Heritage Oaks Bancorp has a market cap of $79.4 million; its shares were traded at around $3.17 with and P/S ratio of 1.4. HEOP is in the portfolios of Michael Price of MFP Investors LLC.
Highlight of Business Operations:For the three and six months ended June 30, 2010, the Company reported a net loss applicable to common shareholders of approximately $9.6 million and $11.3 million, respectively. In the same periods ended a year earlier, the Company reported net income available to common shareholders of approximately $0.3 million and $1.3 million, respectively. Net loss per diluted common share was ($0.86) for the second quarter of 2010, compared to net income of $0.03 per diluted common share in the same period ended a year earlier. For the first six months of 2010, the net loss per diluted common share was ($1.19) compared to net income per diluted common share of $0.17 for the same period ended a year earlier. Operating results for the second quarter and first six months of 2010 were negatively impacted by significantly higher provisions for loan losses when compared to that reported in the same periods a year earlier as well as increased non-interest expenses. Increased provisions for loan losses can be attributed to several large write-downs incurred within the Bank s commercial and industrial loan portfolio as well as the downgrade of certain large credits. Higher non-interest expenses for the quarter and year to date periods ended June 30, 2010 are attributable to increases in salaries and benefits, occupancy costs, and FDIC insurance premiums. Increases in salaries and benefits are attributable to the expansion of the Bank s management team and special assets department. Higher occupancy costs can be attributed to annual increases in rental costs as well as a reduction in sublease rental income associated with the relocation of one branch office. Contributing further to the year over year decline in net income available to common shareholders was the recording of the beneficial conversion feature related to the conversion of the Company s Series B Preferred Stock to common stock during the second quarter of 2010. Since the fair market value of the Company s common stock was higher than the conversion price of the Series B Preferred Stock on the date the Company made a firm commitment to issue the Series B Preferred Stock, a contingent beneficial conversion feature related to the Series B Preferred Stock existed with a value of approximately $3.5 million. The recognition of the beneficial conversion feature was contingent upon the Company s receipt of shareholder approval to convert the Series B Preferred Stock to common stock. Upon shareholder approval to convert the Series B Preferred Stock to common stock in June 2010, the Company recorded the beneficial conversion feature and corresponding Series B Preferred Stock discount of approximately $3.5 million. The Company simultaneously recorded the immediate accretion of the Series B Preferred Stock discount. The accretion of the Series B Preferred Stock discount is recorded as reduction of retained earnings, and therefore represents a reduction of net income available to common shareholders. Offsetting the negative impact of the items mentioned above was a $1.7 million pre-tax gain the Company recognized from the extinguishment of $5.0 million in junior subordinated debentures in June 2010.
On March 12, 2010 the Company announced that it completed a private placement of 52,088 shares of its Series B Mandatorily Convertible Adjustable Cumulative Perpetual Preferred Stock ("Series B Preferred Stock") and 1,189,538 shares of its Series C Convertible Perpetual Preferred Stock, raising gross proceeds of approximately $56.0 million. On June 8, 2010 the Company announced it had closed escrow on the sale of an additional $4.0 million in Series B Preferred Stock related to its March 2010 private placement. Together with the proceeds raised from the initial offering, the Company raised a total of $60.0 million in gross proceeds. Following the receipt of shareholder approval at the Company s June 2010 annual meeting, the Company converted to common stock all Series B Preferred shares issued in the private placement. The total number of common shares issued in the conversion was 17,279,995. For additional information regarding the Company s private placement, please see Note 11. Preferred Stock, of the consolidated financial statements filed on this Form 10-Q/A.
In June 2010 the Company announced it had used $3.3 million of the $4.0 million in proceeds received from the second closing of its March 2010 private placement to repurchase the $5.0 million in face amount trust preferred securities issued by Heritage Oaks Capital Trust III, and the related junior subordinated debentures issued by the Company. The repurchase resulted in a pre-tax gain of approximately of $1.7 million. The repurchase was made pursuant to the non-objection of the Federal Reserve Bank of San Francisco and approval of the United States Treasury Department. The Company intends to dissolve Heritage Oaks Capital Trust III in the second half of 2010.
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