EX-99.1 3 v120644_ex99-1.htm
HEOP 2Q08 Results
July 23, 2008
 
 
 
Contacts:
Lawrence P. Ward, CEO
Margaret Torres, CFO
805-369-5200
 
 
Heritage Oaks Bancorp Reports Second Quarter Results,
Net loans Grew 44%, Core Deposits Increased 33% and a Second Quarter ALLL Provision of $2.8 Million.

Paso Robles, CA - July 23, 2008 - Heritage Oaks Bancorp (NASDAQ: HEOP), the parent company of Heritage Oaks Bank, today reported earnings for the second quarter of 2008. After a $2.8 million provision for loan losses, Heritage Oaks earned $691,000, or $0.09 per diluted share for the second quarter, compared to $1.8 million, or $0.26 per diluted share, in the second quarter of 2007. For the first six months of 2008, net income was $2.4 million, or $0.30 per diluted share, compared to $3.3 million, or $0.47 per diluted share, in the first six months of 2007. The earnings per share calculation is impacted by both the decrease in earnings for the quarter as well as the October 2007 acquisition of Business First National Bank of Santa Barbara, in which, Heritage Oaks Bank issued 850,213 shares, resulting in an 11.4% increase in the number of average diluted shares outstanding compared to the second quarter of 2007.

“The continued changes in the national economy affected the entire banking industry, as well as the local markets that we serve. While loan and core deposit growth remains strong year-over-year as well as over the previous quarter, we have not been immune to asset quality deterioration,” stated Lawrence P. Ward, President and CEO. “We believe our actions to strengthen our allowance for loan losses and address credit quality issues immediately is prudent for our future success. Even with these aggressive steps to meet credit quality concerns, our second quarter and year-date-results show that we remain well positioned for growth in our attractive markets.”

Second Quarter 2008 Highlights:
·
Net income was $691,000, or $0.09 per diluted share.
·
Net interest income increased 32% to $9.6 million compared to the same quarter a year ago.
·
Revenues advanced 31% to $11.3 million compared to the same quarter a year ago.
·
Core deposits increased 33% over a year ago, and represent 73% of total deposits.
·
Gross loans grew 43% to $660 million compared to a year ago.
·
Net interest margin was 5.28%.
·
Second quarter provision for ALLL $2.8 million.

Asset Quality
“Management has and will continue to perform an extensive review of the loan portfolio in an effort to identify any problem credits. Additionally, we formed a special assets division in March, to oversee all problem credits,” said Ward. “As a result, as of June 30, 2008, all non performing loans (NPLs) have been written down and are now being carried at their fair market value.” Based on the current economic outlook, the Bank believes it has taken a very aggressive position with respect to the adequacy of the loan loss reserve. “The large provision during the second quarter was partly based on identified credits which have been accounted for as of June 30, as well as our desire to build our reserve based on these very uncertain economic times” said Ward.

Non-performing assets increased to $13.7 million, or 1.71% of total assets at June 30, 2008, compared to $1.5 million, or 0.20% of total assets, at the end of the previous quarter and $555,000, or 0.09% of total assets a year earlier. Heritage Oaks recorded a $2.8 million provision for loan losses in the second quarter of 2008, compared to a $240,000 provision for loan losses in the previous quarter and $170,000 in the second quarter a year ago. For the first six months of the year it added $3.0 million to its provision for loan losses compared to only $310,000 in the first six months of 2007. The loan loss reserve now represents 1.23% of total loans outstanding, up from 0.99% at the end of the first quarter, 2008.

During the second quarter of 2008, the Bank moved into OREO one credit of just under $200,000. The foreclosed property had previously been accounted for as a non performing loan and had been written down to its fair market value. No additional charge off was required at the time the property was moved into OREO. Another credit of $50,000 was written down to $29,000 at the time the Bank took possession of the property securing the loan. The Bank received a cash offer to sell the underlying property early in July and on July 21, the Bank closed on the sale and booked a net recovery of $15,000.

HEOP 2Q08 Results
July 23, 2008
 
Loans on non-accrual status totaled $13.4 million at June 30, 2008 compared to $1.5 million at March 31, 2008. In May 2008, the Company reported in an 8-K filing with the SEC, an increase in non-accrual loans of approximately $11 million. All loans on non-accrual are carried at fair value pursuant to FASB 114. As of June 30, 2008, non-accruing loans consist of the following:

 
1.
Nine loans in the approximate amount of $10.4 million to three borrowers all representing single family spec construction loans located in various costal communities along the Central Coast.

2.
Five loans in the approximate amount of $2.3 million all secured by commercial real estate and single family residences.

 
3.
Eight loans in the approximate amount of $700,000 to five borrowers that are collateralized by various business assets and personal collateral.

Credit quality is consistently monitored and Management has implemented additional precautionary actions that include but are not limited to pro-actively identifying credit weaknesses earlier in the collection cycle, increasing the oversight frequency of watch list credits and devoting additional internal resources to monitoring those credits.

The allowance for loan losses were $8.1 million, or 1.23% of total loans outstanding at June 30, 2008, compared to $6.3 million, or 0.99% of total loans outstanding at March 31, 2008, and $4.5 million, or 0.98% of total loans outstanding, at June 30, 2007. The Bank took a total provision for loan losses during the second quarter of 2008 in the amount of $2.8 million. $1.4 million of the increase over last year is attributable to the credit from the purchase of Business First. During the second quarter 2008, the Bank charged off a total of $1.023 million and recognized total recoveries in the amount of $72 thousand. Of the total dollars charged off during the second quarter of 2008, the Bank charged off two C&I loans in the amount of just under $500 thousand. The balance of the losses, approximately $530 thousand, was the result of obtaining new appraisals on spec construction loans that had been placed on non-accrual status.

Heritage Oaks Bank has no direct exposure to subprime mortgage lending and very little exposure for speculative construction for single family residences.

Balance Sheet
Loan growth was strong for the quarter, with the largest increase in commercial and industrial loans, which increased 16% at June 30, 2008, compared to March 31, 2008. “Throughout the second quarter, we have chosen not to originate single family spec construction loans, nor do we see this as a viable product for the foreseeable future. Additionally, the Bank continues to employ stringent lending standards, remaining very selective in the types of loans we choose to fund.” Ward said.

Net loans grew 3% over the prior quarter and 43% year-over year. Net loans were $650 million at June 30, 2008, compared to $454 million a year earlier, with the Business First acquisition accounting for approximately 27% of total net loan growth on a year over year basis. The loans added from Business First are primarily real estate loans, all of which have undergone a thorough due diligence by the Bank’s internal credit department. During the quarter ended June 30, 2008, approximately $200 thousand of loans acquired from Business First were charged off. This represents only 0.02% of total assets. At June, 30, 2008, no loans acquired in the acquisition of Business First were on non-accrual status.

Total assets increased 36% to a record $800 million at June 30, 2008, compared to $590 million a year earlier.

“We are constantly looking for ways to expand our banking products in an effort to grow core deposits,” said Ward. “During the second quarter we began offering a new electronic demand deposit interest bearing account and we introduced our successful variable interest rate money market account to our Santa Barbara market. We believe these new products, as well as the products we already have in place will help us grow core deposit to fund future loan growth.”

Total deposits grew 30% to $635 million at June 30, 2008, compared to $489 million a year ago. The Business First acquisition accounted for 27% of total deposit growth on a year over year basis. Core deposits increased 33% to $462 million at June 30, 2008, compared to $347 million a year ago, and now represent 73% of total deposits. Time deposits of $100,000 or more increased significantly, largely due to the addition of $30 million of brokered certificates of deposit during the quarter, which were at an average rate of 3.33%. Heritage Oaks reduced its Federal Home Loan Bank (FHLB) borrowings by $5.0 million during the second quarter of 2008.

HEOP 2Q08 Results
July 23, 2008

Operating Results
The net interest margin was 5.28% for the second quarter, compared to 5.33% during the preceding quarter and 5.56% for the second quarter a year ago. For the first six months of the year the net interest margin was 5.31%, compared to 5.61% for the first six months of 2007. “Our margin compressed compared to the preceding quarter, as we felt the full impact of the 200 basis point decrease in the Fed Funds rate by the Federal Reserve during the first three months of 2008,” Ward said. “However, core deposit growth contributed to keeping our margin above peer levels.”

Total revenues, consisting of net interest income before the provision for loan losses and non-interest income, climbed 31% to $11.3 million in the second quarter, from $8.6 million in the second quarter of 2007. For the first six months of the year total revenues increased 30% to $21.9 million, compared to $16.9 million in the first six months of 2007. Net interest income grew 32% to $9.6 million in the second quarter compared to $7.3 million in the second quarter a year ago. Year-to-date, net interest income increased 31% to $18.7 million compared to $14.3 million in the first half of 2007. Interest and fees on loans increased 15% for the second quarter compared to the second quarter a year ago while interest expense decreased 16% for the second quarter compared to the second quarter a year ago.

Noninterest income was up 26% for the quarter and 22% year-to-date, compared to the respective periods a year ago, largely due to the Visa IPO income of $275,000 in the second quarter, as well as a substantial increase in service charges on deposit accounts, which rose 22% during the quarter and 24% year-to-date, compared to the respective periods last year. Total noninterest income was $1.8 million for the second quarter compared to $1.4 million for the second quarter a year ago and year-to-date noninterest income was $3.2 million compared to $2.6 million for the same period a year ago.

Non interest expense decreased in the second quarter of 2008 compared to the preceding quarter, largely due to decreases in Salaries and Related as well as Other non interest expense. “During the second quarter we reorganized our executive team, eliminating one position which should result in improved efficiencies in the second half of the year.” stated Ward. “Total non-interest expense was $7.5 million for the second quarter compared to $7.6 million in the previous quarter and $5.6 million in the second quarter a year ago. Year-to-date, total non-interest expense was $15.1 million compared to $11.3 million during the same period a year earlier.

“Even with the reduction of non interest expenses in the second quarter of 2008, the Bank did recognize over $200,000 in non recurring Salaries expenses as a result of the reorganization and about $125,000 non recurring Other non interest expenses. Non interest expenses for the second quarter 2008 are up when compared to the same reporting period a year ago, with a majority of the increase directly related to our larger organization due to the acquisition of Business First,” said Ward.

Performance Measures and Capital Adequacy
At June 30, 2008, the acquisition of Business First accounts for the addition of nearly $150 million in assets along with $13.8 million in equity over that which was reported at June 30, 2007. As a result, return on average assets was 0.35% in the second quarter of 2008 compared to 1.25% in the second quarter of 2007. For the first half of the year, return on average assets was 0.62%, compared to 1.17% for the first half of 2007. Return on average equity was 3.84% for the second quarter compared to 13.84% in the second quarter a year ago, and 6.66% for the first half of the year, compared to 13.0% in the first half of 2007. The Business First acquisition is expected to be accretive to earnings per share by the end of 2008.

The efficiency ratio was 66.31% in the second quarter of 2008 compared to 72.17% in the previous quarter and 64.32% in the second quarter a year ago. For the first half of the year the efficiency ratio was 69.14% compared to 66.55% in the first half of 2007. The efficiency ratio measures operating expenses as a percent of revenues.

As a result of the acquisition of Business First, shareholders’ equity increased 35% to $70.9 million at June 30, 2008, compared to $52.5 million a year ago. Book value per share was $9.19 at June 30, 2008, compared to $7.72 per share a year earlier and tangible book value per share was $7.23 at June 30, 2008, compared to $6.89 a year earlier.

Heritage Oaks has over $68.8 million in Tier I capital and $77.1 million in Total Risk Based capital and remains “well capitalized” by regulatory standards with a Risk Adjusted capital ratio of 10.83% and a Tier One capital ratio of 8.87%. Additionally, Heritage Oaks owns neither Fannie Mae or Freddie Mac common or preferred stock.
 
HEOP 2Q08 Results
July 23, 2008

About the Company
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 one branch offices in Paso Robles, two branch offices in San Luis Obispo, single branch offices in Cambria, Arroyo Grande, Atascadero, Templeton, San Miguel and Morro Bay and three branch offices in Santa Maria. Heritage Oaks Bank 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.

HEOP 2Q08 Results
July 23, 2008
 
Heritage Oaks Bancorp
Consolidated Statements of Income
(dollars in thousands except share data)

   
(unaudited)
  
(unaudited)
  
(unaudited)
          
   
For the Three Months Ended
  
Percentage Change Vs.
  
   
6/30/2008
  
3/31/2008
  
6/30/2007
  
3/31/2008
  
6/30/2007
  
Interest Income:
                                
Interest and fees on loans
  
$
11,732
  
$
12,091
  
$
10,214
    
-3.0
%
  
14.9
%
Investment securities
    
794
   
656
   
437
   
21.0
%
  
81.7
%
Federal funds sold and commercial paper
    
45
   
67
   
162
   
-32.8
%
  
-72.2
%
Time certificates of deposit
    
3
   
3
   
10
   
0.0
%
  
-70.0
%
Total interest income 
    
12,574
   
12,817
   
10,823
   
-1.9
%
  
16.2
%
Interest Expense:
                                
NOW accounts
    
162
   
93
   
43
   
74.2
%
  
276.7
%
MMDA accounts
    
823
   
1,282
   
946
   
-35.8
%
  
-13.0
%
Savings accounts
    
35
   
131
   
23
   
-73.3
%
  
52.2
%
Time deposits of $100K or more
    
525
   
680
   
301
   
-22.8
%
  
74.4
%
Other time deposits
    
674
   
900
   
1,276
   
-25.1
%
  
-47.2
%
Other borrowed funds
    
766
   
611
   
976
   
25.4
%
  
-21.5
%
Total interest expense 
    
2,985
   
3,697
   
3,565
   
-19.3
%
  
-16.3
%
Net interest income before provision for loan losses
    
9,589
   
9,120
   
7,258
   
5.1
%
  
32.1
%
Provision for loan losses
    
2,775
   
240
   
170
   
1056.3
%
  
1532.4
%
Net interest income after provision for loan losses
    
6,814
   
8,880
   
7,088
   
-23.3
%
  
-3.9
%
Non Interest Income:
                                
Service charges on deposit accounts
    
837
   
772
   
686
   
8.4
%
  
22.0
%
Other income
    
882
   
667
   
705
   
32.2
%
  
25.1
%
Gain on sale of investment securities
    
37
   
-
   
-
   
-
    
-
  
Total non-interest income
    
1,756
   
1,439
   
1,391
   
22.0
%
  
26.2
%
Non-Interest Expense:
                                
Salaries and employee benefits
    
4,021
   
4,225
   
3,194
   
-4.8
%
  
25.9
%
Occupancy and equipment
   
1,129
   
1,139
   
706
   
-0.9
%
  
59.9
%
Other expenses
    
2,348
   
2,256
   
1,663
   
4.1
%
  
41.2
%
Total non-interest expenses
    
7,498
   
7,620
   
5,563
   
-1.6
%
  
34.8
%
Income before provision for income taxes
    
1,072
   
2,699
   
2,916
   
-60.3
%
  
-63.2
%
Provision for income taxes
    
381
   
1,024
   
1,116
   
-62.8
%
  
-65.9
%
Net income
  
$
691
  
$
1,675
  
$
1,800
    
-58.7
%
  
-61.6
%
                                 
Average basic shares outstanding
    
7,705,174
   
7,694,546
   
6,754,321
             
Average diluted shares outstanding
    
7,830,390
   
7,851,831
   
7,027,090
             
Basic earnings per share
  
$
0.09
  
$
0.22
  
$
0.27
              
Fully diluted earnings per share
  
$
0.09
  
$
0.21
  
$
0.26
              
 
HEOP 2Q08 Results
July 23, 2008
 
Heritage Oaks Bancorp
Consolidated Statements of Income
(dollars in thousands except share data)
   
(unaudited)
  
(unaudited)
  
Percentage
 
   
For the Six Months Ended
  
Change Vs.
  
   
6/30/2008
  
6/30/2007
  
6/30/2007
  
Interest Income:
                    
Interest and fees on loans
  
$
23,823
  
$
20,029
    
18.9
%
Investment securities
    
1,450
   
885
   
63.8
%
Federal funds sold and commercial paper
    
112
   
193
   
-42.0
%
Time certificates of deposit
    
6
   
18
   
-66.7
%
Total interest income 
    
25,391
   
21,125
   
20.2
%
Interest Expense:
                    
NOW accounts
    
255
   
71
   
259.2
%
MMDA accounts
    
2,105
   
1,613
   
30.5
%
Savings accounts
    
166
   
47
   
253.2
%
Time deposits of $100K or more
    
1,205
   
510
   
136.3
%
Other time deposits
    
1,574
   
2,488
   
-36.7
%
Other borrowed funds
    
1,377
   
2,105
   
-34.6
%
Total interest expense 
    
6,682
   
6,834
   
-2.2
%
Net interest income before provision for loan losses
    
18,709
   
14,291
   
30.9
%
Provision for loan losses
    
3,015
   
310
   
872.6
%
Net interest income after provision for loan losses
    
15,694
   
13,981
   
12.3
%
Non Interest Income:
                    
Service charges on deposit accounts
    
1,609
   
1,299
   
23.9
%
Other income
    
1,549
   
1,324
   
17.0
%
Gain on sale of investment securities
    
37
   
-
   
-
  
Total non-interest income
    
3,195
   
2,623
   
21.8
%
Non-Interest Expense:
                    
Salaries and employee benefits
    
8,246
   
6,444
   
28.0
%
Occupancy and equipment
   
2,268
   
1,421
   
59.6
%
Other expenses
    
4,604
   
3,391
   
35.8
%
Total non-interest expenses
    
15,118
   
11,256
   
34.3
%
Income before provision for income taxes
    
3,771
   
5,348
   
-29.5
%
Provision for income taxes
    
1,405
   
2,037
   
-31.0
%
Net income
  
$
2,366
  
$
3,311
    
-28.5
%
                     
Average basic shares outstanding
    
7,699,860
   
6,728,840
       
Average diluted shares outstanding
    
7,841,144
   
7,018,270
       
Basic earnings per share
  
$
0.31
  
$
0.49
        
Fully diluted earnings per share
  
$
0.30
  
$
0.47
        
 
HEOP 2Q08 Results
July 23, 2008

Heritage Oaks Bancorp
Consolidated Balance Sheets
(dollars in thousands except share data)
 
   
(unaudited)
  
(unaudited)
  
(audited)
  
(unaudited)
  
Percentage Change Vs.
  
   
 6/30/2008
  
 3/31/2008
  
 12/31/2007
  
 6/30/2007
  
 3/31/2008
  
 12/31/2007
  
 6/30/2007
  
Assets
                                            
Cash and due from banks
  
$
27,346
  
$
22,217
  
$
23,254
  
$
20,945
    
23.1
%
  
17.6
%
  
30.6
%
Federal funds sold
    
15,660
   
3,670
   
23,165
   
43,505
   
326.7
%
  
-32.4
%
  
-64.0
%
Total cash and cash equivalents 
    
43,006
   
25,887
   
46,419
   
64,450
   
66.1
%
  
-7.4
%
  
-33.3
%
                                             
Interest bearing deposits with other banks
    
131
   
330
   
330
   
318
   
-60.3
%
  
-60.3
%
  
-58.8
%
Securities available for sale
    
57,064
   
54,829
   
47,556
   
36,018
   
4.1
%
  
20.0
%
  
58.4
%
Federal Home Loan Bank Stock, at cost
    
5,401
   
3,402
   
3,045
   
3,119
   
58.8
%
  
77.4
%
  
73.2
%
Loans held for sale
    
1,246
   
2,759
   
902
   
3,329
   
-54.8
%
  
38.1
%
  
-62.6
%
Loans, net (1)
    
649,928
   
631,722
   
605,342
   
453,900
   
2.9
%
  
7.4
%
  
43.2
%
Property, premises and equipment
    
6,524
   
6,228
   
6,390
   
5,057
   
4.8
%
  
2.1
%
  
29.0
%
Bank owned life insurance
    
10,527
   
10,420
   
9,923
   
9,621
   
1.0
%
  
6.1
%
  
9.4
%
Deferred tax assets
    
5,799
   
5,159
   
5,290
   
4,656
   
12.4
%
  
9.6
%
  
24.5
%
Goodwill
    
11,541
   
11,538
   
10,911
   
4,864
   
0.0
%
  
5.8
%
  
137.3
%
Core deposit intangible
    
4,121
   
4,336
   
4,551
   
971
   
-5.0
%
  
-9.4
%
  
324.4
%
Other real estate and owned
    
197
   
-
   
-
   
-
   
-
    
-
    
-
  
Other assets
    
4,600
   
4,596
   
4,895
   
3,562
   
0.1
%
  
-6.0
%
  
29.1
%
Total assets 
  
$
800,085
  
$
761,206
  
$
745,554
  
$
589,865
    
5.1
%
  
7.3
%
  
35.6
%
                                             
Liabilities
                                            
Deposits:
                                            
Non-interest bearing demand
  
$
168,589
  
$
155,621
  
$
153,684
  
$
153,485
    
8.3
%
  
9.7
%
  
9.8
%
Savings, NOW, and money market
    
293,799
   
302,970
   
317,911
   
193,720
   
-3.0
%
  
-7.6
%
  
51.7
%
Time deposits of $100K or more
    
79,756
   
47,069
   
75,966
   
44,141
   
69.4
%
  
5.0
%
  
80.7
%
Time deposits under $100K
    
92,374
   
84,795
   
97,247
   
97,761
   
8.9
%
  
-5.0
%
  
-5.5
%
Total deposits 
    
634,518
   
590,455
   
644,808
   
489,107
   
7.5
%
  
-1.6
%
  
29.7
%
FHLB advances and other borrowings
    
71,500
   
76,505
   
8,000
   
30,000
   
-6.5
%
  
793.8
%
  
138.3
%
Securities sold under agreements to repurchase
    
2,718
   
2,217
   
1,936
   
1,358
   
22.6
%
  
40.4
%
  
100.1
%
Junior subordinated debentures
    
13,403
   
13,403
   
13,403
   
8,248
   
0.0
%
  
0.0
%
  
62.5
%
Other liabilities
    
7,074
   
7,658
   
7,957
   
8,631
   
-7.6
%
  
-11.1
%
  
-18.0
%
Total liabilities 
    
729,213
   
690,238
   
676,104
   
537,344
   
5.6
%
  
7.9
%
  
35.7
%
Stockholders' equity
                                            
Common stock, no par value; 20,000,000 shares authorized; issued and outstanding:
                                           
7,709,929; 7,703,030; 7,683,829 and 6,800,223 June 30, 2008; March 31, 2008; December 31, 2007 and June 30, 2007, respectively
    
48,456
   
48,811
   
43,996
   
30,072
   
-0.7
%
  
10.1
%
  
61.1
%
Additional paid in capital
    
839
   
785
   
672
   
520
   
6.9
%
  
24.9
%
  
61.3
%
Retained earnings
    
22,140
   
21,009
   
24,598
   
22,096
   
5.4
%
  
-10.0
%
  
0.2
%
Accumulated other comprehensive income
    
(563
)
  
363
   
184
   
(167
)
  
-255.1
%
  
-406.0
%
  
-237.1
%
Total stockholders' equity 
    
70,872
   
70,968
   
69,450
   
52,521
   
-0.1
%
  
2.0
%
  
34.9
%
Total liabilities and stockholders' equity 
  
$
800,085
  
$
761,206
  
$
745,554
  
$
589,865
    
5.1
%
  
7.3
%
  
35.6
%
(1) Loans are net of deferred loan fees of $1,756; $1,833; $1,732; $1,559 and allowance for loan losses of $8,128; $6,305; $6,143; $4,520 for June 30, 2008, March 31, 2008, December 31, 2007, and June 30, 2007 respectively.
 
HEOP 2Q08 Results
July 23, 2008

Additional Financial Information
(dollars in thousands)
   
For the Quarters Ended
  
Percentage Change Vs.
  
LOANS
  
6/30/2008
  
3/31/2008
  
12/31/2007
  
6/30/2007
  
3/31/2008
  
12/31/2007
  
6/30/2007
  
Real Estate Secured:
                                            
Multi-family residential
  
$
14,457
  
$
12,344
  
$
12,779
  
$
9,286
    
17.1
%
  
13.1
%
  
55.7
%
Residential 1 to 4 family
    
26,466
   
26,214
   
24,326
   
6,104
   
1.0
%
  
8.8
%
  
333.6
%
Home equity lines of credit
    
19,220
   
17,200
   
17,470
   
9,330
   
11.7
%
  
10.0
%
  
106.0
%
Commercial
    
268,612
   
275,821
   
274,266
   
218,480
   
-2.6
%
  
-2.1
%
  
22.9
%
Farmland
    
10,652
   
9,671
   
11,557
   
11,240
   
10.1
%
  
-7.8
%
  
-5.2
%
Commercial:
                                            
Commercial and industrial
    
154,456
   
133,211
   
134,178
   
86,301
   
15.9
%
  
15.1
%
  
79.0
%
Agriculture
    
12,747
   
12,480
   
11,367
   
11,757
   
2.1
%
  
12.1
%
  
8.4
%
Other
    
814
   
790
   
535
   
382
   
3.0
%
  
52.1
%
  
113.1
%
Construction:
                                            
Single family residential
    
9,708
   
9,944
   
10,239
   
7,962
   
-2.4
%
  
-5.2
%
  
21.9
%
Single family residential - Spec.
    
16,565
   
18,200
   
18,718
   
13,527
   
-9.0
%
  
-11.5
%
  
22.5
%
Tract
    
2,317
   
3,225
   
1,664
   
-
   
-28.2
%
  
39.2
%
  
-
  
Multi-family
    
9,482
   
9,331
   
9,054
   
5,037
   
1.6
%
  
4.7
%
  
88.2
%
Hospitality
    
21,401
   
19,371
   
16,784
   
13,130
   
10.5
%
  
27.5
%
  
63.0
%
Commercial
    
27,565
   
28,922
   
30,677
   
38,185
   
-4.7
%
  
-10.1
%
  
-27.8
%
Land
    
55,555
   
54,278
   
31,064
   
23,157
   
2.4
%
  
78.8
%
  
139.9
%
Installment loans to individuals
    
7,792
   
7,733
   
7,977
   
5,711
   
0.8
%
  
-2.3
%
  
36.4
%
All other loans (including overdrafts)
    
2,003
   
1,125
   
562
   
390
   
78.0
%
  
256.4
%
  
413.6
%
Total gross loans
  
$
659,812
  
$
639,860
  
$
613,217
  
$
459,979
    
3.1
%
  
7.6
%
  
43.4
%
Deferred loan fees
    
1,756
   
1,833
   
1,732
   
1,559
   
-4.2
%
  
1.4
%
  
12.6
%
Allowance for loan losses
    
8,128
   
6,305
   
6,143
   
4,520
   
28.9
%
  
32.3
%
  
79.8
%
Net loans
  
$
649,928
  
$
631,722
  
$
605,342
  
$
453,900
    
2.9
%
  
7.4
%
  
43.2
%
Loans held for sale
  
$
1,246
  
$
2,759
  
$
902
  
$
3,329
    
-54.8
%
  
38.1
%
  
-62.6
%
 
   
For the Quarters Ended
  
Percentage Change Vs.
  
ALLOWANCE FOR LOAN LOSSES
  
6/30/2008
  
3/31/2008
  
12/31/2007
  
6/30/2007
  
3/31/2008
  
12/31/2007
  
6/30/2007
  
                               
Balance, beginning of period
 
$
6,305
  
$
6,143
  
$
4,720
  
$
4,312
    
2.6
%
  
33.6
%
  
46.2
%
Provision expense
    
2,775
   
240
   
140
   
170
   
1056.3
%
  
1882.1
%
  
1532.4
%
Credit losses charged against allowance
    
(1,024
)
  
(78
)
  
(213
)
  
(19
)
  
1212.8
%
  
380.8
%
  
5289.5
%
Recoveries of loans previously charged off
    
72
   
-
   
115
   
57
   
-
    
-37.4
%
  
26.3
%
Credit from purchase of Business First Bank
    
-
   
-
   
1,381
   
-
   
-
    
-
    
-
  
Balance, end of period
 
$
8,128
  
$
6,305
  
$
6,143
  
$
4,520
    
28.9
%
  
32.3
%
  
79.8
%
                                             
Net ( charge-offs ) / recoveries
  
$
(952
)
$
(78
)
$
(98
)
$
38
    
1120.5
%
  
871.4
%
  
2605.3
%
Net charge-offs / average loans outstanding
    
0.14
%
  
0.01
%
  
0.02
%
  
-0.01
%
  
1059.3
%
  
624.6
%
  
1891.4
%
Allowance for loan losses / total loans outstanding
    
1.23
%
  
0.99
%
  
1.00
%
  
0.98
%
  
25.0
%
  
23.0
%
  
25.4
%
 
   
For the Quarters Ended
  
Percentage Change Vs.
  
NON-PERFORMING ASSETS
  
6/30/2008
  
3/31/2008
  
12/31/2007
  
6/30/2007
  
3/31/2008
  
12/31/2007
  
6/30/2007
  
                               
Loans on non-accrual status
  
$
13,414
  
$
1,544
  
$
338
  
$
555
    
768.8
%
  
3868.6
%
  
2316.9
%
Loans more than 90 days delinquent, still accruing
    
93
   
-
   
-
   
-
   
-
    
-
    
-
  
Total non-performing loans
    
13,507
   
1,544
   
338
   
555
   
774.8
%
  
3896.2
%
  
2333.7
%
Other real estate owned (OREO)
    
197
   
-
   
-
   
-
   
-
    
-
    
-
  
Total non-performing assets
  
$
13,704
  
$
1,544
  
$
338
  
$
555
    
787.6
%
  
3954.4
%
  
2369.2
%
                                             
Total non-performing assets to total assets
    
1.71
%
  
0.20
%
  
0.05
%
  
0.09
%
  
744.4
%
  
3678.1
%
  
1720.4
%
 
   
For the Quarters Ended
  
Percentage Change Vs.
  
DEPOSITS
  
6/30/2008
  
3/31/2008
  
12/31/2007
  
6/30/2007
  
3/31/2008
  
12/31/2007
  
6/30/2007
  
                               
Non-interest bearing demand
  
$
168,589
  
$
155,621
  
$
153,684
  
$
153,485
    
8.3
%
  
9.7
%
  
9.8
%
Interest-bearing demand
    
83,387
   
79,248
   
69,558
   
57,288
   
5.2
%
  
19.9
%
  
45.6
%
Regular savings accounts
    
23,067
   
23,840
   
41,599
   
23,240
   
-3.2
%
  
-44.5
%
  
-0.7
%
Money market accounts
    
187,345
   
199,882
   
206,754
   
113,192
   
-6.3
%
  
-9.4
%
  
65.5
%
Total interest-bearing transaction & savings accounts
   
293,799
   
302,970
   
317,911
   
193,720
   
-3.0
%
  
-7.6
%
  
51.7
%
Time deposits
    
172,130
   
131,864
   
173,213
   
141,902
   
30.5
%
  
-0.6
%
  
21.3
%
Total deposits
  
$
634,518
  
$
590,455
  
$
644,808
  
$
489,107
    
7.5
%
  
-1.6
%
  
29.7
%
 
HEOP 2Q08 Results
July 23, 2008

   
Three Months Ended
  
Six Months Ended
  
PROFITABILITY / PERFORMANCE RATIOS
  
6/30/2008
  
3/31/2008
  
12/31/2007
  
6/30/2007
  
6/30/2008
  
6/30/2007
  
Operating efficiency
    
66.31
%
  
72.17
%
  
67.26
%
  
64.32
%
  
69.14
%
  
66.55
%
Return on average equity
    
3.84
%
  
9.55
%
  
11.65
%
  
13.84
%
  
6.66
%
  
12.99
%
Return on average tangible equity
    
4.92
%
  
12.32
%
  
14.51
%
  
15.58
%
  
8.56
%
  
14.66
%
Return on average assets
    
0.35
%
  
0.91
%
  
1.11
%
  
1.25
%
  
0.62
%
  
1.17
%
Other operating income to average assets
    
0.89
%
  
0.78
%
  
0.80
%
  
0.96
%
  
0.84
%
  
0.93
%
Other operating expense to average assets
    
3.81
%
  
4.12
%
  
3.84
%
  
3.86
%
  
3.96
%
  
3.99
%
Net interest income to average assets
    
4.88
%
  
4.93
%
  
4.91
%
  
5.03
%
  
4.90
%
  
5.07
%
Non-interest income to total net revenue
    
15.48
%
  
13.63
%
  
14.08
%
  
16.08
%
  
14.59
%
  
15.51
%
                                       
ASSET QUALITY AND CAPITAL RATIOS
                                      
                                       
Non-performing loans to total gross loans
    
2.05
%
  
0.24
%
  
0.06
%
  
0.12
%
            
Non-performing loans as a % of ALLL
    
166.18
%
  
24.49
%
  
5.50
%
  
12.28
%
            
Non-performing loans to primary capital
    
19.06
%
  
2.18
%
  
0.49
%
  
1.06
%
            
Leverage ratio
    
8.87
%
  
9.30
%
  
9.60
%
  
9.58
%
            
Tier I Risk-Based Capital Ratio
    
9.66
%
  
9.82
%
  
10.08
%
  
10.64
%
            
Total Risk-Based Capital Ratio
    
10.83
%
  
10.76
%
  
11.04
%
  
11.55
%
            
 
AVERAGE BALANCES AND RATES
  
For the Three Months Ended
  
Six Months Ended
  
(dollars in thousands)
  
6/30/2008
  
3/31/2008
  
12/31/2007
  
6/30/2007
  
6/30/2008
  
6/30/2007
  
Average investments
  
$
64,298
  
$
55,596
  
$
50,525
  
$
40,575
  
$
59,949
  
$
40,878
  
Average federal funds sold
    
9,249
   
8,013
   
18,137
   
13,198
   
8,631
   
7,834
 
Average loans
    
656,917
   
623,981
   
585,484
   
469,719
   
640,449
   
465,297
 
Average earning assets
    
730,464
   
687,590
   
654,146
   
523,492
   
709,029
   
514,009
 
Average non-earning assets
    
67,083
   
62,769
   
61,090
   
59,619
   
64,924
   
58,630
 
Average for loan losses
    
(6,475
)
  
(6,204
)
  
(5,932
)
  
(4,417
)
  
(6,339
)
  
(4,299
)
Average assets
  
$
791,072
  
$
744,155
  
$
709,304
  
$
578,694
  
$
767,614
  
$
568,340
  
                                       
Average non-interest bearing demand deposits
  
$
152,927
  
$
144,108
  
$
151,483
  
$
138,696
  
$
148,518
  
$
139,878
  
Average interest bearing deposits
    
448,341
   
457,943
   
458,143
   
315,031
   
453,142
   
299,958
 
Average other borrowings
    
109,667
   
63,287
   
23,634
   
66,979
   
86,477
   
71,895
 
Average non-interest bearing liabilities
    
7,856
   
8,247
   
8,701
   
5,818
   
8,051
   
5,218
 
Average liabilities
    
718,791
   
673,585
   
641,961
   
526,524
   
696,188
   
516,949
 
Average equity
    
72,281
   
70,570
   
67,343
   
52,170
   
71,426
   
51,391
 
Average liabilties and equity
  
$
791,072
  
$
744,155
  
$
709,304
  
$
578,694
  
$
767,614
  
$
568,340
  
                                       
Interest rate yield on loans
    
7.18
%
  
7.79
%
  
8.36
%
  
8.72
%
  
7.48
%
  
8.68
%
Interest rate yield on investments
    
4.99
%
  
4.77
%
  
4.79
%
  
4.42
%
  
4.88
%
  
4.45
%
Interest rate yield on federal funds sold
    
1.96
%
  
3.36
%
  
4.55
%
  
4.92
%
  
2.61
%
  
4.97
%
Interest rate yield on interest earnings assets
    
6.92
%
  
7.50
%
  
7.98
%
  
8.29
%
  
7.20
%
  
8.29
%
Interest rate expense on deposits
    
1.48
%
  
2.06
%
  
2.61
%
  
2.29
%
  
1.77
%
  
2.17
%
Interest rate expense on other borrowings
    
2.81
%
  
3.88
%
  
6.11
%
  
5.84
%
  
3.20
%
  
5.90
%
Interest rate expense on interest bearing liabilities
    
2.15
%
  
2.85
%
  
3.60
%
  
3.74
%
  
2.49
%
  
3.71
%
Average equity to average assets
    
9.14
%
  
9.48
%
  
9.49
%
  
9.02
%
  
9.30
%
  
9.04
%
Net interest margin
    
5.28
%
  
5.33
%
  
5.33
%
  
5.56
%
  
5.31
%
  
5.61
%

NOTE: Transmitted on Prime Newswire on July 23, 2008 at 3:00 p.m. PDT