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)  October29,2009

Heritage Oaks Bancorp

(Exact Name of Registrant as Specified in Its Charter)

California

(State or Other Jurisdiction of Incorporation)

000-25020	77-0388249
(Commission File Number)	(IRS Employer Identification No.)

545 12th Street, Paso Robles CA	93446
(Address of Principal Executive Offices)	(Zip Code)

(805) 369-5200

(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):

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

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

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

¨      Pre-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 October 29, 2009, Heritage Oaks Bancorp (NASDAQ: HEOP) issued a Press Release announcing its results of operations for the quarter ending, September 30, 2009. A copy of the press release is attached to this 8-K as Exhibit 99.1.

The information contained in this Report on Form 8-K and its exhibits is furnished pursuant to Item 2.02 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference into any of the Company’s filings with the Securities and Exchange Commission, except as shall be expressly set forth by specific reference in any such filing.

ITEM 9.01 - FINANCIAL STATEMENTS AND EXHIBITS

(d) Exhibits

99.1 Press Release dated October 29, 2009
 

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: October 30, 2009

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

EXHIBIT INDEX

Exhibit Number	Description
99.1	Press Release dated October 29, 2009

 

EX-99.1

Contacts:	Lawrence P. Ward, CEO
	Margaret Torres, CFO
	805-369-5200

Heritage Oaks Bancorp Reports Third Quarter 2009 Financial Results

Paso Robles, CA – October 29, 2009 – Heritage Oaks Bancorp (the “Company”), (NASDAQ: HEOP), the parent company of Heritage Oaks Bank (the “Bank”), today reported a net loss of $5.6 million for the third quarter of 2009 or $0.70 per diluted common share compared to net income of $0.5 million or $0.07 per diluted common share for the third quarter of 2008.  Third quarter 2009 results reflect a provision for loan losses of $9.8 million compared to $3.2 million for the third quarter of 2008.  For the first nine months of 2009, the Company reported a net loss of $4.2 million or $0.53 per diluted common share compared to net income of $2.9 million or $0.37 per diluted common share for the first nine months of 2008.

Third quarter highlights:

· Total revenue, consisting of net interest income and non interest income, was $10.9 million and $33.4 million for the three and nine months ended September 30, 2009, respectively compared to $11.0 million and $32.9 million in the same periods for 2008.

· Net interest margin was 4.34% for the third quarter and 4.75% for the first nine months of 2009.

· Total deposits, exclusive of brokered deposits, increased $71.0 million during the third quarter and $181.6 million for the first nine months of 2009.

· Total gross loans increased $29.7 million year-to-date and $43.5 million from a year ago.

· Non-performing assets totaled $42.4 million or 4.58% of total assets.

· Allowance for loan losses totaled $15.9 million or 2.24% of total gross loans.

· Provisions for loan losses totaled $9.8 million for the quarter and $14.6 million year-to-date.

· OREO write-downs totaled approximately $1.4 million.

· The Company remained well capitalized with Tier I Capital ratio at 10.52% and Total Risk-Based Capital ratio at 11.78%.

Commenting on the results for the quarter, Lawrence Ward, President and Chief Executive Officer, stated, “During the quarter we strengthened our loan loss reserve and realized appropriate write-downs to non-accrual loans and OREO while maintaining strong capital ratios.  While we were not satisfied with reporting a loss for the quarter, we believe that our actions were prudent in the current environment.  Even though the Bank has faced significant challenges with respect to asset quality, we are pleased that our core business remains solid with total revenue of $10.9 million for the third quarter compared to $11.0 million reported in the same period a year earlier.  For the first nine months of 2009, total revenue totaled $33.4 million compared to $32.9 million for the same period a year earlier.  Impacting total revenue was the reversal of interest for non-accrual loans of approximately $1.1 million and $1.2 million for the three and nine months ended September 30, 2009, respectively.  Approximately $846 thousand of this amount has been recovered on a loan that returned to performing status subsequent to quarter end and will be reflected in the fourth quarter of 2009.  This recovery and return to performing status results in non-performing assets being reduced by approximately 25%. Additionally, our franchise value in terms of core deposit relationships continues to be enhanced with quarterly growth of $57.6 million and year-to-date growth of $126.4 million in core deposits.  The Company and Bank remain well-capitalized and are dedicated to prudent underwriting standards, and staying selective with respect to the types of new loans originated. The preservation of capital and commitment to our customers and the communities we serve remain of paramount importance.  The strong core deposit growth realized year-to-date in 2009 demonstrates that we have capitalized on an opportunity for organic growth within our primary market area.”

Asset Quality

Ward further stated, “The Bank devotes considerable resources to the monitoring of credit quality and management of problem assets.  In July 2009, the Company announced that Ron Oliveira joined the Bank as Executive Vice President and Chief Operating Officer/Chief Credit Officer. Mr. Oliveira brings over 27 years of banking experience to our institution.  The expansion of our Special Assets Department has also contributed significantly to the oversight of credit quality and the workout of problem credits.  We are committed to the speedy resolution of problem assets and continue to work with borrowers where possible.”

Heritage Oaks Bancorp 3Q09 Results

October 29, 2009

Page 2

Ward went on to state, “In connection with the expansion of our credit management activities, we put in place a more vigorous internal and external loan review program.  During the third quarter, an independent loan review firm completed a semi-annual loan portfolio examination to augment management’s internal loan review.  As a result of feedback from this review and in connection with our own effort to identify and reserve for perceived credit risks in the portfolio, we moved approximately $34.2 million in loan balances to non-accruing status.  As of September 30, 2009, non-accruing loan balances totaled approximately $39.4 million or 5.61% of total gross loans, and non-performing assets totaled approximately $42.4 million and represented 4.58% of total assets.  These totals include one loan of $10.7 million that was classified as non-accrual as of September 30, 2009, but has since been returned to accrual status.  The return to accrual status will result in $846 thousand in interest income charged off in the third quarter being recognized in the fourth quarter of 2009.”

Additionally, as part of the Bank’s ongoing efforts to manage credit quality, the list of credits placed on watch status expanded in an effort to identify and monitor these credits and to mitigate future credit quality issues or minimize potential losses on a proactive basis.  Management utilizes the watch list, among other things, to manage credit risk and monitor loans as they migrate through the credit cycle, from performing status to watch to non-accruing status and/or potential loss.  As a result of the increased number of loans on our watch list, the increase in loans moved to non-accrual status and the loan charge-offs realized during the quarter, the Bank continues to take steps to build the loan loss reserve.  Provisions for loan losses for the first nine months of 2009 totaled approximately $14.6 million.  As of September 30, 2009, the allowance for loan losses stood at approximately $15.9 million or 2.24% of total gross loans.

“We are dedicated to diligent oversight of the loan portfolio.  Recently, the loan portfolio has undergone a semi-annual review, performed by an independent asset quality review firm,” said Ward.  “The institution of a semi-annual review of the loan portfolio in addition to regular reviews performed internally has been instrumental in helping the Bank to more quickly identify and manage potential credit issues.  Management continues to work with borrowers where possible and collateral is being actively marketed in an effort to mitigate potential losses to the Bank.”

Loans charged-off in the third quarter totaled approximately $5.0 million, bringing the total of charged-off loans for the year to approximately $9.1 million.  The majority of these charged-off loans occurred within the segments of land, construction, and commercial and industrial loans.  Net charge-offs to average gross loans were 0.70% during the quarter and 1.29% during the first nine months of 2009.

Heritage Oaks Bancorp 3Q09 Results

October 29, 2009

Page 3

The following provides a reconciliation of the change in non-accruing loans for the three months ended September 30, 2009:

	Balance		Additions to										Transfers			Balance
	June 30,		Non-Accruing		Net						Returns to		to Foreclosed			September 30,
(dollars in thousands)	2009		Balances		Paydowns			Charge-offs			Accrual		Collateral			2009
Real Estate Secured
Multi-family residential	$	-	$	-	$	-		$	-		$	-	$	-		$	-
Residential 1 to 4 family		392		1,184		-			(304	)		-		-			1,272
Home equity line of credit		320		-		-			-			-		-			320
Commercial		2,776		3,079		(67	)		(41	)		-		-			5,747
Farmland		-															-
Commercial
Commercial and industrial		5,316		1,174		(29	)		(503	)		-		-			5,958
Agriculture		384		4,922		(183	)		(1,909	)		-		-			3,214
Other		-		-		-			-			-		-			-
Construction
Single family residential		678		642		(380	)		-			-		-			940
Single family residential - Spec.		1,589		683		-			(397	)		-		(1,192	)		683
Tract		-		2,215		-			-			-		-			2,215
Multi-family		-		-		-			-			-		-			-
Hospitality		-		-		-			-			-		-			-
Commercial		-		-		-			-			-		-			-
Land		511		20,294		(11	)		(1,801	)		-		-			18,993
Installment loans to individuals		132		48		(4	)		(42	)		-		(83	)		51
All other loans		-		-		-			-			-		-			-
Totals	$	12,098	$	34,241	$	(674	)	$	(4,997	)	$	-	$	(1,275	)	$	39,393

The following provides a reconciliation of the change in non-accruing loans for the nine months ended September 30, 2009:

	Balance		Additions to											Transfers			Balance
	December 31,		Non-Accruing		Net						Returns to			to Foreclosed			September 30,
(dollars in thousands)	2008		Balances		Paydowns			Charge-offs			Accrual			Collateral			2009
Real Estate Secured
Multi-family residential	$	-	$	-	$	-		$	-		$	-		$	-		$	-
Residential 1 to 4 family		265		1,330		(19	)		(304	)		-			-			1,272
Home equity line of credit		320		-		-			-			-			-			320
Commercial		1,961		4,477		(615	)		(41	)		-			(35	)		5,747
Farmland		-		-		-			-			-			-			-
Commercial
Commercial and industrial		7,060		2,758		(376	)		(1,728	)		(14	)		(1,742	)		5,958
Agriculture		-		5,307		(184	)		(1,909	)		-			-			3,214
Other		-		-		-			-			-			-			-
Construction
Single family residential		-		1,465		(380	)		(145	)		-			-			940
Single family residential - Spec.		5,990		3,557		-			(2,073	)		(1,250	)		(5,541	)		683
Tract		-		2,215		-			-			-			-			2,215
Multi-family		-		-		-			-			-			-			-
Hospitality		-		-		-			-			-			-			-
Commercial		-		-		-			-			-			-			-
Land		2,720		21,715		(373	)		(2,792	)		-			(2,277	)		18,993
Installment loans to individuals		11		272		(6	)		(143	)		-			(83	)		51
All other loans		-		-		-			-			-			-			-
Totals	$	18,327	$	43,096	$	(1,953	)	$	(9,135	)	$	(1,264	)	$	(9,678	)	$	39,393

Heritage Oaks Bancorp 3Q09 Results

October 29, 2009

Page 4

Non-Accruing Loans

Real Estate Secured – Commercial (“CRE”)

Comprising a considerable portion of balances within this category are seven loans to four borrowers in the aggregate amount of $4.5 million.  These seven loans represented 77% of total CRE balances and 17% of total non-accruing loans as of September 30, 2009.  These loans are well secured and the Bank is working with the respective borrowers where possible to liquidate the collateral.

Commercial and Industrial (“C&I”)

The majority of C&I balances can be attributed to one loan with a current book balance of approximately $3.6 million, comprising 61% of total non-accruing C&I balances and 14% of total non-accruing balances as of September 30, 2009.  This loan is secured by property in the Bank’s primary market area that has a current appraisal received October 13, 2009 that supports the amount carried on the balance sheet.  Other significant balances within this category include two loans to two borrowers, totaling approximately $0.9 million, representing 16% of total C&I non-accruing balances.

With regard to agriculture loans, the linked quarter increase is the direct result of one particular credit that was written down to the fair value.  The remaining balance is considered to be reflective of the current value of the collateral.

Construction

A significant portion of non-accruing construction balances can be attributed in large part to eight tract loans to one borrower totaling approximately $1.3 million.  All eight loans have approved purchase contracts in place and have been sold under a state assisted low income housing program.  Four of the loans are set to close prior to the end of October with the other four to close shortly thereafter.

Land

The largest credit within this category was the $10.7 million loan discussed above that has since returned to accrual status. The large majority of the remaining balances within this category can be attributed to five loans to three borrowers totaling approximately $7.3 million.  These five loans represented 87% of total non-accruing land balances and 28% of all non-accruing balances.  During the third quarter, the Bank placed seven loans within this segment of the portfolio on non-accruing status, including the five loans previously mentioned.  The majority of the increase can be attributed to two loans to one borrower.  Placing these loans on non-accrual status was the result of additional information obtained regarding the borrower’s financial condition and management’s evaluation of the independent review performed on these credits.  As the result of receiving new appraisals, three loans to two borrowers were written-down by approximately $1.2 million during the third quarter of 2009. Management is in the process of obtaining updated appraisal information for the collateral securing the remaining loans and is working with the borrowers to bring about resolution.

 

Heritage Oaks Bancorp 3Q09 Results

October 29, 2009

Page 5

Other Real Estate Owned (“OREO”)

At September 30, 2009, OREO balances stood at approximately $2.6 million or $4.1 million lower than the $6.7 million reported at June 30, 2009.  During the quarter, the Bank sold five properties previously booked in the aggregate amount of $3.9 million.  In connection with these sales, the Bank recognized aggregate losses of approximately $0.2 million.  Contributing further to the quarter-over-quarter decline in OREO balances was the write-down of two properties in the aggregate amount of $1.4 million, based on updated appraisal information.  The larger of the two properties represents land for commercial development.  Additions to OREO include one residential speculative property carried at $1.2 million that is currently in escrow and anticipated to close by the middle of November 2009.

The following provides a summary of the change in OREO balances for the three and nine months ended September 30, 2009:

	For the three months ended			For the nine months ended
(dollars in thousands)	September 30, 2009			September 30, 2009
Beginning Balance	$	6,669		$	1,337
Additions		1,192			9,595
Dispositions		(3,877	)		(6,876	)
Write-downs		(1,377	)		(1,449	)
Balance September 30, 2009	$	2,607		$	2,607

Capital Position

At September 30, 2009, the Company’s Tier I and Total Risk-Based Capital totaled approximately $82.5 million and $92.4 million, respectively.  The Tier I Capital ratio was 10.52%, while the total Risk-Based Capital ratio was 11.78% at quarter end.  The Tier I and Total Risked Based totals reflect approximately $4.9 million in disallowed deferred tax assets.  As of September 30, 2009, the Company was well capitalized by regulatory standards.

Shareholders’ equity was approximately $87.8 million at September 30, 2009, compared to $91.3 million reported at June 30, 2009 and $70.0 million reported at December 31, 2008.  Book value per common share was $8.82 at September 30, 2009, compared to the $9.03 per share reported at December 31, 2008.

Liquidity

The liquidity ratio was 19.65% at September 30, 2009, compared to 16.36% at June 30, 2009 and 6.79% at December 31, 2008.  At September 30, 2009, the Bank had remaining borrowing capacity with the FHLB in the approximate amount of $117.7 million.  During the quarter, the Bank established a new credit arrangement with a correspondent Bank totaling $15.0 million.  With the addition of this new credit arrangement, the Bank has the ability to purchase Fed Funds in the aggregate amount of $35.0 million as of September 30, 2009, up from the $20.0 million reported at June 30, 2009.

Balance Sheet

Total deposits increased approximately $49.5 million during the quarter and approximately $150.0 million year-to-date.  Exclusive of brokered deposits, total deposits increased approximately $71.0 million during the quarter and approximately $181.6 million during the first nine months of the year.  Strong core deposit growth has allowed the Bank to pay down approximately $21.5 million in brokered funds during the quarter and approximately $31.6 million year-to-date.  Promotions the Bank engaged in during the year have been instrumental in bringing new relationships to the Bank, further enhancing the Bank’s core funding balances and keeping the cost of funds down.  For the three and nine months ended September 30, 2009, the Bank’s cost of deposits and cost of funds were both 1.28% and 1.27%, respectively.  All 15 of our branch offices have experienced significant deposit growth with the growth balanced between non interest bearing demand, interest checking, money market, and time certificates.  We attribute a portion of our deposit growth in 2009 to a new customer base, as we continue to see migration from larger institutions as well as troubled institutions within our market.  Total deposits were approximately $753.5 million at September 30, 2009, compared to the $704.0 million and $603.5 million reported at June 30, 2009 and December 31, 2008, respectively.  Core deposits totaled approximately $626.3 million or 83.1% of total deposits at quarter end.  This compares to $568.7 million and $499.9 million for June 30, 2009 and December 31, 2008, respectively.

Heritage Oaks Bancorp 3Q09 Results

October 29, 2009

Page 6

FHLB borrowings totaled $65.0 million as of September 30, 2009, unchanged from the prior quarter and down approximately $44.0 million from December 31, 2008.  The cost of borrowings from the FHLB averaged 0.63% for the quarter and 0.81% year to date.

Loan growth continues to remain relatively solid in all of our primary markets.  However, we remain cautious with all new loan originations.  The Bank is seeing a more modest level of loan growth relative to prior periods, due primarily to weak economic conditions and our more stringent underwriting criteria.  The Bank continues to remain very conservative with the loans we fund and we are requiring clients to commit more capital to certain projects, specifically construction.  Gross loans increased $12.0 million during the third quarter and $29.7 million year-to-date.  Loan growth during the third quarter can be attributed in large part to the funding of one $9.0 million credit in the commercial real estate segment to purchase professional office space, with three national tenants.  This credit was originated with a 50% loan to value ratio and a debt coverage ratio of 2.4 times.

The securities portfolio increased by $27.1 million during the third quarter to $102.9 million. The Bank sought to take advantage of increased credit spreads available on investment securities and to invest excess liquidity in cash flow generating instruments in the absence of loan originations. Unrealized losses, net-of-tax, declined in the third quarter by approximately $1.9 million.  More rational pricing of mortgage related securities as well as increases in the values of certain opportunistic purchases made during the first and second quarters of 2009 contributed significantly to the rise in the fair value of the portfolio. Management periodically evaluates investments in the portfolio for other than temporary impairment and more specifically when conditions warrant such an evaluation.  As of September 30, 2009, the majority of unrealized losses in the portfolio were attributable to certain holdings of mortgage related securities.  Based on pre-purchase cash flow analyses, cash flows on these securities are within a range of expectations.  As of September 30, 2009, management does not believe unrealized losses in the portfolio are other than temporary.  The investment portfolio contains no collateralized debt obligations.

Net Interest Margin

For the three and nine months ended September 30, 2009, the net interest margin was 4.34% and 4.75%, respectively.  The net interest margin for the three and nine months ended September 30, 2008 was 5.18% and 5.26%, respectively. The margin declined 57 basis points on a quarter over quarter basis, primarily as the result of approximately $1.1 million in interest reversals for non-accrual loans and also a function of elevated levels of Fed Funds sold at an average rate of 25bps.  Our core deposit growth, however, continues to aid us in keeping our margin above peer levels.  The year over year decline can be attributed to lower earning asset yields, reversal of non-accrual loan interest and the result of the significant decline in the prime rate over the last two years.

Operating Results

Total revenue, consisting of net interest income before the provision for loan losses and non-interest income, was $10.9 million in the third quarter, down $0.5 million from the second quarter and $0.2 million from that reported a year ago.  For the first nine months of the year, total revenues consisting of net interest income and non interest income, were $33.4 million or approximately $0.5 million higher than that reported a year earlier.  Net interest income was $9.3 million during the third quarter or $0.3 million and 2.7% less when compared to that reported a year earlier.  Year-to-date, net interest income increased to $28.7 million, $0.4 million or 1.6% higher compared to that reported during the same period ended a year earlier.  Total interest expense increased $0.2 million or 6.9% to $2.6 million in the third quarter when compared to the $2.4 million reported for the second quarter.  Higher core deposit balances contributed to the quarter over quarter increase.  When compared to the same quarter to date period ended a year earlier, interest expense fell approximately $0.4 million or 13.8%.  For the first nine months of 2009, interest expense totaled approximately $7.4 million.  When compared to the same period ended a year earlier, this represents a decline of approximately $2.3 million or 24.2%.

Heritage Oaks Bancorp 3Q09 Results

October 29, 2009

Page 7

Non interest income totaled approximately $1.6 million for the third quarter.  This represents increases of $0.1 million when compared to the same period ended a year earlier and approximately $0.1 million when compared to the second quarter of 2009.  Impacting year over year results was a $0.1 million increase in mortgage origination fee income and gains on the sale of investment securities and SBA loans totaling approximately $0.2 million and $0.1 million, respectively.  Offsetting these increases were losses the Bank incurred on the sale of OREO properties in the aggregate amount of $0.2 million as well as an approximate $0.1 million decline in service charge fee income.

Year-to-date non interest income totaled approximately $4.8 million, which represents an increase of approximately $45 thousand when compared to that reported in the same period ended a year earlier.  A $0.5 million increase in mortgage origination fee income and gains the Bank recognized on the sale of investment securities and SBA loans, totaling approximately $0.3 million and $0.1 million, respectively, contributed to the year-over-year increase.  However, the increase was offset by the absence of $0.3 million in income the Bank recognized in 2008 related to the Visa, Inc. IPO, losses the Bank incurred on the sale of OREO properties in the aggregate amount of $0.3 million and an approximate $0.3 million decline in service charge fee income.

Non interest expense totaled approximately $10.3 million for the third quarter.  This represents increases of approximately $2.2 million over the second quarter and approximately $3.1 million over the same period ended a year earlier.  During the quarter, the Bank wrote-down the value of one OREO property by $1.3 million, based on new appraisal information. This property represents land for commercial development. Other items impacting the year-over-year change in non interest expense were higher salaries and employee benefits, increased occupancy costs and higher regulatory assessment fees.  Salaries and employee benefits increased $0.3 million during the third quarter when compared to the prior year, due in large part to additional staff added in response to year-over-year organic growth.  The year-over-year $0.1 million increase in occupancy costs is due in large part to annual increases in rental expenses.  Increases in regulatory assessment fees can be attributed to increases in FDIC assessment costs in general as well as a one-time charge in the approximate amount of $0.5 million to correct for the cumulative effect of an unintentional under accrual over a timeline that included ten reporting periods.  After consulting with the Company’s independent audit firm, Management determined that there was no material amount in any one reporting period and that the cumulative amount was processed in the third quarter of 2009.

Non interest expense for the first nine months of the year totaled approximately $25.7 million.  When compared to the same period ended a year earlier, this represents an increase of approximately $3.5 million.  The majority of the increase can be attributed to the write-down of and other expenses incurred associated with OREO properties.  Additionally, significantly higher regulatory assessment premiums, including the one-time FDIC special assessment, contributed further to the year over year increase within this category.

The efficiency ratio was 95.12% in the third quarter of 2009 compared to 70.02% in the previous quarter and 64.40% in the third quarter a year ago.  Net of these one-time expenses, such as write-downs on and other expenses incurred associated with OREO properties, the efficiency ratio would have been 73.81% for the third quarter.  For the first nine months of the year the efficiency ratio was 77.02% compared to 67.55% in the first nine months of 2008.  Net of the one-time items mentioned above, the efficiency ratio would have been 67.96% for the first nine months of the year.  The efficiency ratio measures operating expenses as a percent of total net revenues.

Heritage Oaks Bancorp 3Q09 Results

October 29, 2009

Page 8

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 office 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, income forecasts, sales activity for collateral, 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 ongoing financial crisis in the United States, and the response of the federal and state government and our regulators thereto, 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, continued weakness in the real estate markets within which we operate and general economic conditions.  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.

Heritage Oaks Bancorp 3Q09 Results

October 29, 2009

Page 9

Heritage Oaks Bancorp

Consolidated Balance Sheets

	(unaudited)			(unaudited)			(audited)			(unaudited)			Percentage Change Vs.
(dollar amounts in thousands)	9/30/2009			6/30/2009			12/31/2008			9/30/2008			6/30/2009			12/31/2008			9/30/2008
Assets
Cash and due from banks	$	18,155		$	15,667		$	17,921		$	18,914			15.9	%		1.3	%		-4.0	%
Federal funds sold		45,740			32,675			6,650			8,835			40.0	%		587.8	%		417.7	%
Total cash and cash equivalents		63,895			48,342			24,571			27,749			32.2	%		160.0	%		130.3	%
Interest bearing deposits with other banks		119			119			119			119			0.0	%		0.0	%		0.0	%
Securities available for sale		102,871			75,726			50,762			52,634			35.8	%		102.7	%		95.4	%
Federal Home Loan Bank stock, at cost		5,828			5,828			5,123			5,006			0.0	%		13.8	%		16.4	%
Loans held for sale		7,778			11,692			7,939			2,955			-33.5	%		-2.0	%		163.2	%
Loans, net (1)		692,359			685,193			668,034			654,403			1.0	%		3.6	%		5.8	%
Property, premises and equipment		6,984			6,848			6,827			6,769			2.0	%		2.3	%		3.2	%
Deferred tax assets		12,379			8,673			7,708			7,085			42.7	%		60.6	%		74.7	%
Bank owned life insurance		11,432			10,949			10,737			10,631			4.4	%		6.5	%		7.5	%
Goodwill		11,049			11,049			11,049			11,541			0.0	%		0.0	%		-4.3	%
Core deposit intangible		2,904			3,166			3,691			3,906			-8.3	%		-21.3	%		-25.7	%
Other real estate owned		2,607			6,669			1,337			197			-60.9	%		95.0	%		1223.4	%
Other assets		6,600			7,101			7,691			4,940			-7.1	%		-14.2	%		33.6	%
Total assets	$	926,805		$	881,355		$	805,588		$	787,935			5.2	%		15.0	%		17.6	%
Liabilities
Deposits
Non interest bearing demand	$	181,670		$	178,600		$	147,044		$	155,267			1.7	%		23.5	%		17.0	%
Savings, NOW, and money market		329,186			290,178			296,488			269,744			13.4	%		11.0	%		22.0	%
Time deposits of $100K or more		125,230			125,325			75,111			75,657			-0.1	%		66.7	%		65.5	%
Time deposits under $100K		117,443			109,886			84,878			88,583			6.9	%		38.4	%		32.6	%
Total deposits		753,529			703,989			603,521			589,251			7.0	%		24.9	%		27.9	%
Short term FHLB borrowing		65,000			55,000			99,000			96,500			18.2	%		-34.3	%		-32.6	%
Long term FHLB borrowing		-			10,000			10,000			10,000			-100.0	%		-100.0	%		-100.0	%
Securities sold under agreement to repurchase		-			-			2,796			1,235			0.0	%		-100.0	%		-100.0	%
Junior subordinated debentures		13,403			13,403			13,403			13,403			0.0	%		0.0	%		0.0	%
Other liabilities		7,087			7,649			6,836			6,592			-7.3	%		3.7	%		7.5	%
Total liabilities		839,019			790,041			735,556			716,981			6.2	%		14.1	%		17.0	%
Stockholders' equity
Senior preferred stock, no par value;
$1,000 per share stated value 5,000,000
shares authorized, 21,000 issued and outstanding		19,341			19,253			-			-			0.5	%		100.0	%		100.0	%
Common stock, no par value; 20,000,000 shares
authorized; issued and outstanding: 7,760,505; 7,761,554;
7,753,078 and 7,709,600 as of September 30, 2009;
June 30, 2009; December 31, 2008; and
September 30, 2008, respectively.		48,695			48,695			48,649			48,456			0.0	%		0.1	%		0.5	%
Additional paid in capital		3,172			3,087			1,055			947			2.8	%		200.7	%		235.0	%
Retained earnings		17,174			22,768			21,420			22,675			-24.6	%		-19.8	%		-24.3	%
Accumulated other comprehensive income		(596	)		(2,489	)		(1,092	)		(1,124	)		76.1	%		45.4	%		47.0	%
Total stockholders' equity		87,786			91,314			70,032			70,954			-3.9	%		25.4	%		23.7	%
Total liabilities and stockholders' equity	$	926,805		$	881,355		$	805,588		$	787,935			5.2	%		15.0	%		17.6	%

(1) Loans are net of deferred loan fees of $1,635; $1,555; $1,701; $1,647 and allowance for loan losses of $15,873; $11,106; $10,412; $10,350for September 30, 2009, June 30, 2009, December 31, 2008, and September 30, 2008 respectively.

Heritage Oaks Bancorp 3Q09 Results

October 29, 2009

Page 10

Heritage Oaks Bancorp

Consolidated Statements of Income

	(unaudited)			(unaudited)			(unaudited)
	For the Three Months Ended								Percentage Change Vs.
(dollar amounts in thousands except per share data)	9/30/2009			6/30/2009			9/30/2008		6/30/2009			9/30/2008
Interest Income
Interest and fees on loans	$	10,703		$	11,416		$	11,731		-6.2	%		-8.8	%
Interest on investment securities
Mortgage backed securities		871			625			515		39.4	%		69.1	%
Obligations of state and political subdivisions		247			208			186		18.8	%		32.8	%
Interest on time deposits with other banks		1			1			1		0.0	%		0.0	%
Interest on federal funds sold		21			10			18		110.0	%		16.7	%
Interest on other securities		17			9			85		88.9	%		-80.0	%
Total interest income		11,860			12,269			12,536		-3.3	%		-5.4	%
Interest Expense
Interest on savings, NOW and money market deposits		984			839			886		17.3	%		11.1	%
Interest on time deposits in denominations of $100K or more		695			631			620		10.1	%		12.1	%
Interest on time deposits under $100K		675			664			702		1.7	%		-3.8	%
Other borrowings		241			293			803		-17.7	%		-70.0	%
Total interest expense		2,595			2,427			3,011		6.9	%		-13.8	%
Net interest income before provision for loan losses		9,265			9,842			9,525		-5.9	%		-2.7	%
Provision for loan losses		9,756			2,700			3,200		261.3	%		204.9	%
Net interest income after provision for loan losses		(491	)		7,142			6,325		-106.9	%		-107.8	%
Non Interest Income
Service charges on deposit accounts		750			752			878		-0.3	%		-14.6	%
ATM/Debit and credit card transaction/interchange fees		253			254			220		-0.4	%		15.0	%
Bancard		48			55			69		-12.7	%		-30.4	%
Mortgage origination fees		245			336			118		-27.1	%		107.6	%
Earnings on bank owned life insurance		124			124			121		0.0	%		2.5	%
Other commissions and fees		92			83			107		10.8	%		-14.0	%
Gain on sale of investment securities		211			-			-		100.0	%		100.0	%
Loss on sale of OREO property		(200	)		(104	)		-		-92.3	%		-100.0	%
Gain on sale of SBA loans		70			-			-		100.0	%		100.0	%
Total non interest income		1,593			1,500			1,513		6.2	%		5.3	%
Non Interest Expense
Salaries and employee benefits		3,969			3,745			3,651		6.0	%		8.7	%
Occupancy		843			826			741		2.1	%		13.8	%
Equipment		365			376			336		-2.9	%		8.6	%
Promotional		191			225			199		-15.1	%		-4.0	%
Data processing		687			691			672		-0.6	%		2.2	%
Stationary and supplies		111			99			99		12.1	%		12.1	%
Regulatory fees		851			537			116		58.5	%		633.6	%
Audit and tax costs		182			147			114		23.8	%		59.6	%
Amortization of core deposit intangible		262			262			215		0.0	%		21.9	%
Director fees		80			80			80		0.0	%		0.0	%
Communication		76			61			87		24.6	%		-12.6	%
Other		2,634			965			798		173.0	%		230.1	%
Total non interest expense		10,251			8,014			7,108		27.9	%		44.2	%
(Loss) / income before provision for income taxes		(9,149	)		628			730		-1556.8	%		-1353.3	%
Provision for income taxes		(3,907	)		121			196		-3328.9	%		-2093.4	%
Net (loss) / income		(5,242	)		507			534		-1133.9	%		-1081.6	%
Dividends and accretion on preferred stock		352			250			-		40.8	%		100.0	%
Net (loss) / income available to common shareholders	$	(5,594	)	$	257		$	534		-2276.7	%		-1147.6	%
Shares Outstanding
Basic		7,699,377			7,696,027			7,709,600
Diluted		7,945,382			7,866,962			7,798,321
(Loss) / Earnings Per Common Share
Basic	$	(0.73	)	$	0.03		$	0.07
Diluted	$	(0.70	)	$	0.03		$	0.07

Heritage Oaks Bancorp 3Q09 Results

October 29, 2009

Page 11

Heritage Oaks Bancorp

Consolidated Statements of Income

	(unaudited)			(unaudited)		Percentage
	For the Nine Months Ended					Change Vs.
(dollar amounts in thousands except per share data)	9/30/2009			9/30/2008		9/30/2008
Interest Income
Interest and fees on loans	$	33,266		$	35,554		-6.44	%
Interest on investment securities
Mortgage backed securities		2,044			1,481		38.0	%
Obligations of state and political subdivisions		641			555		15.5	%
Interest on time deposits with other banks		3			7		-57.1	%
Interest on federal funds sold		38			130		-70.8	%
Interest on other securities		33			200		-83.5	%
Total interest income		36,025			37,927		-5.0	%
Interest Expense
Interest on savings, NOW and money market deposits		2,640			3,412		-22.6	%
Interest on time deposits in denominations of $100K or more		1,870			1,825		2.5	%
Interest on time deposits under $100K		1,903			2,276		-16.4	%
Other borrowings		938			2,180		-57.0	%
Total interest expense		7,351			9,693		-24.2	%
Net interest income before provision for loan losses		28,674			28,234		1.6	%
Provision for loan losses		14,566			6,215		134.4	%
Net interest income after provision for loan losses		14,108			22,019		-35.9	%
Non Interest Income
Service charges on deposit accounts		2,214			2,487		-11.0	%
ATM/Debit Card transaction/interchange fees		723			672		7.6	%
Bancard		140			183		-23.5	%
Mortgage origination fees		910			367		148.0	%
Earnings on bank owned life insurance		369			352		4.8	%
Other commissions and fees		325			610		-46.7	%
Gain on sale of investment securities		333			37		800.0	%
Loss on sale of OREO property		(331	)		-		-100.0	%
Gain on sale of SBA loans		70			-		100.0	%
Total non interest income		4,753			4,708		1.0	%
Non Interest Expense
Salaries and employee benefits		11,517			11,897		-3.2	%
Occupancy		2,521			2,291		10.0	%
Equipment		1,066			1,053		1.2	%
Promotional		517			681		-24.1	%
Data processing		2,049			1,998		2.6	%
Stationary and supplies		314			323		-2.8	%
Regulatory fees		1,531			340		350.3	%
Audit and tax costs		477			342		39.5	%
Amortization of core deposit intangible		787			646		21.8	%
Director fees		243			238		2.1	%
Communication		199			239		-16.7	%
Other		4,469			2,178		105.2	%
Total non interest expenses		25,690			22,226		15.6	%
(Loss) / income before provision for income taxes		(6,829	)		4,501		-251.7	%
Provision for income taxes		(3,196	)		1,601		-299.6	%
Net (loss) / income		(3,633	)		2,900		-225.3	%
Dividends and accretion on preferred stock		613			-		100.0	%
Net (loss) / income available to common shareholders	$	(4,246	)	$	2,900		-246.4	%
Shares Outstanding
Basic		7,694,969			7,703,107
Diluted		7,839,014			7,832,815
(Loss) / Earnings Per Common Share
Basic	$	(0.56	)	$	0.38
Diluted	$	(0.53	)	$	0.37

Heritage Oaks Bancorp 3Q09 Results

October 29, 2009

Page 12

	Three Months Ended
AVERAGE BALANCES AND RATES	9/30/2009						12/31/2008						9/30/2008
(dollars in thousands)	Balance			Yield/Rate			Balance			Yield/Rate			Balance			Yield/Rate
Interest Earning Assets
Investments with other banks	$	119			3.33	%	$	119			3.34	%	$	128			3.11	%
Federal funds sold		33,895			0.25	%		5,774			0.69	%		3,342			2.14	%
Investment securities - taxable		75,563			4.66	%		40,366			5.34	%		43,221			5.52	%
Investment securities - non taxable		22,653			4.33	%		16,650			4.44	%		17,125			4.32	%
Loans		713,810			5.95	%		675,742			6.76	%		667,441			6.99	%
Total earning assets		846,040			5.56	%		738,651			6.58	%		731,257			6.82	%
Allowance for loan losses		(11,969	)					(10,002	)					(8,664	)
Other assets		71,976						66,340						65,230
Total assets		906,047					$	794,989					$	787,823
Interest Bearing Liabilities
Interest bearing demand		67,825			0.92	%	$	72,038			0.57	%	$	74,042			0.47	%
Savings		25,619			0.28	%		22,236			0.30	%		23,272			0.43	%
Money market		209,634			1.52	%		179,009			1.69	%		175,968			1.75	%
Time deposits		219,253			2.32	%		139,753			2.90	%		144,490			3.06	%
Brokered money market		2,826			0.70	%		26,218			1.24	%		-			0.00	%
Brokered time deposits		23,426			1.46	%		21,908			3.76	%		25,027			3.35	%
Total interest bearing deposits		548,583			1.70	%		461,162			1.89	%		442,799			1.98	%
Federal funds purchased		-			0.00	%		1,402			1.42	%		4,583			2.26	%
Securities sold under agreement to repurchase		-			0.00	%		2,642			1.20	%		2,327			1.88	%
Federal Home Loan Bank borrowings		65,000			0.63	%		83,565			2.19	%		89,408			2.59	%
Junior subordinated debentures		13,403			4.08	%		13,403			6.14	%		13,403			5.46	%
Total borrowed funds		78,403			1.22	%		101,012			2.68	%		109,721			2.91	%
Total interest bearing liabilities		626,986			1.64	%		562,174			2.03	%		552,520			2.17	%
Non interest bearing demand		178,293			0.00	%		153,432			0.00	%		155,582			0.00	%
Total funding		805,279			1.28	%		715,606			1.60	%		708,102			1.69	%
Other liabilities		8,490						7,388						7,585
Total liabilities		813,769						722,994						715,687
Total shareholders' equity		92,278						71,995						72,136
Total liabilities and shareholders' equity	$	906,047					$	794,989					$	787,823
Net interest margin					4.34	%					5.04	%					5.18	%

Heritage Oaks Bancorp 3Q09 Results

October 29, 2009

Page 13

	Nine Months Ended
AVERAGE BALANCES AND RATES	9/30/2009						9/30/2008
(dollars in thousands)	Balance			Yield/Rate			Balance			Yield/Rate
Interest Earning Assets
Investments with other banks	$	119			3.37	%	$	246			3.80	%
Federal funds sold		22,596			0.22	%		6,855			2.53	%
Investment securities - taxable		59,614			4.66	%		42,656			5.26	%
Investment securities - non taxable		19,763			4.34	%		17,223			4.30	%
Loans		705,187			6.31	%		649,511			7.31	%
Total earning assets		807,279			5.97	%		716,491			7.07	%
Allowance for loan losses		(10,909	)					(7,120	)
Other assets		70,288						65,028
Total assets	$	866,658					$	774,399
Interest Bearing Liabilities
Interest bearing demand		64,524			0.72	%	$	74,886			0.61	%
Savings		23,849			0.21	%		26,834			0.95	%
Money market		186,921			1.51	%		189,181			2.03	%
Time deposits		182,771			2.49	%		142,919			3.43	%
Brokered money market		25,387			0.72	%		-			0.00	%
Brokered time deposits		29,886			1.67	%		15,849			3.62	%
Total interest bearing deposits		513,338			1.67	%		449,669			2.23	%
Federal funds purchased		251			1.07	%		4,079			2.69	%
Securities sold under agreement to repurchase		870			0.15	%		2,163			2.35	%
Federal Home Loan Bank borrowings		80,982			0.81	%		74,637			2.64	%
Junior subordinated debentures		13,403			4.42	%		13,403			5.85	%
Total borrowed funds		95,506			1.31	%		94,282			3.09	%
Total interest bearing liabilities		608,844			1.61	%		543,951			2.38	%
Non interest bearing demand		162,830			0.00	%		150,890			0.00	%
Total funding		771,674			1.27	%		694,841			1.86	%
Other liabilities		8,650						7,894
Total liabilities		780,324						702,735
Total shareholders' equity		86,334						71,664
Total liabilities and shareholders' equity	$	866,658					$	774,399
Net interest margin					4.75	%					5.26	%

Heritage Oaks Bancorp 3Q09 Results

October 29, 2009

Page 14

Additional Financial Information
(dollar amounts in thousands)	For the Quarters Ended								Percentage Change Vs.
LOANS	9/30/2009		6/30/2009		12/31/2008		9/30/2008		6/30/2009			12/31/2008			9/30/2008
Real Estate Secured
Multi-family residential	$	17,323	$	17,414	$	16,206	$	13,997		-0.5	%		6.9	%		23.8	%
Residential 1 to 4 family		24,580		23,626		23,910		29,031		4.0	%		2.8	%		-15.3	%
Home equity lines of credit		29,189		29,049		26,409		22,247		0.5	%		10.5	%		31.2	%
Commercial		317,811		302,735		285,631		281,269		5.0	%		11.3	%		13.0	%
Farmland		9,842		9,639		10,723		10,630		2.1	%		-8.2	%		-7.4	%
Commercial
Commercial and industrial		166,618		171,208		157,674		151,323		-2.7	%		5.7	%		10.1	%
Agriculture		14,819		14,231		13,744		13,059		4.1	%		7.8	%		13.5	%
Other		368		491		620		662		-25.0	%		-40.6	%		-44.3	%
Construction
Single family residential		14,669		14,710		11,414		12,897		-0.3	%		28.5	%		13.7	%
Single family residential - Spec.		5,757		10,338		15,395		17,469		-44.3	%		-62.6	%		-67.0	%
Tract		2,215		3,202		2,431		1,999		-30.8	%		-8.9	%		10.8	%
Multi-family		5,575		5,648		5,808		7,803		-1.3	%		-4.0	%		-28.6	%
Hospitality		14,252		12,388		18,630		14,177		15.0	%		-23.5	%		0.5	%
Commercial		22,997		17,215		21,484		25,624		33.6	%		7.0	%		-10.3	%
Land		54,619		57,149		61,681		55,704		-4.4	%		-11.4	%		-1.9	%
Installment loans to individuals		8,863		8,428		7,851		7,889		5.2	%		12.9	%		12.3	%
All other loans (including overdrafts)		370		383		536		620		-3.5	%		-31.0	%		-40.4	%
Total gross loans	$	709,867	$	697,854	$	680,147	$	666,400		1.7	%		4.4	%		6.5	%
Deferred loan fees		1,635		1,555		1,701		1,647		5.2	%		-3.9	%		-0.7	%
Allowance for loan losses		15,873		11,106		10,412		10,350		42.9	%		52.4	%		53.4	%
Net loans	$	692,359	$	685,193	$	668,034	$	654,403		1.0	%		3.6	%		5.8	%
Loans held for sale		7,778	$	11,692	$	7,939	$	2,955		-33.5	%		-2.0	%		163.2	%

	For the Quarters Ended								Percentage Change Vs.
ALLOWANCE FOR LOAN LOSSES	9/30/2009		6/30/2009		12/31/2008		9/30/2008		6/30/2009			12/31/2008			6/30/2008
Balance, beginning of period	$	11,106	$	10,429	$	10,350	$	8,128		6.5	%		7.3	%		36.6	%
Provision expense		9,756		2,700		6,000		3,200		261.3	%		62.6	%		204.9	%
Loans charged off
Commercial real estate		41		-		35		-		100.0	%		17.1	%		100.0	%
Residential 1 to 4 family		304		-		555		-		-			-45.2	%		-
Commercial and industrial		503		942		2,998		282		-46.6	%		-83.2	%		78.4	%
Agriculture		1,909		-		-		-		100.0	%		100.0	%		100.0	%
Construction		397		415		914		717		-4.3	%		-56.6	%		-44.6	%
Land		1,801		681		1,434		-		164.5	%		25.6	%		-
Other		42		4		5		34		950.0	%		740.0	%		23.5	%
Total charge offs		4,997		2,042		5,941		1,033		144.7	%		-15.9	%		383.7	%
Recoveries of loans previously charged off		8		19		3		55		-57.9	%		166.7	%		-85.5	%
Balance, end of period	$	15,873	$	11,106	$	10,412	$	10,350		42.9	%		52.4	%		53.4	%
Net charge-offs	$	4,989	$	2,023	$	5,938	$	978		146.6	%		-16.0	%		410.1	%

	For the Quarters Ended								Percentage Change Vs.
NON-PERFORMING ASSETS	9/30/2009		6/30/2009		12/31/2008		9/30/2008		6/30/2009			12/31/2008			6/30/2008
Loans on non-accrual status
Commercial real estate	$	5,747	$	2,776	$	1,961	$	1,814		107.0	%		193.1	%		216.8	%
Residential 1-4 family		1,272		392		265		709		224.5	%		380.0	%		79.4	%
Home equity lines of credit		320		320		320		-		0.0	%		0.0	%		100.0	%
Commercial		5,958		5,316		7,060		7,954		12.1	%		-15.6	%		-25.1	%
Agriculture		3,214		384		-		-		737.0	%		100.0	%		100.0	%
Construction		3,838		2,267		5,990		11,311		69.3	%		-35.9	%		-66.1	%
Land		18,993		511		2,720		590		3616.8	%		598.3	%		3119.2	%
Installment		51		132		11		12		-61.4	%		363.6	%		325.0	%
Total non-accruing loans	$	39,393	$	12,098	$	18,327	$	22,390		225.6	%		114.9	%		75.9	%
Loans more than 90 days delinquent, still accruing		445		140		348		-		217.9	%		27.9	%		100.0	%
Total non-performing loans		39,838		12,238		18,675		22,390		225.5	%		113.3	%		77.9	%
Other real estate owned (OREO)		2,607		6,669		1,337		197		-60.9	%		95.0	%		1223.4	%
Total non-performing assets	$	42,445	$	18,907	$	20,012	$	22,587		124.5	%		112.1	%		87.9	%

	For the Quarters Ended								Percentage Change Vs.
DEPOSITS	9/30/2009		6/30/2009		12/31/2008		9/30/2008		6/30/2009			12/31/2008			6/30/2008
Non-interest bearing demand	$	181,670	$	178,600	$	147,044	$	155,267		1.7	%		23.5	%		17.0	%
Interest-bearing demand		70,092		64,723		72,952		71,601		8.3	%		-3.9	%		-2.1	%
Regular savings accounts		26,088		24,792		21,835		22,484		5.2	%		19.5	%		16.0	%
Money market accounts		231,005		190,661		173,199		175,659		21.2	%		33.4	%		31.5	%
Brokered money market funds		2,001		10,002		28,502		-		-80.0	%		-93.0	%		100.0	%
Total interest-bearing transaction & savings accounts		329,186		290,178		296,488		269,744		13.4	%		11.0	%		22.0	%
Time deposits		227,670		206,708		139,872		144,011		10.1	%		62.8	%		58.1	%
Brokered time deposits		15,003		28,503		20,117		20,229		-47.4	%		-25.4	%		-25.8	%
Total deposits	$	753,529	$	703,989	$	603,521	$	589,251		7.0	%		24.9	%		27.9	%

Heritage Oaks Bancorp 3Q09 Results

October 29, 2009

Page 15

	Three Months Ended												Nine Months Ended
PROFITABILITY / PERFORMANCE RATIOS	9/30/2009			6/30/2009			12/31/2008			9/30/2008			9/30/2009			9/30/2008
Operating efficiency		95.12	%		70.02	%		66.43	%		64.40	%		77.02	%		67.55	%
Operating efficiency (1)		73.81	%		64.94	%		66.03	%		64.40	%		67.96	%		67.55	%
Return on average equity		-22.54	%		2.20	%		-6.93	%		2.94	%		-5.63	%		5.41	%
Return on average common equity		-30.41	%		1.41	%		-6.93	%		2.94	%		-7.82	%		5.41	%
Return on average tangible equity		-25.93	%		2.54	%		-8.65	%		3.71	%		-6.59	%		6.90	%
Return on average tangible common equity		-36.44	%		1.69	%		-8.65	%		3.71	%		-9.46	%		6.90	%
Return on average assets		-2.30	%		0.23	%		-0.63	%		0.27	%		-0.56	%		0.50	%
Non interest income to average assets		0.70	%		0.69	%		0.75	%		0.76	%		0.73	%		0.81	%
Non interest expense to average assets		4.49	%		3.71	%		3.61	%		3.59	%		3.96	%		3.83	%
Net interest income to average assets		4.06	%		4.56	%		4.68	%		4.81	%		4.42	%		4.87	%
Non interest income to total net revenue		12.79	%		13.23	%		13.81	%		13.71	%		12.45	%		14.29	%
Interest rate yield on interest earnings assets		5.56	%		6.12	%		6.58	%		6.82	%		5.97	%		7.07	%
Cost of interest bearing liabilities		1.70	%		1.65	%		2.03	%		2.17	%		1.67	%		2.38	%
Cost of funds		1.28	%		1.27	%		1.60	%		1.69	%		1.27	%		1.86	%
Net interest margin		4.34	%		4.91	%		5.04	%		5.18	%		4.75	%		5.26	%
ASSET QUALITY RATIOS
Non-performing loans to total gross loans		5.61	%		1.75	%		2.75	%		3.36	%
Non-performing loans as a % of ALLL		250.98	%		110.19	%		179.36	%		216.33	%
Non-performing loans as a % of total assets		4.30	%		1.39	%		2.32	%		2.84	%
Non-performing loans to primary capital		45.38	%		13.40	%		26.67	%		31.56	%
Non-performing assets to total assets		4.58	%		2.15	%		2.48	%		2.87	%
Allowance for loan losses to total gross loans		2.24	%		1.59	%		1.53	%		1.55	%
Net charge-offs to average loans outstanding		0.70	%		0.29	%		0.88	%		0.15	%
CAPITAL RATIOS
Company
Leverage ratio		9.30	%		10.87	%		8.90	%		9.01	%
Tier I Risk-Based Capital Ratio		10.52	%		11.95	%		9.37	%		9.67	%
Total Risk-Based Capital Ratio		11.78	%		13.20	%		10.62	%		10.92	%
Bank
Leverage ratio		8.76	%		10.33	%		8.66	%		8.78	%
Tier I Risk-Based Capital Ratio		9.86	%		11.23	%		9.10	%		9.41	%
Total Risk-Based Capital Ratio		11.12	%		12.49	%		10.36	%		10.66	%

(1) Ratio does not include the following one time items; OREO related expenses of $1,702 and $2,039 for the three and nine month periods ending September 30, 2009, $193 for the three months ending June 30, 2009 and $44 for the three months ending December 31, 2008, loss on sale of OREO properties of $200 and $331 for the three and nine month periods ending September 30, 2009, $104 for the three months ending June 30, 2009 and FDIC special assessment fee of $594 and $982 for the three and nine month periods ending September 30, 2009 and $388 for the three months ending June 30, 2009.

NOTE:  Transmitted on GlobeNewswire on October 29, 2009 at 1:35 p.m. PDT