8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT PURSUANT

TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported) January 22, 2007

Heritage Oaks Bancorp

(Exact Name of Registrant as Specified in Its Charter)

California

(State or Other Jurisdictionof Incorporation)

000-05020	77-0388249
(Commission File Number)	(IRS Employer Identification No.)
545 12th Street, Paso Robles CA	93446
(Address of Principal Executive Offices)	(Zip Code)

(805) 239-5200

(Registrant’s Telephone Number, Including Area Code)

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02 - RESULTS OF OPERATIONS AND FINANCIAL CONDITION 

On January 22, 2007 Heritage Oaks Bancorp (HEOP) issued a Press Release describing the results of operations for the quarter ending, December 31, 2006. A copy of the press release is attached to this 8-K as Exhibit 99.1.

ITEM 9.01 - FINANCIAL STATEMENTS AND EXHIBITS

(d) Exhibits

99.1 Press Release dated January 22, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: January 22, 2007

Heritage Oaks Bancorp
By:	/s/ Margaret Torres
Margaret Torres
Chief Financial Officer

EXHIBIT INDEX

Exhibit Number	Description
99.1	Press Release dated January 22, 2007

EX-99.1

HERITAGE OAKS BANCORP EARNS $1.6 MILLION IN FOURTH QUARTER,

WITH LOAN PORTFOLIO INCREASING 21%

Paso Robles, CA - January 22, 2007 — Heritage Oaks Bancorp (Nasdaq: HEOP), the parent company of Heritage Oaks Bank, today reported preliminary fourth quarter profits highlighting outstanding loan growth on a year over year basis. Net income for the year was $6.7 million, or $1.01 per diluted share, even with earnings in 2005. For the fourth quarter of 2006, net income was $1.6 million, or $0.25 per diluted share, compared to $1.8 million, or $0.27 per diluted share, in the fourth quarter of 2005.

“The past year was marked by tremendous loan growth for Heritage Oaks Bank,” said Lawrence P. Ward, President and CEO. “Throughout 2006, we invested significant time and resources putting the infrastructure in place to support a strategy of aggressive growth in future years. At a considerable up-front expense, we put a branding initiative in place providing the foundation for our growth strategy. We also worked with consultants to develop and enhance our branching strategy as well as our compensation programs. We believe these initiatives will cease being expense items early this year and will begin to contribute to future profitability, build our franchise value and enhance shareholder value.

“The California Central Coast economy continues to flourish, and demand for commercial loans remains strong,” continued Ward. “We have sustained our loan growth momentum while maintaining exceptional credit quality. We will continue to focus on our customers’ needs in order to expand our existing relationships while looking to add new, profitable customers. Not unlike most banks in 2006, we found deposit growth to be very challenging. However ,a number of bank mergers have left the Central Coast with few true community banks and we believe this presents an excellent opportunity for us in 2007.”

2006 Highlights:

· Net income was $6.7 million, or $1.01 per diluted share.

· Revenues increased 6% to $32.0 million.

· Return on average equity was 14.10% and return on average assets was 1.32%.

· Net interest margin was 5.94%.

· Net loans increased 21% to $439 million.

· Asset quality remained strong, non-performing assets were just 0.01% of total assets.

· Initiated regular quarterly cash dividends.

In 2006, Heritage Oaks’ board of directors initiated a regular quarterly cash dividend program and also paid a special cash dividend of $0.25 per share in May. The board also authorized a repurchase plan of up to 100,000 shares of common stock. “We have already repurchased 40,000 shares, and will continue to look for ways to manage our capital while benefiting shareholders,” Ward added.

Operating Results

Total revenues, consisting of net interest income before the provision for loan losses and non-interest income, increased 6% to $32.0 million in 2006 compared to $30.2 million a year ago. Fourth quarter revenues grew 4% to $8.3 million from $8.0 million in the same quarter of 2005. Net interest income increased 8% to $27.1 million in 2006 compared to $25.2 million in 2005. In the fourth quarter, net interest income increased 2% to $7.0 million, from $6.8 million a year ago. “Our healthy net interest income reflects the strong loan growth we have generated over the past year and continues to produce a very healthy net interest margin given the negative impact of the continued high costs associated with borrowed funds needed to support the loan growth,” said Ward. Interest and fees on loans increased 24% from the fourth quarter as well as for the 12 months last year while interest expense increased by 91% and 86% for that same 3 month and 12 month time frame.

Non-interest income increased 6% to $1.3 million in the fourth quarter of 2006, compared to $1.2 million in the fourth quarter of 2005. The Company received a recovery from a 2001 operational loss in the amount of approximately $200,000. This recovery is included in other non-interest income during the fourth quarter of 2006. For 2006, non-interest income was $5.0 million, unchanged from last year.

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HEOP 4Q06 results

January 22, 2007

Page 2

“In the fourth quarter, our net interest margin came under pressure as deposit costs, as well as costs associated with borrowing from the FHLB and the issuance of $8 million in additional Trust Preferred Securities, increased faster than loan yields,” said Ward. “We expect to see some continued pressure on the net interest margin in future quarters given the current interest rate and yield curve environment.” Net interest margin for the year was 5.94%, compared to 5.78% in 2005. Fourth quarter margin was 5.77%, compared to 6.06% in the fourth quarter a year ago.

Heritage Oaks’ non-interest expense increased in 2006 primarily as a result of increased expenses related to the branding project, consulting fees associated with revisions to the compensation programs, SOX 404 compliance implementation, a branch expansion study, the addition of an EVP / Human Resources and EVP Client Delivery, and the addition of a full service branch office within the bank’s existing footprint in Templeton, California. In addition, two long running legal issues were resolved during the fourth quarter of 2006, resulting in settlement and associated legal costs of approximately $100,000, which are included in other operating expense. Total non-interest expense increased 12% to $21.0 million from $18.8 million in 2005. In the fourth quarter, non-interest expenses were $5.5 million compared to $4.9 million in the fourth quarter a year ago. “We have invested significant resources in these new initiatives in 2006 and are already seeing improvements in our service delivery. 2006 was an unusual year with respect to our operating expenses, and we are expecting our expenses to return to more normal levels this year,” said Ward.

As a result of the increase in expenses, the efficiency ratio increased to 65.5% in 2006 compared to 62.0% in 2005. For the fourth quarter the efficiency ratio was 67.1% compared to 60.6% for the fourth quarter of 2005. The efficiency ratio measures operating expenses as a percent of revenues.

Heritage Oaks generated a return on average equity of 14.1% in 2006 and 13.6% in the fourth quarter, compared to 16.1% and 16.4% during the same periods of 2005. The decline was a result of higher capital balances and earnings even with those reported the prior year. Return on average assets was 1.32% in 2006 compared to 1.38% in 2005, and was 1.24% in the fourth quarter of 2006 from 1.47% in the fourth quarter a year ago.

Balance Sheet

Net loans increased 21% to $439 million at December 31, 2006, compared to $363 million a year earlier. “Loan production for the quarter was strong and the major components of the loan portfolio showed significant growth over the prior year’s balances,” said Ward. “Compared to a year ago, we increased commercial, financial and agricultural loans 42%, real estate construction and land loans 37% and other real estate loans 13%. In addition, our credit quality has remained exceptional.”

Total assets increased 11% to $542 million as of December 31, 2006, compared to $489 million a year earlier. Total deposits were $421 million, compared to $418 million at December 31, 2005. “Our focus and our biggest challenge in 2007 continues to be attracting low cost deposits to fund our loans. Our core deposit base remains very strong as we still have 36% of our deposits in non-interest bearing accounts and an additional 35% of deposits in savings, money market and NOW accounts. Not unlike most banks in 2006 we experienced disintermediation of low or no-cost deposits into higher yielding certificate of deposits. Still, over 71% of our deposits are no or low-cost, providing us with a very efficient funding source to support our loan growth,” said Ward.

Asset quality remains exceptional with non-performing assets at $55,000, or 0.01% of total assets at December 31, 2006. The allowance for loan losses was $4.1 million, or 0.92% of net loans held for investment at year-end compared to $3.9 million or 1.05% of net loans outstanding at the end of 2005. The bank recovered $100,000 from a previously charged off loan and took an additional $120,000 provision in the fourth quarter of 2006. Net charged off loans were $400,000 in 2006.

Book value per share was $7.76 at December 31, 2006, compared to $7.20 per share a year earlier. Tangible book per share was $6.81 at December 31, 2006, compared to $6.18 a year earlier. Shareholders’ equity increased 10% to $49.2 million compared to $44.8 million a year ago.

Heritage Oaks Bancorp is the holding company for Heritage Oaks Bank. Heritage Oaks Bank has its headquarters plus two branch offices in Paso Robles, two branch offices in San Luis Obispo, single branch offices in Cambria, Arroyo Grande, Atascadero, Templeton and Morro Bay and three branch offices in Santa Maria. Heritage conducts commercial banking business in San Luis Obispo County and Northern Santa Barbara County. Visit Heritage Oaks Bancorp on the Web at www.heritageoaksbancorp.com.

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HEOP 4Q06 results

January 22, 2007

Page 3

Statements concerning future performance, developments or events, expectations for growth and income forecasts, 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, increased profitability, 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, general economic conditions and California’s energy crisis. 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.

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HEOP 4Q06 results

January 22, 2007

Page 4

HERITAGE OAKS BANCORP

CONSOLIDATED BALANCE SHEETS

(in thousands )

Assets	2006		2005
Cash and due from banks	$	19,164	$	18,279		$	885		5	%
Federal funds sold		3,870		26,280			(22,410	)	-85	%
Total Cash and Cash Equivalents		23,034		44,559			(21,525	)	-48	%
Interest-bearing deposits in other financial institutions		318		298			20		7	%
Investment securities, available-for-sale		38,445		44,402			(5,957	)	-13	%
Federal Home Loan Bank and Federal Reserve Bank Stock, at cost		2,350		1,885			465		25	%
Loans held for sale		1,764		3,392			(1,628	)	-48	%
Loans, net of deferred fees of $1,625 and $1,617 and allowance for
loan loss of $4,081 and $3,881 at December 31, 2006
and 2005, respectively		439,277		362,635			76,642		21	%
Property premises and equipment, net		14,581		11,905			2,676		22	%
Net deferred tax asset		2,414		2,358			56		2	%
Cash surrender value of life insurance		9,435		7,706			1,729		22	%
Goodwill		4,864		4,864			-		0	%
Intangible assets		1,148		1,448			(300	)	-21	%
Other assets		4,144		3,049			1,095		36	%
Total Assets	$	541,774	$	488,501		$	53,273		11	%
Liabilities and Stockholders' Equity
Deposits
Demand non-interest bearing	$	153,005	$	164,014		$	(11,009	)	-7	%
Savings, NOW and money market deposits		146,110		170,106			(23,996	)	-14	%
Time deposits of $100 or more		30,630		17,414			13,216		76	%
Time deposits under $100		90,776		66,263			24,513		37	%
Total Deposits		420,521		417,797			2,724		1	%
FHLB advances and other borrowings		50,000		10,000			40,000		400	%
Securities sold under agreement to repurchase		1,364		3,847			(2,483	)	-65	%
Junior subordinated debentures		16,496		8,248			8,248		100	%
Other liabilities		4,144		3,764			380		10	%
Total Liabilities		492,525		443,656			48,869		11	%
COMMITMENTS AND CONTINGENCIES (Notes #5 and #10)		-		-
Stockholders' Equity
Common stock, no par value; 20,000,000 shares authorized;
6,345,639 and 6,231,982 shares issued and
outstanding for 2006 and 2005, respectively		29,360		29,255			105		0	%
Retained earnings		19,809		15,748			4,061		26	%
Accumulated other comprehensive income		80		(158	)		238		-151	%
Total Stockholders' Equity		49,249		44,845			4,404		10	%
Total Liabilities and Stockholders' Equity	$	541,774	$	488,501		$	53,273		11	%

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HEOP 4Q06 results

January 22, 2007

Page 5

HERITAGE OAKS BANCORP

CONSOLIDATED STATEMENTS OF INCOME

(in thousands except per share date)

	For the three months				For the year
	ended December 31,				ended December 31,
	2006		2005		2006		2005		Variance						Variance
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		3 months						12 months
Interest Income:									$			%			$			%
Interest and fees on loans	$	9,423	$	7,605	$	33,897	$	27,399	$	1,818			24	%	$	6,498			24	%
Investment securities		426		515		1,785		2,101		(89	)		-17	%		(316	)		-15	%
Federal funds sold and commercial paper		35		227		539		667		(192	)		-85	%		(128	)		-19	%
Time certificates of deposit		48		2		151		9		46			2300	%		142			1597	%
Total interest income		9,932		8,349		36,372		30,175		1,583			19	%		6,197			21	%
Interest Expense:
Now accounts		20		22		86		89		(2	)		-9	%		(3	)		-4	%
MMDA accounts		622		521		2,309		1,504		101			19	%		805			54	%
Savings accounts		24		31		102		102		(7	)		-22	%		-			0	%
Time deposits of $100 or more		199		137		626		413		62			45	%		213			52	%
Other time deposits		1,174		515		3,845		1,371		659			128	%		2,474			180	%
Other borrowed funds		942		336		2,348		1,537		606			180	%		811			53	%
Total interest expense		2,981		1,562		9,316		5,017		1,419			91	%		4,299			86	%
Net Interest Income Before Prov. for Possible Loan Losses		6,951		6,787		27,056		25,158		164			2	%		1,898			8	%
Provision for loan losses		120		180		600		710		(60	)		-33	%		(110	)		-15	%
Net interest income after provision for loan losses		6,831		6,607		26,456		24,448		224			3	%		2,008			8	%
Non-interest Income:
Service charges on deposit accounts		581		605		2,427		2,430		(24	)		-4	%		(3	)		0	%
Gain of Sale of Securities		-		-		-		88		-			0	%		(88	)		-100	%
Other income		720		617		2,525		2,490		103			17	%		35			1	%
Total Non-interest Income		1,301		1,222		4,952		5,009		79			6	%		(57	)		-1	%
Non-interest Expense:
Salaries and employee benefits		3,039		2,558		11,573		9,746		481			19	%		1,828			19	%
Occupancy and equipment		706		638		2,607		2,491		68			11	%		116			5	%
Other expenses		1,794		1,661		6,775		6,481		133			8	%		294			5	%
Total Noninterest Expenses		5,539		4,857		20,955		18,717		682			14	%		2,238			12	%
Income before provision for income taxes		2,593		2,972		10,453		10,740		(379	)		-13	%		(287	)		-3	%
Provision for applicable income taxes		944		1,163		3,791		4,103		(219	)		-19	%		(312	)		-8	%
Net Income	$	1,649	$	1,809	$	6,662	$	6,637	$	(160	)		-9	%	$	25			0	%
Earnings per share:
Basic	$	0.26	$	0.29	$	1.05	$	1.08	$	(0.03	)		-11	%	$	(0.03	)		-3	%
Diluted	$	0.25	$	0.27	$	1.01	$	1.01	$	(0.02	)		-7	%	$	0.00			0	%
See notes to condensed financial statements
Shares Outstanding:
Basic		6,355,466				6,333,924
Diluted		6,598,355				6,595,793

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HEOP 4Q06 results

January 22, 2007

Page 6

ADDITIONAL FINANCIAL INFORMATION
( Dollars in thousands )			Quarters Ended				Percent Change from
	Date		Linked Q		Prior Yr Q		Linked Q			Prior Yr Q
	31-Dec-06		30-Sep-06		31-Dec-05
LOANS ( including loans held for sale ):
Commercial, financial and agricultural	$	84,976	$	75,627	$	60,050		12	%		42	%
Real Estate- construction/land		105,713		101,665		76,981		4	%		37	%
Real Estate- other		237,401		229,070		210,690		4	%		13	%
Home equity lines of credit		10,792		11,777		14,398		-8	%		-25	%
Installment loans to individuals		5,597		5,660		5,620		-1	%		0	%
All other loans (including overdrafts)		504		867		394		-42	%		28	%
Total loans outstanding	$	444,983	$	424,666	$	368,133		5	%		15	%

NON-PERFORMING ASSETS:	Date			Linked Q			Prior Yr Q			Linked Q			Prior Yr Q
Loans on non-accrual status	$	55		$	183		$	54			-70	%		239	%
Loans more than 90 days delinquent, still on accrual		-			- -			- -			0	%		0	%
Total non-performing loans		55			183			54			-70	%		239	%
Real estate owned ( REO ) / Repossessed assets		-			- -			- -			0	%		0	%
Total non-performing assets	$	55		$	183		$	54			-70	%		239	%
Total non-performing assets / Total assets		0.01	%		0.03	%		0.01	%		-70	%		211	%

										Percent Change from
CHANGE IN THE	Date			Linked Q			Prior Yr Q			Linked Q			Prior Yr Q
ALLOWANCE FOR LOAN LOSSES:	31-Dec-06			30-Sep-06			31-Dec-05
Balance, beginning of period	$	3,881		$	3,881		$	3,247		$	0	%		20	%
Provision		600			480			710			25	%		-32	%
Recoveries of loans previously charged off		161			21			24			667	%		-13	%
Loans charged-off		(561	)		(519	)		(100	)		8	%		419	%
Net ( charge-offs ) recoveries		(400	)		(498	)		(76	)		-20	%		555	%
Balance, end of period	$	4,081		$	3,863		$	3,881			6	%		0	%
Net charge-offs / Average loans outstanding		0.10	%		0.12	%		0.02	%
Allowance for loan losses / Total loans outstanding		0.92	%		0.91	%		1.05	%

							Percent Change from
	Date		Linked Q		Prior Yr Q		Linked Q			Prior Yr Q
DEPOSITS	31-Dec-06		30-Sep-06		31-Dec-05
Non-interest-bearing	$	153,005	$	157,180	$	164,014		-3	%		-7	%
Interest-bearing checking		45,164		46,100		50,598		-2	%		-11	%
Regular savings accounts		23,406		24,755		29,386		-5	%		-20	%
Money market accounts		77,540		81,178		90,122		-4	%		-14	%
Interest-bearing transaction & savings accounts		299,115		309,213		334,120		-3	%		-10	%
Time Deposits under $100,000		90,776		89,277		66,263		2	%		37	%
Time Deposits of $100,000 or more		30,630		31,782		17,414		-4	%		76	%
Interest-bearing certificates		121,406		121,059		83,677		0	%		45	%
Total deposits	$	420,521	$	430,272	$	417,797		-2	%		1	%
Included in other borrowings
FHLB Borrowing	$	50,000	$	40,000	$	10,000		25	%		400	%
Retail repurchase agreements / "Sweep accounts"	$	1,364	$	1,219	$	3,847		12	%		-65	%

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HEOP 4Q06 results

January 22, 2007

Page 7

ADDITIONAL FINANCIAL INFORMATION

( Dollars in thousands )

( Rates / Ratios Annualized )

				Quarters Ended						Percent Change from
OPERATING PERFORMANCE:	31-Dec-06			30-Sep-06			31-Dec-05			30-Sep-06			31-Dec-05
Average loans	$	437,623		$	409,897		$	376,095			7	%		16	%
Average securities and deposits w/other fin. Inst.		44,515			53,117			71,709			-16	%		-38	%
Average non-interest-earning assets		48,691			52,306			44,500			-7	%		9	%
Total average assets	$	530,829		$	515,320		$	492,304			3	%		8	%
Average deposits	$	416,663		$	421,916		$	418,619			-1	%		0	%
Average borrowings		60,638			41,095			25,336			48	%		139	%
Average non-interest-earning liabilities		5,186			4,646			4,210			12	%		23	%
Total average liabilities		482,487			467,657			448,165			3	%		8	%
Total average stockholders' equity		48,342			47,663			44,139			1	%		10	%
Total average liabilities and equity	$	530,829		$	515,320		$	492,304			3	%		8	%
Interest rate yield on loans		8.61	%		8.75	%		8.09	%		-2	%		6	%
Interest rate yield on securities and deposits w/ other fin inst		4.57	%		4.52	%		4.15	%		1	%		10	%
Interest rate yield on interest-earning assets		8.24	%		8.27	%		7.46	%		0	%		10	%
Interest rate expense on deposits		1.96	%		1.82	%		1.17	%		8	%		67	%
Interest rate expense on borrowings		6.22	%		6.11	%		5.32	%		2	%		17	%
Interest rate expense on interest-bearing liabilities		3.56	%		3.24	%		2.30	%		10	%		55	%
Interest rate spread		4.68	%		5.03	%		5.16	%		-7	%		-9	%
Net interest margin		5.77	%		6.07	%		6.06	%		-5	%		-5	%
Other operating income / Average assets		0.98	%		0.95	%		0.99	%		3	%		-1	%
Other operating expense / Average assets		4.17	%		4.18	%		3.95	%		0	%		6	%
Efficiency ratio ( other operating expense / revenue )		67.12	%		65.31	%		60.64	%		3	%		11	%
Return on average assets		1.24	%		1.35	%		1.47	%		-8	%		-15	%
Return on average equity		13.64	%		14.54	%		16.39	%		-6	%		-17	%
Average equity / Average assets		9.11	%		9.25	%		8.97	%		-2	%		2	%

NOTE: Transmitted on Prime Zone on Monday, January 22, 2007 at 3:30 a.m. PST.