PASO ROBLES, Calif., Jan. 30, 2017 (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 $4.6 million, or $0.13 per diluted common share, for the fourth quarter of 2016 compared to net income available to common shareholders of $3.5 million, or $0.10 per diluted common share, for the fourth quarter of 2015, and net income available to common shareholders of $4.2 million, or $0.12 per diluted common share for the third quarter of 2016. For the year ended December 31, 2016, net income available to common shareholders was $16.9 million, or $0.49 per diluted common share compared with net income available to common shareholders of $15.3 million, or $0.44 per diluted common share for the year ended December 31, 2015.
Fourth Quarter and Year End 2016 Highlights
- Gross loans increased by $138.2 million, or 11.1%, to $1.39 billion at December 31, 2016 compared to $1.25 billion a year earlier, and increased by $42.8 million, or 3.2%, compared to $1.34 billion at September 30, 2016. New loan production totaled $124.8 million for the fourth quarter of 2016, an increase of 10.3% compared to the linked quarter.
- Total deposits increased by $118.9 million, or 7.6%, to $1.68 billion at December 31, 2016 compared with $1.56 billion a year earlier, and increased by $52.5 million, or 3.2%, during the fourth quarter of 2016. Non-interest bearing demand deposits grew by 11.5% during the last year and by 0.7% over the last quarter to $574.0 million, and represent 34.1% of total deposits at December 31, 2016.
- Credit quality remains strong with non-accrual loans representing 0.49% of total gross loans at December 31, 2016, down from 0.63% a year ago, and up from 0.36% for the linked quarter. Net recoveries for the fourth quarter of 2016 were $0.1 million compared to $0.2 million for the linked quarter and $0.2 million for the fourth quarter of 2015. Loans delinquent 30 to 89 days as a percentage of gross loans increased to 0.02% from 0.00% for the linked quarter, and remained the same relative to 0.02% at December 31, 2015.
- Regulatory capital ratios for the Bank at December 31, 2016 were 9.47% for Tier 1 Leverage Capital, 13.35% for Total Risk Based Capital, and 12.19% for Common Equity Tier One Capital.
- On January 25th, 2017 the Company’s board of directors declared a dividend of $0.06 per common share for shareholders of record as of February 15th, 2017, which is payable to our common shareholders on February 28th, 2017.
- As previously announced, the Company entered into a definitive agreement to be acquired by Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) for an aggregate purchase price of $405.6 million, or $11.68 per share based on the closing price for Pacific Premier Bancorp, Inc.’s common stock of $33.65 as of December 12, 2016. Under the terms of the definitive agreement, upon consummation of the transaction, holders of Heritage Oaks Bancorp common stock will have the right to receive 0.3471 shares of Pacific Premier common stock for each share of Heritage Oaks common stock they own. The acquisition remains subject to regulatory and shareholder approvals. This acquisition will provide the Company’s customers with an expanded product set and services and Heritage Oaks Bank customers will continue to receive the same excellent customer service. The acquisition also increases the combined entity’s geographic footprint to cover the coast of California from San Diego to Paso Robles.
“2016 marked a year of multiple successes for the Company, which should provide many long-term benefits for its shareholders, customers, and employees,” stated Simone Lagomarsino, President and Chief Executive Officer of Heritage Oaks Bancorp. “We achieved double-digit growth in loans and non-interest bearing demand deposits during 2016, and we also introduced our new interest rate swap product, which generated over $1.2 million in fee income. We successfully terminated the Bank Secrecy Act Consent Order, which should result in lower costs and improve our efficiency going forward. Finally, we announced our strategic merger with Pacific Premier Bancorp, Inc., which we believe will create a more attractive commercial banking franchise. Once the two organizations are combined we will offer a broader array of products and services, increased lending capacity, and an expanded geographic footprint. All of this should position us to better serve our customers and provide stronger returns to our shareholders,” stated Ms. Lagomarsino.
Net Income Available to Common Shareholders
Net income available to common shareholders for the fourth quarter of 2016 was $4.6 million, or $0.13 per diluted common share, compared with $3.5 million, or $0.10 per diluted common share, for the fourth quarter of 2015. Net income available to common shareholders for the quarter ended September 30, 2016 was $4.2 million, or $0.12 per diluted common share. Compared to the linked quarter, an increase in net interest income after reversal of provision for loan and lease losses of $1.7 million, more than offset a decline in non-interest income of $0.5 million, and an increase in non-interest expense of $0.2 million, and resulted in a $0.4 million increase in net income available to common shareholders. Comparing the fourth quarter of 2016 to the fourth quarter of 2015, increases in net interest income, after reversal of provision for loan and lease losses of $1.8 million, and non-interest income of $0.8 million, offset a slight increase in non-interest expense of $0.1 million, resulting in a $1.1 million increase in net income available to common shareholders.
Net income available to common shareholders for the year ended December 31, 2016 was $16.9 million, or $0.49 per diluted common share, compared to $15.3 million, or $0.44 per diluted common share, for the year ended December 31, 2015. Compared to the year ended December 31, 2015, net interest income, after reversal of provision for loan and lease losses, increased by $4.9 million, and non-interest income increased by $2.1 million, which more than offset a $3.1 million increase in non-interest expense, and resulted in a $1.7 million increase in net income available to common shareholders.
Net Interest Income
Net interest income before reversal of provision for loan and lease losses was $17.5 million, or 3.71% of average interest earning assets (“net interest margin”), for the fourth quarter of 2016 compared with $16.1 million, or a 3.67% net interest margin, for the same period a year earlier, and $16.2 million, or a 3.50% net interest margin, for the quarter ended September 30, 2016. Net interest income increased $1.3 million compared to the same prior year period due to increases in average loans, a special dividend paid by the Federal Home Loan Bank (“FHLB”) on November 14th, 2016 of $0.3 million, and a greater amount of accelerated purchased loan discount accretion. Net interest income increased $1.2 million compared to the linked quarter primarily due to increases in average loans, accelerated purchased loan discount accretion, other non-recurring loan fee income, and the special dividend paid by the FHLB.
The net interest margin was 3.71% for the fourth quarter of 2016 compared to 3.67% for the same prior year period, and 3.50% for the linked quarter ended September 30, 2016. The year-over-year 4 basis point increase in net interest margin is attributable to an increase in average loan balances, and investment securities yields, and other investment yields, due to the special dividend paid by the FHLB. Compared to the linked quarter, the net interest margin increased by 21 basis points due primarily to an increase in purchased loan discount accretion, and the previously mentioned special dividend paid by the FHLB.
Net interest income before reversal of provision for loan and lease losses was $65.6 million for the year ended December 31, 2016, and increased by $3.3 million, or 5.4%, during 2016 compared to $62.3 million for 2015. The net interest margin declined by 10 basis points from 3.70% in 2015 to 3.60% in 2016. The increase in annual net interest income was due primarily to increased interest income from the loan portfolio attributable to a 9.3% year over year increase in average loans outstanding.
Loan yields declined by 21 basis points to 4.71% for the fourth quarter of 2016 from 4.92% for the fourth quarter of 2015, and increased by 16 basis points compared to 4.55% for the third quarter of 2016. The decline in loan yields for the current quarter as compared to the fourth 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. Compared to the linked quarter, an increase in accelerated loan discount accretion was the primary driver of the rise in loan yields. Purchased loan discount accretion contributed 24 basis points to loan yields during the fourth quarter of 2016 compared to 10 basis points during the linked quarter, and 23 basis points during the fourth quarter of 2015.
The cost of deposits for the fourth quarter of 2016, linked quarter, and fourth quarter of 2015 was unchanged at 0.22%. The cost of funds was unchanged at 0.33% for the fourth quarter of 2016 and the linked quarter, and increased by 1 basis point as compared to the fourth quarter of 2015.
Provision for Loan and Lease Losses
The Company recorded a $0.5 million reversal of provision for loan and lease losses during the quarter ended December 31, 2016. The reversal of provision for loan and lease losses was attributable to continual improvement in our loan credit quality profile. No provisions for loan and lease losses were recorded for the quarters ended September 30, 2016 or December 31, 2015. For the year ended December 31, 2016 the Company recorded a reversal of provision for loan and lease losses of $1.5 million. The reversal was attributable to the continued improvement in the credit quality of the loan portfolio. There was no provision for loan and lease losses recorded during 2015.
Non-Interest Income
Non-interest income for the fourth quarter of 2016 was $2.9 million compared to $3.3 million for the linked quarter, and $2.1 million for the same period a year earlier. Non-interest income increased by $0.8 million for the current quarter as compared to the same prior year period due to increases in mortgage banking revenue, customer swap fee income, and earnings on bank owned life insurance. Compared to the linked quarter, non-interest income decreased by $0.5 million, primarily due to decreases in gains on the sale of investment securities, and customer swap fee income.
Non-interest income for the year ended December 31, 2016 was $12.2 million compared to $10.1 million for 2015, representing an increase of $2.1 million. The increase in annual non-interest income was primarily attributable to a $1.2 million increase in swap fee income, and a $0.9 million increase in mortgage banking revenue.
Non-Interest Expense
Non-interest expense increased by $0.1 million, or 1.0%, to $12.9 million for the quarter ended December 31, 2016 compared to $12.8 million for the quarter ended December 31, 2015. Non-interest expense for the fourth quarter of 2016 increased by $0.2 million, or 1.4%, from $12.7 million for the linked quarter.
The following table illustrates the components of professional services costs for the periods indicated:
| Heritage Oaks Bancorp | ||||||||||||||
| Professional Services | ||||||||||||||
| For the Three Months Ended | For the Twelve Months Ended | |||||||||||||
| 12/31/2016 | 9/30/2016 | 12/31/2015 | 12/31/2016 | 12/31/2015 | ||||||||||
| (dollars in thousands) | ||||||||||||||
| Professional Services | ||||||||||||||
| BSA/AML related costs | $ | 193 | $ | 631 | $ | 993 | $ | 2,100 | $ | 2,355 | ||||
| Audit and tax costs | 261 | 321 | 272 | 1,333 | 1,160 | |||||||||
| Information technology services and consulting | 330 | 312 | 330 | 1,273 | 1,427 | |||||||||
| Legal costs | 76 | 73 | 395 | 228 | 1,133 | |||||||||
| All other costs | 407 | 439 | 458 | 1,967 | 1,715 | |||||||||
| Total professional services | $ | 1,267 | $ | 1,776 | $ | 2,448 | $ | 6,901 | $ | 7,790 | ||||
Non-interest expense increased on a linked quarter basis due to $0.8 million of merger related costs, and a $0.3 million increase in salaries and benefits costs, which were offset primarily by a decrease of $0.5 million of professional services expense. Compared to the fourth quarter of 2015, non-interest expense increased primarily due to a $0.9 million increase in merger related costs, and a $0.8 million increase in salaries and benefits costs, which were offset primarily by a $1.2 million decrease of professional services expense. The merger related costs recorded in the fourth quarter of 2016 is attributable to the previously announced acquisition of the Company by Pacific Premier Bancorp, Inc. The increase in salaries and benefits costs, as compared to the linked quarter, is due to an increase in incentive plan expense; and compared to the fourth quarter of 2015 is attributable to increases in incentive plan expense, base compensation, and mortgage commissions. The decline in professional services expense as compared to both the linked quarter and the fourth quarter of 2015 is attributable primarily to a decline in consulting and audit costs related to Bank Secrecy Act and Anti-Money Laundering Program (“BSA/AML Program”) remediation efforts, related to the BSA Consent Order, which was terminated during the fourth quarter of 2016. A secondary contributor to the decline in professional services expense as compared to the fourth quarter of 2015 was a decrease in legal expense attributable to ongoing litigation in the fourth quarter of 2015.
The $3.1 million increase in annual non-interest expense for 2016 as compared to 2015 was attributable primarily to a $2.8 million increase in salaries and benefits costs. The increase in salaries and benefits costs for the year 2016 as compared to the prior year can primarily be attributed to increases in base compensation, incentive plan expense, and mortgage commissions. A secondary contributor to the annual increase in non-interest expense is $0.9 million of merger related costs attributable to the previously announced acquisition of the Company by Pacific Premier Bancorp, Inc. These increases were offset by a $0.9 million decline in professional services expense attributable to ongoing litigation during 2015.
Operating Efficiency
The Company’s operating efficiency ratio decreased to 62.42% for the fourth quarter of 2016 as compared to 68.58% for the fourth quarter of 2015, and 64.44% for the linked quarter. Total non-interest expense as a percentage of average assets, another measure of the Company’s efficiency, was 2.57% for the fourth quarter of 2016 compared to 2.70% for fourth quarter of 2015, and 2.56% for the quarter ended September 30, 2016.
Income Taxes
Income tax expense was $3.4 million for the quarter ended December 31, 2016 compared with $1.9 million for the same period a year earlier. For the linked quarter ended September 30, 2016 income tax expense was $2.7 million. The Company’s effective tax rate for the fourth quarter of 2016 was 42.7% compared with 35.7% for the same period a year ago, and 38.9% for the quarter ended September 30, 2016. Income tax expense was $11.1 million for the year ended December 31, 2016 compared to $8.9 million for the prior year. The effective tax rate for 2016 was 39.6% compared to 36.7% for 2015. The increase in income tax expense and the effective tax rate for the fourth quarter of 2016 as compared to the linked quarter, and the fourth quarter of 2015 is attributed to an increase in pre-tax net income, and an increase in non-deductible merger related costs. The increase in annual income tax expense for 2016 as compared to the prior year is attributable to an increase in pre-tax net income, an increase in non-deductible merger related costs, and a proportional decline in the amount of tax-exempt municipal bond interest income relative to pre-tax net income.
Balance Sheet
Total assets increased by $125.2 million, or 6.6%, to $2.0 billion at December 31, 2016 compared to December 31, 2015, and by $36.6 million, or 1.9%, compared to September 30, 2016. Cash and cash equivalents decreased by $19.0 million, or 27.2%, to $50.9 million at December 31, 2016 compared to December 31, 2015, and by $14.4 million, or 22.0%, compared to September 30, 2016. 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 portfolio.
Investment securities increased by $7.9 million, or 1.7%, to $458.8 million at December 31, 2016 compared to $450.9 million at December 31, 2015, and by $2.4 million, or 0.5%, compared to $456.5 million at September 30, 2016. At December 31, 2016, the effective duration of the securities portfolio was 3.34 years, up from 2.86 years at September 30, 2016, and above our target of a 2.75 to 3.25 year effective duration for the securities portfolio. The increase in effective duration since the end of the linked quarter is primarily due to the impact of the recent rise in long-term interest rates and related decline in projected prepayment speeds primarily in the Agency CMO and municipal bond sectors of our investment securities portfolio.
Total gross loans increased by $138.2 million, or 11.1%, to $1.39 billion at December 31, 2016 compared to December 31, 2015, and by $42.8 million, or 3.2%, compared to September 30, 2016. Loan production was $124.8 million during the fourth quarter, increasing on a linked-quarter basis by $11.6 million. The increase was entirely attributable to portfolio loan production, which increased by $12.3 million, or 20.3%, to $72.9 million as compared to the prior quarter. Production of mortgage loans originated for sale declined nominally by $0.7 million or 1.3% as compared to the linked quarter.
Total deposits increased by $118.9 million, or 7.6%, to $1.68 billion as of December 31, 2016 from $1.56 billion at December 31, 2015, and by $52.5 million, or 3.2%, from $1.63 billion at September 30, 2016. Non-interest bearing deposits increased by $3.7 million, or 0.7%, during the fourth quarter of 2016, and increased by $59.4 million, or 11.5%, since December 31, 2015.
Total shareholders’ equity was $212.9 million at December 31, 2016, an increase of $6.4 million, or 3.1%, compared to December 31, 2015, and a decrease of $2.4 million, or 1.1%, compared to September 30, 2016. The change in shareholder’s equity for the linked quarter and the year is due primarily to period earnings, net of shareholder dividend payments, as well as to the change in the unrealized (loss) gain on the investment securities portfolio. The change in the unrealized (loss) gain in the investment securities portfolio led to a decline in equity of $6.0 million and $2.6 million during the past quarter and year, respectively. The unrealized loss, net of deferred tax assets, of the investment securities portfolio was $2.1 million at December 31, 2016, representing 0.45% of the amortized cost basis of the investment securities portfolio.
Classified assets at December 31, 2016 totaled $41.2 million, a decrease of $4.2 million, or 9.1%, compared to $45.4 million at September 30, 2016, and a decrease of $4.1 million, or 8.9%, from $45.3 million at December 31, 2015. Non-performing assets were $6.9 million at December 31, 2016, increasing by $1.8 million, or 36.5%, since the prior quarter, and decreasing by $1.2 million, representing a 15.1% decline, since December 31, 2015. Non-performing assets remain at one of the lowest levels reached in the last several years, at 0.34% of total assets at December 31, 2016, down from 0.43% at December 31, 2015, and up from 0.25% at September 30, 2016.
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 December 31, 2015 to 1.24% at December 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 continued improvement in the loan credit quality profile of the Company, which is evidenced by the consistent trend of net loan recoveries and improvement in asset quality ratios.
As of December 31, 2016, the portion of the ALLL allocated to loans acquired in the Mission Community Bancorp (“MISN”) merger was $0.1 million or 0.10% of the remaining acquired MISN loan portfolio. The remaining un-accreted fair market value discount on MISN loans was $3.7 million at December 31, 2016 and represents 2.65% of the remaining balance of acquired 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 $1.9 million qualitative allocation in its ALLL to address these concerns, which accounts for 11.0% of the total ALLL at December 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 9.88% and 9.47%, respectively, at December 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 13.87% and 13.35%, respectively, at December 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 12.16% and 12.19%, respectively, at December 31, 2016 compared with the requirement of 6.5% to generally be considered a "well capitalized" financial institution for regulatory purposes.
BSA Consent Order
On November 29, 2016, the Bank announced the termination by the Federal Deposit Insurance Corporation (“FDIC”) and California Department of Business Oversight (“DBO”) of the Consent Order issued on October 29, 2014 relating to the Bank’s Bank Secrecy Act compliance program.
Termination of Mortgage Banking Business
The Company’s Board of Directors has decided to exit the consumer mortgage business. This decision is primarily attributable to current market conditions, such as rising interest rates, and increasing housing prices. The discontinuation of the consumer mortgage business will not involve the sale of existing mortgage assets, rather it will entail the termination of certain business activities such as originating and selling consumer mortgage loans. The Company will, however, continue to offer home equity lines of credit and home equity loans. The Company will cease accepting new applications on February 1, 2017, and will terminate all mortgage origination related operations on or about April 30, 2017, other than servicing existing consumer mortgage loans within the Company’s loan portfolio. In order to ensure that Heritage Oaks Bank customers continue to have access to consumer mortgage products, the Company is currently working to finalize a referral arrangement with another bank that has a strategic focus on the consumer mortgage business, and which is not a competitor in terms of deposit gathering and their branch geographic footprint. The Company anticipates that many of our existing consumer mortgage team members will be joining this other bank effective February 1, 2017. The Company will continue to serve the needs of mortgage customers with loans that are in process of origination prior to February 1, 2017, and will continue to service all loans remaining in the Company’s portfolio indefinitely. The Company will honor all contractual commitments to both customers and investors that are in process prior to February 1, 2017. Management expects that the majority of existing loan applications in process prior to February 1, 2017 will close within 90 days.
Conference Call
The Company will host a conference call to discuss the fourth quarter 2016 results at 8:00 a.m. PST on January 31, 2017. Media representatives, analysts and the public are invited to listen to this discussion by calling (877) 363-5052 (International Dial-In Number (914) 495-8600) and entering the conference ID 47727352, 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-K
The Company intends to file with the U.S. Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 2016 on or before March 15, 2017. 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 $2.0 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 recent changes in interest rates on our net interest margin; our ability to complete the announced merger with Pacific Premier Bancorp, Inc. (“PPBI”) in a timely manner, if at all, and the possibility that the anticipated benefits of the merger with PPBI are not realized when expected or at all; 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; and 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.
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 is a schedule reconciling book value to tangible common book value per share. We believe that tangible common book value per share is a useful measure because it is widely used in the financial services industry to compare the relative market value of one financial institution against another, and we analyze our net income as a percentage of tangible common book value internally because we feel that this return metric is more representative of the return to our shareholders relative to the their investment in our Company.
Additional Information About the Merger and Where to Find It
This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.
In connection with the announced acquisition transaction, a registration statement on Form S-4 will be filed with the SEC by PPBI. The registration statement will contain a joint proxy statement/prospectus to be distributed to the shareholders of the Company and PPBI in connection with their vote on the acquisition.
SHAREHOLDERS OF THE COMPANY AND PPBI ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE JOINT PROXY STATEMENT/PROSPECTUS THAT WILL BE PART OF THE REGISTRATION STATEMENT, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE ANNOUNCED ACQUISITION.
The final joint proxy statement/prospectus will be mailed to shareholders of the Company and PPBI. Investors and security holders will be able to obtain the documents, and any other documents the Company and PPBI have filed with the SEC, free of charge at the SEC's website, www.sec.gov. In addition, documents filed with the SEC by the Company and PPBI will be available free of charge by (1) accessing the Company’s website at www.heritageoaksbank.com under the “Investor Relations” link and then under the heading “SEC Filings,” (2) accessing PPBI’s website at www.ppbi.com under the “Investor Relations” link and then under the heading “SEC Filings,” (3) writing the Company at 1222 Vine Street, Paso Robles, CA 93446, Attention: Corporate Secretary or (4) writing PPBI at 17901 Von Karman Avenue, Suite 1200, Irvine, CA 92614, Attention: Investor Relations.
The directors, executive officers and certain other members of management and employees of the Company may be deemed to be participants in the solicitation of proxies in favor of the announced acquisition. Information about the directors and executive officers of the Company is included in the proxy statement for the Company’s 2016 annual meeting of the Company’s shareholders, which was filed with the SEC on April 26, 2016. The directors, executive officers and certain other members of management and employees of PPBI may be deemed to be participants in the solicitation of proxies in respect of the announced acquisition. Information about the directors and executive officers of PPBI is included in the proxy statement for PPBI’s 2016 annual meeting of PPBI’s shareholders, which was filed with the SEC on April 27, 2016. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the joint proxy statement/prospectus regarding the announced acquisition when it becomes available. Free copies of this document may be obtained as described in the preceding paragraph.
| Heritage Oaks Bancorp | |||||||||||
| Consolidated Balance Sheets | |||||||||||
| (unaudited) | |||||||||||
| 12/31/2016 | 9/30/2016 | 12/31/2015 | |||||||||
| (dollars in thousands, except per share data) | |||||||||||
| Assets | |||||||||||
| Cash and due from banks | $ | 18,904 | $ | 23,893 | $ | 15,610 | |||||
| Interest earning deposits in other banks | 31,970 | 41,357 | 54,313 | ||||||||
| Total cash and cash equivalents | 50,874 | 65,250 | 69,923 | ||||||||
| Investment securities available for sale, at fair value | 458,817 | 456,464 | 450,935 | ||||||||
| Loans held for sale, at lower of cost or fair value | 10,055 | 7,975 | 9,755 | ||||||||
| Gross loans held for investment | 1,385,462 | 1,342,701 | 1,247,280 | ||||||||
| Net deferred loan fees | (1,183 | ) | (1,146 | ) | (1,132 | ) | |||||
| Allowance for loan and lease losses | (17,237 | ) | (17,643 | ) | (17,452 | ) | |||||
| Net loans held for investment | 1,367,042 | 1,323,912 | 1,228,696 | ||||||||
| Premises and equipment, net | 36,065 | 36,360 | 37,342 | ||||||||
| Bank-owned life insurance | 33,715 | 33,500 | 32,850 | ||||||||
| Goodwill | 24,885 | 24,885 | 24,885 | ||||||||
| Deferred tax assets, net | 19,145 | 15,663 | 21,272 | ||||||||
| Federal Home Loan Bank stock | 7,853 | 7,853 | 7,853 | ||||||||
| Other intangible assets | 3,354 | 3,568 | 4,298 | ||||||||
| Other assets | 13,085 | 12,877 | 11,930 | ||||||||
| Total assets | $ | 2,024,890 | $ | 1,988,307 | $ | 1,899,739 | |||||
| Liabilities | |||||||||||
| Deposits | |||||||||||
| Non-interest bearing deposits | $ | 573,957 | $ | 570,243 | $ | 514,559 | |||||
| Interest bearing deposits | 1,109,938 | 1,061,105 | 1,050,402 | ||||||||
| Total deposits | 1,683,895 | 1,631,348 | 1,564,961 | ||||||||
| Short term FHLB borrowing | 43,500 | 49,000 | 38,500 | ||||||||
| Long term FHLB borrowing | 64,000 | 71,000 | 65,021 | ||||||||
| Junior subordinated debentures | 10,612 | 10,572 | 10,438 | ||||||||
| Other liabilities | 10,033 | 11,104 | 14,385 | ||||||||
| Total liabilities | 1,812,040 | 1,773,024 | 1,693,305 | ||||||||
| Shareholders' Equity | |||||||||||
| Common stock, no par value; authorized: 100,000,000 shares; | |||||||||||
| issued and outstanding: 34,345,073, 34,249,804, and 34,353,014 shares as of | |||||||||||
| December 31, 2016, September 30, 2016, and December 31, 2015, respectively | 164,708 | 164,009 | 165,517 | ||||||||
| Additional paid in capital | 9,310 | 8,971 | 8,251 | ||||||||
| Retained earnings | 40,916 | 38,424 | 32,200 | ||||||||
| Accumulated other comprehensive (loss) income | (2,084 | ) | 3,879 | 466 | |||||||
| Total shareholders' equity | 212,850 | 215,283 | 206,434 | ||||||||
| Total liabilities and shareholders' equity | $ | 2,024,890 | $ | 1,988,307 | $ | 1,899,739 | |||||
| Book value per common share | $ | 6.20 | $ | 6.29 | $ | 6.01 | |||||
| Tangible book value per common share | $ | 5.38 | $ | 5.45 | $ | 5.16 | |||||
| Heritage Oaks Bancorp | ||||||||||
| Consolidated Statements of Income | ||||||||||
| (unaudited) | ||||||||||
| For the Three Months Ended | ||||||||||
| 12/31/2016 | 9/30/2016 | 12/31/2015 | ||||||||
| (dollars in thousands, except per share data) | ||||||||||
| Interest Income | ||||||||||
| Loans, including fees | $ | 16,123 | $ | 15,222 | $ | 15,145 | ||||
| Investment securities | 2,300 | 2,215 | 2,118 | |||||||
| Other interest-earning assets | 497 | 232 | 201 | |||||||
| Total interest income | 18,920 | 17,669 | 17,464 | |||||||
| Interest Expense | ||||||||||
| Deposits | 908 | 898 | 867 | |||||||
| Other borrowings | 549 | 541 | 474 | |||||||
| Total interest expense | 1,457 | 1,439 | 1,341 | |||||||
| Net interest income before (reversal of) provision for loan and lease losses | 17,463 | 16,230 | 16,123 | |||||||
| (Reversal of) provision for loan and lease losses | (500 | ) | - | - | ||||||
| Net interest income after (reversal of) provision for loan and lease losses | 17,963 | 16,230 | 16,123 | |||||||
| Non-Interest Income | ||||||||||
| Fees and service charges | 1,345 | 1,276 | 1,320 | |||||||
| Net gain on sale of mortgage loans | 669 | 708 | 325 | |||||||
| Earnings on BOLI | 293 | 289 | 215 | |||||||
| Gain on derivative instruments | 200 | 415 | - | |||||||
| Other mortgage fee income | 193 | 199 | 104 | |||||||
| (Loss) gain on sale of investment securities | (18 | ) | 271 | - | ||||||
| Other income | 198 | 186 | 97 | |||||||
| Total non-interest income | 2,880 | 3,344 | 2,061 | |||||||
| Non-Interest Expense | ||||||||||
| Salaries and employee benefits | 7,015 | 6,686 | 6,171 | |||||||
| Occupancy and equipment | 1,597 | 1,657 | 1,659 | |||||||
| Professional services | 1,267 | 1,776 | 2,448 | |||||||
| Merger, restructure and integration | 840 | - | (10 | ) | ||||||
| Information technology | 625 | 591 | 545 | |||||||
| Loan department expense | 254 | 284 | 254 | |||||||
| Sales and marketing | 228 | 317 | 165 | |||||||
| Amortization of intangible assets | 214 | 244 | 262 | |||||||
| Regulatory assessments | 172 | 222 | 317 | |||||||
| Communication costs | 120 | 122 | 127 | |||||||
| Other expense | 574 | 824 | 836 | |||||||
| Total non-interest expense | 12,906 | 12,723 | 12,774 | |||||||
| Income before income taxes | 7,937 | 6,851 | 5,410 | |||||||
| Income tax expense | 3,387 | 2,668 | 1,932 | |||||||
| Net income | $ | 4,550 | $ | 4,183 | $ | 3,478 | ||||
| Weighted Average Shares Outstanding | ||||||||||
| Basic | 34,072,329 | 34,037,252 | 34,186,007 | |||||||
| Diluted | 34,303,295 | 34,183,200 | 34,326,702 | |||||||
| Earnings Per Common Share | ||||||||||
| Basic | $ | 0.13 | $ | 0.12 | $ | 0.10 | ||||
| Diluted | $ | 0.13 | $ | 0.12 | $ | 0.10 | ||||
| Dividends Declared Per Common Share | $ | 0.06 | $ | 0.06 | $ | 0.06 | ||||
| Heritage Oaks Bancorp | |||||||
| Consolidated Statements of Income | |||||||
| (unaudited) | |||||||
| For the Twelve Months Ended | |||||||
| 12/31/2016 | 12/31/2015 | ||||||
| (dollars in thousands, except per share data) | |||||||
| Interest Income | |||||||
| Loans, including fees | $ | 61,275 | $ | 59,599 | |||
| Investment securities | 8,904 | 7,311 | |||||
| Other interest-earning assets | 1,168 | 1,180 | |||||
| Total interest income | 71,347 | 68,090 | |||||
| Interest Expense | |||||||
| Deposits | 3,576 | 3,615 | |||||
| Other borrowings | 2,161 | 2,216 | |||||
| Total interest expense | 5,737 | 5,831 | |||||
| Net interest income before (reversal of) provision for loan and lease losses | 65,610 | 62,259 | |||||
| (Reversal of) provision for loan and lease losses | (1,500 | ) | - | ||||
| Net interest income after (reversal of) provision for loan and lease losses | 67,110 | 62,259 | |||||
| Non-Interest Income | |||||||
| Fees and service charges | 5,165 | 5,158 | |||||
| Net gain on sale of mortgage loans | 2,365 | 1,602 | |||||
| Gain on derivative instruments | 1,212 | - | |||||
| Earnings on BOLI | 1,158 | 855 | |||||
| Gain on sale of investment securities | 891 | 641 | |||||
| Other mortgage fee income | 631 | 452 | |||||
| Gain on extinguishment of debt | - | 552 | |||||
| Other income | 792 | 879 | |||||
| Total non-interest income | 12,214 | 10,139 | |||||
| Non-Interest Expense | |||||||
| Salaries and employee benefits | 26,626 | 23,814 | |||||
| Professional services | 6,901 | 7,790 | |||||
| Occupancy and equipment | 6,530 | 6,682 | |||||
| Information technology | 2,446 | 2,298 | |||||
| Sales and marketing | 1,035 | 1,017 | |||||
| Loan department expense | 1,024 | 1,030 | |||||
| Regulatory assessments | 1,019 | 1,212 | |||||
| Amortization of intangible assets | 944 | 1,049 | |||||
| Merger, restructure and integration | 826 | (77 | ) | ||||
| Communication costs | 492 | 562 | |||||
| OREO write-downs | 217 | - | |||||
| Other expense | 3,254 | 2,790 | |||||
| Total non-interest expense | 51,314 | 48,167 | |||||
| Income before income taxes | 28,010 | 24,231 | |||||
| Income tax expense | 11,077 | 8,882 | |||||
| Net income | 16,933 | 15,349 | |||||
| Accretion on preferred stock | - | 70 | |||||
| Net income available to common shareholders | $ | 16,933 | $ | 15,279 | |||
| Weighted Average Shares Outstanding | |||||||
| Basic | 34,051,171 | 34,129,930 | |||||
| Diluted | 34,187,521 | 34,274,902 | |||||
| Earnings Per Common Share | |||||||
| Basic | $ | 0.49 | $ | 0.45 | |||
| Diluted | $ | 0.49 | $ | 0.44 | |||
| Dividends Declared Per Common Share | $ | 0.24 | $ | 0.23 | |||
| Heritage Oaks Bancorp | |||||||||||||||
| Key Ratios | |||||||||||||||
| For the Three Months Ended | For the Twelve Months Ended | ||||||||||||||
| 12/31/2016 | 9/30/2016 | 12/31/2015 | 12/31/2016 | 12/31/2015 | |||||||||||
| Profitability / Performance Ratios | |||||||||||||||
| Net interest margin | 3.71 | % | 3.50 | % | 3.67 | % | 3.60 | % | 3.70 | % | |||||
| Return on average equity | 8.42 | % | 7.74 | % | 6.67 | % | 7.97 | % | 7.55 | % | |||||
| Return on average common equity | 8.42 | % | 7.74 | % | 6.67 | % | 7.97 | % | 7.53 | % | |||||
| Return on average tangible common equity | 9.69 | % | 8.93 | % | 7.77 | % | 9.22 | % | 8.83 | % | |||||
| Return on average assets | 0.90 | % | 0.84 | % | 0.73 | % | 0.87 | % | 0.85 | % | |||||
| Non-interest income to total net revenue | 14.16 | % | 17.08 | % | 11.33 | % | 15.69 | % | 14.00 | % | |||||
| Yield on interest earning assets | 4.02 | % | 3.81 | % | 3.98 | % | 3.92 | % | 4.05 | % | |||||
| Cost of interest bearing liabilities | 0.49 | % | 0.48 | % | 0.47 | % | 0.48 | % | 0.53 | % | |||||
| Cost of funds | 0.33 | % | 0.33 | % | 0.32 | % | 0.33 | % | 0.36 | % | |||||
| Operating efficiency ratio (1) | 62.42 | % | 64.44 | % | 68.58 | % | 65.09 | % | 66.15 | % | |||||
| Non-interest expense to average assets, annualized | 2.57 | % | 2.56 | % | 2.70 | % | 2.63 | % | 2.65 | % | |||||
| Gross loans to total deposits | 82.28 | % | 82.31 | % | 79.70 | % | |||||||||
| Asset Quality Ratios | |||||||||||||||
| Non-performing loans to total gross loans | 0.49 | % | 0.36 | % | 0.63 | % | |||||||||
| Non-performing loans to equity | 3.21 | % | 2.27 | % | 3.79 | % | |||||||||
| Non-performing assets to total assets | 0.34 | % | 0.25 | % | 0.43 | % | |||||||||
| Allowance for loan and lease losses to total gross loans | 1.24 | % | 1.31 | % | 1.40 | % | |||||||||
| Net recoveries to average loans outstanding, annualized | 0.03 | % | 0.06 | % | 0.05 | % | 0.10 | % | 0.05 | % | |||||
| Classified assets to Tier I + ALLL | 19.48 | % | 21.81 | % | 22.67 | % | |||||||||
| 30-89 day delinquency rate | 0.02 | % | 0.00 | % | 0.02 | % | |||||||||
| Capital Ratios | |||||||||||||||
| Company | |||||||||||||||
| Common Equity Tier I Capital Ratio | 12.16 | % | 12.30 | % | 12.61 | % | |||||||||
| Leverage ratio | 9.88 | % | 9.83 | % | 9.90 | % | |||||||||
| Tier I Risk-Based Capital Ratio | 12.71 | % | 12.87 | % | 13.01 | % | |||||||||
| Total Risk-Based Capital Ratio | 13.87 | % | 14.09 | % | 14.26 | % | |||||||||
| Bank | |||||||||||||||
| Common Equity Tier I Capital Ratio | 12.19 | % | 12.23 | % | 12.48 | % | |||||||||
| Leverage ratio | 9.47 | % | 9.35 | % | 9.50 | % | |||||||||
| Tier I Risk-Based Capital Ratio | 12.19 | % | 12.23 | % | 12.48 | % | |||||||||
| Total Risk-Based Capital Ratio | 13.35 | % | 13.46 | % | 13.74 | % | |||||||||
| (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 | ||||||||||||||||||||||||||
| 12/31/2016 | 9/30/2016 | 12/31/2015 | ||||||||||||||||||||||||
| 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) | $ | 1,360,571 | 4.71 | % | $ | 16,123 | $ | 1,330,224 | 4.55 | % | $ | 15,222 | $ | 1,221,144 | 4.92 | % | $ | 15,145 | ||||||||
| Investment securities | 461,954 | 1.98 | % | 2,300 | 456,175 | 1.93 | % | 2,215 | 444,644 | 1.89 | % | 2,118 | ||||||||||||||
| Interest earning deposits in other banks | 42,183 | 0.33 | % | 35 | 47,007 | 0.29 | % | 34 | 67,231 | 0.24 | % | 40 | ||||||||||||||
| Other investments | 9,739 | 18.87 | % | 462 | 9,739 | 8.09 | % | 198 | 9,739 | 6.56 | % | 161 | ||||||||||||||
| Total earning assets | 1,874,447 | 4.02 | % | 18,920 | 1,843,145 | 3.81 | % | 17,669 | 1,742,758 | 3.98 | % | 17,464 | ||||||||||||||
| Allowance for loan and lease losses | (17,684 | ) | (17,561 | ) | (17,451 | ) | ||||||||||||||||||||
| Other assets | 144,641 | 149,769 | 152,605 | |||||||||||||||||||||||
| Total assets | $ | 2,001,404 | $ | 1,975,353 | $ | 1,877,912 | ||||||||||||||||||||
| Interest Bearing Liabilities | ||||||||||||||||||||||||||
| Money market | $ | 588,125 | 0.28 | % | $ | 418 | $ | 586,612 | 0.28 | % | $ | 409 | $ | 552,791 | 0.27 | % | $ | 377 | ||||||||
| Time deposits | 239,567 | 0.71 | % | 426 | 241,942 | 0.70 | % | 427 | 249,133 | 0.68 | % | 430 | ||||||||||||||
| Interest bearing demand | 132,931 | 0.10 | % | 35 | 128,073 | 0.11 | % | 34 | 123,529 | 0.11 | % | 33 | ||||||||||||||
| Savings | 115,472 | 0.10 | % | 29 | 114,068 | 0.10 | % | 28 | 107,049 | 0.10 | % | 27 | ||||||||||||||
| Total interest bearing deposits | 1,076,095 | 0.34 | % | 908 | 1,070,695 | 0.33 | % | 898 | 1,032,502 | 0.33 | % | 867 | ||||||||||||||
| Federal Home Loan Bank borrowing | 105,707 | 1.55 | % | 413 | 99,691 | 1.64 | % | 410 | 81,204 | 1.70 | % | 347 | ||||||||||||||
| Junior subordinated debentures | 10,587 | 5.11 | % | 136 | 10,545 | 4.94 | % | 131 | 10,407 | 4.84 | % | 127 | ||||||||||||||
| Other borrowed funds | - | 0.00 | % | - | - | 0.00 | % | - | 33 | 0.90 | % | - | ||||||||||||||
| Total borrowed funds | 116,294 | 1.88 | % | 549 | 110,236 | 1.95 | % | 541 | 91,644 | 2.05 | % | 474 | ||||||||||||||
| Total interest bearing liabilities | 1,192,389 | 0.49 | % | 1,457 | 1,180,931 | 0.48 | % | 1,439 | 1,124,146 | 0.47 | % | 1,341 | ||||||||||||||
| Non interest bearing demand | 582,337 | 568,453 | 537,364 | |||||||||||||||||||||||
| Total funding | 1,774,726 | 0.33 | % | 1,457 | 1,749,384 | 0.33 | % | 1,439 | 1,661,510 | 0.32 | % | 1,341 | ||||||||||||||
| Other liabilities | 11,587 | 10,930 | 9,556 | |||||||||||||||||||||||
| Total liabilities | 1,786,313 | 1,760,314 | 1,671,066 | |||||||||||||||||||||||
| Shareholders' Equity | ||||||||||||||||||||||||||
| Total shareholders' equity | 215,091 | 215,039 | 206,846 | |||||||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 2,001,404 | $ | 1,975,353 | $ | 1,877,912 | ||||||||||||||||||||
| Net interest margin (3) | 3.71 | % | $ | 17,463 | 3.50 | % | $ | 16,230 | 3.67 | % | $ | 16,123 | ||||||||||||||
| Interest rate spread | 3.53 | % | 3.33 | % | 3.51 | % | ||||||||||||||||||||
| Cost of deposits | 0.22 | % | 0.22 | % | 0.22 | % | ||||||||||||||||||||
| (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 | |||||||||||||||
| Average Balances | |||||||||||||||
| For The Twelve Months Ended | |||||||||||||||
| 12/31/2016 | 12/31/2015 | ||||||||||||||
| Balance | Yield / Rate | Income / Expense | Balance | Yield / Rate | Income / Expense | ||||||||||
| (dollars in thousands) | |||||||||||||||
| Interest Earning Assets | |||||||||||||||
| Loans (1) (2) | $ | 1,314,935 | 4.66 | % | $ | 61,275 | $ | 1,203,620 | 4.95 | % | $ | 59,599 | |||
| Investment securities | 452,629 | 1.97 | % | 8,904 | 395,791 | 1.85 | % | 7,311 | |||||||
| Interest earning deposits in other banks | 45,082 | 0.32 | % | 145 | 71,693 | 0.21 | % | 152 | |||||||
| Other investments | 9,739 | 10.50 | % | 1,023 | 9,739 | 10.56 | % | 1,028 | |||||||
| Total earning assets | 1,822,385 | 3.92 | % | 71,347 | 1,680,843 | 4.05 | % | 68,090 | |||||||
| Allowance for loan and lease losses | (17,641 | ) | (17,143 | ) | |||||||||||
| Other assets | 147,768 | 151,697 | |||||||||||||
| Total assets | $ | 1,952,512 | $ | 1,815,397 | |||||||||||
| Interest Bearing Liabilities | |||||||||||||||
| Money market | $ | 581,795 | 0.28 | % | $ | 1,627 | $ | 512,825 | 0.27 | % | $ | 1,404 | |||
| Time deposits | 241,368 | 0.70 | % | 1,701 | 263,553 | 0.75 | % | 1,981 | |||||||
| Interest bearing demand | 128,336 | 0.11 | % | 136 | 119,166 | 0.11 | % | 130 | |||||||
| Savings | 112,396 | 0.10 | % | 112 | 100,387 | 0.10 | % | 100 | |||||||
| Total interest bearing deposits | 1,063,895 | 0.34 | % | 3,576 | 995,931 | 0.36 | % | 3,615 | |||||||
| Federal Home Loan Bank borrowing | 109,001 | 1.49 | % | 1,629 | 90,174 | 1.86 | % | 1,675 | |||||||
| Junior subordinated debentures | 10,522 | 5.04 | % | 530 | 12,164 | 4.45 | % | 541 | |||||||
| Other borrowed funds | 55 | 3.64 | % | 2 | 8 | 0.90 | % | - | |||||||
| Total borrowed funds | 119,578 | 1.81 | % | 2,161 | 102,346 | 2.17 | % | 2,216 | |||||||
| Total interest bearing liabilities | 1,183,473 | 0.48 | % | 5,737 | 1,098,277 | 0.53 | % | 5,831 | |||||||
| Non interest bearing demand | 545,879 | 504,516 | |||||||||||||
| Total funding | 1,729,352 | 0.33 | % | 5,737 | 1,602,793 | 0.36 | % | 5,831 | |||||||
| Other liabilities | 10,718 | 9,283 | |||||||||||||
| Total liabilities | 1,740,070 | 1,612,076 | |||||||||||||
| Shareholders' Equity | |||||||||||||||
| Total shareholders' equity | 212,442 | 203,321 | |||||||||||||
| Total liabilities and shareholders' equity | $ | 1,952,512 | $ | 1,815,397 | |||||||||||
| Net interest margin (3) | 3.60 | % | $ | 65,610 | 3.70 | % | $ | 62,259 | |||||||
| Interest rate spread | 3.44 | % | 3.52 | % | |||||||||||
| Cost of deposits | 0.22 | % | 0.24 | % | |||||||||||
| (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. | |||||||||||||||
| Heritage Oaks Bancorp | |||||||||||
| Loans and Deposits | |||||||||||
| 12/31/2016 | 9/30/2016 | 12/31/2015 | |||||||||
| (dollars in thousands) | |||||||||||
| Loans | |||||||||||
| Real Estate Secured | |||||||||||
| Commercial | $ | 643,691 | $ | 635,846 | $ | 579,244 | |||||
| Residential 1 to 4 family | 205,999 | 195,453 | 165,829 | ||||||||
| Farmland | 155,771 | 132,723 | 120,566 | ||||||||
| Multi-family residential | 77,941 | 81,536 | 79,381 | ||||||||
| Home equity lines of credit | 24,796 | 24,910 | 31,387 | ||||||||
| Construction and land | 21,866 | 26,836 | 35,669 | ||||||||
| Total real estate secured | 1,130,064 | 1,097,304 | 1,012,076 | ||||||||
| Commercial | |||||||||||
| Commercial and industrial | 182,637 | 185,199 | 164,808 | ||||||||
| Agriculture | 68,565 | 55,728 | 64,363 | ||||||||
| Total commercial | 251,202 | 240,927 | 229,171 | ||||||||
| Consumer | 4,196 | 4,470 | 6,033 | ||||||||
| Total loans held for investment | 1,385,462 | 1,342,701 | 1,247,280 | ||||||||
| Deferred loan fees | (1,183 | ) | (1,146 | ) | (1,132 | ) | |||||
| Allowance for loan and lease losses | (17,237 | ) | (17,643 | ) | (17,452 | ) | |||||
| Total net loans held for investment | $ | 1,367,042 | $ | 1,323,912 | $ | 1,228,696 | |||||
| Loans held for sale | $ | 10,055 | $ | 7,975 | $ | 9,755 | |||||
| Remaining discount on acquired loans | $ | 3,715 | $ | 4,438 | $ | 5,500 | |||||
| 12/31/2016 | 9/30/2016 | 12/31/2015 | |||||||||
| (dollars in thousands) | |||||||||||
| Deposits | |||||||||||
| Non-interest bearing deposits | $ | 573,957 | $ | 570,243 | $ | 514,559 | |||||
| Interest bearing deposits: | |||||||||||
| Money market deposits | 615,328 | 571,357 | 565,060 | ||||||||
| Time deposits | 238,283 | 241,580 | 245,742 | ||||||||
| NOW accounts | 136,746 | 134,465 | 129,254 | ||||||||
| Other savings deposits | 119,581 | 113,703 | 110,346 | ||||||||
| Total deposits | $ | 1,683,895 | $ | 1,631,348 | $ | 1,564,961 | |||||
| Heritage Oaks Bancorp | |||||||||||
| Allowance for Loan and Lease Losses, Non-Performing and Classified Assets | |||||||||||
| For the Three Months Ended | |||||||||||
| 12/31/2016 | 9/30/2016 | 12/31/2015 | |||||||||
| (dollars in thousands) | |||||||||||
| Allowance for Loan and Lease Losses | |||||||||||
| Balance, beginning of period | $ | 17,643 | $ | 17,448 | $ | 17,296 | |||||
| (Reversal of) provision for loan and lease losses | (500 | ) | - | - | |||||||
| Charge-offs: | |||||||||||
| Residential 1 to 4 family | - | - | (82 | ) | |||||||
| Commercial real estate | - | - | (81 | ) | |||||||
| Agriculture | - | - | (3 | ) | |||||||
| Commercial and industrial | (21 | ) | (5 | ) | - | ||||||
| Consumer | - | (20 | ) | (1 | ) | ||||||
| Total charge-offs | (21 | ) | (25 | ) | (167 | ) | |||||
| Recoveries | 115 | 220 | 323 | ||||||||
| Balance, end of period | $ | 17,237 | $ | 17,643 | $ | 17,452 | |||||
| Net recoveries | $ | 94 | $ | 195 | $ | 156 | |||||
| 12/31/2016 | 9/30/2016 | 12/31/2015 | |||||||||
| (dollars in thousands) | |||||||||||
| Non-Performing Assets | |||||||||||
| Loans on non-accrual status: | |||||||||||
| Construction and land | $ | 3,154 | $ | 3,443 | $ | 3,968 | |||||
| Commercial and industrial | 3,198 | 970 | 1,630 | ||||||||
| Commercial real estate | 346 | 284 | 1,940 | ||||||||
| Farmland | 72 | 75 | 83 | ||||||||
| Home equity lines of credit | 46 | 84 | 84 | ||||||||
| Consumer | 26 | 28 | 33 | ||||||||
| Residential 1 to 4 family | - | - | 80 | ||||||||
| Total non-accruing loans | 6,842 | 4,884 | 7,818 | ||||||||
| Other real estate owned (OREO) | - | 111 | 328 | ||||||||
| Other repossessed assets | 70 | 70 | - | ||||||||
| Total non-performing assets | $ | 6,912 | $ | 5,065 | $ | 8,146 | |||||
| 12/31/2016 | 9/30/2016 | 12/31/2015 | |||||||||
| (dollars in thousands) | |||||||||||
| Classified Assets | |||||||||||
| Loans | $ | 41,159 | $ | 45,171 | $ | 44,950 | |||||
| Other real estate owned (OREO) | - | 111 | 328 | ||||||||
| Other repossessed assets | 70 | 70 | - | ||||||||
| Total classified assets | $ | 41,229 | $ | 45,352 | $ | 45,278 | |||||
| Classified assets to Tier I + ALLL | 19.48 | % | 21.81 | % | 22.67 | % | |||||
| Note: Classified assets consist of substandard and non-performing loans, OREO assets, and other repossessed assets. | |||||||||||
| Heritage Oaks Bancorp | ||||||||||||||||||||
| Quarter to Date Non-Performing Loan Reconciliation | ||||||||||||||||||||
| Balance | Returns to | Balance | ||||||||||||||||||
| September 30, | Net | Accrual | December 31, | |||||||||||||||||
| 2016 | Additions | Paydowns | Status | Charge-offs | 2016 | |||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
| Real Estate Secured | ||||||||||||||||||||
| Construction and land | $ | 3,443 | $ | - | $ | (289 | ) | $ | - | $ | - | $ | 3,154 | |||||||
| Commercial | 284 | 90 | (28 | ) | - | - | 346 | |||||||||||||
| Farmland | 75 | - | (3 | ) | - | - | 72 | |||||||||||||
| Home equity lines of credit | 84 | - | (38 | ) | - | - | 46 | |||||||||||||
| Commercial | ||||||||||||||||||||
| Commercial and industrial | 970 | 2,589 | (64 | ) | (276 | ) | (21 | ) | 3,198 | |||||||||||
| Consumer | 28 | - | (2 | ) | - | - | 26 | |||||||||||||
| Total | $ | 4,884 | $ | 2,679 | $ | (424 | ) | $ | (276 | ) | $ | (21 | ) | $ | 6,842 | |||||
| Heritage Oaks Bancorp | ||||||||||||||||||||||||
| Year to Date Non-Performing Loan Reconciliation | ||||||||||||||||||||||||
| Balance | Transfers | Returns to | Balance | |||||||||||||||||||||
| December 31, | Net | to Foreclosed | Accrual | December 31, | ||||||||||||||||||||
| 2015 | Additions | Paydowns | Collateral | Status | Charge-offs | 2016 | ||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
| Real Estate Secured | ||||||||||||||||||||||||
| Construction and land | $ | 3,968 | $ | 349 | $ | (1,163 | ) | $ | - | $ | - | $ | - | $ | 3,154 | |||||||||
| Commercial | 1,940 | 139 | (1,443 | ) | - | (290 | ) | - | 346 | |||||||||||||||
| Farmland | 83 | - | (11 | ) | - | - | - | 72 | ||||||||||||||||
| Home equity lines of credit | 84 | 38 | (38 | ) | - | (38 | ) | - | 46 | |||||||||||||||
| Residential 1 to 4 family | 80 | - | (3 | ) | - | (77 | ) | - | - | |||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Commercial and industrial | 1,630 | 4,543 | (390 | ) | - | (2,547 | ) | (38 | ) | 3,198 | ||||||||||||||
| Agriculture | - | 400 | (59 | ) | - | (341 | ) | - | - | |||||||||||||||
| Consumer | 33 | 94 | (7 | ) | (70 | ) | - | (24 | ) | 26 | ||||||||||||||
| Total | $ | 7,818 | $ | 5,563 | $ | (3,114 | ) | $ | (70 | ) | $ | (3,293 | ) | $ | (62 | ) | $ | 6,842 | ||||||
| Heritage Oaks Bancorp | |||||||||||||||||||
| Reconciliation of Tangible Common Equity and Tangible Common Book Value per Share | |||||||||||||||||||
| 12/31/2016 | 9/30/2016 | 12/31/2015 | |||||||||||||||||
| (dollars in thousands, except per share data) | |||||||||||||||||||
| Period End Balances: | |||||||||||||||||||
| Total shareholders' equity | $ | 212,850 | $ | 215,283 | $ | 206,434 | |||||||||||||
| Less intangibles: | |||||||||||||||||||
| Goodwill | (24,885 | ) | (24,885 | ) | (24,885 | ) | |||||||||||||
| Other intangible assets | (3,354 | ) | (3,568 | ) | (4,298 | ) | |||||||||||||
| Tangible common equity (non-U.S. GAAP) | $ | 184,611 | $ | 186,830 | $ | 177,251 | |||||||||||||
| Outstanding shares | 34,345,073 | 34,249,804 | 34,353,014 | ||||||||||||||||
| Tangible book value per share (non-U.S. GAAP) | $ | 5.38 | $ | 5.45 | $ | 5.16 | |||||||||||||
| For The Three Months Ended | For The Twelve Months Ended | ||||||||||||||||||
| 12/31/2016 | 9/30/2016 | 12/31/2015 | 12/31/2016 | 12/31/2015 | |||||||||||||||
| (dollars in thousands) | |||||||||||||||||||
| Average Balances: | |||||||||||||||||||
| Total shareholders' equity | $ | 215,091 | $ | 215,039 | $ | 206,846 | $ | 212,442 | $ | 203,321 | |||||||||
| Less: preferred stock | - | - | - | - | (446 | ) | |||||||||||||
| Less intangibles: | |||||||||||||||||||
| Goodwill | (24,885 | ) | (24,885 | ) | (24,885 | ) | (24,885 | ) | (24,885 | ) | |||||||||
| Other intangible assets | (3,466 | ) | (3,730 | ) | (4,475 | ) | (3,830 | ) | (4,873 | ) | |||||||||
| Tangible common equity (non-U.S. GAAP) | $ | 186,740 | $ | 186,424 | $ | 177,486 | $ | 183,727 | $ | 173,117 | |||||||||
| Return on tangible common equity (non-U.S. GAAP) | 9.69 | % | 8.93 | % | 7.77 | % | 9.22 | % | 8.83 | % | |||||||||