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Press release from GlobeNewswire (a Nasdaq OMX company)

Heritage Oaks Bancorp Announces Results for the First Quarter, 2012 and Termination of the Bank's Consent Order With the California Department of Financial Institutions and the FDIC

Monday, April 23, 2012

Heritage Oaks Bancorp Announces Results for the First Quarter, 2012 and Termination of the Bank's Consent Order With the California Department of Financial Institutions and the FDIC14:00 EDT Monday, April 23, 2012First quarter net income was $1.6 million, $2.5 million below fourth quarter, 2011Provision for loan losses was $3.3 million, up $2.6 million due primarily to a single loan relationship Allowance for loan losses was $19.8 million or 3.07% of gross loans reflecting119% coverage over non-performing loansNet interest margin increased to 4.72%, 5 basis points above prior quarter Total deposits increased $20.2 million or 2.6% over fourth quarter, 2011 to $806.4 million while gross loans remained flat to prior quarter at $645 million The Company released $0.8 million from its deferred tax asset valuation reserve in first quarter 2012 as compared to $1.5 million released in fourth quarter, 2011Effective April 16, 2012, the FDIC and California Department of Financial Institutions terminated the Joint Consent Order issued on March 4, 2010 PASO ROBLES, Calif., April 23, 2012 (GLOBE NEWSWIRE) -- Heritage Oaks Bancorp (the "Company"), (Nasdaq:HEOP), the parent company of Heritage Oaks Bank (the "Bank"), today reported net income of $1.6 million, $2.5 million less than fourth quarter, 2011 and $1.1 million higher than first quarter, 2011. The decrease in net income from prior quarter was driven by a $2.6 million increase in provision for loan losses, which resulted from deterioration in one loan relationship. Also contributing to the linked-quarter decrease was a $0.7 million decline in the level of deferred tax asset valuation allowance reversal in the first quarter of 2012 as compared to the prior quarter. The net income in first quarter represented six consecutive quarters of profitability. After incorporating accrued dividends and accretion on preferred stock of $0.4 million, the net income applicable to common shareholders for first quarter was $1.2 million. Net income per basic and diluted common share was $0.05 in the first quarter; $0.11 and $0.10 less than the basic and diluted earnings per share, respectively, reported in the fourth quarter, 2011. On a pre-tax, pre-loan loss provision basis, the Company earned $4.5 million in the first quarter, $0.4 million less than the fourth quarter, 2011. This decrease was due to $0.2 million less net interest income and $0.7 million less in non-interest income, due to $0.5 million less gain on sale of securities and $0.2 million less in mortgage gain on sale and origination fees. Partly offsetting these declines was $0.5 million less in non-interest expenses. The increase in the provision for loan losses in the first quarter of 2012 is largely attributable to deterioration in a single credit relationship, which aggregates to over $10.0 million. Although the borrower had been performing under the terms of the related loans, it became apparent during the first quarter that repayment in full upon the loans' maturity date in the second quarter of 2012 would not occur. Accordingly, the related loans were downgraded to substandard, transferred to non-accrual status, determined to be impaired and an appropriate provision was recorded according to a collateral-based specific reserve analysis. In addition, this single credit relationship also drove higher levels of classified and non-accrual loans which have been declining over the past four quarters. Both the level of special mention loans and delinquent loans greater than 30 days declined in first quarter. Effective April 16, 2012, the FDIC and California Department of Financial Institutions ("DFI") terminated the Joint Consent Order ("Order") issued March 4, 2010. In connection with the termination of the Order, the Bank's Board of Directors executed a Memorandum of Understanding ("MOU") with the FDIC and DFI. Under the MOU, the Bank committed to continue to: maintain a minimum Tier 1 Leverage Ratio of 10%; obtain regulatory approval for any dividend payments from the Bank; obtain regulatory approval for the opening of new branch locations; and continue to make progress in improving credit quality and processes. The lifting of the Order reflects the progress the Bank has made in improving credit quality, strengthening capital, enhancing oversight and hiring qualified management as stated in the terms of the Order. "The removal of the Order is testament to the hard work of the entire Heritage Oaks Bank team in addressing the requirements of the Order. Our capital position has been strengthened, the Bank's profitability has improved, and we will continue to focus on improving credit quality and operating efficiency," said Simone Lagomarsino, CEO and President. "In line with our strategic objectives, first quarter progress was notable in several areas including termination of the Consent Order, improving operating efficiency and growing the business. We are on track to consolidate three of our smaller branches into other nearby branches in second quarter and we have continued to rationalize and flatten the organizational structure. We have also completed the acquisition of our Paso Robles headquarters' building, main branch and 2 other branches at favorable terms that will help lower operating costs today and, increasingly over the longer term. From a business growth perspective, our branches had excellent success in contributing to the $20.2 million increase in deposits this quarter. We also identified and leased a new location as our entry point into Ventura County with a new loan production office which will open in June, 2012.  The size and opportunity in the Ventura County market is greater than the size and opportunity in Santa Barbara and San Luis Obispo Counties combined. In addition, we have just hired a team of 5 seasoned loan officers to accelerate growth in our SBA and agricultural lending portfolios," concluded Ms. Lagomarsino.   First Quarter Operating Results Net interest income was $10.7 million in the first quarter, down $0.2 million from fourth quarter as average securities balances were lower in first quarter driven by a decline in deposit balances in the prior quarter, partially offset by higher net interest margin in the first quarter, 2012. A $20.2 million increase in deposits that occurred in March, helped to increase the level of investment securities in the same month which should benefit net interest income in the coming quarter. Net interest margin reached 4.72%, up 5 basis points from the prior quarter. We continue to anticipate some net interest margin pressure in future periods due to the competitive environment for loan relationships, refinance activity and the mix of our earning assets. Partly offsetting net interest margin pressure has been the steady decline in cost of deposits, which has been declining nearly 6 basis points on average each quarter for the last 5 quarters, largely as the result of:  certificates of deposit renewing at lower rates or transferring into other lower cost deposit types at maturity, favorable composition of deposits with a large percentage of low cost demand deposits, and the pricing strategy. Non-interest income totaled $2.5 million in the first quarter, $0.7 million lower on a linked-quarter basis. The decrease was primarily due to a reduction in the volume of security sales, which reduced the level of gains realized from $0.8 million in fourth quarter, 2011 to $0.3 million in first quarter, 2012 and $0.2 million less in mortgage gain on sale and origination fees.  Fourth quarter, 2011 security gains were particularly strong as the Company took the opportunity to sell off some of its older, less liquid, odd-lot municipal bonds at substantial gain. Mortgage origination and sales volumes were $41.1 million in the first quarter, $7.6 million less than the prior quarter. Non-interest expense declined $0.5 million from prior quarter. This decrease is primarily due to $0.2 million write-down on foreclosed assets in prior quarter versus no write-downs in first quarter, $0.1 million less in audit and tax service expense, $0.3 million less consulting costs and $0.1 million less in general operating costs.  Partly offsetting these declines was a $0.3 million increase in salaries and benefits mainly attributable to severance cost associated with the three branch closures and flattening of the organizational structure.  As noted last quarter, non-interest expenses are anticipated to contract as credit quality continues to improve, FDIC deposit insurance costs decline in second half of 2012, and the recent cost reduction strategies impact a full quarter, partially offset by recent sales staff hires. The Company recorded a $0.4 million provision for income taxes for the first quarter, 2012 and released $0.8 million from the deferred tax asset valuation reserve as a credit to income tax expense, resulting in a net income tax benefit of $0.4 million. The remaining deferred tax asset valuation allowance was $4.8 million on March 31, 2012. To the extent the Company returns to more normalized credit provisioning and is confident that it will return to a cumulative three year earnings position, the valuation allowance will be reversed. The deferred tax asset valuation allowance is discussed in more detail later in this press release.  On a pre-tax basis, first quarter, 2012 earnings were $1.2 million, down $3.0 million from prior quarter. Excluding the provision for loan losses the first quarter pre-tax, pre-provision for loan loss earnings were $4.5 million, down $0.4 million from prior quarter and up $1.8 million or 65% above first quarter, 2011.Asset Quality:  Non-accrual loans increased $4.3 million to $16.7 million and total non-performing assets increased $4.2 million to $17.6 million since year-end 2011. Both categories were driven higher by the transfer into non-accrual of the single credit relationship mentioned earlier.  Non-performing loans to gross loans was 2.58% and non-performing loans to total assets was 1.65% in first quarter in comparison to 4.07% and 2.80%, respectively, at the end of the first quarter, 2011.  Non-performing assets to total assets was 1.74%, up from 1.35% in prior quarter and improved from 3.43% from first quarter, 2011.  The negative change in these ratios from prior quarter was primarily due to the single credit relationship previously disclosed.  All of the loans included in this single credit relationship were accruing and designated as special mention loans at the end of 2011.  Excluding this single credit relationship, the non-accrual loan balance would have declined $4.9 million or 40% from prior quarter's $12.4 million balance. The Company is vigorously pursuing all avenues in an effort to recoup all amounts owed on these loans. Classified Loans in first quarter were $61.1 million, up $7.1 million from prior quarter, yet $13.7 million below first quarter, 2011. The negative variance is primarily due to the single credit relationship mentioned earlier.  Classified assets, inclusive of classified loans, were $62.3 million, $2.3 million above fourth quarter, 2011 and $19.5 million below first quarter, 2011. The $2.3 million increase in classified assets on a linked quarter basis was impacted by the downgrade of the single large loan relationship which was partially offset by sale of the $4.3 million of classified loans, previously marked to fair value in the fourth quarter of 2011, and first quarter 2012 total gross charge-offs of $3.1 million. Of the $61.1 million of classified loans, $44.5 million or 72.7% were still accruing.    Other Real Estate Owned at March 31, 2012 was $0.9 million, flat to the prior quarter. Loans delinquent 30-89 days have remained very low for several quarters at $0.6 million or 0.1% of total gross loans in first quarter as compared to $0.8 million or 0.1% in prior quarter. Troubled debt restructures ("TDRs") were $3.1 million at quarter-end, down $0.6 million from fourth quarter, 2011.  Provision for loan losses increased from $0.7 million in the fourth quarter, 2011 to $3.3 million in the first quarter this year. Excluding the impact of the previously mentioned single credit relationship noted earlier, the provision for loan losses would have declined by $1.8 million due to continued improvement in historical loss rates and qualitative factors which drive the general reserve calculation. Gross charge-offs totaled $3.1 million a portion of which is derived from the single credit relationship previously described. First quarter credit recoveries were $0.2 million resulting in total net charge-offs of $2.9 million or 1.75% of average total loans on an annualized basis. At March 31, 2012 the allowance for loan losses was $19.8 million or 3.07% of total loans compared to $19.3 million or 2.99% in the prior quarter.  The allowance for loan losses reflected 119% coverage over non-performing loans of $16.7 million.  Total classified assets as a percent of Tier 1 Capital plus allowance for loan losses was 45.8% in comparison to 44.3% at end of 2011 and down from 62.5% at March 31, 2011.  A summary of key metrics related to asset quality follows (dollars in millions):          March 31, 2012December 31, 2011March 31, 2011 Classified Loans  $61.1 $54.0 $74.8 Classified Assets $62.3 $60.0 $81.8 Classified Assets / Tier 1 + ALLL 45.83% 44.31% 62.46% Non-Performing Assets / Total Assets 1.74% 1.35% 3.43% ALLL / Gross Loans 3.07% 2.99% 3.65% Non-Performing Loans $16.7 $12.4 $27.2 ALLL / Non-Performing Loans 118.90% 156.16% 89.69% Net Charge-Offs / Average Loans, Annualized 1.75% 1.75% 0.38% OREO  $0.9 $0.9 $6.1 30-89 Day Delinquent Loans $0.6 $0.8 $2.4 Non Performing Loans to Total Gross Loans 2.58% 1.91% 4.07%Balance Sheet: Total assets as of March 31, 2012 were $1.0 billion, $21.6 million higher than reported in the prior quarter. The primary changes in earning asset mix was a $30.0 million increase in the investment securities portfolio which mainly occurred in March as deposits increased and market rates rose. In first quarter 2012, the Company sold $12.5 million of securities, comprised of agency mortgage backed securities ("MBS") and non-agency commercial mortgage backed securities ("CMBS"). The sales were targeted at select CMBS issues that had appreciated in price but were beginning to realize some credit deterioration, in addition to fast paying agency mortgage backed securities. The net gain on securities sold in first quarter was $0.3 million and the unrealized gain at quarter-end on the entire portfolio was $3.7 million. Proceeds from the sales were largely reinvested back into new issue CMBS with better credit profiles and agency backed MBS and collateralized mortgage obligations ("CMO") with better return profiles and limited exposure to refinance risk. Municipals comprise 23% of the portfolio, corporate bonds 11%, mortgage-backed securities 63% (including agency issued of 51%), and other 3%. At March 31, 2012, the portfolio had an average duration of 3.48 years with a weighted average credit rating of AA.   Gross loans were largely flat in first quarter at $645.5 million, $0.8 million less than the prior quarter. The Bank plans to open the Ventura County loan production office in June, and has recently hired five additional lenders which we anticipate will accelerate growth in the loan portfolio, with an emphasis on the SBA and agricultural segments.  Loans held for sale declined $8.1 million mainly due to the sale of $4.3 million of classified loans that were marked to fair value and transferred into held for sale in fourth quarter, 2011 and sold in January 2012.  Average non-earning assets such as non-interest bearing cash and property and equipment increased $4.9 million primarily due to the previously mentioned purchase of the Company's administrative headquarters and three branch buildings.   Residential Mortgage Loan originations, which are largely sold to investors, were $41.1 million in first quarter a decline from the fourth quarter originations of $48.7 million, which was the best production quarter in 2011. Continued low interest rates, an increased sales force, and expansion into Ventura County should help fuel growth of this business in 2012. Gain on sale of consumer mortgages and related fees contributed $0.9 million to non-interest income in first quarter, down $0.2 million compared to the prior quarter. Total Liabilities grew $18.6 million on a linked-quarter basis to $876.2 million as compared to $857.6 million in the fourth quarter, 2011. Total Deposits were $806.4 million, $20.2 million above prior quarter. Non-interest bearing demand deposit account ("DDA") balances surged $10.1 million and Savings/NOW/Money Market Accounts grew $8.4 million to $384.7 million largely due to a very successful deposit gathering campaign coupled with seasonality factors.  Non-interest bearing DDA deposits comprised 28% of total deposits and core deposits, defined as deposits exclusive of certificates greater than $100 thousand, were 88% of total deposits as of March 31, 2012. Federal Home Loan Bank ("FHLB") borrowings increased $1.0 million to $52.5 million at the end of first quarter which were split between $23.5 million in short-term advances and $29.0 million in longer-term borrowings which the Company has laddered out over 10 years.Deferred Tax Assets:  The Company's gross deferred tax asset at March 31, 2012 was $22.8 million, down $1.0 million from prior quarter and down $5.4 million from December 31, 2010.  These decreases are largely due to tax return timing differences driven by a decrease in the allowance for loan losses since December 31, 2010, as well as the decline in overall valuation allowances for foreclosed assets. In 2010 the Company had established a partial deferred tax asset valuation allowance of $7.1 million due to concerns that it was not "more likely than not" that it would realize 100% of the value of such assets. This partial valuation allowance was determined based on the results of the Company's model of deferred tax asset utilization over future periods. At that time, gross deferred tax assets had been $28.2 million and management determined that it was uncertain whether the Company would have sufficient future profitability to utilize all of its deferred tax assets.  In 2011, the Company significantly improved pre-tax earnings by $28.9 million over prior year, monitored its deferred tax asset position and refrained from releasing any of its valuation allowance until such time that profitability was adequately demonstrated, credit quality was improved, and updated projections of future earnings were solidified as part of the Company's annual strategic planning process in the fourth quarter of 2011.  At the end of fourth quarter, 2011 the Company modeled its projected pre-tax earnings available for deferred tax asset utilization against the timing differences as of December 31, 2011 and determined that $1.5 million of its existing $7.1 million valuation allowance was no longer required. Similarly, in the first quarter, 2012 the Company released $0.8 million using the same methodology. In 2012, to the extent the Company continues to demonstrate profitability and as timing differences reverse, we would expect the deferred tax valuation allowance to continue to decrease or, potentially, reverse in full when management determines that it is "more likely than not" that the deferred tax assets will be fully realized in future periods. The remaining deferred tax asset valuation allowance of $4.8 million will result in an incremental increase of 19 cents per share upon its full reversal.Capital Position:  As of March 31, 2012, Heritage Oaks Bancorp continued to add to its strong capital position and remains well above all regulatory minimums. Heritage Oaks Bank, similarly, also grew capital and remains well above all regulatory minimum capital ratios.  Both the Company and the Bank are committed to maintaining strong capital levels and active capital management to anticipate risk, support balance sheet growth and to provide adequate return to our shareholders.                  For the three months ended,MOUWell Capitalized Percent Excess Dollar Excess  March 31, 2012December 31, 2011March 31, 2011Prescribed RatiosRegulatory RequirementAbove Requirement Above RequirementHeritage Oaks Bancorp               Tier 1 leverage ratio 12.17% 12.06% 11.15% N/A 5.00% 7.17%  $ 68,430 Tier 1 risk based ratio 14.60% 14.81% 14.37% N/A 6.00% 8.60%  $ 68,438 Total risk based capital ratio 15.87% 16.07% 15.65% N/A 10.00% 5.87%  $ 46,685 Tangible common equity to tangible assets 9.57% 9.46% 8.80%                        Heritage Oaks Bank               Tier 1 leverage ratio 11.99% 11.85% 10.83% 10.00% 5.00% 1.99%  $ 18,951 Tier 1 risk based ratio 14.35% 14.51% 13.93% N/A 6.00% 8.35%  $ 66,339 Total risk based capital ratio 15.62% 15.77% 15.20% N/A 10.00% 5.62%  $ 44,627 Tangible common equity to tangible assets 12.71% 12.62% 11.91%        Liquidity:  Our Liquidity ratio (total cash and equivalents plus unpledged marketable securities divided by the sum of total deposits and short-term liabilities less pledged securities) remained very strong at 35.9% at the end of the first quarter, 0.8% higher than the prior quarter. At quarter-end, the Bank had remaining borrowing capacity with the FHLB of approximately $156 million, which increased by 6.7% from prior quarter-end due to normal utilization. The Bank also has a collateralized borrowing facility with the Federal Reserve Bank of $7.4 million and has the ability to purchase federal funds under a correspondent bank line of credit in the aggregate amount of $15.0 million as of March 31, 2012. Additionally, $263 million of the Company's $267 million investment portfolio was unpledged and available as on-balance sheet liquidity as of quarter-end.Conference Call Heritage Oaks Bancorp will host a conference call to discuss these first quarter results at 8:00 a.m. PDT on April 24, 2012. Media representatives, analysts and the public are invited to listen to this discussion by calling (877) 363-5052 and entering the conference ID 69608319, or via on-demand webcast. A link to the webcast will be available on the 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.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 is headquartered in Paso Robles and has two branches in Paso Robles and San Luis Obispo, single branch in Cambria, Arroyo Grande, Atascadero, Templeton, and Morro Bay and three branches 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 branches in Santa Barbara. Visit Heritage Oaks Bancorp on the Web at www.heritageoaksbank.com. The Heritage Oaks Bancorp logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=7045Forward Looking Statements Statements concerning future performance, developments or events, expectations for growth, income forecasts, sales activity for collateral, credit quality 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 continued weak economic recovery in the United States and the markets in which the Company operates, and the response of the federal and state government and our regulators thereto, the effects on our operations of the enforcement actions we are subject to, 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, continued weakness in the real estate markets within which we operate and general economic conditions in both the United States and abroad. 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 BancorpConsolidated Balance Sheets     (unaudited) (audited)(unaudited)(dollar amounts in thousands)3/31/201212/31/20113/31/2011Assets    Cash and due from banks  $ 17,899  $ 18,858  $ 19,145 Interest bearing due from banks  8,803  16,034  27,719 Federal funds sold  --   --   --  Total cash and cash equivalents  26,702  34,892  46,864         Interest bearing deposits with other banks  --   --   119 Securities available for sale  266,996  236,982  203,210 Federal Home Loan Bank stock, at cost  4,685  4,685  4,974 Loans held for sale  13,811  21,947  4,115 Gross loans  645,468  646,286  667,831 Net deferred loan fees  (1,025)  (1,111)  (1,420) Allowance for loan losses  (19,801)  (19,314)  (24,367) Net loans  624,642  625,861  642,044 Property, premises and equipment  15,586  5,528  6,228 Deferred tax assets, net  18,038  18,226  20,605 Bank owned life insurance  14,966  14,835  13,972 Goodwill  11,049  11,049  11,049 Core deposit intangible  1,597  1,682  1,962 Other real estate owned  917  917  6,085 Other assets  9,791  10,534  9,634 Total assets  $ 1,008,780  $ 987,138  $ 970,861    Liabilities    Deposits       Demand, non-interest bearing  227,380  217,245  193,283 Savings, NOW, and money market  384,704  376,252  367,975 Time deposits under $100K  98,657  102,628  114,778 Time deposits of $100K or more  95,619  90,083  110,292 Total deposits  806,360  786,208  786,328 Short term FHLB borrowing  23,500  29,500  23,500 Long term FHLB borrowing  29,000  22,000  21,500 Junior subordinated debentures  8,248  8,248  8,248 Other liabilities  9,049  11,628  9,462 Total liabilities  876,157  857,584  849,038        Stockholders' equity    Preferred stock, 5,000,000 shares authorized: Series A senior preferred stock; $1,000 per share stated value issued and outstanding: 21,000 shares  20,253  20,160  19,883 Series C preferred stock, $3.25 per share stated value; issued and outstanding: 1,189,538 shares   3,604  3,604  3,604 Common stock, no par value; authorized: 100,000,000 shares; issued and outstanding: 25,163,571; 25,145,717; and 25,081,819 as of March 31, 2012; December 31, 2011; and March 31, 2011, respectively  101,161  101,140  101,140 Additional paid in capital  7,045  7,006  6,803 Accumulated deficit  (1,591)  (2,794)  (9,004) Accumulated other comprehensive income (loss)  2,151  438  (603) Total stockholders' equity  132,623  129,554  121,823 Total liabilities and stockholders' equity  $ 1,008,780  $ 987,138  $ 970,861     Book value per common share  $ 4.29  $ 4.17  $ 3.88         Tangible book value per common share  $ 3.79  $ 3.67  $ 3.36  Heritage Oaks BancorpConsolidated Statements of Operations     (unaudited)(unaudited)(unaudited) For the Three Months Ended(dollar amounts in thousands except per share data)3/31/201212/31/20113/31/2011Interest Income     Interest and fees on loans  $ 9,927  $ 10,213  $ 10,534 Interest on investment securities  1,798  1,779  1,554 Other interest income  27  20  24 Total interest income  11,752  12,012  12,112Interest Expense     Interest on savings, NOW and money market deposits  295  336  425 Interest on time deposits under $100  267  310  439 Interest on time deposits in denominations of $100 or more  260  314  409 Other borrowings  181  146  117 Total interest expense  1,003  1,106  1,390 Net interest income before provision for loan losses  10,749  10,906  10,722 Provision for loan losses  3,331  693  1,985 Net interest income after provision for loan losses  7,418  10,213  8,737Non Interest Income     Fees and service charges  674  633  570 Mortgage gain on sale and origination fees   855  1,038  615 Debit/credit card fee income  419  421  380 Earnings on bank owned life insurance  152  152  148 Gain on sale of investment securities  303  796  73 Gain / (Loss) on sale of other real estate owned  --   44  (27) Other Income  119  129  133 Total non interest income  2,522  3,213  1,892Non Interest Expense     Salaries and employee benefits  4,536  4,258  4,551 Equipment  405  412  452 Occupancy  1,017  1,003  944 Promotional   137  177  172 Data processing  750  721  734 OREO related costs  98  115  99 Write-downs of foreclosed assets  --   230  733 Regulatory assessment costs  551  527  715 Audit and tax advisory costs  158  265  163 Director fees  109  146  103 Outside services  206  490  347 Telephone / communication costs  87  90  84 Amortization of intangible assets  86  89  165 Stationery and supplies  79  73  112 Other general operating costs  510  625  491 Total non interest expense  8,729  9,221  9,865 Income before provision for / (benefit from) income taxes   1,211  4,205  764 Provision for / (benefit from) income taxes  (374)  75  242Net income   1,585  4,130  522 Dividends and accretion on preferred stock  381  251  365Net income available to common shareholders  $ 1,204  $ 3,879  $ 157         Weighted Average Shares Outstanding       Basic  25,057,664  25,054,204  25,035,012 Diluted  26,290,370  26,261,179  26,251,608 Earnings Per Common Share       Basic  $ 0.05  $ 0.16  $ 0.01 Diluted  $ 0.05  $ 0.15  $ 0.01    Heritage Oaks BancorpKey Ratios      Three Months EndedPROFITABILITY / PERFORMANCE RATIOS3/31/201212/31/20113/31/2011 Net interest margin 4.72% 4.67% 4.73% Return on average equity 4.82% 12.87% 1.73% Return on average common equity 4.49% 14.98% 0.65% Return on average tangible common equity 5.10% 17.12% 0.57% Return on average assets 0.65% 1.66% 0.22% Non interest income to total net revenue 19.00% 22.76% 15.00% Yield on interest earning assets 5.16% 5.15% 5.35% Cost of interest bearing liabilities 0.65% 0.71% 0.85% Cost of funds 0.48% 0.52% 0.67% Operating efficiency ratio (1) 65.70% 66.17% 70.56%        ASSET QUALITY RATIOS              Non-performing loans to total gross loans 2.58% 1.91% 4.07% Allowance for loan losses to non-performing loans 118.90% 156.16% 89.69% Non-performing loans to total assets 1.65% 1.25% 2.80% Non-performing loans to equity 12.56% 9.55% 22.30% Non-performing assets to total assets 1.74% 1.35% 3.43% Allowance for loan losses to total gross loans 3.07% 2.99% 3.65% Net charge-offs to average loans outstanding, annualized 1.75% 1.08% 1.53% Classified assets to Tier I + ALLL 45.83% 44.31% 62.46%        CAPITAL RATIOS              Company       Leverage ratio 12.17% 12.06% 11.15% Tier I Risk-Based Capital Ratio 14.60% 14.81% 14.37% Total Risk-Based Capital Ratio 15.87% 16.07% 15.65%         Bank       Leverage ratio 11.99% 11.85% 10.83% Tier I Risk-Based Capital Ratio 14.35% 14.51% 13.93% Total Risk-Based Capital Ratio 15.62% 15.77% 15.20%         (1) The efficiency ratio is defined as total non interest expense as a percent of the combined net interest income plus non interest income, exclusive of gains and losses on securities sales, other than temporary impairment losses, amortization of intangible assets, gains and losses on sale of OREO, operating and administrative costs of OREO and gains and losses on sale of fixed assets.                    Heritage Oaks BancorpAverage Balances                     Three Months Ended  3/31/201212/31/20113/31/2011(dollars in thousands)BalanceYield/RateInc/ExpBalanceYield/RateInc/ExpBalanceYield/RateInc/ExpInterest Earning Assets          Investments with other banks  $ --  0.00%  $ --   $ --  0.00%  $ --   $ 119 1.10%  $ --  Interest bearing due from banks  16,707 0.19%  8  16,362 0.15%  6  16,933 0.22%  9 Federal funds sold  --  0.00%  --   --  0.00%  --   2,839 0.14%  1 Investment securities taxable  193,788 2.88%  1,386  208,082 2.72%  1,425  173,871 2.74%  1,176 Investment securities non taxable  44,553 3.72%  412  36,451 3.85%  354  36,130 4.24%  378 Other investments  6,588 1.16%  19  6,588 0.84%  14  9,128 0.62%  14 Loans (1)  654,633 6.10%  9,927  658,397 6.15%  10,213  679,611 6.29%  10,534 Total earning assets  916,269 5.16%  11,752  925,880 5.15%  12,012  918,631 5.35%  12,112 Allowance for loan losses  (19,415)      (20,500)      (25,375)     Other assets  83,001      79,177      86,429     Total assets  $ 979,855      $ 984,557      $ 979,685                        Interest Bearing Liabilities                   Interest bearing demand  $ 64,142 0.09%  $ 15  $ 63,667 0.10%  $ 16  $ 63,802 0.22%  $ 34 Savings  33,993 0.11%  9  32,546 0.11%  9  28,583 0.17%  12 Money market  277,115 0.39%  271  278,740 0.44%  312  281,581 0.55%  379 Time deposits  187,963 1.13%  527  199,583 1.24%  623  228,693 1.50%  848 Total interest bearing deposits  563,213 0.59%  822  574,536 0.66%  960  602,659 0.86%  1,273 Other secured borrowing  --  0.00%  --   11 0.00%  --   --  0.00%  --  Federal Home Loan Bank borrowing  49,875 1.07%  133  37,766 1.07%  102  52,222 0.58%  75 Junior subordinated debentures  8,248 2.34%  48  8,248 2.12%  44  8,248 2.07%  42 Total borrowed funds  58,123 1.25%  181  46,025 1.26%  146  60,470 0.78%  117 Total interest bearing liabilities  621,336 0.65%  1,003  620,561 0.71%  1,106  663,129 0.85%  1,390 Non interest bearing demand  214,886      225,592      183,880     Total funding  836,222 0.48%  1,003  846,153 0.52%  1,106  847,009 0.67%  1,390 Other liabilities  11,249      11,098      10,127     Total liabilities  $ 847,471      $ 857,251      $ 857,136                        Stockholders' Equity                   Total shareholders' equity  132,384      127,306      122,549     Total liabilities and shareholders' equity  $ 979,855      $ 984,557      $ 979,685                         Net interest margin   4.72%     4.67%     4.73%                       Interest Rate Spread   4.51%  $ 10,749   4.44%  $ 10,906   4.50%  $ 10,722                     (1) Nonaccrual loans have been included in total loans.       Heritage Oaks BancorpLoans and Deposits    (dollar amounts in thousands)For the Quarters EndedLoans3/31/201212/31/20113/31/2011Real Estate Secured     Multi-family residential  $ 16,549  $ 15,915  $ 16,380 Residential 1 to 4 family  21,436  20,839  21,674 Home equity lines of credit  31,333  31,047  31,413 Commercial  361,762  357,499  352,471 Farmland  9,582  8,155  12,670 Total real estate secured  440,662  433,455  434,608Commercial     Commercial and industrial  132,078  141,065  141,516 Agriculture  16,393  15,740  15,278 Other  79  89  126 Total commercial  148,550  156,894  156,920Construction     Single family residential  12,987  13,039  10,940 Single family residential - Spec.  278  8  898 Multi-family  1,650  1,669  1,728 Commercial  10,608  8,015  26,755 Total construction  25,523  22,731  40,321Land  24,882  26,454  28,716Installment loans to individuals  5,608  6,479  7,070All other loans (including overdrafts)  243  273  196Total gross loans  645,468  646,286  667,831 Deferred loan fees  1,025  1,111  1,420 Reserve for loan losses  19,801  19,314  24,367Net loans  $ 624,642  $ 625,861  $ 642,044Loans held for sale  $ 13,811  $ 21,947  $ 4,115          For the Quarters EndedAllowance for Loan Losses3/31/201212/31/20113/31/2011 Balance, beginning of period   $ 19,314  $ 20,409  $ 24,940 Provision for loan losses  3,331  693  1,985 Loans charge-off       Residential 1 to 4 family  --   30  --  Commercial real estate  7  --   --  Farmland  4  161  286 Commercial and industrial  1,692  254  963 Agriculture  450  115  --  Land  785  --   9 Installment loans to individuals  11  5  19 All other loans  137  --   --  Total loan charge-offs  3,086  565  1,277 Recoveries of loans previously charged-off  242  437  978 Charge-offs / (recoveries) related to loan sales       Residential 1 to 4 family  --   --   3 Commercial real estate  --   1,268  1,288 Farmland  --   392  --  Commercial and industrial  --   --   12 Construction  --   --   291 Land  --   --   665 Net charge-offs / (recoveries) related to loan sales  --   1,660  2,259 Balance, end of period   $ 19,801  $ 19,314  $ 24,367         Net charge-offs  $ 2,844  $ 1,788  $ 2,558                 For the Quarters EndedDeposits3/31/201212/31/20113/31/2011 Demand, non-interest bearing  $ 227,380  $ 217,245  $ 193,283 Interest-bearing demand  65,717  64,298  64,918 Savings  35,127  33,740  28,368 Money market  283,860  278,214  274,689 Time deposits  194,276  192,711  225,070 Total deposits  $ 806,360  $ 786,208  $ 786,328       Heritage Oaks BancorpNon-Performing and Classified Assets      For the Quarters EndedNon-Performing Assets3/31/201212/31/20113/31/2011 Loans on non-accrual status       Residential 1-4 family  $ 609  $ 622  $ 531 Home equity lines of credit  387  359  1,074 Commercial real estate  877  4,551  14,376 Farmland  --   --   875 Commercial and industrial  6,503  1,625  4,477 Agriculture  2,306  2,327  404 Construction  --   937  1,293 Land  5,911  1,886  4,061 Installment  60  61  76 Total non-accruing loans  $ 16,653  $ 12,368  $ 27,167 Other real estate owned (OREO)  917  917  6,085 Other repossessed assets  --   42  92 Total non-performing assets  $ 17,570  $ 13,327  $ 33,344                  For the Quarters EndedClassified assets3/31/201212/31/20113/31/2011 Loans  $ 61,111  $ 53,953  $ 74,812 Other real estate owned (OREO)  917  917  6,085 Other classified assets  284  5,166  887 Total classified assets  $ 62,312  $ 60,036  $ 81,784         Classified assets to Tier I + ALLL 45.83% 44.31% 62.46%         Note: Classified assets consists of substandard and non-performing loans, OREO, non-investment grade securities, other repossessed assets, loans held for sale that were substandard and substandard letters of credit.                   Heritage Oaks BancorpQuarter to Date Non-Performing Loan Reconciliation                     Balance   TransfersReturns to  TransfersBalance December 31, Net to ForeclosedAccrualNetto Held March 31,(dollar amounts in thousands)2011AdditionsPaydownsAdvancesCollateralStatusCharge-offsfor Sale2012Real Estate Secured                   Residential 1 to 4 family  $ 622  $ --   $ (13)  $ --   $ --   $ --   $ --   $ --   $ 609 Home equity line of credit  359  65  (37)  --   --   --   --   --   387 Commercial  4,551  --   (118)  --   --   (3,556)  --   --   877Commercial                   Commercial and industrial  1,625  6,943  (201)  --   (172)  --   (1,692)  --   6,503 Agriculture  2,327  450  (21)  --   --   --   (450)  --   2,306 Other  --   --   --   --   --   --   --   --   -- Construction                   Single family residential  937  --   (937)  --   --   --   --   --   --  Land  1,886  5,233  (423)  --   --   --   (785)  --   5,911 Installment loans to individuals  61  11  (1)  --   --   --   (11)  --   60                     Totals  $ 12,368  $ 12,702  $ (1,751)  $ --   $ (172)  $ (3,556)  $ (2,938)  $ --   $ 16,653 The following tables reconcile the quarter to date changes in the balance of OREO during 2012:           Heritage Oaks BancorpQuarter to Date OREO Reconciliation        Balance   Balance December 31,   March 31,(dollars in thousands)2011AdditionsSalesWritedowns2012Real Estate Secured           Residential 1 to 4 family  $ --   $ 176  $ (176)  $ --   $ --  Commercial real estate  215  --   --   --   215Construction           Single family residential - Spec.  423  --   --   --   423 Tract  100  --   --   --   100 Land  179  --   --   --   179             Totals  $ 917  $ 176  $ (176)  $ --   $ 917CONTACT: Simone Lagomarsino, CEO 805-369-5260 Tom Tolda, CFO 805-369-5107