 3
Return on average assets was 1.12% in the third quarter and 1.16% for the first nine months of the year, compared to 1.33% and 1.35% for the respective periods last year. Return on average equity was 12.1% for the third quarter of 2007 and 12.7% year-to-date, compared to 14.4% and 14.3% in their respective periods a year ago.
Book value per share was $ 8.32 at September 30, 2007, compared to $7.62 per share a year earlier. Tangible book value per share was $7.44 at September 30, 2007, compared to $6.66 a year earlier. Shareholders’ equity increased 11% to $53.9 million compared to $48.4 million a year ago.
Heritage Oaks Bancorp is the holding company for Heritage Oaks Bank which operates as Heritage Oaks Bank and Business Firs, a division of Heritage Oaks Bank. Heritage Oaks Bank has its headquarters plus two branch offices in Paso Robles, two branch offices in San Luis Obispo, single branch offices in Cambria, Arroyo Grande, Atascadero, Templeton 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. The Business First division has two branch offices in Santa Barbara. Visit Heritage Oaks Bancorp on the Web at www.heritageoaksbancorp.com.
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 the ability to successfully integrate the operations of Business First National Bank, increased profitability, continued growth, the Bank’s 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 Bank’s 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 Heritage Oaks Bancorp’s Securities and Exchange Commission filings. If any of these risks or uncertainties materialize or if any of the assumptions underlying such forward-looking statements proves to be incorrect, Heritage Oaks Bancorp’s results could differ materially from those expressed in, implied or projected by such forward-looking statements. Heritage Oaks Bancorp assumes no obligation to update such forward-looking statements.
HEOP 3Q07 Earnings
October 22, 2007
Page 4
Heritage Oaks Bancorp
Consolidated Balance Sheets
(dollars in thousands except share data)
| | | | | | | | | | | | |
| | | (unaudited) | | (audited) | | (unaudited) | | Percentage Change Vs. | |
| | | 9/30/2007 | | 12/31/2006 | | 9/30/2006 | | 12/31/2006 | | 9/30/2006 | |
Assets | | | | | | | | | | | | | | | | |
Cash and due from banks | | $ | 20,316 | | $ | 19,164 | | $ | 17,972 | | | 6.0 | % | | 13.0 | % |
Federal funds sold | | | 14,260 | | | 3,870 | | | 14,195 | | | 268.5 | % | | 0.5 | % |
Total cash and cash equivalents | | | 34,576 | | | 23,034 | | | 32,167 | | | 50.1 | % | | 7.5 | % |
| | | | | | | | | | | | | | | | | |
Interest bearing deposits with other banks | | | 1,718 | | | 318 | | | 318 | | | 440.3 | % | | 440.3 | % |
Securities available for sale | | | 34,854 | | | 38,445 | | | 40,294 | | | -9.3 | % | | -13.5 | % |
Federal Home Loan Bank Stock, at cost | | | 2,171 | | | 2,350 | | | 1,955 | | | -7.6 | % | | 11.0 | % |
Loans held for sale | | | 902 | | | 1,764 | | | 2,069 | | | -48.9 | % | | -56.4 | % |
Loans, net (1) | | | 468,966 | | | 439,277 | | | 419,314 | | | 6.8 | % | | 11.8 | % |
Property, premises and equipment | | | 5,017 | | | 14,581 | | | 14,801 | | | -65.6 | % | | -66.1 | % |
Cash surrender value of life insurance | | | 9,716 | | | 9,435 | | | 9,344 | | | 3.0 | % | | 4.0 | % |
Deferred tax assets | | | 4,964 | | | 2,414 | | | 2,515 | | | 105.6 | % | | 97.4 | % |
Goodwill | | | 4,864 | | | 4,865 | | | 4,864 | | | 0.0 | % | | 0.0 | % |
Core deposit intangible | | | 883 | | | 1,148 | | | 1,223 | | | -23.1 | % | | -27.8 | % |
Other assets | | | 4,059 | | | 4,143 | | | 3,517 | | | -2.0 | % | | 15.4 | % |
Total assets | | $ | 572,690 | | $ | 541,774 | | $ | 532,381 | | | 5.7 | % | | 7.6 | % |
| | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | | |
Non-interest bearing demand | | $ | 130,221 | | $ | 153,005 | | $ | 157,180 | | | -14.9 | % | | -17.2 | % |
Savings, NOW, and money market | | | 215,576 | | | 146,110 | | | 152,033 | | | 47.5 | % | | 41.8 | % |
Time deposits of $100K or more | | | 50,666 | | | 30,630 | | | 31,782 | | | 65.4 | % | | 59.4 | % |
Time deposits under $100K | | | 99,847 | | | 90,776 | | | 89,277 | | | 10.0 | % | | 11.8 | % |
Total deposits | | | 496,310 | | | 420,521 | | | 430,272 | | | 18.0 | % | | 15.3 | % |
FHLB advances and other borrowings | | | - | | | 50,000 | | | 40,000 | | | -100.0 | % | | -100.0 | % |
Securities sold under agreements to repurchase | | | 1,464 | | | 1,364 | | | 1,219 | | | 7.3 | % | | 20.1 | % |
Junior subordinated debentures | | | 13,403 | | | 16,496 | | | 8,248 | | | -18.8 | % | | 62.5 | % |
Other liabilities | | | 7,663 | | | 3,921 | | | 4,215 | | | 95.4 | % | | 81.8 | % |
Total liabilities | | | 518,840 | | | 492,302 | | | 483,954 | | | 5.4 | % | | 7.2 | % |
Stockholders' equity | | | | | | | | | | | | | | | | |
Common stock, no par value; 20,000,000 shares | | | | | | | | | | | | | | | | |
authorized; issued and outstanding 6,469,653; 6,345,639 | | | | | | | | | | | | | | | | |
and 6,356,021 for September 30, 2007; December 31, 2006 | | | | | | | | | | | | | | | | |
and September 30, 2006 respectively | | | 29,976 | | | 29,247 | | | 29,648 | | | 2.5 | % | | 1.1 | % |
Additional paid in capital | | | 600 | | | 336 | | | - | | | 78.6 | % | | - | |
Retained earnings | | | 23,205 | | | 19,809 | | | 18,668 | | | 17.1 | % | | 24.3 | % |
Accumulated other comprehensive income | | | 69 | | | 80 | | | 111 | | | -13.8 | % | | -37.8 | % |
Total stockholders' equity | | | 53,850 | | | 49,472 | | | 48,427 | | | 8.8 | % | | 11.2 | % |
Total liabilities and stockholders' equity | | $ | 572,690 | | $ | 541,774 | | $ | 532,381 | | | 5.7 | % | | 7.6 | % |
| (1) | Loans are net of deferred loan fees of $1,941; $1,625; $1,489 and allowance for loan losses of $4,720; $4,081; $3,863 for September 30, 2007, December 31, 2006, and September 30, 2006 respectively. |
HEOP 3Q07 Earnings
October 22, 2007
Page 5
Heritage Oaks Bancorp
Consolidated Statements of Income
(dollars in thousands except share data)
| | | (unaudited) | | (unaudited) | | (unaudited) | | | | | |
| | | For the Three Months Ended | | Percentage Change Vs. | |
| | | 9/30/2007 | | 6/30/2007 | | 9/30/2006 | | 6/30/2007 | | 9/30/2006 | |
Interest Income: | | | | | | | | | | | | | | | | |
Interest and fees on loans | | $ | 10,058 | | $ | 10,214 | | $ | 8,968 | | | -1.5 | % | | 12.2 | % |
Investment securities | | | 426 | | | 437 | | | 467 | | | -2.5 | % | | -8.8 | % |
Federal funds sold and commercial paper | | | 385 | | | 162 | | | 131 | | | 137.7 | % | | 193.9 | % |
Time certificates of deposit | | | 1 | | | 10 | | | 2 | | | -90.0 | % | | -50.0 | % |
Total interest income | | | 10,870 | | | 10,823 | | | 9,568 | | | 0.4 | % | | 13.6 | % |
Interest Expense: | | | | | | | | | | | | | | | | |
NOW accounts | | | 55 | | | 43 | | | 22 | | | 27.9 | % | | 150.0 | % |
MMDA accounts | | | 1,216 | | | 946 | | | 567 | | | 28.5 | % | | 114.5 | % |
Savings accounts | | | 21 | | | 23 | | | 25 | | | -8.7 | % | | -16.0 | % |
Time deposits of $100K or more | | | 610 | | | 301 | | | 172 | | | 102.7 | % | | 254.7 | % |
Other time deposits | | | 1,229 | | | 1,276 | | | 1,132 | | | -3.7 | % | | 8.6 | % |
Other borrowed funds | | | 411 | | | 976 | | | 628 | | | -57.9 | % | | -34.6 | % |
Total interest expense | | | 3,542 | | | 3,565 | | | 2,546 | | | -0.6 | % | | 39.1 | % |
Net interest income before provision for loan losses | | | 7,328 | | | 7,258 | | | 7,022 | | | 1.0 | % | | 4.4 | % |
Provision for loan losses | | | 210 | | | 170 | | | 180 | | | 23.5 | % | | 16.7 | % |
Net interest income after provision for loan losses | | | 7,118 | | | 7,088 | | | 6,842 | | | 0.4 | % | | 4.0 | % |
Non Interest Income: | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | | | 645 | | | 686 | | | 644 | | | -6.0 | % | | 0.2 | % |
Other income | | | 664 | | | 705 | | | 578 | | | -5.8 | % | | 14.9 | % |
Total non-interest income | | | 1,309 | | | 1,391 | | | 1,222 | | | -5.9 | % | | 7.1 | % |
Non-Interest Expense: | | | | | | | | | | | | | | | | |
Salaries and employee benefits | | | 3,238 | | | 3,194 | | | 2,965 | | | 1.4 | % | | 9.2 | % |
Occupancy and equipment | | | 830 | | | 706 | | | 633 | | | 17.6 | % | | 31.1 | % |
Other expenses | | | 1,709 | | | 1,663 | | | 1,786 | | | 2.8 | % | | -4.3 | % |
Total non-interest expenses | | | 5,777 | | | 5,563 | | | 5,384 | | | 3.8 | % | | 7.3 | % |
Income before provision for income taxes | | | 2,650 | | | 2,916 | | | 2,680 | | | -9.1 | % | | -1.1 | % |
Provision for income taxes | | | 1,022 | | | 1,116 | | | 947 | | | -8.4 | % | | 7.9 | % |
Net Income | | $ | 1,628 | | $ | 1,800 | | $ | 1,733 | | | -9.6 | % | | -6.1 | % |
| | | | | | | | | | | | | | | | | |
Average basic shares outstanding | | | 6,472,653 | | | 6,432,687 | | | 6,350,727 | | | | | | | |
Average diluted shares outstanding | | | 6,679,114 | | | 6,692,467 | | | 6,594,626 | | | | | | | |
Basic earnings per share | | $ | 0.25 | | $ | 0.28 | | $ | 0.27 | | | | | | | |
Fully diluted earnings per share | | $ | 0.24 | | $ | 0.27 | | $ | 0.26 | | | | | | | |
HEOP 3Q07 Earnings
October 22, 2007
Page 6
Heritage Oaks Bancorp
Consolidated Statements of Income
(dollars in thousands except share data)
| | | (unaudited) | | (unaudited) | | Percentage Change Vs. | |
| | | For the Nine Months Ended | |
| | | 9/30/2007 | | 9/30/2006 | | 9/30/2006 | |
Interest Income: | | | | | | | | | | |
Interest and fees on loans | | $ | 30,087 | | $ | 24,475 | | | 22.9 | % |
Investment securities | | | 1,324 | | | 1,446 | | | -8.4 | % |
Federal funds sold and commercial paper | | | 577 | | | 513 | | | 12.5 | % |
Time certificates of deposit | | | 7 | | | 6 | | | 16.7 | % |
Total interest income | | | 31,995 | | | 26,440 | | | 21.0 | % |
Interest Expense: | | | | | | | | | | |
NOW accounts | | | 126 | | | 66 | | | 90.9 | % |
MMDA accounts | | | 2,830 | | | 1,687 | | | 67.8 | % |
Savings accounts | | | 69 | | | 78 | | | -11.5 | % |
Time deposits of $100K or more | | | 1,120 | | | 428 | | | 161.7 | % |
Other time deposits | | | 3,716 | | | 2,671 | | | 39.1 | % |
Other borrowed funds | | | 2,516 | | | 1,406 | | | 78.9 | % |
Total interest expense | | | 10,377 | | | 6,336 | | | 63.8 | % |
Net interest income before provision for loan losses | | | 21,618 | | | 20,104 | | | 7.5 | % |
Provision for loan losses | | | 520 | | | 480 | | | 8.3 | % |
Net interest income after provision for loan losses | | | 21,098 | | | 19,624 | | | 7.5 | % |
Non Interest Income: | | | | | | | | | | |
Service charges on deposit accounts | | | 1,944 | | | 1,826 | | | 6.5 | % |
Other income | | | 1,988 | | | 1,826 | | | 8.9 | % |
Total non-interest income | | | 3,932 | | | 3,652 | | | 7.7 | % |
Non-Interest Expense: | | | | | | | | | | |
Salaries and employee benefits | | | 9,681 | | | 8,534 | | | 13.4 | % |
Occupancy and equipment | | | 2,251 | | | 1,901 | | | 18.4 | % |
Other expenses | | | 5,101 | | | 4,982 | | | 2.4 | % |
Total non-interest expenses | | | 17,033 | | | 15,417 | | | 10.5 | % |
Income before provision for income taxes | | | 7,997 | | | 7,859 | | | 1.8 | % |
Provision for income taxes | | | 3,058 | | | 2,846 | | | 7.4 | % |
Net Income | | $ | 4,939 | | $ | 5,013 | | | -1.5 | % |
| | | | | | | | | | | |
Average basic shares outstanding | | | 6,429,830 | | | 6,326,743 | | | | |
Average diluted shares outstanding | | | 6,679,987 | | | 6,594,800 | | | | |
Basic earnings per share | | $ | 0.77 | | $ | 0.79 | | | | |
Fully diluted earnings per share | | $ | 0.74 | | $ | 0.76 | | | | |
HEOP 3Q07 Earnings
October 22, 2007
Page 7
Additional Financial Information | | | | | | | | | | | |
(dollars in thousands) | | | | | | | | | | | |
| | | For the Quarters Ended | | Percentage Change Vs. | |
LOANS (including loans held for sale) | | 9/30/2007 | | 12/31/2006 | | 9/30/2006 | | 12/31/2006 | | 9/30/2006 | |
| | | | | | | | | | | | |
| Commercial, financial and agricultural | | $ | 101,748 | | $ | 84,976 | | $ | 75,627 | | | 19.7 | % | | 34.5 | % |
| Real estate - construction/land | | | 105,054 | | | 105,712 | | | 101,665 | | | -0.6 | % | | 3.3 | % |
| Real estate - other | | | 253,860 | | | 237,401 | | | 229,070 | | | 6.9 | % | | 10.8 | % |
| Home equity lines of credit | | | 8,897 | | | 10,792 | | | 11,777 | | | -17.6 | % | | -24.5 | % |
| Installment loans to individuals | | | 5,580 | | | 5,598 | | | 5,660 | | | -0.3 | % | | -1.4 | % |
| All other loans (including overdrafts) | | | 488 | | | 504 | | | 867 | | | -3.2 | % | | -43.7 | % |
| Total loans | | $ | 475,627 | | $ | 444,983 | | $ | 424,666 | | | 6.9 | % | | 12.0 | % |
| Loans held for sale | | $ | 902 | | $ | 1,764 | | $ | 2,069 | | | -48.9 | % | | -56.4 | % |
| | | Quarter Ended | | Year Ended | | Quarter Ended | | Percentage Change Vs. | |
ALLOWANCE FOR LOAN LOSSES | | 9/30/2007 | | 12/31/2006 | | 9/30/2006 | | 12/31/2006 | | 9/30/2006 | |
| | | | | | | | | | | | |
| Balance, beginning of period | | $ | 4,520 | | $ | 3,881 | | $ | 3,695 | | | 16.5 | % | | 22.3 | % |
| Provision expense | | | 210 | | | 600 | | | 180 | | | -65.0 | % | | 16.7 | % |
| Credit losses charged against allowance | | | (16 | ) | | (561 | ) | | (17 | ) | | -97.1 | % | | -5.9 | % |
| Recoveries of loans previously charged off | | | 6 | | | 161 | | | 5 | | | -96.3 | % | | 20.0 | % |
| Balance, end of period | | $ | 4,720 | | $ | 4,081 | | $ | 3,863 | | | 15.7 | % | | 22.2 | % |
| | | | | | | | | | | | | | | | | |
| Net ( charge-offs ) / recoveries | | $ | (10 | ) | $ | (400 | ) | $ | (12 | ) | | - | | | - | |
| Net charge-offs / average loans outstanding | | | 0.00 | % | | 0.09 | % | | 0.00 | % | | -97.7 | % | | -26.8 | % |
| Allowance for loan losses / total loans outstanding | | | 0.99 | % | | 0.92 | % | | 0.91 | % | | 8.2 | % | | 9.1 | % |
| | | For the Quarters Ended | | Percentage Change Vs. | |
NON-PERFORMING ASSETS | | 9/30/2007 | | 12/31/2006 | | 9/30/2006 | | 12/31/2006 | | 9/30/2006 | |
| | | | | | | | | | | | |
| Loans on non-accrual status | | $ | 641 | | $ | 55 | | $ | 183 | | | 1065.5 | % | | 250.3 | % |
| Loans more than 90 days delinquent, still accruing | | | - | | | - | | | - | | | - | | | - | |
| Total non-performing loans | | | 641 | | | 55 | | | 183 | | | 1065.5 | % | | 250.3 | % |
| Other real estate owned (OREO) / repossessed assets | | | - | | | - | | | - | | | - | | | - | |
| Total non-performing assets | | $ | 641 | | $ | 55 | | $ | 183 | | | 1065.5 | % | | 250.3 | % |
| | | | | | | | | | | | | | | | | |
| Total non-performing assets to total assets | | | 0.11 | % | | 0.01 | % | | 0.04 | % | | 1019.3 | % | | 179.8 | % |
| | | For the Quarters Ended | | Percentage Change Vs. | |
DEPOSITS | | 9/30/2007 | | 12/31/2006 | | 9/30/2006 | | 12/31/2006 | | 9/30/2006 | |
| | | | | | | | | | | | |
| Non-interest bearing demand | | $ | 130,221 | | $ | 153,005 | | $ | 157,180 | | | -14.9 | % | | -17.2 | % |
| | | | | | | | | | | | | | | | | |
| Interest-bearing demand | | | 56,931 | | | 45,164 | | | 46,100 | | | 26.1 | % | | 23.5 | % |
| Regular savings accounts | | | 21,606 | | | 23,406 | | | 24,755 | | | -7.7 | % | | -12.7 | % |
| Money market accounts | | | 137,039 | | | 77,540 | | | 81,178 | | | 76.7 | % | | 68.8 | % |
| Total interest-bearing transaction and savings accounts | | | 215,576 | | | 146,110 | | | 152,033 | | | 47.5 | % | | 41.8 | % |
| | | | | | | | | | | | | | | | | |
| Time deposits under $100 thousand | | | 99,847 | | | 90,776 | | | 89,277 | | | 10.0 | % | | 11.8 | % |
| Time deposits of $100 thousand or more | | | 50,666 | | | 30,630 | | | 31,782 | | | 65.4 | % | | 59.4 | % |
| Total time deposits | | | 150,513 | | | 121,406 | | | 121,059 | | | 24.0 | % | | 24.3 | % |
| | | | | | | | | | | | | | | | | |
| Total deposits | | $ | 496,310 | | $ | 420,521 | | $ | 430,272 | | | 18.0 | % | | 15.3 | % |
HEOP 3Q07 Earnings
October 22, 2007
Page 8
PROFITABILITY / PERFORMANCE RATIOS | | Three Months Ended | | Nine Months Ended | |
| | | 9/30/2007 | | 6/30/2007 | | 9/30/2006 | | 9/30/2007 | | 9/30/2006 | |
| Operating efficiency | | | 66.89 | % | | 64.32 | % | | 65.31 | % | | 66.67 | % | | 64.90 | % |
| Return on average equity | | | 12.09 | % | | 13.84 | % | | 14.43 | % | | 12.68 | % | | 14.31 | % |
| Return on average tangible equity | | | 13.54 | % | | 15.58 | % | | 16.54 | % | | 14.25 | % | | 16.45 | % |
| Return on average assets | | | 1.12 | % | | 1.25 | % | | 1.33 | % | | 1.16 | % | | 1.35 | % |
| Other operating income to average assets | | | 0.90 | % | | 0.96 | % | | 0.94 | % | | 0.92 | % | | 0.99 | % |
| Other operating expense to average assets | | | 3.97 | % | | 3.86 | % | | 4.15 | % | | 3.99 | % | | 4.16 | % |
| Net interest income to average assets | | | 5.04 | % | | 5.03 | % | | 5.41 | % | | 5.06 | % | | 5.43 | % |
| Non-interest income to total net revenue | | | 15.16 | % | | 16.08 | % | | 14.82 | % | | 15.39 | % | | 15.37 | % |
| | | | | | | | | | | | | | | | | |
ASSET QUALITY AND CAPITAL RATIOS | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Non-performing loans to total gross loans | | | 0.13 | % | | 0.12 | % | | 0.04 | % | | | | | | |
| ALLL to total gross loans | | | 0.99 | % | | 1.00 | % | | 0.91 | % | | | | | | |
| Non-performing loans as a % of ALLL | | | 13.58 | % | | 12.28 | % | | 4.74 | % | | | | | | |
| Net charge-offs to average loans | | | 0.00 | % | | -0.01 | % | | 0.00 | % | | | | | | |
| Non-performing loans to primary capital | | | 1.19 | % | | 1.06 | % | | 0.38 | % | | | | | | |
| Leverage ratio | | | 10.69 | % | | 9.52 | % | | 9.86 | % | | | | | | |
| Tier I Risk-Based Capital Ratio | | | 11.65 | % | | 10.58 | % | | 10.35 | % | | | | | | |
| Total Risk-Based Capital Ratio | | | 12.58 | % | | 11.48 | % | | 11.18 | % | | | | | | |
AVERAGE BALANCES AND RATES | | For the Three Months Ended | | For the Nine Months Ended | |
(dollars in thousands) | | 9/30/2007 | | 9/30/2006 | | 9/30/2007 | | 9/30/2006 | |
| | | Balance | | Income | | Balance | | Income | | Balance | | Income | | Balance | | Income | |
| Investments with other banks | | $ | 481 | | $ | 1 | | $ | 318 | | $ | 7 | | $ | 373 | | $ | 7 | | $ | 314 | | $ | 22 | |
| Investment securities taxable | | | 21,649 | | | 251 | | | 26,366 | | | 285 | | | 23,157 | | | 794 | | | 28,161 | | | 905 | |
| Investment securities non-taxable | | | 16,036 | | | 175 | | | 16,467 | | | 177 | | | 16,434 | | | 530 | | | 16,209 | | | 525 | |
| Federal funds sold | | | 29,447 | | | 385 | | | 9,966 | | | 131 | | | 15,117 | | | 577 | | | 14,217 | | | 513 | |
| Loans | | | 466,749 | | | 10,058 | | | 409,897 | | | 8,968 | | | 468,007 | | | 30,087 | | | 387,627 | | | 24,475 | |
| Total interest earning assets | | | 534,362 | | | 10,870 | | | 463,014 | | | 9,568 | | | 523,088 | | | 31,995 | | | 446,528 | | | 26,440 | |
| Allowance for possible loan losses | | | (4,600 | ) | | | | | (3,767 | ) | | | | | (4,401 | ) | | | | | (3,928 | ) | | | |
| Other assets | | | 46,858 | | | | | | 56,073 | | | | | | 52,443 | | | | | | 52,319 | | | | |
| Total assets | | $ | 576,620 | | | | | $ | 515,320 | | | | | $ | 571,130 | | | | | $ | 494,919 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Savings/NOW/money market accounts | | $ | 206,186 | | $ | 1,292 | | $ | 154,539 | | $ | 614 | | $ | 182,369 | | $ | 3,025 | | $ | 163,506 | | $ | 1,831 | |
| Time deposits | | | 147,659 | | | 1,839 | | | 119,162 | | | 1,304 | | | 135,749 | | | 4,836 | | | 101,354 | | | 3,099 | |
| Other borrowings | | | 17,940 | | | 251 | | | 32,195 | | | 429 | | | 43,453 | | | 1,771 | | | 22,577 | | | 851 | |
| Federal funds purchased | | | - | | | - | | | 652 | | | 10 | | | 1,408 | | | 60 | | | 305 | | | 13 | |
| Long-term debt | | | 8,864 | | | 160 | | | 8,248 | | | 189 | | | 11,839 | | | 685 | | | 8,248 | | | 542 | |
| Total interest bearing liabilities | | | 380,649 | | | 3,542 | | | 314,796 | | | 2,546 | | | 374,818 | | | 10,377 | | | 295,990 | | | 6,336 | |
| Demand deposits | | | 133,432 | | | | | | 148,215 | | | | | | 137,706 | | | | | | 147,908 | | | | |
| Other liabilities | | | 9,098 | | | | | | 4,646 | | | | | | 6,525 | | | | | | 4,178 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total shareholders' equity | | | 53,441 | | | | | | 47,663 | | | | | | 52,081 | | | | | | 46,843 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total liabilities and shareholders' equity | | $ | 576,620 | | | | | $ | 515,320 | | | | | $ | 571,130 | | | | | $ | 494,919 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Yield on investments | | | | | | 4.44 | % | | | | | 4.31 | % | | | | | 4.45 | % | | | | | 4.34 | % |
| Yield on federal funds sold | | | | | | 5.19 | % | | | | | 5.22 | % | | | | | 5.10 | % | | | | | 4.82 | % |
| Yield on loans | | | | | | 8.55 | % | | | | | 8.68 | % | | | | | 8.60 | % | | | | | 8.44 | % |
| Yield on interest earning assets | | | | | | 8.07 | % | | | | | 8.20 | % | | | | | 8.18 | % | | | | | 7.92 | % |
| Rate on deposits | | | | | | 2.55 | % | | | | | 1.80 | % | | | | | 2.31 | % | | | | | 1.60 | % |
| Rate on borrowings | | | | | | 6.08 | % | | | | | 6.06 | % | | | | | 5.93 | % | | | | | 6.04 | % |
| Rate on long-term debt | | | | | | 7.16 | % | | | | | 9.09 | % | | | | | 7.74 | % | | | | | 8.79 | % |
| Rate on interest-bearing liabilities | | | | | | 3.69 | % | | | | | 3.21 | % | | | | | 3.70 | % | | | | | 2.86 | % |
| Cost of funds | | | | | | 2.73 | % | | | | | 2.18 | % | | | | | 2.71 | % | | | | | 1.91 | % |
| Average equity to average assets | | | | | | 9.27 | % | | | | | 9.25 | % | | | | | 9.12 | % | | | | | 9.46 | % |
| Net interest margin | | | | | | 5.44 | % | | | | | 6.02 | % | | | | | 5.53 | % | | | | | 6.02 | % |
NOTE: Transmitted on Prime Newswire on October 22, 2007 at 3:30 a.m. PDT
