Unassociated Document

Paso Robles, CA - January 23, 2008 - Heritage Oaks Bancorp (NASDAQ: HEOP), the parent company of Heritage Oaks Bank, today reported preliminary financial results for 2007. Substantial loan and deposit growth, both organic and through its acquisition of Business First National Bank of Santa Barbara, contributed to record profits for the year ended December 31, 2007. In 2007, the company earned $6.9 million, or $1.00 per diluted share, compared to $6.6 million, or $1.01 per diluted share, in 2006. For the fourth quarter of 2007 net income increased 20% to $2.0 million, or $0.26 per diluted share, compared to $1.6 million, or $0.25 per diluted share, in the fourth quarter of 2006.

On October 12, 2007 Heritage Oaks Bancorp closed its acquisition of Business First National Bank of Santa Barbara in a stock and cash transaction valued at approximately $20 million. The company issued 850,213 new shares in conjunction with this acquisition, adding two full-service branches, $133 million in deposits and $124 million in loans. In connection with the transaction, Business First National Bank was merged with and into Heritage Oaks Bank and now operates as a division of Heritage Oaks Bank. The merger is expected to be accretive to earnings in 2008.

Excludes Business First Bank	12/31/07		12/31/06		$Variance vs.			% Variance vs.
Account Type	Heritage		Heritage		2006			2006
Commercial, financial and agricultural	$	94,968	$	84,976	$	9,992			11.76	%
Real estate - construction		110,073		105,712	$	4,361			4.13	%
Real estate - commercial		242,193		237,401	$	4,792			2.02	%
Home equity lines of credit		9,167		10,792	$	(1,625	)		-15.06	%
Installment loans to individuals		5,040		5,598	$	(558	)		-9.96	%
All other loans (including overdrafts)		455		504	$	(49	)		-9.73	%
Total Gross Loans	$	461,896	$	444,983	$	16,913			3.80	%

The following Table illustrates Loan Growth including the Business First Division:

Includes Business First Bank	12/31/07		12/31/06		$Variance vs.		% Variance vs.
Account Type	Total		Total		2006		2006
Commercial, financial and agricultural	$	146,080	$	84,976	$	61,104		71.91	%
Real estate - construction		118,200		105,712	$	12,488		11.81	%
Real estate - commercial		322,928		237,401	$	85,527		36.03	%
Home equity lines of credit		17,470		10,792	$	6,678		61.88	%
Installment loans to individuals		7,977		5,598	$	2,379		42.50	%
All other loans (including overdrafts)		562		504	$	58		11.55	%
Total Gross Loans	$	613,217	$	444,983	$	168,234		37.81	%

“Building core deposits to fund our loan growth will continue to be a focal point for us in 2008,” said Ward. “Last year we implemented a strategy of funding our increased loan demand through a new variable interest rate money market account. We also used this new account to help replace higher cost borrowings. Consequently, savings, NOW and money market balances more than doubled and total deposits increased 53% since the end of December 2006. Of that deposit growth, 29% came from the Business First acquisition and 24% came from internal growth. Additionally, these deposits vary with market rate changes, and are thus, much more complementary funding source for our primarily floating rate loan portfolio.” Total deposits grew 53% to $645 million at the end of 2007, compared to $421 million at the end of 2006 and total assets increased 38% to a record $746 million at year-end, compared to $542 million a year earlier.

The following table illustrates Deposit Growth excluding the Business First Division:

Excludes Business First Bank	12/31/07		12/31/06		$Variance vs.			% Variance vs.
Account Type	Heritage		Heritage		2006			2006
Demand Deposits	$	123,392	$	153,005	$	(29,613	)		-19.35	%
Interest Checking		57,369		45,164	$	12,205			27.02	%
Savings		18,830		23,406	$	(4,576	)		-19.55	%
Money Market		180,077		77,540	$	102,537			132.24	%
Time Deposits		141,515		121,406	$	20,109			16.56	%
Total Deposits	$	521,184	$	420,521		100,663			23.94	%

The following Table illustrates Deposit Growth including the Business First Division:

Includes Business First Bank	12/31/07		12/31/06		$Variance vs.		% Variance vs.
Account Type	Total		Total		2006		2006
Demand Deposits	$	153,684	$	153,005	$	679		0.44	%
Interest Checking		69,558		45,164	$	24,394		54.01	%
Savings		41,599		23,406	$	18,193		77.73	%
Money Market		206,754		77,540	$	129,214		166.64	%
Time Deposits		173,214		121,406	$	51,808		42.67	%
Total Deposits	$	644,808	$	420,521		224,287		53.34	%

Asset quality remains strong with non-performing assets totaling only $338,000, or 0.05% of total assets at year-end. Three months earlier, Heritage Oaks’ non-performing assets totaled $641,000, or 0.11% of total assets. Despite the strong asset quality, Heritage Oaks has increased its allowance for loan losses to $6.1 million, or 1.00% of total loans at year-end compared to $4.1 million or 0.92% of total loans at December 31, 2006. “Our non-performing loans consist of four loans, of which, one for approximately $260 thousand that is real estate secured has a Loan To Value (LTV) of approximately <65% and is current, two loans that are less than $20 thousand each and are paying as agreed, and one less than $50 thousand that is in the process of collection. We are closely monitoring all delinquent loans, reviewing them weekly and do not anticipate at this time any significant increase in non-performing loans. As a business bank, we do not hold any residential mortgages in our portfolio and have no direct exposure to the subprime mortgage situation. We are keeping a close eye on all our lending relationships, and frequently review our loan portfolio to maintain strong asset quality,” added Ward.

“Although our net interest margin contracted as a result of our acquisition of Business First, the decline was not as significant as we thought it would be,” Ward said. “Core deposit growth, generated by the success of our program to increase money market account balances contributed to keeping our margin above peer levels.” In 2007, the net interest margin was 5.47% compared to 5.94% in 2006. For the fourth quarter, the net interest margin was 5.33% compared to 5.44% in the previous quarter and 5.72% in the fourth quarter a year ago.

Total revenues, consisting of net interest income before the provision for loan losses and non-interest income, increased 12% to $35.8 million in 2007 compared to $32.0 million a year ago. For the year, approximately 4% of the revenue increase was the result of the acquisition of Business First. Fourth quarter revenues grew 24% to $10.2 million from $8.3 million in the same quarter of 2006. For the quarter, approximately 15% of the revenue increase was the result of the acquisition of Business First. Net interest income increased 12% to $30.4 million in 2007 compared to $27.1 million in 2006. In the fourth quarter, net interest income increased 26% to $8.8 million, from $7.0 million a year ago. Interest and fees on loans increased 31% for the fourth quarter and 25% for the year compared to last year while interest expense increased by 47% and 58% for that same 3 month and 12 month time frame.

Total non-interest expense increased 14% to $23.9 million in 2007, from $21.0 million in 2006. In the fourth quarter, non-interest expenses were $6.9 million compared to $5.5 million in the fourth quarter a year ago. “Our increase in salary and employee benefits and the increased occupancy costs are directly a result of our larger organization due to both the acquisition of Business First and our organic growth in 2007,” said Ward. “Additionally, our occupancy expense increased in the second half of 2007 due to a sale leaseback transaction that was finalized in June 2007. The offset to this additional expense is an increase in interest income resulting from the investment of the funds we received by selling the properties.”

Heritage Oaks Bancorp is the holding company for Heritage Oaks Bank which operates as Heritage Oaks Bank and Business First, a division of Heritage Oaks Bank. Heritage Oaks Bank 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. The Business First division has two branch offices in Santa Barbara. Visit Heritage Oaks Bancorp on the Web at www.heritageoaksbancorp.com.

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 the ability to successfully integrate the operations of Business First National Bank, 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.

	(unaudited		(unaudited)		(audited)		Percentage Change vs.
	12/31/2007		9/30/2007		12/31/2006		9/30/2007			12/31/2006
Assets
Cash and due from banks	$	23,254	$	20,316	$	19,164		14.5	%		21.3	%
Federal funds sold		23,165		14,260		3,870		62.4	%		498.6	%
Total cash and cash equivalents		46,419		34,576		23,034		34.3	%		101.5	%

Interest bearing deposits with other banks		330		1,718		318		-80.8	%		3.8	%
Securities available for sale		47,556		34,854		38,445		36.4	%		23.7	%
Federal Home Loan Bank Stock, at cost		3,045		2,171		2,350		40.3	%		29.6	%
Loans held for sale		902		902		1,764		0.0	%		-48.9	%
Loans, net (1)		605,342		468,966		439,277		29.1	%		37.8	%
Property, premises and equipment		6,390		5,017		14,581		27.4	%		-56.2	%
Cash surrender value of life insurance		9,923		9,716		9,435		2.1	%		5.2	%
Deferred tax assets		5,084		4,964		2,414		2.4	%		110.6	%
Goodwill		11,117		4,865		4,865		128.5	%		128.5	%
Core deposit intangible		4,551		883		1,148		415.4	%		296.4	%
Other assets		4,895		4,058		4,143		20.6	%		18.2	%
Total assets	$	745,554	$	572,690	$	541,774		30.2	%		37.6	%

Liabilities
Deposits:
Non-interest bearing demand	$	153,684	$	130,221	$	153,005		18.0	%		0.4	%
Savings, NOW, and money market		317,911		215,576		146,110		47.5	%		117.6	%
Time deposits of $100K or more		75,966		50,666		30,630		49.9	%		148.0	%
Time deposits under $100K		97,247		99,847		90,776		-2.6	%		7.1	%
Total deposits		644,808		496,310		420,521		29.9	%		53.3	%
FHLB advances and other borrowings		8,000		-		50,000		-			-84.0	%
Securities sold under agreements to repurchase		1,936		1,464		1,364		32.2	%		41.9	%
Junior subordinated debentures		13,403		13,403		16,496		0.0	%		-18.8	%
Other liabilities		7,957		7,663		3,921		3.8	%		102.9	%
Total liabilities		676,104		518,840		492,302		30.3	%		37.3	%
Stockholders' equity
Common stock, no par value; 20,000,000 shares
authorized; issued and outstanding 7,317,932; 6,469,653;
and 6,345,639 for December 31, 2007; September 30, 2007
and December 31, 2006 respectively		43,996		29,976		29,247		46.8	%		50.4	%
Additional paid in capital		672		600		336		12.0	%		100.0	%
Retained earnings		24,598		23,205		19,809		6.0	%		24.2	%
Accumulated other comprehensive income		184		69		80		166.7	%		130.0	%
Total stockholders' equity		69,450		53,850		49,472		29.0	%		40.4	%
Total liabilities and stockholders' equity	$	745,554	$	572,690	$	541,774		30.2	%		37.6	%

	(unaudited)		(unaudited)		(unaudited)
	For the Three Months Ended						Percentage Change Vs.
	12/31/2007		9/30/2007		12/31/2006		9/30/2007			12/31/2006
Interest Income:
Interest and fees on loans	$	12,337	$	10,058	$	9,423		22.7	%		30.9	%
Investment securities		609		426		426		43.0	%		43.0	%
Federal funds sold and commercial paper		208		385		35		-46.0	%		494.3	%
Time certificates of deposit		1		1		48		0.0	%		-97.9	%
Total interest income		13,155		10,870		9,932		21.0	%		32.5	%
Interest Expense:
NOW accounts		135		55		20		145.5	%		575.0	%
MMDA accounts		1,582		1,216		622		30.1	%		154.3	%
Savings accounts		169		21		24		704.8	%		604.2	%
Time deposits of $100K or more		926		610		199		51.8	%		365.3	%
Other time deposits		1,198		1,229		1,174		-2.5	%		2.0	%
Other borrowed funds		364		411		942		-11.4	%		-61.4	%
Total interest expense		4,374		3,542		2,981		23.5	%		46.7	%
Net interest income before provision for loan losses		8,781		7,328		6,951		19.8	%		26.3	%
Provision for loan losses		140		210		120		-33.3	%		16.7	%
Net interest income after provision for loan losses		8,641		7,118		6,831		21.4	%		26.5	%
Non Interest Income:
Service charges on deposit accounts		829		645		581		28.5	%		42.7	%
Other income		610		664		720		-8.1	%		-15.3	%
Total non-interest income		1,439		1,309		1,301		9.9	%		10.6	%
Non-Interest Expense:
Salaries and employee benefits		3,819		3,238		3,039		17.9	%		25.7	%
Occupancy and equipment		1,130		830		706		36.1	%		60.1	%
Other expenses		1,925		1,709		1,794		12.6	%		7.3	%
Total non-interest expenses		6,874		5,777		5,539		19.0	%		24.1	%
Income before provision for income taxes		3,206		2,650		2,593		21.0	%		23.6	%
Provision for income taxes		1,228		1,022		944		20.2	%		30.1	%
Net Income	$	1,978	$	1,628	$	1,649		21.5	%		20.0	%

Average basic shares outstanding		7,316,866		6,472,653		6,355,466
Average diluted shares outstanding		7,511,625		6,679,114		6,598,355
Basic earnings per share	$	0.27	$	0.25	$	0.26
Fully diluted earnings per share	$	0.26	$	0.24	$	0.25

	(unaudited)		(unaudited)		(unaudited)		Percent Change			Percent Change
	For the Years Ended						12/31/2007 vs.			12/31/2006 vs.
	12/31/2007		12/31/2006		12/31/2005		12/31/2006			12/31/2005
Interest Income:
Interest and fees on loans	$	42,425	$	33,897	$	27,399		25.2	%		23.7	%
Investment securities		1,956		1,927		2,100		1.5	%		-8.2	%
Federal funds sold and commercial paper		785		539		667		45.6	%		-19.2	%
Time certificates of deposit		8		9		9		-11.1	%		0.0	%
Total interest income		45,174		36,372		30,175		24.2	%		20.5	%
Interest Expense:
NOW accounts		262		86		89		204.7	%		-3.4	%
MMDA accounts		4,411		2,309		1,504		91.0	%		53.5	%
Savings accounts		238		102		102		133.3	%		0.0	%
Time deposits of $100K or more		2,046		626		413		226.8	%		51.6	%
Other time deposits		4,914		3,845		1,371		27.8	%		180.5	%
Other borrowed funds		2,880		2,348		1,537		22.7	%		52.8	%
Total interest expense		14,751		9,316		5,016		58.3	%		85.7	%
Net interest income before provision for loan losses		30,423		27,056		25,159		12.4	%		7.5	%
Provision for loan losses		660		600		710		10.0	%		-15.5	%
Net interest income after provision for loan losses		29,763		26,456		24,449		12.5	%		8.2	%
Non Interest Income:
Service charges on deposit accounts		2,774		2,427		2,430		14.3	%		-0.1	%
Other income		2,575		2,525		2,579		2.0	%		-2.1	%
Total non-interest income		5,349		4,952		5,009		8.0	%		-1.1	%
Non-Interest Expense:
Salaries and employee benefits		13,501		11,573		9,746		16.7	%		18.7	%
Occupancy and equipment		3,381		2,607		2,491		29.7	%		4.7	%
Other expenses		7,026		6,775		6,481		3.7	%		4.5	%
Total non-interest expenses		23,908		20,955		18,718		14.1	%		12.0	%
Income before provision for income taxes		11,204		10,453		10,740		7.2	%		-2.7	%
Provision for income taxes		4,287		3,791		4,103		13.1	%		-7.6	%
Net Income	$	6,917	$	6,662	$	6,637		3.8	%		0.4	%

Average basic shares outstanding		6,651,594		6,333,924		6,167,937
Average diluted shares outstanding		6,884,575		6,595,793		6,551,389
Basic earnings per share	$	1.04	$	1.05	$	1.08
Fully diluted earnings per share	$	1.00	$	1.01	$	1.01

Additional Financial Information	For the Quarters Ended									Percentage Change vs.
(dollars in thousands)	12/31/2007			9/30/2007			12/31/2006			9/30/2007			12/31/2006

LOANS
Commercial, financial and agricultural	$	146,080		$	101,748		$	84,976			43.6	%		71.9	%
Real estate - construction/land		118,200			105,054			105,712			12.5	%		11.8	%
Real estate - other		322,928			253,860			237,401			27.2	%		36.0	%
Home equity lines of credit		17,470			8,897			10,792			96.4	%		61.9	%
Installment loans to individuals		7,977			5,580			5,598			43.0	%		42.5	%
All other loans (including overdrafts)		562			488			504			15.2	%		11.5	%
Total gross loans	$	613,217		$	475,627		$	444,983			28.9	%		37.8	%
Loans held for sale	$	902		$	902		$	1,764			0.0	%		-48.9	%

ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period	$	4,720		$	4,520		$	3,863			4.4	%		22.2	%
Provision expense		140			210			120			-33.3	%		16.7	%
Credit losses charged against allowance		(213	)		(16	)		(42	)		1231.3	%		407.1	%
Recoveries of loans previously charged off		115			6			140			1816.7	%		-17.9	%
Credit from purchase of Business First Bank		1,381			-			-			-			-
Balance, end of period	$	6,143		$	4,720		$	4,081			30.1	%		50.5	%

Net ( charge-offs ) / recoveries	$	(98	)	$	(10	)	$	98			880.0	%		-200.0	%
Net charge-offs / average loans outstanding		0.02	%		0.00	%		-0.02	%		681.3	%		-
Allowance for loan losses / total loans outstanding		1.00	%		0.99	%		0.92	%		0.9	%		9.2	%

NON-PERFORMING ASSETS
Loans on non-accrual status	$	338		$	641		$	55			-47.3	%		514.5	%
Loans more than 90 days delinquent, still accruing		-			-			-			-			-
Total non-performing loans		338			641			55			-47.3	%		514.5	%
Other real estate owned (OREO) / repossessed assets		-			-			-			-			-
Total non-performing assets	$	338		$	641		$	55			-47.3	%		514.5	%

Total non-performing assets to total assets		0.05	%		0.11	%		0.01	%		-59.5	%		346.6	%

DEPOSITS
Non-interest bearing demand	$	153,684		$	130,221		$	153,005			18.0	%		0.4	%

Interest-bearing demand		69,558			56,931			45,164			22.2	%		54.0	%
Regular savings accounts		41,599			21,606			23,406			92.5	%		77.7	%
Money market accounts		206,754			137,039			77,540			50.9	%		166.6	%
Total interest-bearing transaction and savings accounts		317,911			215,576			146,110			47.5	%		117.6	%

Time deposits under $100 thousand		97,247			99,847			90,776			-2.6	%		7.1	%
Time deposits of $100 thousand or more		75,966			50,666			30,630			49.9	%		148.0	%
Total time deposits		173,213			150,513			121,406			15.1	%		42.7	%

Total deposits	$	644,808		$	496,310		$	420,521			29.9	%		53.3	%


PROFITABILITY / PERFORMANCE RATIOS	For the Three Months Ended									For the Twelve Months Ended
	12/31/2007			9/30/2007			12/31/2006			12/31/2007			12/31/2006
Operating efficiency		67.26	%		66.89	%		67.12	%		66.83	%		65.47	%
Return on average equity		11.65	%		12.09	%		13.53	%		12.37	%		14.10	%
Return on average tangible equity		14.51	%		13.54	%		15.46	%		14.36	%		16.22	%
Return on average assets		1.11	%		1.12	%		1.23	%		1.14	%		1.32	%
Other operating income to average assets		0.80	%		0.90	%		0.97	%		0.88	%		0.98	%
Other operating expense to average assets		3.84	%		3.97	%		4.14	%		3.95	%		4.16	%
Net interest income to average assets		4.91	%		5.04	%		5.20	%		5.02	%		5.37	%
Non-interest income to total net revenue		14.08	%		15.16	%		15.77	%		14.95	%		15.47	%

ASSET QUALITY AND CAPITAL RATIOS

Non-performing loans to total gross loans		0.06	%		0.13	%		0.01	%
Non-performing loans as a % of ALLL		5.50	%		13.58	%		1.35	%
Non-performing loans to primary capital		0.49	%		1.19	%		0.11	%
Leverage ratio		9.60	%		10.69	%		11.00	%
Tier I Risk-Based Capital Ratio		10.08	%		11.65	%		11.51	%
Total Risk-Based Capital Ratio		11.03	%		12.58	%		12.36	%

AVERAGE BALANCES AND RATES	For the Three Months Ended									For the Twelve Months Ended
(dollars in thousands)	12/31/2007			9/30/2007			12/31/2006			12/31/2007			12/31/2006

Average Investments	$	50,525		$	38,166		$	41,981		$	42,619		$	44,089
Average federal funds sold		18,137			29,447			2,534			15,878			11,179
Average loans		585,484			466,749			437,623			497,374			400,229
Average earning assets		654,146			534,362			482,138			555,871			455,497
Average non-earning assets		61,090			46,858			52,629			54,649			52,311
Allowance for loan losses		(5,932	)		(4,600	)		(3,938	)		(4,784	)		(3,931	)
Average assets		709,304			576,620			530,829			605,736			503,877
Average non-interest bearing demand deposits		151,483			133,432			142,582			141,123			146,458
Average interest bearing deposits		458,143			353,845			274,081			353,249			267,183
Average borrowings		23,634			26,804			60,638			48,363			38,568
Average non-interest bearing liabilities		8,701			9,098			5,186			7,074			4,432
Average liabilities		641,961			523,179			482,487			549,809			456,641
Average equity		67,343			53,441			48,342			55,927			47,236
Average liabilities and equity	$	709,304		$	576,620		$	530,829		$	605,736		$	503,877
Interest rate yield on loans		8.36	%		8.55	%		8.54	%		8.53	%		8.47	%
Interest rate yield on investments		4.79	%		4.44	%		4.48	%		4.61	%		4.39	%
Interest rate yield on federal funds sold		4.55	%		5.19	%		5.48	%		4.94	%		4.82	%
Interest rate yield on interest-earning assets		7.98	%		8.07	%		8.17	%		8.13	%		7.99	%
Interest rate expense on deposits		2.61	%		2.55	%		1.94	%		2.40	%		1.68	%
Interest rate expense on other borrowings		6.11	%		6.08	%		6.16	%		5.95	%		6.09	%
Interest rate expense on interest-bearing liabilities		3.60	%		3.69	%		3.53	%		3.67	%		3.05	%
Average equity to average assets		9.49	%		9.27	%		9.11	%		9.23	%		9.37	%
Net interest margin		5.33	%		5.44	%		5.72	%		5.47	%		5.94	%

Single Family Residences	Single Family Residences - Spec.	Tract	Land	Other	Ow ner Occupied	Hospitality
10%	11%	1%	26%	26%	12	14%

Commercial/Industrial	Retail	Professional	Hospitality	Multi-Family	Farm Land	Other
21%	17%	21%	18%	4%	4%	15%

Heritage Oaks Bancorp
Consolidated Balance Sheets
(dollars in thousands except share data)

(1)		Loans are net of deferred loan fees of $1,732; $1,941; $1,625 and allowance for loan losses of $6,143; $4,720; $4,081.
		for December 31, 2007, September 30, 2007, and December 31, 2006 respectively.