(Source: PrimeNewswire)
PASO ROBLES, Calif., Oct. 29, 2009 (GLOBE NEWSWIRE) -- Heritage Oaks Bancorp (the "Company"), (Nasdaq:HEOP), the parent company of Heritage Oaks Bank (the "Bank"), today reported a net loss of $5.6 million for the third quarter of 2009 or $0.70 per diluted common share compared to net income of $0.5 million or $0.07 per diluted common share for the third quarter of 2008. Third quarter 2009 results reflect a provision for loan losses of $9.8 million compared to $3.2 million for the third quarter of 2008. For the first nine months of 2009, the Company reported a net loss of $4.2 million or $0.53 per diluted common share compared to net income of $2.9 million or $0.37 per diluted common share for the first nine months of 2008.
Third quarter highlights:
* Total revenue, consisting of net interest income and non
interest income, was $10.9 million and $33.4 million for the
three and nine months ended September 30, 2009, respectively
compared to $11.0 million and $32.9 million in the same periods
for 2008.
* Net interest margin was 4.34% for the third quarter and 4.75%
for the first nine months of 2009.
* Total deposits, exclusive of brokered deposits, increased
$71.0 million during the third quarter and $181.6 million for
the first nine months of 2009.
* Total gross loans increased $29.7 million year-to-date and
$43.5 million from a year ago.
* Non-performing assets totaled $42.4 million or 4.58% of total
assets.
* Allowance for loan losses totaled $15.9 million or 2.24% of
total gross loans.
* Provisions for loan losses totaled $9.8 million for the quarter
and $14.6 million year-to-date.
* OREO write-downs totaled approximately $1.4 million.
* The Company remained well capitalized with Tier I Capital ratio
at 10.52% and Total Risk-Based Capital ratio at 11.78%.
Commenting on the results for the quarter, Lawrence Ward, President and Chief Executive Officer, stated, "During the quarter we strengthened our loan loss reserve and realized appropriate write-downs to non-accrual loans and OREO while maintaining strong capital ratios. While we were not satisfied with reporting a loss for the quarter, we believe that our actions were prudent in the current environment. Even though the Bank has faced significant challenges with respect to asset quality, we are pleased that our core business remains solid with total revenue of $10.9 million for the third quarter compared to $11.0 million reported in the same period a year earlier. For the first nine months of 2009, total revenue totaled $33.4 million compared to $32.9 million for the same period a year earlier. Impacting total revenue was the reversal of interest for non-accrual loans of approximately $1.1 million and $1.2 million for the three and nine months ended September 30, 2009, respectively. Approximately $846 thousand of this amount has been recovered on a loan that returned to performing status subsequent to quarter end and will be reflected in the fourth quarter of 2009. This recovery and return to performing status results in non-performing assets being reduced by approximately 25%. Additionally, our franchise value in terms of core deposit relationships continues to be enhanced with quarterly growth of $57.6 million and year-to-date growth of $126.4 million in core deposits. The Company and Bank remain well-capitalized and are dedicated to prudent underwriting standards, and staying selective with respect to the types of new loans originated. The preservation of capital and commitment to our customers and the communities we serve remain of paramount importance. The strong core deposit growth realized year-to-date in 2009 demonstrates that we have capitalized on an opportunity for organic growth within our primary market area."
Asset Quality
Ward further stated, "The Bank devotes considerable resources to the monitoring of credit quality and management of problem assets. In July 2009, the Company announced that Ron Oliveira joined the Bank as Executive Vice President and Chief Operating Officer/Chief Credit Officer. Mr. Oliveira brings over 27 years of banking experience to our institution. The expansion of our Special Assets Department has also contributed significantly to the oversight of credit quality and the workout of problem credits. We are committed to the speedy resolution of problem assets and continue to work with borrowers where possible."
Ward went on to state, "In connection with the expansion of our credit management activities, we put in place a more vigorous internal and external loan review program. During the third quarter, an independent loan review firm completed a semi-annual loan portfolio examination to augment management's internal loan review. As a result of feedback from this review and in connection with our own effort to identify and reserve for perceived credit risks in the portfolio, we moved approximately $34.2 million in loan balances to non-accruing status. As of September 30, 2009, non-accruing loan balances totaled approximately $39.4 million or 5.61% of total gross loans, and non-performing assets totaled approximately $42.4 million and represented 4.58% of total assets. These totals include one loan of $10.7 million that was classified as non-accrual as of September 30, 2009, but has since been returned to accrual status. The return to accrual status will result in $846 thousand in interest income charged off in the third quarter being recognized in the fourth quarter of 2009."
Additionally, as part of the Bank's ongoing efforts to manage credit quality, the list of credits placed on watch status expanded in an effort to identify and monitor these credits and to mitigate future credit quality issues or minimize potential losses on a proactive basis. Management utilizes the watch list, among other things, to manage credit risk and monitor loans as they migrate through the credit cycle, from performing status to watch to non-accruing status and/or potential loss. As a result of the increased number of loans on our watch list, the increase in loans moved to non-accrual status and the loan charge-offs realized during the quarter, the Bank continues to take steps to build the loan loss reserve. Provisions for loan losses for the first nine months of 2009 totaled approximately $14.6 million. As of September 30, 2009, the allowance for loan losses stood at approximately $15.9 million or 2.24% of total gross loans.
"We are dedicated to diligent oversight of the loan portfolio. Recently, the loan portfolio has undergone a semi-annual review, performed by an independent asset quality review firm," said Ward. "The institution of a semi-annual review of the loan portfolio in addition to regular reviews performed internally has been instrumental in helping the Bank to more quickly identify and manage potential credit issues. Management continues to work with borrowers where possible and collateral is being actively marketed in an effort to mitigate potential losses to the Bank."
Loans charged-off in the third quarter totaled approximately $5.0 million, bringing the total of charged-off loans for the year to approximately $9.1 million. The majority of these charged-off loans occurred within the segments of land, construction, and commercial and industrial loans. Net charge-offs to average gross loans were 0.70% during the quarter and 1.29% during the first nine months of 2009.
The following provides a reconciliation of the change in non-accruing loans for the three months ended September 30, 2009:
Balance Additions to
June 30, Non-Accruing Net
(dollars in thousands) 2009 Balances Paydowns Charge-offs
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Real Estate Secured
Multi-family
residential $ -- $ -- $ -- $ --
Residential 1 to 4
family 392 1,184 -- (304)
Home equity line of
credit 320 -- -- --
Commercial 2,776 3,079 (67) (41)
Farmland --
Commercial
Commercial and
industrial 5,316 1,174 (29) (503)
Agriculture 384 4,922 (183) (1,909)
Other -- -- -- --
Construction
Single family
residential 678 642 (380) --
Single family
residential - Spec. 1,589 683 -- (397)
Tract -- 2,215 -- --
Multi-family -- -- -- --
Hospitality -- -- -- --
Commercial -- -- -- --
Land 511 20,294 (11) (1,801)
Installment loans to
individuals 132 48 (4) (42)
All other loans -- -- -- --
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Totals $ 12,098 $ 34,241 $ (674) $ (4,997)
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Transfers to Balance
Returns to Foreclosed Sept. 30,
(dollars in thousands) Accrual Collateral 2009
---------------------------------------------------------------------
Real Estate Secured
Multi-family residential $ -- $ -- $ --
Residential 1 to 4 family -- -- 1,272
Home equity line of credit -- -- 320
Commercial -- -- 5,747
Farmland --
Commercial
Commercial and industrial -- -- 5,958
Agriculture -- -- 3,214
Other -- -- --
Construction
Single family residential -- -- 940
Single family residential - Spec. -- (1,192) 683
Tract -- -- 2,215
Multi-family -- -- --
Hospitality -- -- --
Commercial -- -- --
Land -- -- 18,993
Installment loans to individuals -- (83) 51
All other loans -- -- --
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Totals $ -- $ (1,275) $ 39,393
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The following provides a reconciliation of the change in non-accruing loans for the nine months ended September 30, 2009:
Balance Additions to
Dec. 31, Non-Accruing Net
(dollars in thousands) 2008 Balances Paydowns Charge-offs
---------------------------------------------------------------------
Real Estate Secured
Multi-family
residential $ -- $ -- $ -- $ --
Residential 1 to 4
family 265 1,330 (19) (304)
Home equity line of
credit 320 -- -- --
Commercial 1,961 4,477 (615) (41)
Farmland -- -- -- --
Commercial
Commercial and
industrial 7,060 2,758 (376) (1,728)
Agriculture -- 5,307 (184) (1,909)
Other -- -- -- --
Construction
Single family
residential -- 1,465 (380) (145)
Single family
residential - Spec. 5,990 3,557 -- (2,073)
Tract -- 2,215 -- --
Multi-family -- -- -- --
Hospitality -- -- -- --
Commercial -- -- -- --
Land 2,720 21,715 (373) (2,792)
Installment loans to
individuals 11 272 (6) (143)
All other loans -- -- -- --
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Totals $ 18,327 $ 43,096 $ (1,953) $ (9,135)
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Transfers to Balance
Returns to Foreclosed Sept. 30,
(dollars in thousands) Accrual Collateral 2009
---------------------------------------------------------------------
Real Estate Secured
Multi-family residential $ -- $ -- $ --
Residential 1 to 4 family -- -- 1,272
Home equity line of credit -- -- 320
Commercial -- (35) 5,747
Farmland -- -- --
Commercial
Commercial and industrial (14) (1,742) 5,958
Agriculture -- -- 3,214
Other -- -- --
Construction
Single family residential -- -- 940
Single family residential - Spec. (1,250) (5,541) 683
Tract -- -- 2,215
Multi-family -- -- --
Hospitality -- -- --
Commercial -- -- --
Land -- (2,277) 18,993
Installment loans to individuals -- (83) 51
All other loans -- -- --
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Totals $ (1,264) $ (9,678) $ 39,393
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Non-Accruing Loans
Real Estate Secured - Commercial ("CRE")
Comprising a considerable portion of balances within this category are seven loans to four borrowers in the aggregate amount of $4.5 million. These seven loans represented 77% of total CRE balances and 17% of total non-accruing loans as of September 30, 2009. These loans are well secured and the Bank is working with the respective borrowers where possible to liquidate the collateral.
Commercial and Industrial ("C&I")
The majority of C&I balances can be attributed to one loan with a current book balance of approximately $3.6 million, comprising 61% of total non-accruing C&I balances and 14% of total non-accruing balances as of September 30, 2009. This loan is secured by property in the Bank's primary market area that has a current appraisal received October 13, 2009 that supports the amount carried on the balance sheet. Other significant balances within this category include two loans to two borrowers, totaling approximately $0.9 million, representing 16% of total C&I non-accruing balances.
With regard to agriculture loans, the linked quarter increase is the direct result of one particular credit that was written down to the fair value. The remaining balance is considered to be reflective of the current value of the collateral.
Construction
A significant portion of non-accruing construction balances can be attributed in large part to eight tract loans to one borrower totaling approximately $1.3 million. All eight loans have approved purchase contracts in place and have been sold under a state assisted low income housing program. Four of the loans are set to close prior to the end of October with the other four to close shortly thereafter.
Land
The largest credit within this category was the $10.7 million loan discussed above that has since returned to accrual status. The large majority of the remaining balances within this category can be attributed to five loans to three borrowers totaling approximately $7.3 million. These five loans represented 87% of total non-accruing land balances and 28% of all non-accruing balances. During the third quarter, the Bank placed seven loans within this segment of the portfolio on non-accruing status, including the five loans previously mentioned. The majority of the increase can be attributed to two loans to one borrower. Placing these loans on non-accrual status was the result of additional information obtained regarding the borrower's financial condition and management's evaluation of the independent review performed on these credits. As the result of receiving new appraisals, three loans to two borrowers were written-down by approximately $1.2 million during the third quarter of 2009. Management is in the process of obtaining updated appraisal information for the collateral securing the remaining loans and is working with the borrowers to bring about resolution.
Other Real Estate Owned ("OREO")
At September 30, 2009, OREO balances stood at approximately $2.6 million or $4.1 million lower than the $6.7 million reported at June 30, 2009. During the quarter, the Bank sold five properties previously booked in the aggregate amount of $3.9 million. In connection with these sales, the Bank recognized aggregate losses of approximately $0.2 million. Contributing further to the quarter-over-quarter decline in OREO balances was the write-down of two properties in the aggregate amount of $1.4 million, based on updated appraisal information. The larger of the two properties represents land for commercial development. Additions to OREO include one residential speculative property carried at $1.2 million that is currently in escrow and anticipated to close by the middle of November 2009.
The following provides a summary of the change in OREO balances for the three and nine months ended September 30, 2009:
For the three months ended For the nine months ended
(dollars in
thousands) September 30, 2009 September 30, 2009
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Beginning
Balance $ 6,669 $ 1,337
Additions 1,192 9,595
Dispositions (3,877) (6,876)
Write-downs (1,377) (1,449)
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Balance
September 30,
2009 $ 2,607 $ 2,607
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Capital Position
At September 30, 2009, the Company's Tier I and Total Risk-Based Capital totaled approximately $82.5 million and $92.4 million, respectively. The Tier I Capital ratio was 10.52%, while the total Risk-Based Capital ratio was 11.78% at quarter end. The Tier I and Total Risked Based totals reflect approximately $4.9 million in disallowed deferred tax assets. As of September 30, 2009, the Company was well capitalized by regulatory standards.
Shareholders' equity was approximately $87.8 million at September 30, 2009, compared to $91.3 million reported at June 30, 2009 and $70.0 million reported at December 31, 2008. Book value per common share was $8.82 at September 30, 2009, compared to the $9.03 per share reported at December 31, 2008.
Liquidity
The liquidity ratio was 19.65% at September 30, 2009, compared to 16.36% at June 30, 2009 and 6.79% at December 31, 2008. At September 30, 2009, the Bank had remaining borrowing capacity with the FHLB in the approximate amount of $117.7 million. During the quarter, the Bank established a new credit arrangement with a correspondent Bank totaling $15.0 million. With the addition of this new credit arrangement, the Bank has the ability to purchase Fed Funds in the aggregate amount of $35.0 million as of September 30, 2009, up from the $20.0 million reported at June 30, 2009.
Balance Sheet
Total deposits increased approximately $49.5 million during the quarter and approximately $150.0 million year-to-date. Exclusive of brokered deposits, total deposits increased approximately $71.0 million during the quarter and approximately $181.6 million during the first nine months of the year. Strong core deposit growth has allowed the Bank to pay down approximately $21.5 million in brokered funds during the quarter and approximately $31.6 million year-to-date. Promotions the Bank engaged in during the year have been instrumental in bringing new relationships to the Bank, further enhancing the Bank's core funding balances and keeping the cost of funds down.
