PASO ROBLES, Calif., Jan. 22, 2007 (PRIME NEWSWIRE) -- Heritage Oaks Bancorp (Nasdaq:HEOP), the parent company of Heritage Oaks Bank, today reported preliminary fourth quarter profits highlighting outstanding loan growth on a year over year basis. Net income for the year was $6.7 million, or $1.01 per diluted share, even with earnings in 2005. For the fourth quarter of 2006, net income was $1.6 million, or $0.25 per diluted share, compared to $1.8 million, or $0.27 per diluted share, in the fourth quarter of 2005.
"The past year was marked by tremendous loan growth for Heritage Oaks Bank," said Lawrence P. Ward, President and CEO. "Throughout 2006, we invested significant time and resources putting the infrastructure in place to support a strategy of aggressive growth in future years. At a considerable up-front expense, we put a branding initiative in place providing the foundation for our growth strategy. We also worked with consultants to develop and enhance our branching strategy as well as our compensation programs. We believe these initiatives will cease being expense items early this year and will begin to contribute to future profitability, build our franchise value and enhance shareholder value.
"The California Central Coast economy continues to flourish, and demand for commercial loans remains strong," continued Ward. "We have sustained our loan growth momentum while maintaining exceptional credit quality. We will continue to focus on our customers' needs in order to expand our existing relationships while looking to add new, profitable customers. Not unlike most banks in 2006, we found deposit growth to be very challenging. However, a number of bank mergers have left the Central Coast with few true community banks and we believe this presents an excellent opportunity for us in 2007."
2006 Highlights:
* Net income was $6.7 million, or $1.01 per diluted share.
* Revenues increased 6% to $32.0 million.
* Return on average equity was 14.10% and return on average assets was 1.32%.
* Net interest margin was 5.94%.
* Net loans increased 21% to $439 million.
* Asset quality remained strong, non-performing assets were just 0.01% of total assets.
* Initiated regular quarterly cash dividends.
In 2006, Heritage Oaks' board of directors initiated a regular quarterly cash dividend program and also paid a special cash dividend of $0.25 per share in May. The board also authorized a repurchase plan of up to 100,000 shares of common stock. "We have already repurchased 40,000 shares, and will continue to look for ways to manage our capital while benefiting shareholders," Ward added.
Operating Results
Total revenues, consisting of net interest income before the provision for loan losses and non-interest income, increased 6% to $32.0 million in 2006 compared to $30.2 million a year ago. Fourth quarter revenues grew 4% to $8.3 million from $8.0 million in the same quarter of 2005. Net interest income increased 8% to $27.1 million in 2006 compared to $25.2 million in 2005. In the fourth quarter, net interest income increased 2% to $7.0 million, from $6.8 million a year ago. "Our healthy net interest income reflects the strong loan growth we have generated over the past year and continues to produce a very healthy net interest margin given the negative impact of the continued high costs associated with borrowed funds needed to support the loan growth," said Ward. Interest and fees on loans increased 24% from the fourth quarter as well as for the 12 months last year while interest expense increased by 91% and 86% for that same 3 month and 12 month time frame.
Non-interest income increased 6% to $1.3 million in the fourth quarter of 2006, compared to $1.2 million in the fourth quarter of 2005. The Company received a recovery from a 2001 operational loss in the amount of approximately $200,000. This recovery is included in other non-interest income during the fourth quarter of 2006. For 2006, non-interest income was $5.0 million, unchanged from last year.
"In the fourth quarter, our net interest margin came under pressure as deposit costs, as well as costs associated with borrowing from the FHLB and the issuance of $8 million in additional Trust Preferred Securities, increased faster than loan yields," said Ward. "We expect to see some continued pressure on the net interest margin in future quarters given the current interest rate and yield curve environment." Net interest margin for the year was 5.94%, compared to 5.78% in 2005. Fourth quarter margin was 5.77%, compared to 6.06% in the fourth quarter a year ago.
Heritage Oaks' non-interest expense increased in 2006 primarily as a result of increased expenses related to the branding project, consulting fees associated with revisions to the compensation programs, SOX 404 compliance implementation, a branch expansion study, the addition of an EVP / Human Resources and EVP Client Delivery, and the addition of a full service branch office within the bank's existing footprint in Templeton, California. In addition, two long running legal issues were resolved during the fourth quarter of 2006, resulting in settlement and associated legal costs of approximately $100,000, which are included in other operating expense. Total non-interest expense increased 12% to $21.0 million from $18.8 million in 2005. In the fourth quarter, non-interest expenses were $5.5 million compared to $4.9 million in the fourth quarter a year ago. "We have invested significant resources in these new initiatives in 2006 and are already seeing improvements in our service delivery. 2006 was an unusual year with respect to our operating expenses, and we are expecting our expenses to return to more normal levels this year," said Ward.
As a result of the increase in expenses, the efficiency ratio increased to 65.5% in 2006 compared to 62.0% in 2005. For the fourth quarter the efficiency ratio was 67.1% compared to 60.6% for the fourth quarter of 2005. The efficiency ratio measures operating expenses as a percent of revenues.
Heritage Oaks generated a return on average equity of 14.1% in 2006 and 13.6% in the fourth quarter, compared to 16.1% and 16.4% during the same periods of 2005. The decline was a result of higher capital balances and earnings even with those reported the prior year. Return on average assets was 1.32% in 2006 compared to 1.38% in 2005, and was 1.24% in the fourth quarter of 2006 from 1.47% in the fourth quarter a year ago.
Balance Sheet
Net loans increased 21% to $439 million at December 31, 2006, compared to $363 million a year earlier. "Loan production for the quarter was strong and the major components of the loan portfolio showed significant growth over the prior year's balances," said Ward. "Compared to a year ago, we increased commercial, financial and agricultural loans 42%, real estate construction and land loans 37% and other real estate loans 13%. In addition, our credit quality has remained exceptional."
Total assets increased 11% to $542 million as of December 31, 2006, compared to $489 million a year earlier. Total deposits were $421 million, compared to $418 million at December 31, 2005. "Our focus and our biggest challenge in 2007 continues to be attracting low cost deposits to fund our loans. Our core deposit base remains very strong as we still have 36% of our deposits in non-interest bearing accounts and an additional 35% of deposits in savings, money market and NOW accounts. Not unlike most banks in 2006 we experienced disintermediation of low or no-cost deposits into higher yielding certificate of deposits. Still, over 71% of our deposits are no or low-cost, providing us with a very efficient funding source to support our loan growth," said Ward.
Asset quality remains exceptional with non-performing assets at $55,000, or 0.01% of total assets at December 31, 2006. The allowance for loan losses was $4.1 million, or 0.92% of net loans held for investment at year-end compared to $3.9 million or 1.05% of net loans outstanding at the end of 2005. The bank recovered $100,000 from a previously charged off loan and took an additional $120,000 provision in the fourth quarter of 2006. Net charged off loans were $400,000 in 2006.
Book value per share was $7.76 at December 31, 2006, compared to $7.20 per share a year earlier. Tangible book per share was $6.81 at December 31, 2006, compared to $6.18 a year earlier. Shareholders' equity increased 10% to $49.2 million compared to $44.8 million a year ago.
Heritage Oaks Bancorp is the holding company for 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. 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, 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.
HERITAGE OAKS BANCORP
CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets 2006 2005
-------------------
Cash and due from banks $ 19,164 $ 18,279 $ 885 5%
Federal funds sold 3,870 26,280 (22,410) -85%
Total Cash and Cash
Equivalents 23,034 44,559 (21,525) -48%
Interest-bearing deposits
in other financial
institutions 318 298 20 7%
Investment securities,
available-for-sale 38,445 44,402 (5,957) -13%
Federal Home Loan Bank
and Federal Reserve Bank
Stock, at cost 2,350 1,885 465 25%
Loans held for sale 1,764 3,392 (1,628) -48%
Loans, net of deferred
fees of $1,625 and
$1,617 and allowance for
loan loss of $4,081 and
$3,881 at December 31,
2006 and 2005, respectively 439,277 362,635 76,642 21%
Property premises and
equipment, net 14,581 11,905 2,676 22%
Net deferred tax asset 2,414 2,358 56 2%
Cash surrender value of
life insurance 9,435 7,706 1,729 22%
Goodwill 4,864 4,864 -- 0%
Intangible assets 1,148 1,448 (300) -21%
Other assets 4,144 3,049 1,095 36%
-------------------
Total Assets $541,774 $488,501 $ 53,273 11%
===================
Liabilities and
Stockholders' Equity
Deposits
Demand non-interest
bearing $153,005 $164,014 $(11,009) -7%
Savings, NOW and money
market deposits 146,110 170,106 (23,996) -14%
Time deposits of
$100 or more 30,630 17,414 13,216 76%
Time deposits
under $100 90,776 66,263 24,513 37%
-------------------
Total Deposits 420,521 417,797 2,724 1%
FHLB advances and other
borrowings 50,000 10,000 40,000 400%
Securities sold under
agreement to repurchase 1,364 3,847 (2,483) -65%
Junior subordinated
debentures 16,496 8,248 8,248 100%
Other liabilities 4,144 3,764 380 10%
-------------------
Total Liabilities 492,525 443,656 48,869 11%
-------------------
COMMITMENTS AND
CONTINGENCIES
(Notes 5 and 10) -- --
Stockholders' Equity
Common stock, no par
value; 20,000,000 shares
authorized; 6,345,639 and
6,231,982 shares issued
and outstanding for 2006
and 2005, respectively 29,360 29,255 105 0%
Retained earnings 19,809 15,748 4,061 26%
Accumulated other
comprehensive income 80 (158) 238 -151%
-------------------
Total Stockholders'
Equity 49,249 44,845 4,404 10%
-------------------
Total Liabilities and
Stockholders' Equity $541,774 $488,501 $ 53,273 11%
===================
HERITAGE OAKS BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share date)
For the three months
ended December 31,
2006 2005 Variance
--------- -------- 3 months
(Unaudited) (Unaudited) ----------------
Interest Income: $ %
Interest and fees on loans $ 9,423 $ 7,605 $ 1,818 24%
Investment securities 426 515 (89) -17%
Federal funds sold and
commercial paper 35 227 (192) -85%
Time certificates of deposit 48 2 46 2300%
--------- -------- -------
Total interest income 9,932 8,349 1,583 19%
Interest Expense:
NOW accounts 20 22 (2) -9%
MMDA accounts 622 521 101 19%
Savings accounts 24 31 (7) -22%
Time deposits of $100 or more 199 137 62 45%
Other time deposits 1,174 515 659 128%
Other borrowed funds 942 336 606 180%
--------- -------- -------
Total interest expense 2,981 1,562 1,419 91%
Net interest income before
prov. for possible loan
losses 6,951 6,787 164 2%
Provision for loan losses 120 180 (60) -33%
--------- -------- -------
Net interest income after
provision for loan losses 6,831 6,607 224 3%
Non-interest Income:
Service charges on deposit
accounts 581 605 (24) -4%
Gain of Sale of Securities -- -- -- 0%
Other income 720 617 103 17%
--------- -------- -------
Total Non-interest Income 1,301 1,222 79 6%
Non-interest Expense:
Salaries and employee benefits 3,039 2,558 481 19%
Occupancy and equipment 706 638 68 11%
Other expenses 1,794 1,661 133 8%
--------- -------- -------
Total Noninterest Expenses 5,539 4,857 682 14%
Income before provision
for income taxes 2,593 2,972 (379) -13%
Provision for applicable
income taxes 944 1,163 (219) -19%
--------- -------- -------
Net Income $ 1,649 $ 1,809 $ (160) -9%
========= =======
Earnings per share:
Basic $ 0.26 $ 0.29 $ (0.03) -11%
Diluted $ 0.25 $ 0.27 $ (0.02) -7%
See notes to condensed
financial statements
Shares Outstanding:
Basic 6,355,466
Diluted 6,598,355
For the year
ended December 31,
2006 2005 Variance
--------- -------- 12 months
(Unaudited) (Unaudited) ----------------
Interest Income: $ %
Interest and fees on loans $ 33,897 $ 27,399 $ 6,498 24%
Investment securities 1,785 2,101 (316) -15%
Federal funds sold and
commercial paper 539 667 (128) -19%
Time certificates of
deposit 151 9 142 1597%
--------- -------- -------
Total interest income 36,372 30,175 6,197 21%
Interest Expense:
NOW accounts 86 89 (3) -4%
MMDA accounts 2,309 1,504 805 54%
Savings accounts 102 102 -- 0%
Time deposits of
$100 or more 626 413 213 52%
Other time deposits 3,845 1,371 2,474 180%
Other borrowed funds 2,348 1,537 811 53%
--------- -------- -------
Total interest expense 9,316 5,017 4,299 86%
Net interest income
before prov. for
possible loan losses 27,056 25,158 1,898 8%
Provision for loan losses 600 710 (110) -15%
--------- -------- -------
Net interest income after
provision for loan losses 26,456 24,448 2,008 8%
Non-interest Income:
Service charges on
deposit accounts 2,427 2,430 (3) 0%
Gain of Sale of Securities -- 88 (88) -100%
Other income 2,525 2,490 35 1%
--------- -------- -------
Total Non-interest Income 4,952 5,009 (57) -1%
Non-interest Expense:
Salaries and employee
benefits 11,573 9,746 1,828 19%
Occupancy and equipment 2,607 2,491 116 5%
Other expenses 6,775 6,481 294 5%
--------- -------- -------
Total Noninterest Expenses 20,955 18,717 2,238 12%
Income before provision
for income taxes 10,453 10,740 (287) -3%
Provision for applicable
income taxes 3,791 4,103 (312) -8%
--------- -------- -------
Net Income $ 6,662 $ 6,637 $ 25 0%
========== ========
Earnings per share:
Basic $ 1.05 $ 1.08 $ (0.03) -3%
Diluted $ 1.01 $ 1.01 $ 0.00 0%
See notes to condensed
financial statements
Shares Outstanding:
Basic 6,333,924
Diluted 6,595,793
ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands)
Percent
Quarters Ended Change from
------------------------------ --------------
Prior Linked Prior
Date Linked Q Yr Q Q Yr Q
-------- -------- -------- ------ ------
31-Dec-06 30-Sep-06 31-Dec-05
LOANS (including loans
held for sale):
-----------------------
Commercial, financial
and agricultural $ 84,976 $ 75,627 $ 60,050 12% 42%
Real Estate-
construction/land 105,713 101,665 76,981 4% 37%
Real Estate-
other 237,401 229,070 210,690 4% 13%
Home equity lines
of credit 10,792 11,777 14,398 -8% -25%
Installment loans
to individuals 5,597 5,660 5,620 -1% 0%
All other loans
(including overdrafts) 504 867 394 -42% 28%
-------- -------- --------
Total loans
outstanding $444,983 $424,666 $368,133 5% 15%
======== ======== ========
------------------------------ --------------
Prior Linked Prior
NON-PERFORMING ASSETS: Date Linked Q Yr Q Q Yr Q
---------------------- -------- -------- -------- ------ ------
Loans on non-accrual
status $ 55 $ 183 $ 54 -70% 239%
Loans more than 90 days
delinquent, still on
accrual -- -- -- 0% 0%
-------- -------- --------
Total non-performing
loans 55 183 54 -70% 239%
Real estate owned
(REO)/Repossessed
assets -- -- -- 0% 0%
-------- -------- --------
Total non-performing
assets $ 55 $ 183 $ 54 -70% 239%
======== ======== ========
Total non-performing
assets/Total assets 0.01% 0.03% 0.01% -70% 211%
Percent
Change from
------------------------------ --------------
Prior Linked Prior
Date Linked Q Yr Q Q Yr Q
-------- -------- -------- ------ ------
31-Dec-06 30-Sep-06 31-Dec-05
CHANGE IN THE ALLOWANCE
FOR LOAN LOSSES:
-----------------------
Balance, beginning
of period $ 3,881 $ 3,881 $ 3,247 0% 20%
Provision 600 480 710 25% -32%
Recoveries of loans
previously charged off 161 21 24 667% -13%
Loans charged-off (561) (519) (100) 8% 419%
-------- -------- --------
Net (charge-offs)
recoveries (400) (498) (76) -20% 555%
-------- -------- --------
Balance, end
of period $ 4,081 $ 3,863 $ 3,881 6% 0%
======== ======== ========
Net charge-offs/Average
loans outstanding 0.10% 0.12% 0.02%
Allowance for loan
losses/Total loans
outstanding 0.92% 0.91% 1.05%
Percent
Change from
------------------------------ --------------
Prior Linked Prior
Date Linked Q Yr Q Q Yr Q
-------- -------- -------- ------ ------
31-Dec-06 30-Sep-06 31-Dec-05
DEPOSITS
--------
Non-interest-bearing $153,005 $157,180 $164,014 -3% -7%
Interest-bearing
checking 45,164 46,100 50,598 -2% -11%
Regular savings
accounts 23,406 24,755 29,386 -5% -20%
Money market accounts 77,540 81,178 90,122 -4% -14%
-------- -------- --------
Interest-bearing
transaction &
savings accounts 299,115 309,213 334,120 -3% -10%
-------- -------- --------
Time Deposits under
$100,000 90,776 89,277 66,263 2% 37%
Time Deposits of
$100,000 or more 30,630 31,782 17,414 -4% 76%
-------- -------- --------
Interest-bearing
certificates 121,406 121,059 83,677 0% 45%
-------- -------- --------
Total deposits $420,521 $430,272 $417,797 -2% 1%
======== ======== ========
Included in other
borrowings
-----------------
FHLB Borrowing $ 50,000 $ 40,000 $ 10,000 25% 400%
Retail repurchase
agreements/"Sweep
accounts" $ 1,364 $ 1,219 $ 3,847 12% -65%
-------- -------- --------
Total Assets 541,774 532,381 488,501
Average Loans 400,229 409,897 376,095
ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands)
(Rates/Ratios Annualized)
Percent
Quarters Ended Change from
------------------------------ ---------------
31-Dec 30-Sep 31-Dec 30-Sep 31-Dec
06 06 05 06 05
OPERATING -------- -------- -------- ------ ------
PERFORMANCE:
-------------
Average loans $437,623 $409,897 $376,095 7% 16%
Average securities
and deposits w/
other fin. inst 44,515 53,117 71,709 -16% -38%
Average non-
interest-earning
assets 48,691 52,306 44,500 -7% 9%
-------- -------- --------
Total average
assets $530,829 $515,320 $492,304 3% 8%
======== ======== ========
Average deposits $416,663 $421,916 $418,619 -1% 0%
Average borrowings 60,638 41,095 25,336 48% 139%
Average non-
interest-earning
liabilities 5,186 4,646 4,210 12% 23%
-------- -------- --------
Total average
liabilities 482,487 467,657 448,165 3% 8%
Total average
stockholders'
equity 48,342 47,663 44,139 1% 10%
-------- -------- --------
Total average
liabilities and
equity $530,829 $515,320 $492,304 3% 8%
======== ======== ========
Interest rate
yield on loans 8.61% 8.75% 8.09% -2% 6%
Interest rate
yield on securi-
ties and deposits
w/other fin. inst 4.57% 4.52% 4.15% 1% 10%
-------- -------- --------
Interest rate
yield on interest-
earning assets 8.24% 8.27% 7.46% 0% 10%
-------- -------- --------
Interest rate
expense on
deposits 1.96% 1.82% 1.17% 8% 67%
Interest rate
expense on
borrowings 6.22% 6.11% 5.32% 2% 17%
-------- -------- --------
Interest rate
expense on
interest-bearing
liabilities 3.56% 3.24% 2.30% 10% 55%
-------- -------- --------
Interest rate
spread 4.68% 5.03% 5.16% -7% -9%
======== ======== ========
Net interest
margin 5.77% 6.07% 6.06% -5% -5%
======== ======== ========
Other operating
income/Average
assets 0.98% 0.95% 0.99% 3% -1%
Other operating
expense/Average
assets 4.17% 4.18% 3.95% 0% 6%
Efficiency ratio
(other operating
expense/revenue) 67.12% 65.31% 60.64% 3% 11%
Return on average
assets 1.24% 1.35% 1.47% -8% -15%
Return on average
equity 13.64% 14.54% 16.39% -6% -17%
Average equity/
Average assets 9.11% 9.25% 8.97% -2% 2%
---------------------------------------------------------------------
Average securities
and deposits w/
other fin. Inst. 2,372 318 1,762
22,964 26,366 32,677
16,645 16,467 14,995
2,534 9,966 22,275
-------- -------- --------
44,515 53,117 71,709
Int Income on Avg
Sec and other 48 7 21
249 285 334
177 177 162
35 131 227
-------- -------- --------
509 600 744
---------------------------------------------------------------------
---------------------------------------------------------------------
Average deposits 152,935 154,539 170,463
121,146 119,162 76,275
142,909 148,215 171,881
-------- -------- --------
416,990 421,916 418,619
Int Exp on Avg Dep 665 614 574
1,373 1,304 652
-------- -------- --------
2,038 1,918 1,226
---------------------------------------------------------------------
---------------------------------------------------------------------
Average borrowings 43,511 32,195 17,088
3,141 652 -
13,986 8,248 8,248
-------- -------- --------
60,638 41,095 25,336
Int Exp on borrowing 602 429 170
43 10 --
298 189 167
-------- -------- --------
943 628 337
---------------------------------------------------------------------
Net Income 1,649 1,733 1,809
Net Int Income 6,951 7,022 6,787
Non-Int Income 1,301 1,222 1,222
Non-Int Exp 5,539 5,384 4,857