PASO ROBLES, Calif., April 20, 2009 (GLOBE NEWSWIRE) -- Heritage Oaks Bancorp (Nasdaq:HEOP) (the "Company"), the parent company of Heritage Oaks Bank (the "Bank"), today reported that it had net income of $1.1 million, or $0.14 per diluted common share, for the first quarter of 2009, compared to $1.7 million, or $0.21 per diluted share, in the first quarter a year ago. First quarter results include a $2.1 million provision for loan losses compared to $240 thousand for the same quarter last year.
"Our underlying business performance for the quarter was solid, with significant demand deposit growth and moderate loan growth. Total gross loans grew 8.1% year-over-year and were up 1.7% from the prior quarter. Demand deposits were up 5.6% year-over-year, and up 11.7% over the prior quarter," stated Lawrence P. Ward, President and CEO. "Despite the increase in our loan loss provision we were still profitable in the first quarter and held our net interest margin above 5% again this quarter."
1Q09 Highlights:
* Risk-Based capital increased to 13.20%, Tier 1 capital increased to 11.92%. * Net income was $1.1 million, or $0.14 per diluted common share. * Net interest income increased 4.9% to $9.6 million compared to 1Q08. * Net interest margin was 5.03%. * Mortgage origination fees doubled from year ago quarter. * Issued $21 million in preferred stock under the U.S. Treasury Capital Purchase Program. * Added $2.1 million to the allowance for loan losses. * Net loans increased 7.6% to $680 million compared to a year ago. * Demand deposits increased 11.7% from previous quarter end.
Asset Quality
"We continue our diligent oversight of the loan portfolio and have been extremely proactive in monitoring credit quality," said Ward. "We are performing internal credit reviews on a quarterly basis and have concluded that an independent loan review will be conducted semi-annually in an effort to more quickly identify any additional problem assets and mitigate any potential loss to the Bank."
"The housing and general economic slowdown has led to an increase in non-performing loans during the first quarter, which makes it prudent to write-down loans to their current fair market value and to strengthen our reserve position at this time," said Ward. "We are not waiting for regulators to tell us when to write-down or charge off loans. The Bank has been diligent in recognizing deficiencies inherent in impaired loans and proactively bringing the balances in line with current values. The collateral securing the loans charged-off during the first quarter consists of real estate and various forms of business assets. We are currently working with borrowers and collateral is being actively marketed to minimize future charge-offs."
The following table recaps activity surrounding non-performing assets for the quarter ended March 31, 2009:
Additions to (dollar Balance Non- Balance amounts in Dec. 31, Accruing Net Charge- Transfers March 31, thousands) 2008 Balances Paydowns offs to OREO 2009 ---------------------------------------------------------------------- Real Estate Secured Multi-family residential $ -- $ -- $ -- $ -- $ -- $ -- Residential 1 to 4 family 265 146 (19) -- -- 392 Home equity line of credit 320 -- -- -- -- 320 Commercial 1,961 1,138 (23) -- -- 3,076 Farmland -- -- -- -- -- -- Commercial Commercial and industrial 7,060 589 (57) (283) -- 7,309 Agriculture -- -- -- -- -- -- Other -- -- -- -- -- -- Construction Single family residential -- 823 -- (145) -- 678 Single family residential - Spec 5,990 1,589 -- (1,261) (1,714) 4,604 Tract -- -- -- -- -- -- Multi-family -- -- -- -- -- -- Hospitality -- -- -- -- -- -- Commercial -- -- -- -- -- -- Land 2,720 1,421 (6) (310) -- 3,825 Installment loans to individuals 11 77 (1) -- -- 87 All other loans -- 97 -- (97) -- -- ---------------------------------------------------------------------- Totals $18,327 $ 5,880 $ (106) $(2,096) $(1,714) $20,291 ====================================================================== (dollar Additions Transfers amounts Balance to 90 Day to Non- Balance in Dec. 31, Plus Accruing Charge- Transfers March 31, thousands) 2008 Balances Status offs to OREO 2009 ---------------------------------------------------------------------- Loans 90 days delinquent or more and still accruing $ 348 $ 442 $ (790) $ -- $ -- $ --
Changes/Updates to Non-Accruing Loans
RE Secured Commercial
The $1.1 million addition consists of two loans, the larger of which, for approximately $929 thousand is currently in the final stages of sale and is anticipated to close well before the end of the second quarter. This loan carries an approximate LTV of 71%. The smaller loan is well secured with a LTV of approximately 25% and also has interest from a buyer. There was no write-down associated with either credit.
Two existing loans to one client with a combined balance of $910 thousand are in process of foreclosure and have been generating third party buyer interest. In regard to another existing loan for $483 thousand, the Bank is in process of foreclosure and there is considerable interest in the property because of the low LTV of approximately 56%.
Commercial C&I
The most notable addition to this category is a loan for $300 thousand whereby the client has considerable assets and the Bank is in the process of working with the client. One loan in the amount of $224 thousand was added and subsequently charged off during the quarter.
Construction Single Family Residential
The new items consist of two loans to separate clients. One loan in the amount of $380 thousand is currently in escrow and is expected to close the first of May. It currently has a LTV, based on the pending sale price, of 88%. The second loan has a current carrying value of $298 thousand after the $145 thousand write-down. The Bank is working with the client who has indicated a desire to resolve the issues surrounding this credit.
Single Family Residential- Spec
The addition of $1.6 million is one loan with a current LTV based on the current listing price of 90%. The listing price has been recently reduced to a level that management believes is more realistic. Two loans to one borrower were written down by $703 thousand and $204 thousand, respectively. As these projects have been completed, these aggressive charge-off amounts are reflective of current values and listing prices. The remaining charge-off amount of $354 thousand is associated with a loan that has migrated to OREO. This property is currently in escrow with a 30 day, no contingency closing. The Bank expects this OREO to be off the books in May 2009 with no further write-down. This escrow was also a factor in the valuation of the other two loans noted in this paragraph. Additionally, more recent indications obtained from prospective buyers of these distressed assets have given us a more refined picture of how the market expects to price certain types of properties in the current environment. This provides us with more evidence to extrapolate fair values for similar types of collateral.
Land
The new items consist of two properties to two clients. One property in the carrying amount of $123 thousand is well secured with a LTV of 17% and is located on the coast within the Bank's primary market area. The other property had an original loan amount of $1.3 million that was written down to a value for which the Bank currently has a commitment letter for purchase.
Since March 31, 2009, the Bank was able to take possession of a property that had a carrying value of $1.3 million and in the process of placing the property on the market. There has been significant interest in this property that is located in a prime coastal community.
At quarter-end, non-accruing loan balances totaled $20.3 million, compared to $18.3 million at December 31, 2008. "In spite of the increase in non-performing assets on a linked quarter basis, the Bank is encouraged to see sale activity for $3 million in non-performing assets that is expected to close in early May. There is also increased bona fide interest in properties as if reflective of the commitment to purchase letter that we have in hand for another $1 million property," Ward said.
Non-performing assets increased to $23.2 million, or 2.66% of total assets at quarter end, compared to $20.0 million, or 2.48% of total assets, at the end of the previous quarter. At March 31, 2009, the allowance for loan losses was $10.4 million, or 1.51% of total gross loans, compared to $10.4 million, or 1.53% of total gross loans as of December 31, 2008. Net charge-offs during the quarter were $2.1 million.
The Company recorded a $2.1 million provision for loan losses in the first quarter of 2009, compared to a $6.0 million provision for loan losses in the previous quarter and a $240 thousand provision for loan losses in the first quarter a year ago.
Capital Position
On March 20, 2009, the Company completed its $21 million capital raise as a participant in the U.S. Treasury Department's Capital Purchase Program. Under the terms of the transaction the Company issued 21,000 shares of Series A Fixed-Rate Cumulative Perpetual Preferred Stock, and a warrant to purchase 611,650 shares of the company's common stock at an exercise price of $5.15 per share.
"We are pleased that we have been selected to participate in this voluntary program, which will allow us to increase the flow of credit to deserving borrowers and is an important recognition of the strength and financial health of the Company," said Ward. "This additional capital will enhance our capacity to support the communities we serve through expanded lending activities. It will also add flexibility in considering strategic opportunities within our primary markets."
The Company has $92.2 million in Tier I capital and $102.2 million in Total Risk Based capital and remains "well capitalized" by regulatory standards with a Total Risk-Based capital ratio of 13.2% and a Tier One Risk-Based capital ratio of 11.9%. Tangible equity represented 9.04% of total assets at March 31, 2009.
Shareholders' equity was $91.6 million at March 31, 2009, compared to $71.0 million twelve months earlier. Book value per share was $11.82 at March 31, 2009, compared to $9.21 per share a year earlier and tangible book value per share was $10.17 at March 31, 2009, compared to $7.15 a year earlier.
Liquidity
"Our liquidity has increased substantially as a result of our strong deposit growth during the quarter," said Ward. "We continue to benefit from new core deposits from the inflow from the larger banks in our market area." The liquidity ratio was 11.36% at March 31, 2009, compared to 6.10% at December 31, 2008. The bank has additional borrowing lines with the Federal Home Loan Bank (FHLB) as well as credit arrangements with correspondent banks to provide liquidity for a variety of reasons, including the day to day demands of depositors. At March 31, 2009, the Bank's remaining capacity to borrow against these lines was approximately $118.2 million. Additionally, the Bank has established borrowing capacity at the Federal Reserve Bank but has yet to provide collateral for the use of the line. The Bank still has the ability to purchase brokered funds from a variety of sources, providing for additional secondary funding.
Balance Sheet
Net loans grew 1.7% over the prior quarter and 7.6% year-over-year. Net loans totaled $680 million at March 31, 2009, compared to $668 million at the end of the preceding quarter and $632 million a year ago. "We continue to see good loan demand in our Santa Barbara market, especially in C&I lending," Ward said. "While we are still making new loans, our underwriting criteria are very conservative and it takes a borrower with a very high credit rating to get approved for a loan. In addition, we remain very selective in the types of loans we choose to originate."
"Our intense focus on generating new DDA accounts, combined with a 9 and 14 month CD promotion, resulted in total deposits increasing 10.2% over the prior quarter and 12.6% year-over-year," said Ward. "Our non-interest bearing demand deposits increased 11.7% over the prior quarter and 5.6% over the twelve month period due to growth in both our DDA balances and the number of new DDA accounts opened during the quarter. We are seeing solid growth in a new customer base as customers shift their deposits away from some of the larger institutions in our markets."
Total deposits were $665 million at March 31, 2009, compared to $604 million at December 31, 2008, and $590 million a year ago. Core deposits now represent 78.0% of total deposits.
"We continue to actively work the liability side of the balance sheet by letting high cost deposits leave the bank and along with strong core DDA deposit growth, have supplemented funding with brokered deposits, specifically MM accounts at a low cost of approximately 77bp, which helped us to reduce interest expense during the quarter," said Ward. "In addition, we had higher cost FHLB borrowing that matured during the first quarter of 2009 and was replaced by a combination of lower cost DDA and brokered deposits. As a result our money market, NOW and savings account balances remain nearly unchanged from a year ago."
The securities portfolio increased by $11.8 million during the first quarter to $62.6 million, as Heritage Oaks sought to take advantage of increased credit spreads available on investment securities. The investment portfolio contains no collateralized debt obligations.
At March 31, 2009, the Bank had a total of nine whole loan CMO holdings with a remaining principal balance of approximately $14.1 million down $4.8 million form the previous quarter end and a net unrealized loss of approximately $1.4 million down $700 thousand from the unrealized loss at the previous quarter end. One particular security accounts for $752 thousand of the unrealized loss at March 31, 2009. The Bank continues to perform extensive analyses on this security as well as all whole loan CMOs. By analyzing the tranche of the specific security separate from the "mother" security, the Bank has determined that there is no impairment and as such, is not taking any action to write-down these securities. These investment securities continue to demonstrate cash flows as expected and the credit support component of these tranches has actually increased from the origination date. As of March 31, 2009, Management does not believe the loss in market value of these securities is other than temporary.
Net Interest Margin
"We kept our net interest margin in the 5% range again this quarter, down only 1bp compared to the previous quarter and 30bps from the year ago quarter," said Ward. "Our strong net interest margin is driven by floors that have been placed on loans throughout the past several years and our ability to re-price on the liability side of the balance sheet." The net interest margin was 5.03% for the first quarter, compared to 5.04% during the preceding quarter and 5.33% for the first quarter a year ago. This compares to a ratio of 4.02% for all California Public Banks at December 31, 2008 (the most current data published).
Operating Results
Total revenue, consisting of net interest income before the provision for loan losses and non-interest income, increased 6.3% to $11.2 million in the first quarter, compared to $10.6 million in the first quarter of 2008. Net interest income increased 4.9% to $9.6 million in the first quarter compared to $9.1 million in the first quarter a year ago. Interest expense decreased 37.0% for the first quarter compared to the first quarter a year ago.
Non-interest income increased 10.8% for the quarter compared to the preceding quarter and increased 15.4% compared to the first quarter a year ago, largely as a result of the increase in mortgage origination fees. "Our lending team has done an excellent job focusing on mortgage loan originations in our primary markets, which have had record volumes this quarter. As a result mortgage origination fees have doubled from the first quarter a year ago," Ward added. "As the result of mass exits by competitors from mortgage origination, approximately 18 months ago the Bank recognized the opportunity to expand the mortgage origination department. The Bank hired a well seasoned mortgage manager who has been able to expand the Bank's penetration into the origination market both in San Luis Obispo and Santa Barbara counties. This strategy has full traction at this point as is exhibited by the revenue generation of the department," Ward said.
Total non-interest expense was $7.4 million for the first quarter compared to $7.2 million in the previous quarter and $7.6 million in the first quarter a year ago. "The increase in expense from the previous quarter was due to regulatory fees, audits and tax costs, scheduled amortization of intangibles and approximately $75,000 in expenses related to credit card fraud and a branch robbery during the first quarter of 2009," said Ward. "The variance in salaries and employee benefits is due in total to the effect of payroll tax," Ward added.
The efficiency ratio was 66.71% in the first quarter of 2009 compared to 66.43% in the previous quarter and 72.17% in the first quarter a year ago. The efficiency ratio measures operating expenses as a percent of total net revenues.
About the Company
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 plus one branch office in Paso Robles, two branch offices in San Luis Obispo, single branch offices in Cambria, Arroyo Grande, Atascadero, Templeton, San Miguel and Morro Bay and three branch offices in Santa Maria. Heritage Oaks Bank 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, income forecasts, sales activity for collateral, 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, the ongoing financial crisis in the United States, and the response of the federal and state government and our regulators thereto and general economic conditions. 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 (un- (un- Percentage Change audited) (audited) audited) Vs. ------------------------------------------------ (dollar amounts in 3/31/ 12/31/ 3/31/ 12/31/ 3/31/ thousands) 2009 2008 2008 2008 2008 --------------------------------------------------------------------- Assets Cash and due from banks $ 16,553 $ 17,921 $ 22,217 -7.6% -25.5% Federal funds sold 44,020 6,650 3,670 562.0% 1099.5% --------------------------------------------------------------------- Total cash and cash equivalents 60,573 24,571 25,887 146.5% 134.0% --------------------------------------------------------------------- Interest bearing deposits with other banks 119 119 330 0.0% -63.9% Securities available for sale 62,601 50,762 54,829 23.3% 14.2% Federal Home Loan Bank stock, at cost 5,828 5,123 3,402 13.8% 71.3% Loans held for sale 13,806 7,939 2,759 73.9% 400.4% Loans, net(1) 679,657 668,034 631,722 1.7% 7.6% Property, premises and equipment 6,838 6,827 6,228 0.2% 9.8% Deferred tax assets 8,115 7,708 5,159 5.3% 57.3% Bank owned life insurance 10,842 10,737 10,420 1.0% 4.0% Goodwill 11,049 11,049 11,538 0.0% -4.2% Core deposit intangible 3,428 3,691 4,336 -7.1% -20.9% Other real estate owned 2,893 1,337 -- 116.4% 100.0% Other assets 6,599 7,691 4,596 -14.2% 43.6% --------------------------------------------------------------------- Total assets $872,348 $805,588 $761,206 8.3% 14.6% ===================================================================== Liabilities Deposits Non-interest bearing demand $164,320 $147,044 $155,621 11.7% 5.6% Savings, NOW, and money market 303,323 296,488 302,970 2.3% 0.1% Time deposits of $100K or more 100,369 75,111 47,069 33.6% 113.2% Time deposits under $100K 96,809 84,878 84,795 14.1% 14.2% --------------------------------------------------------------------- Total deposits 664,821 603,521 590,455 10.2% 12.6% --------------------------------------------------------------------- Short term FHLB borrowing 85,000 99,000 76,505 -14.1% 11.1% Long term FHLB borrowing 10,000 10,000 -- 0.0% 100.0% Securities sold under agreements to repurchase -- 2,796 2,217 -100.0% -100.0% Junior subordinated debentures 13,403 13,403 13,403 0.0% 0.0% Other liabilities 7,491 6,835 7,658 9.6% -2.2% --------------------------------------------------------------------- Total liabilities 780,715 735,555 690,238 6.1% 13.1% --------------------------------------------------------------------- Stockholders' equity Senior preferred stock, no par value; $1,000 per share stated value 5,000,000 shares authorized, 21,000 issued and outstanding 19,163 -- -- 100.0% 100.0% Common stock, no par value; 20,000,000 shares authorized; issued and outstanding: 7,751,766; 7,753,078 and 7,703,030 March 31, 2009; December 31, 2008; and March 31, 2008, respectively 48,649 48,649 48,811 0.0% -0.3% Additional paid in capital 2,993 1,055 785 183.7% 281.3% Retained earnings 22,511 21,420 21,009 5.1% 7.1% Accumulated other comprehensive income (1,683) (1,091) 363 -54.3% -563.6% --------------------------------------------------------------------- Total stockholders' equity 91,633 70,033 70,968 30.8% 29.1% --------------------------------------------------------------------- Total liabilities and stockholders' equity $872,348 $805,588 $761,206 8.3% 14.6% ===================================================================== (1) Loans are net of deferred loan fees of $1,555; $1,701; $1,833 and allowance for loan losses of $10,429; $10,412; $6,305 for March 31, 2009, December 31, 2008, and March 31, 2008 respectively. Heritage Oaks Bancorp Consolidated Statements of Income (un- (un- (un- audited) audited) audited) Percentage Change (dollar amounts For the Three Months Ended Vs. in thousands --------------------------------------------------- except per share 12/31/ 12/31/ 3/31/ data) 3/31/2009 2008 3/31/2008 2008 2008 --------------------------------------------------------------------- Interest Income Interest and fees on loans $ 11,147 $ 11,484 $ 12,091 -2.9% -7.8% Interest on investment securities Obligations of U.S. government agencies 548 489 421 12.1% 30.2% Obligations of state and political subdivisions 186 186 183 0.0% 1.6% Interest on time deposits with other banks 1 1 3 0.0% -66.7% Interest on federal funds sold 7 10 67 -30.0% -89.6% Interest on other securities 7 53 52 -86.8% -86.5% --------------------------------------------------------------------- Total interest income 11,896 12,223 12,817 -2.7% -7.2% --------------------------------------------------------------------- Interest Expense Interest on savings, NOW and money market deposits 817 963 1,506 -15.2% -45.8% Interest on time deposits in denominations of $100 or more 544 611 680 -11.0% -20.0% Interest on time deposits under $100 564 616 900 -8.4% -37.3% Other borrowings 404 681 611 -40.7% -33.9% --------------------------------------------------------------------- Total interest expense 2,329 2,871 3,697 -18.9% -37.0% --------------------------------------------------------------------- Net interest income before provision for loan losses 9,567 9,352 9,120 2.3% 4.9% Provision for loan losses 2,110 6,000 240 -64.8% 779.2% --------------------------------------------------------------------- Net interest income after provision for loan losses 7,457 3,352 8,880 122.5% -16.0% --------------------------------------------------------------------- Non Interest Income Service charges on deposit accounts 712 797 772 -10.7% -7.8% Mortgage origination fees 330 201 166 64.2% 98.8% Earnings on bank owned life insurance 122 122 112 0.0% 8.9% Debit card interchange income 215 223 209 -3.6% 2.9% Bancard income 37 48 43 -22.9% -14.0% Other commissions and fees 148 107 137 38.3% 8.0% Gain on sale of investments 122 -- -- -- -- Loss on sale of OREO property (27) -- -- -- -- Gain on sale of fixed asset 1 -- -- -- -- --------------------------------------------------------------------- Total non-interest income 1,660 1,498 1,439 10.8% 15.4% --------------------------------------------------------------------- Non-Interest Expense Salaries and employee benefits 3,803 3,664 4,225 3.8% -10.0% Occupancy 852 847 772 0.6% 10.4% Equipment 325 352 367 -7.7% -11.4% Promotional 101 143 247 -29.4% -59.1% Data processing 670 706 654 -5.1% 2.4% Stationary and supplies 105 105 119 0.0% -11.8% Regulatory fees 143 135 108 5.9% 32.4% Audit and tax costs 148 122 114 21.3% 29.8% Amortization of core deposit intangible 263 215 215 22.3% 22.3% Director fees 83 80 78 3.8% 6.4% Communication 62 85 73 -27.1% -15.1% Other 870 754 648 15.4% 34.3% --------------------------------------------------------------------- Total non-interest expenses 7,425 7,208 7,620 3.0% -2.6% --------------------------------------------------------------------- Income before provision for income taxes 1,692 (2,358) 2,699 171.8% -37.3% Provision for income taxes 590 (1,104) 1,024 153.4% -42.4% --------------------------------------------------------------------- Net income 1,102 (1,254) 1,675 187.9% -34.2% --------------------------------------------------------------------- Dividends and accretion on preferred stock 11 -- -- -- -- --------------------------------------------------------------------- Net income available to common shareholders $ 1,091 $ (1,254) $ 1,675 187.0% -34.9% ===================================================================== Average basic shares outstanding 7,689,317 7,724,093 7,694,546 Average diluted shares outstanding 7,824,377 7,785,211 7,851,831 Basic earnings per share available to common shareholders $ 0.14 $ (0.16) $ 0.22 Fully diluted earnings per share available to common shareholders $ 0.14 $ (0.16) $ 0.21 Additional Financial Information (dollar amounts in thousands) Percentage Change For the Quarters Ended Vs. ------------------------------------------------ 3/31/ 12/31/ 3/31/ 12/31/ 3/31/ LOANS 2009 2008 2008 2008 2008 --------------------------------------------------------------------- Real Estate Secured Multi-family residential $ 17,569 $ 16,206 $ 12,344 8.4% 42.3% Residential 1 to 4 family 23,063 23,910 26,214 -3.5% -12.0% Home equity lines of credit 28,929 26,409 17,200 9.5% 68.2% Commercial 294,825 285,631 275,821 3.2% 6.9% Farmland 9,426 10,723 9,671 -12.1% -2.5% Commercial Commercial and industrial 167,149 157,674 133,211 6.0% 25.5% Agriculture 13,989 13,744 12,480 1.8% 12.1% Other 575 620 790 -7.3% -27.2% Construction Single family residential 16,590 11,414 9,944 45.3% 66.8% Single family residential - Spec 12,850 15,395 18,200 -16.5% -29.4% Tract 3,190 2,431 3,225 31.2% -1.1% Multi-family 5,727 5,808 9,331 -1.4% -38.6% Hospitality 8,292 18,630 19,371 -55.5% -57.2% Commercial 21,056 21,484 28,922 -2.0% -27.2% Land 60,031 61,681 54,278 -2.7% 10.6% Installment loans to individuals 8,038 7,851 7,733 2.4% 3.9% All other loans (including overdrafts) 342 536 1,125 -36.2% -69.6% --------------------------------------------------------------------- Total gross loans $691,641 $680,147 $639,860 1.7% 8.1% --------------------------------------------------------------------- Deferred loan fees 1,555 1,701 1,833 -8.6% -15.2% Allowance for loan losses 10,429 10,412 6,305 0.2% 65.4% --------------------------------------------------------------------- Net loans $679,657 $668,034 $631,722 1.7% 7.6% --------------------------------------------------------------------- Loans held for sale 13,806 $ 7,939 $ 2,759 73.9% 400.4% Percentage Change For the Quarters Ended Vs. ------------------------------------------------ ALLOWANCE FOR LOAN 3/31/ 12/31/ 3/31/ 12/31/ 3/31/ LOSSES 2009 2008 2008 2008 2008 --------------------------------------------------------------------- Balance, beginning of period $ 10,412 $ 10,350 $ 6,143 0.6% 69.5% Provision expense 2,110 6,000 240 -64.8% 779.2% Loans charged-off Commercial and industrial 351 2,998 77 -88.3% 355.8% Construction 1,406 914 -- 53.8% -- Land 310 1,434 -- -78.4% -- 1-4 family residential -- 555 -- -100.0% -- Commercial real estate -- 35 -- -100.0% -- Other 30 5 1 500.0% 2900.0% --------------------------------------------------------------------- Total charge-offs 2,097 5,941 78 -64.7% 2588.5% --------------------------------------------------------------------- Recoveries of loans previously charged off 4 3 -- 33.3% -- --------------------------------------------------------------------- Balance, end of period $ 10,429 $ 10,412 $ 6,305 0.2% 65.4% --------------------------------------------------------------------- Net charge-offs $ 2,093 $ 5,938 $ 78 -64.8% 2583.3% Percentage Change Vs. ------------------------------------------------ 3/31/ 12/31/ 3/31/ 12/31/ 3/31/ NON-PERFORMING ASSETS 2009 2008 2008 2008 2008 --------------------------------------------------------------------- Loans on non-accrual status Commercial real- estate $ 3,076 $ 1,961 $ 419 56.9% 634.1% Residential 1-4 family 392 265 -- 47.9% -- Home equity lines of credit 320 320 -- 0.0% -- Commercial 7,309 7,060 1,060 3.5% 589.5% Construction 5,282 5,990 -- -11.8% -- Land 3,825 2,720 -- 40.6% -- Installment 87 11 65 690.9% 33.8% --------------------------------------------------------------------- Total non-accruing loans $ 20,291 $ 18,327 $ 1,544 10.7% 1214.2% --------------------------------------------------------------------- Loans more than 90 days delinquent, still accruing -- 348 -- -100.0% -- --------------------------------------------------------------------- Total non-performing loans 20,291 18,675 1,544 8.7% 1214.2% --------------------------------------------------------------------- Other real estate owned (OREO) 2,893 1,337 -- 116.4% -- --------------------------------------------------------------------- Total non-performing assets $ 23,184 $ 20,012 $ 1,544 15.9% 1401.6% --------------------------------------------------------------------- Percentage Change Vs. ------------------ 3/31/ 12/31/ 3/31/ 12/31/ 3/31/ DEPOSITS 2009 2008 2008 2008 2008 --------------------------------------------------------------------- Non-interest bearing demand $164,320 $147,044 $155,621 11.7% 5.6% --------------------------------------------------------------------- Interest-bearing demand 64,289 72,952 79,248 -11.9% -18.9% Regular savings accounts 23,056 21,835 23,840 5.6% -3.3% Money market accounts 169,975 173,199 199,882 -1.9% -15.0% Brokered money market funds 46,002 28,502 -- 61.4% -- --------------------------------------------------------------------- Total interest- bearing transaction & savings accounts 303,322 296,488 302,970 2.3% 0.1% --------------------------------------------------------------------- Time deposits 158,679 139,872 131,864 13.4% 20.3% Brokered time deposits 38,500 20,117 -- 91.4% -- --------------------------------------------------------------------- Total deposits $664,821 $603,521 $590,455 10.2% 12.6% --------------------------------------------------------------------- Three Months Ended -------------------------------- PROFITABILITY / PERFORMANCE RATIOS 3/31/2009 12/31/2008 3/31/2008 --------------------------------------------------------------------- Operating efficiency 66.71% 66.43% 72.17% Return on average equity 6.04% -6.93% 9.55% Return on average common equity 6.19% -6.93% 9.55% Return on average tangible equity 7.36% -8.65% 12.32% Return on average tangible common equity 7.61% -8.65% 12.32% Return on average assets 0.54% -0.63% 0.91% Non-interest income to average assets 0.81% 0.75% 0.78% Non-interest expense to average assets 3.64% 3.61% 4.12% Net interest income to average assets 4.69% 4.68% 4.93% Non-interest income to total net revenue 14.79% 13.81% 13.63% Interest rate yield on interest earnings assets 6.26% 6.58% 7.50% Cost of interest bearing liabilities 1.65% 2.03% 2.85% Cost of funds 1.27% 1.60% 2.23% Net interest margin 5.03% 5.04% 5.33% ASSET QUALITY RATIOS Non-performing loans to total gross loans 2.93% 2.75% 0.24% Non-performing loans as a % of ALLL 194.56% 179.36% 24.49% Non-performing loans as a % of total assets 2.33% 2.32% 0.20% Non-performing loans to primary capital 22.14% 26.67% 2.18% Non-performing assets to total assets 2.66% 2.48% 0.20% Allowance for loan losses to total gross loans 1.51% 1.53% 0.99% Net charge-offs to average loans outstanding 0.30% 0.88% 0.01% CAPITAL RATIOS Company Leverage ratio 11.35% 8.90% 9.30% Tier I Risk-Based Capital Ratio 11.92% 9.37% 9.82% Total Risk-Based Capital Ratio 13.20% 10.62% 10.76% Bank Leverage ratio 9.75% 8.66% 8.82% Tier I Risk-Based Capital Ratio 10.23% 9.10% 9.28% Total Risk-Based Capital Ratio 11.52% 10.36% 10.22% AVERAGE Three Months Ended BALANCES AND ---------------------------------------------------- RATES 3/31/2009 12/31/2008 3/31/2008 ---------------- ---------------- ---------------- (dollars in Yield/ Yield/ Yield/ thousands) Balance Rate Balance Rate Balance Rate -------------------------------------------------------------------- Interest Earning Assets: Investments with other banks $ 119 3.41% $ 119 3.34% $ 330 3.66% Federal funds sold 12,844 0.22% 5,774 0.69% 8,013 3.36% Investment securities - taxable 45,201 4.98% 40,366 5.34% 38,144 4.99% Investment securities - non taxable 17,163 4.40% 16,650 4.44% 17,122 4.30% Loans 695,774 6.50% 675,742 6.76% 623,981 7.79% -------------------------------------------------------------------- Total earning assets 771,101 6.26% 738,651 6.58% 687,590 7.50% -------------------------------------------------------------------- Allowance for loan losses (10,623) (10,002) (6,204) Non-earning assets 66,896 66,340 62,769 ------------------------------------------------------------ Total assets $827,374 $794,989 $744,155 ------------------------------------------------------------ Interest Bearing Liabilities: Interest bearing demand $ 64,627 0.53% $ 72,038 0.57% $ 66,873 0.56% Savings 22,069 0.17% 22,236 0.30% 32,926 1.60% Money market 173,145 1.55% 179,009 1.69% 204,104 2.53% Time deposits 143,145 2.71% 139,753 2.90% 147,541 4.07% Brokered money market 40,860 0.64% 26,218 1.24% -- 0.00% Brokered time deposits 29,390 2.11% 21,908 3.76% 6,499 5.38% -------------------------------------------------------------------- Total interest bearing deposits 473,236 1.65% 461,162 1.89% 457,943 2.71% -------------------------------------------------------------------- Federal funds purchased 650 1.25% 1,402 1.42% 4,209 3.44% Securities sold under agreement to repurchase 2,638 0.15% 2,642 1.20% 2,065 3.12% Federal Home Loan Bank borrowings 109,478 0.91% 83,565 2.19% 43,610 3.10% Junior subordinated debentures 13,403 4.69% 13,403 6.14% 13,403 6.69% -------------------------------------------------------------------- Total borrowed funds 126,169 1.30% 101,012 2.68% 63,287 3.88% -------------------------------------------------------------------- Total interest bearing liabilities 599,405 1.58% 562,174 2.03% 521,230 2.85% -------------------------------------------------------------------- Non-interest bearing demand 145,849 0.00% 153,432 0.00% 144,108 0.00% -------------------------------------------------------------------- Total funding 745,254 1.27% 715,606 1.60% 665,338 2.23% -------------------------------------------------------------------- Other liabilities 8,086 7,388 8,247 ------------------------------------------------------------ Total liabilities 753,340 722,994 673,585 ------------------------------------------------------------ Total shareholders' equity 74,034 71,995 70,570 ------------------------------------------------------------ Total liabilities and shareholders' equity $827,374 $794,989 $744,155 ------------------------------------------------------------ Net interest margin 5.03% 5.04% 5.33% ===== ===== =====