PASO ROBLES, Calif., April 28, 2016 (GLOBE NEWSWIRE) -- Heritage Oaks Bancorp (“Heritage Oaks” or the “Company”) (NASDAQ:HEOP), a bank holding company and parent of Heritage Oaks Bank (the “Bank”), reported net income available to common shareholders of $4.0 million, or $0.12 per dilutive common share, for the first quarter of 2016 compared to net income available to common shareholders of $4.1 million, or $0.12 per dilutive common share, for the first quarter of 2015, and net income available to common shareholders of $3.5 million, or $0.10 per dilutive common share for the fourth quarter of 2015.
First Quarter 2016 Highlights
- Gross loans increased by $84.0 million, or 7.0%, to $1.29 billion at March 31, 2016 compared to $1.21 billion at March 31, 2015, and by $44.1 million or 3.5% compared to $1.25 billion at December 31, 2015. New loan production totaled $117.2 million for the first quarter of 2016. Loan production increased by 4% compared to the linked quarter.
- Total deposits increased by $122.3 million, or 8.4% to $1.58 billion at March 31, 2016 compared with $1.46 billion a year earlier, and by $17.6 million, or 1.1% during the first quarter of 2016. Non-interest bearing demand deposits grew by 8.2% during the last year and by 1.8% over the last quarter to $524.0 million, and represent 33.1% of total deposits at March 31, 2016.
- The allowance for loan and lease losses (“ALLL”) as a percentage of gross loans declined from 1.40% at March 31, 2015 to 1.36% at March 31, 2016. Credit quality remains strong with non-accrual loans representing 0.63% of total gross loans at March 31, 2016, unchanged from the linked quarter, and down from 0.98% at March 31, 2015. Net recoveries for the first quarter of 2016 were flat compared to the prior quarter at $0.1 million. Loans delinquent 30 to 89 days declined to $32 thousand at March 31, 2016. There was no provision for loan losses recorded in the first quarter due to relative stability in the credit quality of our loan portfolio.
- Regulatory capital ratios for the Bank at March 31, 2016 were 9.13% for Tier 1 Leverage Capital, 13.05% for Total Risk Based Capital, and 11.80% for Common Equity Tier One Capital to Total Risk Based Capital.
- On April 27th, 2016 the board of directors declared a dividend of $0.06 per common share for shareholders of record as of May 18th, 2016, which is payable to our common shareholders on May 31, 2016.
“We achieved strong loan growth during the first quarter of 2016 which was supported by our new customer interest rate swap product offering,” stated Simone Lagomarsino, President and Chief Executive Officer of Heritage Oaks Bancorp. Ms. Lagomarsino continued, “The swap product allows us to offer the long term fixed rate loans that our customers desire, while supporting a better interest rate risk profile for the Bank by converting the loan to a fully variable rate asset on our balance sheet. In addition, the swap product generated over $500 thousand in non-interest income during the first quarter, and we are confident that our customers’ interest in this product will continue. We were also successful in our efforts to optimize our asset mix profile by increasing our loan to deposit ratio by nearly 2.00% during the first quarter. This should help stabilize our net interest margin going forward, given the low interest rate environment.”
Net Income Available to Common Shareholders
Net income available to common shareholders for the first quarter of 2016 was $4.0 million, or $0.12 per diluted common share, compared with $4.1 million, or $0.12 per diluted common share, for the first quarter of 2015. Net income available to common shareholders for the quarter ended December 31, 2015 was $3.5 million, or $0.10 per diluted common share.
Compared to the linked-quarter, non-interest income increased, while non-interest expense declined. These positive linked-quarter trends were partially offset by a decline in net interest income, and the combined impacts resulted in a $1.0 million increase in pre-tax income. Compared to the first quarter of 2015, non-interest expense increased, and was partially offset by an increase in non-interest income, resulting in a $0.3 million decline in pre-tax income.
Net Interest Income
Net interest income was $15.6 million, or 3.56% of average earning assets (“net interest margin”), for the first quarter of 2016 compared with $15.5 million, or a 3.92% net interest margin, for the same period a year earlier, and $16.1 million, or a 3.67% net interest margin, for the quarter ended December 31, 2015. Net interest income increased slightly, compared to the same prior year period, as the increase in average balances offset the decline in yields on interest earning assets. Net interest income decreased for the quarter ended March 31, 2016 as compared to linked quarter by $0.5 million due primarily to a decrease in loan interest income of $0.5 million attributable to lower loan prepayment related income recorded during the current quarter as compared to the linked quarter.
The net interest margin was 3.56% for the first quarter of 2016 compared to 3.92% for the same prior year period, and 3.67% for the linked quarter ended December 31, 2015. The year-over-year 36 basis point decline in the net interest margin is attributable to both a decline in loan yields, and a shift in asset mix from higher yielding loans to lower yielding investment securities. This shift in asset mix was primarily attributable to strong growth in our average deposit balances over the last year, which outpaced average loan growth and led to growth in average investment securities.
Loan yields declined by 45 basis points to 4.67% for the first quarter of 2016 from 5.12% for the first quarter of 2015. The decline in loan yields for the current quarter as compared to the first quarter of 2015 was due to the impact of originating new loans at lower yields than our average loan portfolio yield due to the historically low interest rate environment, and to a decline in purchased loan discount accretion. Purchased loan discount accretion contributed 12 basis points to loan yields during the current quarter, 23 basis points during the linked quarter, and 37 basis points during the first quarter of 2015. The decline in purchased loan discount accretion for the first quarter of 2016 as compared to the first quarter of 2015 is attributable to a lower level of accelerated loan discount accretion associated with loan pay-offs, and to a gradual decline in scheduled accretion due to loan maturities and pay-offs.
The 11 basis point decline in the net interest margin for the first quarter of 2016, compared to the linked quarter is primarily attributable to a decline in loan yields. Purchased loan discount accretion contributed a greater amount to loan yields in the linked quarter than it did in the first quarter of 2016, due to an increase in accelerated discount accretion attributable to loan pay-offs in the linked quarter. Loan yields were also elevated during the linked quarter due to a greater amount of prepayment fee income received in the prior quarter than in the first quarter of 2016.
The cost of deposits increased by 1 basis point to 0.23% for the first quarter of 2016 compared to the prior quarter, and declined by 2 basis points compared to 0.25% for the first quarter of 2015. The 1 basis point increase in the cost of deposits for the first quarter of 2016 compared to the linked quarter was due to a decline in the average balance of non-interest bearing demand deposits, as well as to a slight increase in the cost of time deposits and money market deposits. The 2 basis point decline in the cost of deposits for the first quarter of 2016 compared to the first quarter of 2015 was due to a decline in the average balance and cost of time deposits.
Provision for Loan and Lease Losses
No provisions for loan and lease losses were recorded for the quarter ended March 31, 2016. The Company has not required a loan and lease loss provision since 2012 due to improvements in the credit quality of the loan portfolio over the past three years. Annualized net recoveries were 0.04% of average loans outstanding for the quarter ended March 31, 2016, unchanged compared to the same period a year earlier, and annualized net recoveries of 0.05% of average loans outstanding for the linked quarter.
Non-Interest Income
Non-interest income for the first quarter of 2016 was $3.4 million, compared to $2.1 million for the linked quarter, and $3.0 million for the same period a year earlier. Non-interest income increased by $0.4 million for the current quarter as compared to the same prior year period, primarily due to an increase in customer swap fee income, which is represented by gain on derivative instruments in non-interest income. Compared to the linked quarter, non-interest income increased by $1.3 million, primarily due to increases in customer swap fee income and the gain on sale of investment securities.
Customer swap fee income is attributable to the new program we rolled out in the latter part of 2015, which allows our commercial loan clients to obtain fixed rate financing through the use of “back-to-back” interest rate swaps. The Company receives a fee for origination of each swap contract, and retains a variable rate loan as a result of the transaction. Investment securities gains on sale were attributable to on-going portfolio repositioning activities.
Non-Interest Expense
Non-interest expense increased by $0.8 million, or 6.8%, to $12.6 million for the quarter ended March 31, 2016 compared to $11.8 million for the quarter ended March 31, 2015. Non-interest expense for the first quarter of 2016 decreased by $0.2 million, or 1.2% from $12.8 million for the linked quarter.
The increase in non-interest expense for the first quarter of 2016 as compared to the first quarter a year ago was due to a $0.5 million increase in professional services expense, a $0.2 million increase in write-downs on other real estate owned (“OREO”), and a $0.2 million increase in other expense. The increase in professional services expense is primarily attributable to a $0.3 million increase in temporary consulting costs attributable to our BSA/AML Program remediation efforts, as well as a $0.2 million increase in audit and tax costs. The increase in OREO write-downs was due to an increase in the valuation allowance for OREO attributable to the re-valuation, due to re-zoning, of one existing property. The increase in other expense was attributable to operating losses due to a recent data breach that occurred at another company, and impacted some of our customers. Our own systems were not breached, however, we were responsible for reimbursing our customers for these losses.
The $0.2 million decrease in non-interest expense during the first quarter of 2016 as compared to the linked quarter was primarily attributable to a $0.6 million decrease in professional services, which was partially offset by increases of $0.2 million in write-downs on OREO, and $0.1 million in salaries and employee benefits costs. The linked quarter decline in professional services expense is attributable to lower BSA/AML related consulting costs, as well as lower legal costs. The linked quarter increase in OREO write-downs was attributable to the previously discussed re-valuation of an existing property. The linked quarter increase in salaries and employee benefits costs was attributable primarily to the reset of payroll tax accruals at the beginning of 2016.
The following table illustrates the components of professional services costs for the periods indicated:
| For the Three Months Ended | |||||||||||
| 3/31/2016 | 12/31/2015 | 3/31/2015 | |||||||||
| (dollars in thousands) | |||||||||||
| Professional Services | |||||||||||
| BSA/AML related costs | $ | 586 | $ | 989 | $ | 265 | |||||
| Information technology services and consulting | 320 | 329 | 281 | ||||||||
| Audit and tax costs | 424 | 272 | 263 | ||||||||
| Legal costs | - | 395 | 195 | ||||||||
| All other costs | 556 | 463 | 402 | ||||||||
| Total professional services | $ | 1,886 | $ | 2,448 | $ | 1,406 | |||||
Operating Efficiency
The Company’s operating efficiency ratio increased to 65.71% for the first quarter of 2016 as compared to 64.13% for the first quarter of 2015, and decreased from 68.58% for the linked quarter. Total non-interest expense as a percentage of average assets, another measure of the Company’s efficiency, was 2.68% for the first quarter of 2016 compared to 2.75% for first quarter of 2015, and 2.70% for the quarter ended December 31, 2015.
Income Taxes
Income tax expense was $2.4 million for the quarter ended March 31, 2016 compared with $2.6 million for the same period a year earlier. For the linked quarter ended December 31, 2015 income tax expense was $1.9 million. The Company’s effective tax rate for the first quarter of 2016 was 37.77% compared with 39.14% for the same period a year ago, and 35.71% for the quarter ended December 31, 2015.
Balance Sheet
Total assets increased by $136.5 million, or 7.7%, to $1.9 billion at March 31, 2016 compared to March 31, 2015, and by $13.4 million, or 0.7%, compared to December 31, 2015. Cash and cash equivalents decreased by $21.9 million, or 29.0%, to $53.6 million at March 31, 2016 compared to March 31, 2015, and decreased by $16.3 million, or 23.4%, compared to December 31, 2015. The decrease in the Company’s cash position over the last year is primarily the result of deployment of cash inflows from new deposits into the loan and investment securities portfolios.
Investment securities increased by $77.2 million or 21.2%, to $441.7 million at March 31, 2016 compared to $364.5 million at March 31, 2015, and decreased by $9.2 million, or 2.0%, compared to $450.9 million at December 31, 2015. At March 31, 2016, the effective duration of the securities portfolio was 3.00 years. We currently target a 2.75 to 3.25 year effective duration for the entire securities portfolio.
Total gross loans increased by $84.0 million, or 7.0%, to $1.3 billion at March 31, 2016 compared to March 31, 2015, and by $44.1 million, or 3.5%, compared to December 31, 2015. New loan production for the held for investment portfolio (“portfolio loans”) was $87.8 million during the quarter ended March 31, 2016, which was $6.3 million more than the prior quarter reflecting a 7.7% increase. Utilization on lines of credit contributed $11.3 million to first quarter 2016 loan growth.
Total deposits increased by $122.3 million, or 8.4%, to $1.58 billion as of March 31, 2016 from $1.46 billion at March 31, 2015, and by $17.6 million, or 1.1%, from $1.56 billion at December 31, 2015. Non-interest bearing deposits increased by $9.5 million, or 1.8%, during the first quarter of 2016, and increased by $39.9 million, or 8.2%, since March 31, 2015. The deposit growth we have achieved over the last year is attributable to our relationship building efforts. The majority of the growth achieved over the last year came from municipalities, public entities, and our commercial clients.
Total shareholders’ equity was $208.3 million at March 31, 2016, an increase of $6.4 million, or 3.2%, compared to March 31, 2015, and an increase of $1.9 million, or 0.9%, compared to December 31, 2015, due primarily to quarterly earnings, net of shareholder dividend payments and share repurchases. The change in the unrealized gain in the securities portfolio led to an increase in equity of $1.3 million, and a reduction of $0.4 million during the past quarter, and year, respectively.
Classified assets at March 31, 2016 totaled $43.6 million, and decreased by $1.7 million, or 3.8%, compared to $45.3 million at December 31, 2015, and decreased by $8.0 million, or 15.5%, from $51.6 million at March 31, 2015. Non-performing assets were $8.3 million at March 31, 2016 compared to $8.1 million at December 31, 2015 representing a $0.2 million, or 1.6%, increase since the prior quarter, and a $4.0 million, or 32.6%, decline since March 31, 2015. Non-performing assets remain at the lowest level reached in the last several years, at 0.43% of total assets at March 31, 2016, unchanged since December 31, 2015, and down from 0.69% at March 31, 2015.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses (“ALLL”) as a percentage of gross loans declined from 1.40% at March 31, 2015 to 1.36% at March 31, 2016. The decline in the level of our ALLL as a percentage of gross loans over the last twelve months is due to the relatively stable credit profile of the Company, which is evidenced by its asset quality ratios, as well as a consistent trend of net loan recoveries during that time.
As of March 31, 2016, the portion of the ALLL allocated to MISN acquired loans was $0.3 million or 0.19% of the remaining acquired MISN loan portfolio. The remaining un-accreted fair market value discount on MISN loans was $5.2 million at March 31, 2016 and represents 3.1% of the remaining balance of MISN loans.
Due to continued heightened concerns regarding the effects of the California drought upon our agribusiness loan customers and related businesses, the Bank has provided a $1.7 million qualitative allocation in its ALLL to address these concerns, which accounts for 9.4% of the total ALLL at March 31, 2016. Management will continue to monitor the drought as it relates to our agribusiness customers and the local economy.
Regulatory Capital
The Bank’s regulatory capital ratios exceeded the ratios generally required to be considered a “well capitalized” financial institution for regulatory purposes. The Tier I Leverage Ratios for the Company and the Bank were 9.86%, and 9.13%, respectively, at March 31, 2016 compared with the requirement of 5.00% to generally be considered a “well capitalized” financial institution for regulatory purposes. The Total Risk-Based Capital Ratios for the Company and the Bank were 13.99%, and 13.05%, respectively, at March 31, 2016 compared with the requirement of 10.00% to generally be considered a “well capitalized” financial institution for regulatory purposes. The Common Equity Tier 1 Capital Ratio for the Company and the Bank were 12.23%, and 11.80%, respectively, at March 31, 2016 compared with the requirement of 6.5% to generally be considered a "well capitalized" financial institution for regulatory purposes. The Company’s regulatory capital ratios declined as compared to the linked quarter due primarily to the impact of $2.1 million of quarterly shareholder dividend payments, and due to the Company’s share repurchase program, which resulted in the repurchase of over $1.6 million of the Company’s common stock during the first quarter of 2016. The Bank’s regulatory capital ratios declined as compared to the linked quarter primarily due to a $10.0 million dividend payment made to the Company by the Bank during the first quarter of 2016.
BSA Consent Order
The Company continued to make progress addressing the issues identified in the BSA Consent Order that we entered into with our regulators in November of 2014. However, we still have more work to do in order to fully remediate the issues identified in the BSA Consent Order.
Conference Call
The Company will host a conference call to discuss the first quarter 2016 results at 8:00 a.m. PST on April 29, 2016. Media representatives, analysts and the public are invited to listen to this discussion by calling (877) 363-5052 and entering the conference ID 78951937, or via on-demand webcast. A link to the webcast will be available on Heritage Oaks Bancorp’s website at www.heritageoaksbancorp.com. A replay of the call will be available on Heritage Oaks Bancorp's website later that day and will remain on its site for up to 14 calendar days. By including the foregoing website address, Heritage Oaks Bancorp does not intend to and shall not be deemed to incorporate by reference any material contained therein.
Report on Form 10-Q
The Company intends to file with the U.S. Securities and Exchange Commission its Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 on or before May 15, 2016. Once filed, this report can be accessed at the U.S. Securities and Exchange Commission’s website www.sec.gov. Shortly after filing, it is also available free of charge at the Company’s website www.heritageoaksbancorp.com or by contacting Jason Castle, Chief Financial Officer. By including the foregoing website addresses, Heritage Oaks Bancorp does not intend to, and shall not be deemed to incorporate by reference any material contained therein.
About Heritage Oaks Bancorp and Heritage Oaks Bank
With $1.9 billion in assets, Heritage Oaks Bancorp is headquartered in Paso Robles, California and is the holding company for Heritage Oaks Bank. Heritage Oaks Bank operates two branch offices each in Paso Robles and San Luis Obispo; single branch offices in Atascadero, Templeton, Cambria, Morro Bay, Arroyo Grande, Santa Maria, Goleta and Santa Barbara; as well as a single loan production office in Ventura/Oxnard. Heritage Oaks Bank conducts commercial banking business in San Luis Obispo, Santa Barbara, and Ventura counties. Visit Heritage Oaks Bank on the Web at www.heritageoaksbank.com. By including the foregoing website address, Heritage Oaks Bancorp does not intend to, and shall not be deemed to incorporate by reference any material contained therein.
Forward Looking Statements
This press release contains “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward looking statements to be covered by the safe harbor provisions for forward looking statements. All statements other than statements of historical fact are “forward looking statements” for purposes of federal and state securities laws, including, but not limited to, statements about anticipated future operating and financial performance, financial position and liquidity, business prospects, strategic alternatives, regulatory and competitive outlook, investment and expenditure plans, capital and financing needs, plans and objectives of management for future operations, and other similar forecasts and statements of expectation and statements of assumptions underlying any of the foregoing. Words such as “will likely result,” “aims,” “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “will,” and variations of these words and similar expressions are intended to help identify forward-looking statements. Forward looking statements are based on the Company’s current expectations and assumptions regarding its business, the regulatory environment, the economy and other future conditions, which expectations and assumptions could prove wrong. Forward looking statements are subject to a number of risks and uncertainties that could cause the Company’s actual results to differ materially and adversely from those contemplated by the forward looking statements. The Company cautions you against relying on any of these forward looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward looking statements, include the following: renewed softness in the overall economy, including the California real estate market; the effect of the current low interest rate environment or changes in interest rates on our net interest margin; changes in the Company’s business strategy or development plans; our ability to attract and retain qualified employees; a failure or breach of our operational security systems or infrastructure or those of our customers, our third party vendors or other service providers, including as a result of a cyber-attack; any compromise in the secured transmission of personal, financial and/or confidential information over public networks; environmental conditions, including the prolonged drought in California, natural disasters such as earthquakes, landslides, and wildfires that may disrupt business, impede operations, or negatively impact the ability of certain borrowers to repay their loans and/or the values of collateral securing loans; the possibility of an unfavorable ruling in a legal matter, and the potential impact that it may have on earnings, reputation, or the Bank’s operations; and the possibility that any expansionary activities will be impeded while the FDIC’s and CA DBO’s joint BSA Consent Order remains outstanding, and that we will be unable to comply with the requirements set forth in the BSA Consent Order, which could result in restrictions on our operations.
Additional information on these risks and other factors that could affect operating results and financial condition are detailed in reports filed by the Company with the U.S. Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed by the Company with the U.S. Securities and Exchange Commission on March 4, 2016.
Forward looking statements speak only as of the date they are made, and the Company does not undertake to update forward looking statements to reflect circumstances or events that occur after the date the forward looking statements are made, whether as a result of new information, future developments or otherwise, and specifically disclaims any obligation to revise or update such forward looking statements for any reason, except as may be required by law.
Use of Non-GAAP Financial Information
The Company provides all information required in accordance with generally accepted accounting principles (GAAP), but it believes that evaluating its ongoing operating results and in particular, making comparisons to similar companies, may be enhanced by providing additional non-GAAP measures used by management to assess operating results. Therefore, included at the end of the tables below are the following schedules: a schedule reconciling our GAAP net income to earnings before income taxes, provision for loan and lease losses, investment securities gains or losses, gain on extinguishment of debt, and merger, restructure, and integration related costs; a schedule reconciling book value to tangible common book value per share; a schedule adjusting non-interest expense to exclude merger, restructure and integration costs and expressing the adjusted noninterest expense as a percentage of average assets; and a schedule adjusting the efficiency ratio to exclude merger, restructure and integration costs.
| Heritage Oaks Bancorp | ||||||||||||
| Consolidated Balance Sheets | ||||||||||||
| (unaudited) | ||||||||||||
| 3/31/2016 | 12/31/2015 | 3/31/2015 | ||||||||||
| (dollars in thousands, except per share data) | ||||||||||||
| Assets | ||||||||||||
| Cash and due from banks | $ | 14,804 | $ | 15,610 | $ | 14,743 | ||||||
| Interest earning deposits in other banks | 38,771 | 54,313 | 60,735 | |||||||||
| Total cash and cash equivalents | 53,575 | 69,923 | 75,478 | |||||||||
| Investment securities available for sale, at fair value | 441,705 | 450,935 | 364,498 | |||||||||
| Loans held for sale, at lower of cost or fair value | 6,560 | 9,755 | 9,493 | |||||||||
| Gross loans held for investment | 1,291,346 | 1,247,280 | 1,207,319 | |||||||||
| Net deferred loan fees | (1,160 | ) | (1,132 | ) | (1,221 | ) | ||||||
| Allowance for loan and lease losses | (17,565 | ) | (17,452 | ) | (16,913 | ) | ||||||
| Net loans held for investment | 1,272,621 | 1,228,696 | 1,189,185 | |||||||||
| Premises and equipment, net | 36,843 | 37,342 | 38,107 | |||||||||
| Bank-owned life insurance | 33,069 | 32,850 | 24,871 | |||||||||
| Goodwill | 24,885 | 24,885 | 24,885 | |||||||||
| Deferred tax assets, net | 18,715 | 21,272 | 22,508 | |||||||||
| Federal Home Loan Bank stock | 7,853 | 7,853 | 7,853 | |||||||||
| Other intangible assets | 4,055 | 4,298 | 5,085 | |||||||||
| Premises held for sale | - | - | 1,840 | |||||||||
| Other assets | 13,239 | 11,930 | 12,791 | |||||||||
| Total assets | $ | 1,913,120 | $ | 1,899,739 | $ | 1,776,594 | ||||||
| Liabilities | ||||||||||||
| Deposits | ||||||||||||
| Non-interest bearing deposits | $ | 524,025 | $ | 514,559 | $ | 484,106 | ||||||
| Interest bearing deposits | 1,058,564 | 1,050,402 | 976,162 | |||||||||
| Total deposits | 1,582,589 | 1,564,961 | 1,460,268 | |||||||||
| Short term FHLB borrowing | 29,500 | 38,500 | 10,500 | |||||||||
| Long term FHLB borrowing | 73,512 | 65,021 | 83,054 | |||||||||
| Junior subordinated debentures | 10,485 | 10,438 | 13,286 | |||||||||
| Other liabilities | 8,704 | 14,385 | 7,543 | |||||||||
| Total liabilities | 1,704,790 | 1,693,305 | 1,574,651 | |||||||||
| Shareholders' Equity | ||||||||||||
| Preferred stock, 5,000,000 shares authorized: | ||||||||||||
| Series C preferred stock, $3.25 per share stated value; | ||||||||||||
| issued and outstanding: 0 shares at March 31, 2016, December 31, 2015, and 348,697 shares at March 31, 2015, respectively | - | - | 1,056 | |||||||||
| Common stock, no par value; authorized: 100,000,000 shares; | ||||||||||||
| issued and outstanding: 34,129,425, 34,353,014 and 33,950,518 shares as of | ||||||||||||
| March 31, 2016, December 31, 2015, and March 31, 2015, respectively | 163,923 | 165,517 | 164,271 | |||||||||
| Additional paid in capital | 8,460 | 8,251 | 7,252 | |||||||||
| Retained earnings | 34,134 | 32,200 | 27,128 | |||||||||
| Accumulated other comprehensive income | 1,813 | 466 | 2,236 | |||||||||
| Total shareholders' equity | 208,330 | 206,434 | 201,943 | |||||||||
| Total liabilities and shareholders' equity | $ | 1,913,120 | $ | 1,899,739 | $ | 1,776,594 | ||||||
| Book value per common share | $ | 6.10 | $ | 6.01 | $ | 5.92 | ||||||
| Tangible book value per common share | $ | 5.26 | $ | 5.16 | $ | 5.03 | ||||||
| Heritage Oaks Bancorp | ||||||||||||||
| Consolidated Statements of Income | ||||||||||||||
| (unaudited) | ||||||||||||||
| For the Three Months Ended | ||||||||||||||
| 3/31/2016 | 12/31/2015 | 3/31/2015 | ||||||||||||
| (dollars in thousands, except per share data) | ||||||||||||||
| Interest Income | ||||||||||||||
| Loans, including fees | $ | 14,615 | $ | 15,145 | $ | 15,088 | ||||||||
| Investment securities | 2,200 | 2,118 | 1,667 | |||||||||||
| Other interest-earning assets | 200 | 201 | 173 | |||||||||||
| Total interest income | 17,015 | 17,464 | 16,928 | |||||||||||
| Interest Expense | ||||||||||||||
| Deposits | 879 | 867 | 889 | |||||||||||
| Other borrowings | 518 | 474 | 541 | |||||||||||
| Total interest expense | 1,397 | 1,341 | 1,430 | |||||||||||
| Net interest income before provision for loan and lease losses | 15,618 | 16,123 | 15,498 | |||||||||||
| Provision for loan and lease losses | - | - | - | |||||||||||
| Net interest income after provision for loan and lease losses | 15,618 | 16,123 | 15,498 | |||||||||||
| Non-Interest Income | ||||||||||||||
| Fees and service charges | 1,287 | 1,210 | 1,207 | |||||||||||
| Gain on sale of investment securities | 551 | - | 505 | |||||||||||
| Gain on derivative instruments | 532 | - | - | |||||||||||
| Net gain on sale of mortgage loans | 458 | 325 | 386 | |||||||||||
| Earnings on BOLI | 287 | 215 | 211 | |||||||||||
| Other mortgage fee income | 91 | 104 | 138 | |||||||||||
| Other income | 201 | 207 | 554 | |||||||||||
| Total non-interest income | 3,407 | 2,061 | 3,001 | |||||||||||
| Non-Interest Expense | ||||||||||||||
| Salaries and employee benefits | 6,318 | 6,171 | 6,259 | |||||||||||
| Professional services | 1,886 | 2,448 | 1,406 | |||||||||||
| Occupancy and equipment | 1,627 | 1,659 | 1,587 | |||||||||||
| Information technology | 600 | 545 | 601 | |||||||||||
| Regulatory assessments | 310 | 317 | 297 | |||||||||||
| Sales and marketing | 244 | 165 | 317 | |||||||||||
| Amortization of intangible assets | 243 | 262 | 262 | |||||||||||
| OREO Write-downs | 217 | - | - | |||||||||||
| Loan department expense | 213 | 223 | 286 | |||||||||||
| Communication costs | 125 | 127 | 141 | |||||||||||
| Other expense | 838 | 857 | 657 | |||||||||||
| Total non-interest expense | 12,621 | 12,774 | 11,813 | |||||||||||
| Income before income taxes | 6,404 | 5,410 | 6,686 | |||||||||||
| Income tax expense | 2,419 | 1,932 | 2,617 | |||||||||||
| Net income | $ | 3,985 | $ | 3,478 | $ | 4,069 | ||||||||
| Weighted Average Shares Outstanding | ||||||||||||||
| Basic | 34,096,379 | 34,186,007 | 34,107,168 | |||||||||||
| Diluted | 34,204,457 | 34,326,702 | 34,266,482 | |||||||||||
| Earnings Per Common Share | ||||||||||||||
| Basic | $ | 0.12 | $ | 0.10 | $ | 0.12 | ||||||||
| Diluted | $ | 0.12 | $ | 0.10 | $ | 0.12 | ||||||||
| Dividends Declared Per Common Share | $ | 0.06 | $ | 0.06 | $ | 0.05 | ||||||||
| For the Three Months Ended | ||||||||||||
| 3/31/2016 | 12/31/2015 | 3/31/2015 | ||||||||||
| Profitability / Performance Ratios | ||||||||||||
| Net interest margin | 3.56 | % | 3.67 | % | 3.92 | % | ||||||
| Return on average equity | 7.66 | % | 6.67 | % | 8.26 | % | ||||||
| Return on average common equity | 7.66 | % | 6.67 | % | 8.30 | % | ||||||
| Return on average tangible common equity | 8.90 | % | 7.77 | % | 9.79 | % | ||||||
| Return on average assets | 0.85 | % | 0.73 | % | 0.95 | % | ||||||
| Non-interest income to total net revenue | 17.91 | % | 11.33 | % | 16.22 | % | ||||||
| Yield on interest earning assets | 3.88 | % | 3.98 | % | 4.28 | % | ||||||
| Cost of interest bearing liabilities | 0.48 | % | 0.47 | % | 0.54 | % | ||||||
| Cost of funds | 0.34 | % | 0.32 | % | 0.38 | % | ||||||
| Operating efficiency ratio (1) | 65.71 | % | 68.58 | % | 64.13 | % | ||||||
| Non-interest expense to average assets, annualized | 2.68 | % | 2.70 | % | 2.75 | % | ||||||
| Gross loans to total deposits | 81.60 | % | 79.70 | % | 82.68 | % | ||||||
| Asset Quality Ratios | ||||||||||||
| Non-performing loans to total gross loans | 0.63 | % | 0.63 | % | 0.98 | % | ||||||
| Non-performing loans to equity | 3.92 | % | 3.79 | % | 5.87 | % | ||||||
| Non-performing assets to total assets | 0.43 | % | 0.43 | % | 0.69 | % | ||||||
| Allowance for loan and lease losses to total gross loans | 1.36 | % | 1.40 | % | 1.40 | % | ||||||
| Net recoveries to average loans outstanding, annualized | -0.04 | % | -0.05 | % | -0.04 | % | ||||||
| Classified assets to Tier I + ALLL | 21.70 | % | 22.68 | % | 26.63 | % | ||||||
| 30-89 day delinquency rate | 0.00 | % | 0.02 | % | 0.10 | % | ||||||
| Capital Ratios | ||||||||||||
| Company | ||||||||||||
| Common Equity Tier I Capital Ratio | 12.23 | % | 12.61 | % | 12.50 | % | ||||||
| Leverage ratio | 9.86 | % | 9.90 | % | 10.38 | % | ||||||
| Tier I Risk-Based Capital Ratio | 12.74 | % | 13.01 | % | 13.12 | % | ||||||
| Total Risk-Based Capital Ratio | 13.99 | % | 14.26 | % | 14.36 | % | ||||||
| Bank | ||||||||||||
| Common Equity Tier I Capital Ratio | 11.80 | % | 12.48 | % | 12.65 | % | ||||||
| Leverage ratio | 9.13 | % | 9.50 | % | 10.01 | % | ||||||
| Tier I Risk-Based Capital Ratio | 11.80 | % | 12.48 | % | 12.65 | % | ||||||
| Total Risk-Based Capital Ratio | 13.05 | % | 13.74 | % | 13.90 | % | ||||||
| (1) The efficiency ratio is defined as total non-interest expense as a percentage of the combined: net interest income, non-interest income, excluding gains and losses on the sale of securities, gains and losses on the sale of other real estate owned (“OREO”), write-downs on OREO, OREO related costs, gains and losses on the sale of fixed assets, gains on extinguishment of debt, and amortization of intangible assets. | ||||||||||||
| Heritage Oaks Bancorp | |||||||||||||||||||||||||||||
| Average Balances | |||||||||||||||||||||||||||||
| For The Three Months Ended | |||||||||||||||||||||||||||||
| 3/31/2016 | 12/31/2015 | 3/31/2015 | |||||||||||||||||||||||||||
| Balance | Yield / Rate (4) | Income / Expense | Balance | Yield / Rate (4) | Income / Expense | Balance | Yield / Rate (4) | Income / Expense | |||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||
| Interest Earning Assets | |||||||||||||||||||||||||||||
| Loans (1) (2) | $ | 1,258,180 | 4.67 | % | $ | 14,615 | $ | 1,221,144 | 4.92 | % | $ | 15,145 | $ | 1,195,265 | 5.12 | % | $ | 15,088 | |||||||||||
| Investment securities | 448,723 | 1.97 | % | 2,200 | 444,644 | 1.89 | % | 2,118 | 353,222 | 1.91 | % | 1,667 | |||||||||||||||||
| Interest earning deposits in other banks | 46,342 | 0.31 | % | 36 | 67,231 | 0.24 | % | 40 | 47,209 | 0.18 | % | 21 | |||||||||||||||||
| Other investments | 9,739 | 6.77 | % | 164 | 9,739 | 6.56 | % | 161 | 9,739 | 6.33 | % | 152 | |||||||||||||||||
| Total earning assets | 1,762,984 | 3.88 | % | 17,015 | 1,742,758 | 3.98 | % | 17,464 | 1,605,435 | 4.28 | % | 16,928 | |||||||||||||||||
| Allowance for loan and lease losses | (17,513 | ) | (17,451 | ) | (16,861 | ) | |||||||||||||||||||||||
| Other assets | 149,211 | 152,605 | 151,912 | ||||||||||||||||||||||||||
| Total assets | $ | 1,894,682 | $ | 1,877,912 | $ | 1,740,486 | |||||||||||||||||||||||
| Interest Bearing Liabilities | |||||||||||||||||||||||||||||
| Money market | $ | 568,497 | 0.28 | % | $ | 392 | $ | 552,791 | 0.27 | % | $ | 377 | $ | 464,076 | 0.28 | % | $ | 318 | |||||||||||
| Time deposits | 243,940 | 0.70 | % | 426 | 249,133 | 0.68 | % | 430 | 278,645 | 0.75 | % | 517 | |||||||||||||||||
| Interest bearing demand | 126,373 | 0.11 | % | 34 | 123,529 | 0.11 | % | 33 | 115,928 | 0.11 | % | 31 | |||||||||||||||||
| Savings | 110,244 | 0.10 | % | 27 | 107,049 | 0.10 | % | 27 | 94,557 | 0.10 | % | 23 | |||||||||||||||||
| Total interest bearing deposits | 1,049,054 | 0.34 | % | 879 | 1,032,502 | 0.33 | % | 867 | 953,206 | 0.38 | % | 889 | |||||||||||||||||
| Federal Home Loan Bank borrowing | 111,913 | 1.38 | % | 384 | 81,204 | 1.70 | % | 347 | 100,034 | 1.62 | % | 400 | |||||||||||||||||
| Junior subordinated debentures | 10,455 | 5.08 | % | 132 | 10,407 | 4.84 | % | 127 | 13,252 | 4.32 | % | 141 | |||||||||||||||||
| Other borrowed funds | 220 | 3.66 | % | 2 | - | 0.00 | % | - | - | 0.00 | % | - | |||||||||||||||||
| Federal funds purchased | - | 0.00 | % | - | 33 | 0.90 | % | - | - | 0.00 | % | - | |||||||||||||||||
| Total borrowed funds | 122,588 | 1.70 | % | 518 | 91,644 | 2.05 | % | 474 | 113,286 | 1.94 | % | 541 | |||||||||||||||||
| Total interest bearing liabilities | 1,171,642 | 0.48 | % | 1,397 | 1,124,146 | 0.47 | % | 1,341 | 1,066,492 | 0.54 | % | 1,430 | |||||||||||||||||
| Non interest bearing demand | 503,953 | 537,364 | 464,455 | ||||||||||||||||||||||||||
| Total funding | 1,675,595 | 0.34 | % | 1,397 | 1,661,510 | 0.32 | % | 1,341 | 1,530,947 | 0.38 | % | 1,430 | |||||||||||||||||
| Other liabilities | 9,954 | 9,556 | 9,732 | ||||||||||||||||||||||||||
| Total liabilities | 1,685,549 | 1,671,066 | 1,540,679 | ||||||||||||||||||||||||||
| Shareholders' Equity | |||||||||||||||||||||||||||||
| Total shareholders' equity | 209,133 | 206,846 | 199,807 | ||||||||||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 1,894,682 | $ | 1,877,912 | $ | 1,740,486 | |||||||||||||||||||||||
| Net interest margin (3) | 3.56 | % | $ | 15,618 | 3.67 | % | $ | 16,123 | 3.92 | % | $ | 15,498 | |||||||||||||||||
| Interest rate spread | 3.40 | % | 3.51 | % | 3.74 | % | |||||||||||||||||||||||
| Cost of deposits | 0.23 | % | 0.22 | % | 0.25 | % | |||||||||||||||||||||||
| (1) Non-accrual loans have been included in total loans. | |||||||||||||||||||||||||||||
| (2) Interest income includes fees on loans. | |||||||||||||||||||||||||||||
| (3) Net interest margin represents net interest income as a percentage of average interest earning assets. | |||||||||||||||||||||||||||||
| (4) Annualized using actual number of days during the period. | |||||||||||||||||||||||||||||
| Heritage Oaks Bancorp | |||||||||||
| Loans and Deposits | |||||||||||
| 3/31/2016 | 12/31/2015 | 3/31/2015 | |||||||||
| (dollars in thousands) | |||||||||||
| Loans | |||||||||||
| Real Estate Secured | |||||||||||
| Commercial | $ | 605,242 | $ | 579,244 | $ | 575,536 | |||||
| Residential 1 to 4 family | 171,035 | 165,829 | 143,490 | ||||||||
| Farmland | 129,787 | 120,566 | 108,779 | ||||||||
| Multi-family residential | 81,807 | 79,381 | 77,684 | ||||||||
| Construction and land | 32,984 | 35,669 | 47,620 | ||||||||
| Home equity lines of credit | 29,738 | 31,387 | 35,928 | ||||||||
| Total real estate secured | 1,050,593 | 1,012,076 | 989,037 | ||||||||
| Commercial | |||||||||||
| Commercial and industrial | 169,366 | 164,808 | 146,912 | ||||||||
| Agriculture | 65,946 | 64,363 | 64,150 | ||||||||
| Other | - | - | 5 | ||||||||
| Total commercial | 235,312 | 229,171 | 211,067 | ||||||||
| Consumer | 5,441 | 6,033 | 7,215 | ||||||||
| Total loans held for investment | 1,291,346 | 1,247,280 | 1,207,319 | ||||||||
| Deferred loan fees | (1,160 | ) | (1,132 | ) | (1,221 | ) | |||||
| Allowance for loan and lease losses | (17,565 | ) | (17,452 | ) | (16,913 | ) | |||||
| Total net loans held for investment | $ | 1,272,621 | $ | 1,228,696 | $ | 1,189,185 | |||||
| Loans held for sale | $ | 6,560 | $ | 9,755 | $ | 9,493 | |||||
| 3/31/2016 | 12/31/2015 | 3/31/2015 | |||||||||
| (dollars in thousands) | |||||||||||
| Deposits | |||||||||||
| Non-interest bearing deposits | $ | 524,025 | $ | 514,559 | $ | 484,106 | |||||
| Interest bearing deposits: | |||||||||||
| Money market deposits | 579,113 | 565,060 | 490,986 | ||||||||
| Time deposits | 240,245 | 245,742 | 272,055 | ||||||||
| NOW accounts | 127,731 | 129,254 | 118,094 | ||||||||
| Other savings deposits | 111,475 | 110,346 | 95,027 | ||||||||
| Total deposits | $ | 1,582,589 | $ | 1,564,961 | $ | 1,460,268 | |||||
| Heritage Oaks Bancorp | |||||||||||||||||
| Allowance for Loan and Lease Losses, Non-Performing and Classified Assets | |||||||||||||||||
| For the Three Months Ended | |||||||||||||||||
| 3/31/2016 | 12/31/2015 | 3/31/2015 | |||||||||||||||
| (dollars in thousands) | |||||||||||||||||
| Allowance for Loan and Lease Losses | |||||||||||||||||
| Balance, beginning of period | $ | 17,452 | $ | 17,296 | $ | 16,802 | |||||||||||
| Provision for loan and lease losses | - | - | - | ||||||||||||||
| Charge-offs: | |||||||||||||||||
| Commercial and industrial | 8 | - | - | ||||||||||||||
| Consumer | 2 | 1 | - | ||||||||||||||
| Residential 1 to 4 family | - | 82 | - | ||||||||||||||
| Commercial real estate | - | 81 | - | ||||||||||||||
| Agriculture | - | 3 | - | ||||||||||||||
| Home equity lines of credit | - | - | 39 | ||||||||||||||
| Construction and land | - | - | 34 | ||||||||||||||
| Total charge-offs | 10 | 167 | 73 | ||||||||||||||
| Recoveries of loans previously charged-off | 123 | 323 | 184 | ||||||||||||||
| Balance, end of period | $ | 17,565 | $ | 17,452 | $ | 16,913 | |||||||||||
| Net recoveries | $ | (113 | ) | $ | (156 | ) | $ | (111 | ) | ||||||||
| 3/31/2016 | 12/31/2015 | 3/31/2015 | |||||||||||||||
| (dollars in thousands) | |||||||||||||||||
| Non-Performing Assets | |||||||||||||||||
| Loans on non-accrual status: | |||||||||||||||||
| Construction and land | $ | 4,264 | $ | 3,968 | $ | 4,939 | |||||||||||
| Commercial and industrial | 1,745 | 1,630 | 3,495 | ||||||||||||||
| Commercial real estate | 1,620 | 1,940 | 2,052 | ||||||||||||||
| Agriculture | 384 | - | 627 | ||||||||||||||
| Farmland | 80 | 83 | - | ||||||||||||||
| Home equity lines of credit | 46 | 84 | 46 | ||||||||||||||
| Consumer | 31 | 33 | 43 | ||||||||||||||
| Residential 1 to 4 family | - | 80 | 645 | ||||||||||||||
| Total non-accruing loans | 8,170 | 7,818 | 11,847 | ||||||||||||||
| Other real estate owned (OREO) | 111 | 328 | 433 | ||||||||||||||
| Total non-performing assets | $ | 8,281 | $ | 8,146 | $ | 12,280 | |||||||||||
| 3/31/2016 | 12/31/2015 | 3/31/2015 | |||||||||||||||
| (dollars in thousands) | |||||||||||||||||
| Classified Assets | |||||||||||||||||
| Loans | $ | 43,444 | $ | 44,950 | $ | 51,139 | |||||||||||
| Other real estate owned (OREO) | 111 | 328 | 433 | ||||||||||||||
| Non-investment grade securities | - | - | - | ||||||||||||||
| Total classified assets | $ | 43,555 | $ | 45,278 | $ | 51,572 | |||||||||||
| Classified assets to Tier I + ALLL | 21.70 | % | 22.68 | % | 26.63 | % | |||||||||||
| Heritage Oaks Bancorp | ||||||||||||||||||||||||
| Quarter to Date Non-Performing Loan Reconciliation | ||||||||||||||||||||||||
| Balance | Returns to | Balance | ||||||||||||||||||||||
| December 31, | Net | Accrual | March 31, | |||||||||||||||||||||
| 2015 | Additions | Paydowns | Status | Charge-offs | 2016 | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
| Real Estate Secured | ||||||||||||||||||||||||
| Construction and land | $ | 3,968 | $ | 349 | $ | (53 | ) | $ | - | $ | - | $ | 4,264 | |||||||||||
| Commercial | 1,940 | - | (30 | ) | (290 | ) | - | 1,620 | ||||||||||||||||
| Farmland | 83 | - | (3 | ) | - | - | 80 | |||||||||||||||||
| Home equity lines of credit | 84 | - | - | (38 | ) | - | 46 | |||||||||||||||||
| Residential 1 to 4 family | 80 | - | (3 | ) | (77 | ) | - | - | ||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Commercial and industrial | 1,630 | 1,248 | (147 | ) | (978 | ) | (8 | ) | 1,745 | |||||||||||||||
| Agriculture | - | 400 | (16 | ) | - | - | 384 | |||||||||||||||||
| Consumer | 33 | 2 | (2 | ) | - | (2 | ) | 31 | ||||||||||||||||
| Total | $ | 7,818 | $ | 1,999 | $ | (254 | ) | $ | (1,383 | ) | $ | (10 | ) | $ | 8,170 | |||||||||
| Heritage Oaks Bancorp | |||||||||||||
| Reconciliation of GAAP to Non-GAAP Financial Measure | |||||||||||||
| For the Three Months Ended | |||||||||||||
| 3/31/2016 | 12/31/2015 | 3/31/2015 | |||||||||||
| (dollars in thousands) | |||||||||||||
| GAAP net income | $ | 3,985 | $ | 3,478 | $ | 4,069 | |||||||
| Adjusted for: | |||||||||||||
| Income tax expense | 2,419 | 1,932 | 2,617 | ||||||||||
| (Gain) on sale of investment securities | (551 | ) | - | (505 | ) | ||||||||
| Merger, restructure and integration | 2 | (10 | ) | 32 | |||||||||
| Non-GAAP earnings before income taxes, gains on sale of | |||||||||||||
| investment securities, gains on extinguishment of debt, and | |||||||||||||
| merger, restructure and integration costs | $ | 5,855 | $ | 5,400 | $ | 6,213 | |||||||
| 3/31/2016 | 12/31/2015 | 3/31/2015 | |||||||||||
| (dollars in thousands) | |||||||||||||
| Non-interest expense | $ | 12,621 | $ | 12,774 | $ | 11,813 | |||||||
| Less: Merger, restructure and integration | (2 | ) | 10 | (32 | ) | ||||||||
| Adjusted non-interest expense | 12,619 | 12,784 | 11,781 | ||||||||||
| Total average assets | 1,894,682 | 1,877,912 | 1,740,486 | ||||||||||
| Non-interest expense to average assets | |||||||||||||
| less merger, restructure and integration costs | 2.68 | % | 2.70 | % | 2.75 | % | |||||||
| 3/31/2016 | 12/31/2015 | 3/31/2015 | |||||||||||
| (dollars in thousands) | |||||||||||||
| Non-interest expense | $ | 12,621 | $ | 12,774 | $ | 11,813 | |||||||
| Less: OREO related costs and writedowns | (238 | ) | (31 | ) | (11 | ) | |||||||
| Less: Amortization of CDI | (243 | ) | (262 | ) | (262 | ) | |||||||
| Less: Merger, restructure and integration | (2 | ) | 10 | (32 | ) | ||||||||
| Adjusted non-interest expense | 12,138 | 12,491 | 11,508 | ||||||||||
| Net interest income | 15,618 | 16,123 | 15,498 | ||||||||||
| Non-interest income | 3,407 | 2,061 | 3,001 | ||||||||||
| Less: net (gains) losses | (551 | ) | 14 | (505 | ) | ||||||||
| Operating efficiency less merger, restructure and | |||||||||||||
| integration costs | 65.70 | % | 68.64 | % | 63.95 | % | |||||||
| 3/31/2016 | 12/31/2015 | 3/31/2015 | |||||||||||
| (dollars in thousands) | |||||||||||||
| Total shareholders' equity | $ | 208,330 | $ | 206,434 | $ | 201,943 | |||||||
| Less: Series C Preferred Stock | - | - | (1,056 | ) | |||||||||
| Less: Intangibles | (28,940 | ) | (29,183 | ) | (29,970 | ) | |||||||
| Tangible common equity | $ | 179,390 | $ | 177,251 | $ | 170,917 | |||||||
| Tangible common book value per share | $ | 5.26 | $ | 5.16 | $ | 5.03 | |||||||