Heritage Oaks Bancorp acts as a bank holding company of Heritage Oaks Bank. Other than holding the shares of the Bank the Company conducts no significant activities although it is authorized with the prior approval of the Board of Governors of the Federal Reserve System to engage in a variety of activities that are deemed closely related to the business of banking. The Bank offers traditional banking products such as checking savings and certificates of deposit as well as mortgage loans and commercial and consumer loans. Heritage Oaks Bancorp has a market cap of $49.5 million; its shares were traded at around $6.39 with a P/E ratio of 10.3 and P/S ratio of 0.9.
Highlight of Business Operations:For the three month period ended March 31, 2009, the Company earned approximately $1.1 million or $0.14 per diluted share. This, when compared to the $1.7 million or $0.21 per diluted share the Company earned in the same period ended a year earlier, represents a decline in net income of approximately $0.6 million. The primary reason behind the year over year decline in net income can be attributed in large part to provisions the Bank made to the allowance for loan losses during the first quarter of 2009. For the three month period ended March 31, 2009, provisions to the allowance for loan losses were $2.1 million. This represents and increase of approximately $1.9 million when compared to the same period ended a year earlier. See also “Provision for Loan Losses” under “Results of Operations” of this discussion and analysis for additional information regarding provisions the Bank made to the allowance for loan losses during the first quarter of 2009.
In spite of the year to date increase in non-performing assets, the Bank is encouraged to see sale activity for $3 million in non-performing assets that is expected to close during the second quarter of 2009. There also appears to be increased bona fide interest in properties as reflected in the commitment to purchase letter the Bank recently received for another $1 million property.
During the third and fourth quarters of 2008, the credit and equity markets came under significant duress as confidence by many in the U.S. financial system began to wane. During the later part of 2007 and throughout 2008, many U.S. financial institutions were forced to significantly write-down the values of certain classes of assets in response to the weakened real estate market. These losses lead to strained capital levels, impairing the confidence of many depositors and others providing funding to the nation s banks, which in turn lead to a crisis of liquidity. With liquidity levels of many financial institutions significantly weakened, borrowing costs began to rise considerably and the flow of credit to consumers and between banks all but came to a halt. In response to this, the weakened economy and other factors, the U.S. Congress passes the Emergency Economic Stabilization Act of 2008 (the “EESA”) in October of 2008. Under the EESA, the Department of the U.S. Treasury formed the Troubled Asset Relief Program (the “TARP”). The TARP gives the U.S. Treasury the power to make purchases of certain troubled assets as well as the direct purchase of equity from U.S. financial institutions under the CPP. Although the Company s liquidity levels remained adequate and the Bank and Company were well capitalized throughout 2008, the Company applied to participate in the CPP to keep all capital raising options available. On February 27, 2009, the Company received shareholder approval to add an authorized class of preferred stock to the Company s Articles of Incorporation that allowed the Company to participate in the CPP and will also allow for more flexibility in capital raising efforts in general. On March 20, 2009, the Company issued 21,000 shares of Senior Preferred Stock to the U.S. Treasury under the terms of the CPP for $21.0 million. Additionally, the Company issued a warrant to the U.S. Treasury to purchase 611,650 shares of our common stock at a price of $5.15 per share, representing 15% of the preferred issuance or approximately $3.2 million. For a more detailed discussion regarding the Company s participation in the CPP, see Note 8. Preferred Stock, to the consolidated financial statements filed on this Form 10-Q.
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