updated 4/28/2011 5:46:34 PM ET 2011-04-28T21:46:34

PASO ROBLES, Calif., April 28, 2011 (GLOBE NEWSWIRE) -- Heritage Oaks Bancorp (the "Company"), (Nasdaq:HEOP), the parent company of Heritage Oaks Bank (the "Bank"), today reported net income of $522 thousand for first quarter 2011, compared to $517 thousand reported in the fourth quarter of 2010 and a loss of $1.7 million in the first quarter of 2010. Net income was largely flat on a linked quarter basis. First quarter pre-tax earnings improved by $6.5 million over prior quarter primarily driven by $3.8 million less in provision for loan losses and $3.0 million less in non-interest expenses as OREO write-downs and maintenance costs decreased $2.2 million. After incorporating accrued dividends and accretion on preferred stock of $0.4 million, the net income applicable to common shareholders for first quarter 2011 was $157 thousand. Net income per basic and diluted common share was $0.01 in the first quarter, 2011; $0.01 higher than the fourth quarter 2010.

First Quarter 2011 Highlights

  • Profitability for second consecutive quarter;
  • Net Interest Margin grew 15 basis points to 4.73% from 4.58% in fourth quarter primarily due to deposit repricing in November and December, 2010;
  • The Company reduced its credit exposure to construction and land development loans which decreased $48.5 million to $69.0 million at March 31, 2011 as compared to the $117.5 million reported at March 31, 2010;
  • Allowance for Loan Losses of $24.4 million is 3.65% of loans and represents 90% coverage of non-performing loans;
  • Non-performing loans fell 17% or $5.7 million compared to fourth quarter, 2010;
  • Total Classified Assets declined $5.5 million as compared to balances at December 31, 2010;
  • The Company's Tier 1 Capital Ratio improved to 11.15% from 10.83% in fourth quarter, 2010.  

"First quarter, 2011 was a very good quarter for Heritage Oaks Bancorp as non-performing loans and classified loans both trended lower. We recorded the lowest quarterly loan loss provision since the first quarter of 2008 yet maintained a ratio of allowance for loan losses to total gross loans of 3.65%, just three basis points lower than that reported for Q4 2010. We were also able to execute sales of $6.4 million of classified loans and $5.1 million of classified securities in an effort to continue improving overall asset quality," said Larry Ward, Chief Executive Officer of the Company. "At the same time, I am also pleased to report our second consecutive quarterly profit. After a very challenging 2010 where substantial provisioning for loan losses and the establishment of a deferred tax asset valuation allowance drove reported losses, we are now beginning to see core profitability reemerge," said Mr. Ward.

Net interest margin grew 15 basis points from 4.58% to 4.73% on a linked quarter basis. "Much of the net interest margin improvement came from fourth quarter, 2010 deposit repricing actions. In the first quarter we realized the full three month benefit from the decline in deposit costs, which fell 15 basis points from prior quarter. Also contributing to the increased margin was a recovery of interest on a non-accrual loan which paid off in full during the first quarter of 2011," said Tom Tolda, Chief Financial Officer for the Company.

Mr. Ward concluded by saying, "The steps we have taken to deal with the challenges brought on by the recession, namely resolving problem assets, strengthening capital, liquidity and loan loss reserves, and bolstering management talent are all bearing fruit. We look forward to further declines in problem loans and continued profitability in 2011. Our focus remains on: bringing resolution to problem loans; driving improvements in operating efficiency; building out our retail mortgage and S.B.A. businesses and increasing market penetration to bring additional core business relationships to the Bank."

Improved Asset Quality: Overall classified assets decreased $5.5 million at the end of the first quarter, primarily due to: selling $6.4 million of classified loans, of which $3.0 million were non-performing; selling $5.1 million of classified CMO securities and writing down the fair value of other real estate owned ("OREO") by $0.7 million on properties currently in escrow. Non-performing loans decreased 17% or $5.7 million on a linked quarter basis. Loans delinquent 30-89 days remained low at $2.4 million or 0.3% of total gross loans.

Provision for loan losses decreased to $2.0 million during the first quarter of 2011 as compared to the $5.8 million reported for the fourth quarter of 2010 and $5.2 million reported for the first quarter of 2010. First quarter charge-offs, were $3.5 million of which $2.3 million related to loans sold. Recoveries for the first quarter of 2011 were $1.0 million, flat to prior quarter. Total net charge-offs (inclusive of loan sale charge-offs) were $2.5 million for the first quarter, 2011, $0.1 million higher than the prior quarter.

At March 31, 2011 the allowance for loan losses was $24.4 million or 3.65% of total loans, 3 basis points below prior quarter. The allowance for loan losses reflected 90% coverage over non-performing loans of $27.2 million, substantially improved over prior quarter's 76%. Total classified assets as a percent of Tier 1 Capital plus allowance for loan losses was 62%, down from 66% in fourth quarter, 2010.

At the start of 2011, as part of the Company's stepped up loan review processes, the Company contracted a widely used, independent, third-party loan review firm to perform a full credit review of the loan portfolio which was completed in March. This review entailed testing of internal risk grading of loans, assessing adequacy of cash flow analyses, compliance with board-approved policies/procedures and applicable laws/regulations and compliance with interest accrual guidelines, among other areas. Over 25% of the entire loan portfolio was reviewed. Audit findings were shared with Management in March with no material changes warranted.

Core Earnings: Net interest margin grew 15 basis points to 4.73% as the Company realized the full benefit of deposit repricing done in late fourth quarter, 2010. Cost of total funding was 67 basis points in first quarter, compared to 75 basis points in the prior quarter. The sale of $5.1 million of previously classified securities largely reduced the risk of further OTTI from these securities. Proceeds from the loan and securities sales will be used to pay down FHLB borrowings, fund new loans and/or be reinvested in securities to take advantage of potential rising interest rates in the future. The increase to net interest margin this quarter was partly offset by actions taken in December and January to extend the term of FHLB borrowings which will help in reducing earnings sensitivity to potential higher interest rates.

Non-interest income totaled $1.9 million in first quarter, 2011, $0.3 million lower than fourth quarter, 2010. Mortgage origination fees were $615 thousand, down 38% when compared to prior quarter, yet 17% higher than first quarter, 2010. Mortgage origination fees decreased coincident with volume decreases over the first quarter of 2011 due in part to an uptick in interest rates and to the seasonality of home buying which typically slows near year-end and accelerates through the spring and summer months. These revenues comprise 33% of our non-interest income. Most other fee income was largely flat with prior quarter. Sales of securities during the quarter resulted in $73 thousand in net securities gains, flat to prior quarter as loss on sale of classified securities were offset by gains elsewhere in the portfolio.

Non-interest expense in first quarter, 2011 was $9.9 million, $3.0 million below fourth quarter, 2010. The primary driver for the decrease was $2.2 million less in OREO write-downs and related maintenance costs. Exclusive of OREO write-downs and maintenance, non-interest expenses were $0.8 million lower on a linked quarter basis. Contributing to this result was a $0.4 million reduction in salaries and benefits costs, primarily attributable to lower mortgage commissions expense, and $0.1 million reductions in facilities and equipment costs, data processing expenses and other external service charges, respectively.

The Company will be consolidating a small branch in San Miguel, California during the second quarter of 2011 into its larger and closest neighboring branch in Paso Robles. Customers will continue to be served while cost savings are realized in second half of 2011. Changes to the calculation of FDIC insurance assessment were effective April 1, 2011 and will also contribute to savings more significantly in the second half of this year.

The Company recorded $242 thousand of provision for income taxes based on its projected 2011 effective tax rate of 32% and made no adjustments to the valuation allowance for deferred tax assets.

Core Business: On a linked quarter basis, gross loans declined $9.5 million, which includes the impact of the $6.4 million loan sale. Part of this decline is due to efforts to minimize exposure to Land and Construction loans which declined $5.6 million in the quarter. First quarter loan originations were $51.3 million of which $31.5 million was 1 – 4 family residential mortgages which were largely sold off to investors. We anticipate commercial loan production will largely offset run-off and help grow the performing loan portfolio modestly in 2011, while mortgage production volumes are expected to tick up as we move into the spring and summer home buying season. The mortgage division has nearly doubled its sales force in recent months and now has 13 sales people ready to accept new loan applications. SBA is another business opportunity we want to further develop and expand and are currently recruiting sales staff in order to accomplish this goal.

Total deposit balances decreased $11.9 million to $786.3 million at end of the first quarter. The decline in deposits was primarily due to the run-off of some of the Bank's higher rate CD and Money Market accounts but was largely offset by an increase in core DDA deposits of $10.6 million as the Company continues to attract and deepen core deposit relationships. Interest expense responded by decreasing $250 thousand on a linked-quarter basis. Total deposit relationships increased from 23,849 at year-end 2010 to 24,054 at the end of the first quarter of 2011. All customer facing staff completed our new sales and service training coupled with the deployment of a new, front end technology that will assist staff in customer account profiling to better anticipate customer's needs.  

To counter potential decline in debit card fee income brought on by Dodd-Frank legislation, the Bank has repriced its service fees such that we can largely offset potential declines in debit card fees and still remain very competitive versus the larger bank competition that is charging more for basic banking services. The full impact of fee repricing will be experienced in third quarter, 2011. 

Given the recent change in FDIC deposit insurance assessment that shifts the calculation from total deposits to one based on total assets less Tier 1 Capital, the Bank reduced excess leverage on April 1st by paying down FHLB borrowings from $45 million to $30 million. The new assessment methodology will reduce the cost of FDIC deposit insurance by an estimated $500 thousand per annum, effective with the start of April of 2011.

Deferred Tax Assets: The Company's net deferred tax assets decreased by $0.6 million during the first quarter, largely due to the end of the one year Section 382 "built-in" loss suspension period on charge-offs from the loan portfolio. The Company maintains the same $7.1 million valuation allowance for deferred tax assets at quarter end that existed at December 31, 2010. The Company will continue to analyze its deferred tax assets, including those for which a valuation allowance has been established, quarterly, for changes affecting the ability to realize those assets and, as such, the valuation allowance may be adjusted in future periods. The Company will analyze changes in near-term market conditions and consider both positive and negative evidence as well as other factors which may impact future operating results in making any decision to adjust the valuation allowance in future periods.

Capital Position: As of March 31, 2011, Heritage Oaks Bancorp maintained its strong capital position with Tier 1 Capital increasing 32 basis points to 11.2%. Tangible Common Equity as a percentage of Tangible Assets was 8.79% and Total Risk-Based Capital was 15.7%, an increase from that reported at December 31, 2010 of 18 basis points and 44 basis points, respectively.

Heritage Oaks Bank reported a Tier 1 Capital Ratio of 10.8% and Total Risk-Based Capital Ratio of 15.2% at March 31, 2011, equivalent to $27.0 million above the 8.0% "well capitalized" Tier 1 Capital Ratio regulatory minimum. Both these ratios exceed the minimum Tier 1 Capital Ratio of 10.0% and Total Risk Based Capital Ratio of 11.5% set forth by the FDIC and DFI Consent Order dated March 4, 2010.

Liquidity: On balance sheet liquidity as measured by our Liquidity Ratio (total cash and equivalents plus unpledged marketable securities divided by the sum of total deposits and short-term liabilities less pledged securities) remained very strong at 30% at the end of first quarter, 2011, flat to prior quarter. At end of March, the Bank had remaining borrowing capacity with the Federal Home Loan Bank ("FHLB") of approximately $105.0 million, has a collateralized borrowing facility with the Federal Reserve Bank of $9.6 million and had the ability to purchase federal funds under a correspondent bank line of credit in the aggregate amount of $15.0 million. Additionally, $193.0 million of the Company's $203.2 million investment portfolio was unpledged and available as on-balance sheet liquidity as of March 31, 2011.

Balance Sheet: Total assets as of March 31, 2011 were $970.9 million, $11.8 million less than reported at December 31, 2010. This decrease was primarily due to the sale of $6.4 million of classified loans and $6.9 million in reduction of mortgages held for sale. Total deposits as of quarter-end were $786.3 million, $11.9 million lower on a linked quarter basis. Total core deposits (non-interest bearing DDA, NOW, savings, money market, and CD's less than $100,000) totaled $676.0 million as of March 31, 2011, a decrease of $4.3 million compared to December 31, 2010. Core deposits comprised 86% of total deposit balances, up 1% from prior quarter.

FHLB borrowings were $45.0 million as of March 31, 2011, unchanged since December, 2010. The cost of borrowings from the FHLB averaged 0.58% for first quarter, 2011 compared to 0.17% in fourth quarter, 2010. The higher cost of borrowings reflect the lengthening of borrowing maturities that was largely completed in December, simultaneously with the repricing of deposits which substantially offset the incremental cost of term borrowings. The Company chose to ladder $25 million of its borrowings from 1 to 5 years in maturity to protect against possible interest rate increases. On April 1, 2011 the Company paid down $15 million of overnight FHLB borrowings as a way of increasing the balance sheet's efficiency by removing excess leverage, which now comes at an incremental cost due to the change in the FDIC insurance assessment base.

The securities portfolio ended first quarter at $203.2 million and reflected a decrease of $20.7 million on a linked quarter basis offset by a $23.9 million increase in cash items at the end of the quarter. The decrease in the securities portfolio resulted from normal paydowns and various sales during the quarter including the sale of $5.1 million of classified securities. Proceeds from the sale increased cash which went toward paying down FHLB borrowings. The weighted average life of the portfolio was shortened to 4.5 years as a result of the securities sold which further lessened our earnings sensitivity to potential higher interest rates. As deposits grow, the Company will continue to use this liquidity to fund new loans and invest in high credit quality mortgage backed securities, collateralized mortgage obligations, municipal bonds and other government guaranteed securities.

Total gross loans were $667.8 at March 31, 2011, a decrease of $9.5 million on a linked quarter basis. The linked quarter decrease is attributed to the sale of $6.4 million of classified and non-performing loans, $2.6 million in net charge-offs, and $1.7 million of loans transferred to foreclosed real estate.

Conference Call

Heritage Oaks Bancorp will host a conference call to discuss these first quarter results at 8:00 a.m. PDT on April 29th, 2011. Media representatives, analysts and the public are invited to listen to this discussion by calling (877) 312 - 8825 and entering the passcode 61491968, or via on-demand webcast. A link to the webcast will be available on the Heritage Oaks Bancorp's website at www.heritageoaksbancorp.com . A replay of the call will be available on Heritage Oaks Bancorp's website later that day and will remain on its site for up to 14 calendar days.

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 is headquartered in Paso Robles and has two branches in Paso Robles and San Luis Obispo, single branch in Cambria, Arroyo Grande, Atascadero, Templeton, San Miguel and Morro Bay and three branches in Santa MariaHeritage Oaks Bank conducts commercial banking business in San Luis Obispo County and Northern Santa Barbara County. The Business First division has two branches in Santa Barbara. Visit Heritage Oaks Bancorp on the Web at www.heritageoaksbancorp.com.

The Heritage Oaks Bancorp logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=7045

Forward Looking Statements

Statements concerning future performance, developments or events, expectations for growth, income forecasts, sales activity for collateral, credit quality 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 markets in which the Company operates, and the response of the federal and state government and our regulators thereto, the effects on our operations of the enforcement actions we are subject to, 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
Consolidated Balance Sheets
       
  (unaudited) (audited)  (unaudited)
(dollar amounts in thousands) 3/31/2011 12/31/2010 3/31/2010
Assets      
Cash and due from banks  $ 19,145  $ 15,187  $ 20,997
Interest bearing due from banks  27,719  4,264  97,898
Federal funds sold  --   3,500  1,430
Total cash and cash equivalents  46,864  22,951  120,325
       
Interest bearing deposits with other banks  119  119  119
Securities available for sale  203,210  223,857  128,279
Federal Home Loan Bank stock, at cost  4,974  5,180  5,828
Loans held for sale  4,115  11,008  7,815
Gross loans  667,831  677,303  722,743
Net deferred loan fees  (1,420)  (1,613)  (1,699)
Allowance for loan losses  (24,367)  (24,940)  (18,559)
Net loans  642,044  650,750  702,485
Property, premises and equipment  6,228  6,376  6,496
Deferred tax assets  20,605  21,163  11,654
Bank owned life insurance  13,972  13,843  12,684
Goodwill  11,049  11,049  11,049
Core deposit intangible  1,962  2,127  2,513
Other real estate owned  6,085  6,668  741
Other assets  9,634  7,521  9,504
Total assets  $ 970,861  $ 982,612  $ 1,019,492
       
Liabilities      
Deposits      
Non interest bearing demand  $ 193,283  $ 182,658  $ 178,976
Savings, NOW, and money market  367,975  384,202  378,726
Time deposits of $100K or more  110,292  117,842  121,106
Time deposits under $100K  114,778  113,504  116,608
Total deposits  786,328  798,206  795,416
Short term FHLB borrowing  23,500  38,500  65,000
Long term FHLB borrowing  21,500  6,500  --
Other secured borrowing  --   --   2,479
Junior subordinated debentures  8,248  8,248  13,403
Other liabilities  9,462  9,902  7,975
Total liabilities  849,038  861,356  884,273
       
Stockholders' equity      
Preferred stock, 5,000,000 shares authorized:

Series A senior preferred stock; $1,000 per share stated value

issued and outstanding: 21,000 shares
 19,883  19,792  19,520
Series B preferred stock, $1,000 per share

stated value, 52,088 shares issued and outstanding
 --   --   48,469
Series C preferred stock, $3.25 per share stated value;

issued and outstanding: 1,189,538 shares 
 3,604  3,604  3,866
Common stock, no par value; authorized: 100,000,000 shares;

issued and outstanding: 25,081,819, 25,082,344, and 7,783,212

as of March 31, 2011; December 31, 2010 and

March 31, 2010, respectively
 101,140  101,140  48,789
Additional paid in capital  6,803  7,002  3,341
Retained (deficit) / earnings  (9,004)  (9,161)  11,717
Accumulated other comprehensive loss  (603)  (1,121)  (483)
Total stockholders' equity  121,823  121,256  135,219
Total liabilities and stockholders' equity  $ 970,861  $ 982,612  $ 1,019,492
       
Common book value per common share  $ 3.88  $ 3.85  $ 7.95
 
 
Heritage Oaks Bancorp
Consolidated Statements of Income
       
  (unaudited) (unaudited) (unaudited)
  For the Three Months Ended
(dollar amounts in thousands except per share data) 3/31/2011 12/31/2010 3/31/2010
Interest Income      
Interest and fees on loans  $ 10,534  $ 10,652  $ 11,141
Interest on investment securities      
Mortgage backed securities  995  1,314  1,019
State and municipal securities  515  436  257
Interest on time deposits with other banks  --   --   -- 
Interest on balances due from Federal Reserve Bank   9  20  28
Interest on federal funds sold  1  --   1
Interest on other securities  58  40  4
Total interest income  12,112  12,462  12,450
Interest Expense      
Interest on savings, NOW and money market deposits  425  649  1,082
Interest on time deposits in denominations of $100 or more  439  481  576
Interest on time deposits under $100  409  449  613
Other borrowings  117  66  232
Total interest expense  1,390  1,645  2,503
Net interest income before provision for loan losses  10,722  10,817  9,947
Provision for loan losses  1,985  5,831  5,200
Net interest income after provision for loan losses  8,737  4,986  4,747
Non Interest Income      
Fees and service charges  570  609  625
Mortgage gain on sale and origination fees   615  992  527
Debit/credit card transaction fee income  333  334  259
Earnings on bank owned life insurance  148  148  151
Bancard merchant fee income  47  61  36
Other than temporary impairment losses on investment securities:      
Total impairment loss on investment securities  --   (564)  -- 
Non credit related losses recognized in other comprehensive income  --   463  -- 
Net impairment losses on investment securities  --   (101)  -- 
Gain on sale of investment securities  73  74  -- 
Loss on sale of loans  --   (36)  -- 
Loss on sale of foreclosed assets  (27)  (10)  -- 
Other commissions and fees  133  122  175
Total non interest income  1,892  2,193  1,773
Non Interest Expense      
Salaries and employee benefits  4,551  4,919  4,565
Equipment  452  522  328
Occupancy  944  965  933
Promotional   172  165  179
Data processing  734  844  655
OREO related costs  99  259  83
Write-downs of foreclosed assets  733  2,819  210
Regulatory assessment costs  715  685  612
Audit and tax advisory costs  163  143  143
Director fees  103  163  128
Outside services  347  466  403
Telephone / communication costs  84  109  82
Amortization of intangible assets  165  128  129
Stationery and supplies  112  117  122
Provision for unfunded loan commitments  30  15  -- 
Other general operating costs  461  548  481
Total non interest expense  9,865  12,867  9,053
Income / (loss) before provision for income taxes  764  (5,688)  (2,533)
Provision / (benefit) for income taxes  242  (6,205)  (1,194)
Net income / (loss)  522  517  (1,339)
Dividends and accretion on preferred stock  365  491  351
Net income / (loss) applicable to common shareholders  $ 157  $ 26  $ (1,690)
       
Weighted Average Shares Outstanding      
Basic  25,035,012  25,004,697  7,717,194
Diluted  26,251,608  26,247,491  7,717,194
Earnings / (Loss) Per Common Share      
Basic  $ 0.01  $ 0.00  $ (0.22)
Diluted  $ 0.01  $ 0.00  $ (0.22)
       
       
  Three Months Ended
PROFITABILITY / PERFORMANCE RATIOS 3/31/2011 12/31/2010 3/31/2010
Net interest margin 4.73% 4.58% 4.43%
Return on average equity 1.73% 1.67% -5.70%
Return on average common equity 0.65% 0.10% -10.93%
Return on average tangible equity 1.56% 1.88% -6.64%
Return on average tangible common equity 0.57% 0.12% -13.97%
Return on average assets 0.22% 0.21% -0.56%
Non interest income to average assets 0.78% 0.87% 0.75%
Non interest expense to average assets 4.08% 5.12% 3.80%
Net interest income to average assets 4.44% 4.31% 4.18%
Non interest income to total net revenue 15.00% 16.86% 15.13%
Yield on interest earning assets 5.35% 5.27% 5.55%
Cost of interest bearing liabilities 0.85% 0.96% 1.47%
Cost of funds 0.67% 0.75% 1.18%
Operating efficiency ratio (1) 78.49% 98.35% 77.24%
       
ASSET QUALITY RATIOS      
       
Non-performing loans to total gross loans 4.07% 4.85% 6.78%
Allowance for loan losses to non-performing loans 89.69% 75.99% 37.89%
Non-performing loans to total assets 2.80% 3.34% 4.80%
Non-performing loans to primary capital 22.30% 27.07% 36.22%
Non-performing assets to total assets 3.43% 4.02% 4.88%
Allowance for loan losses to total gross loans 3.65% 3.68% 2.57%
Net charge-offs to average loans outstanding 0.38% 0.36% 0.14%
       
CAPITAL RATIOS      
       
Company      
Leverage ratio 11.15% 10.83% 7.71%
Tier I Risk-Based Capital Ratio 14.37% 13.94% 9.24%
Total Risk-Based Capital Ratio 15.65% 15.21% 17.16%
       
Bank      
Leverage ratio 10.83% 10.52% 12.61%
Tier I Risk-Based Capital Ratio 13.93% 13.47% 15.07%
Total Risk-Based Capital Ratio 15.20% 14.75% 16.34%
       
(1) The efficiency ratio is defined as total non interest expense as a percent of the combined net

interest income plus non interest income, exclusive of gains and losses and other than temporary

impairment losses.
 
 
AVERAGE BALANCES AND RATES Three Months Ended
  3/31/2011 12/31/2010 3/31/2010
(dollars in thousands) Balance Yield/Rate Inc/Exp Balance Yield/Rate Inc/Exp Balance Yield/Rate Inc/Exp
Interest Earning Assets                  
Investments with other banks  $ 119 1.10%  $ --   $ 119 1.09%  $ --  $ 119 1.58%  $ --
Interest bearing due from banks  16,933 0.22%  9  30,955 0.23%  18  48,884 0.23%  28
Federal funds sold  2,839 0.14%  1  5,435 0.15%  2  2,475 0.16%  1
Investment securities taxable  182,999 2.64%  1,190  183,745 3.09%  1,432  103,515 4.01%  1,023
Investment securities non taxable  36,130 4.24%  378  32,561 4.36%  358  22,960 4.54%  257
Loans (1) (2)  679,611 6.29%  10,534  684,569 6.17%  10,652  732,248 6.17%  11,141
Total earning assets  918,631 5.35%  12,112  937,384 5.27%  12,462  910,201 5.55%  12,450
Allowance for loan losses  (25,375)      (21,696)      (17,354)    
Other assets  86,429      81,168      72,283    
Total assets  $ 979,685      $ 996,856      $ 965,130    
                   
Interest Bearing Liabilities                  
Interest bearing demand  $ 63,802 0.22%  $ 34  $ 64,846 0.23%  $ 37  $ 80,211 1.08%  214
Savings  28,583 0.17%  12  27,978 0.26%  18  28,048 0.26%  18
Money market  281,581 0.55%  379  293,028 0.80%  594  269,885 1.28%  850
Time deposits  228,693 1.50%  848  232,405 1.59%  930  234,451 2.06%  1,189
Total interest bearing deposits  602,659 0.86%  1,273  618,257 1.01%  1,579  612,595 1.50%  2,271
 Other secured borrowing  --  0.00%  --   --  0.00%  --  966 4.62%  11
Federal Home Loan Bank borrowings  52,222 0.58%  75  54,891 0.17%  24  65,000 0.57%  92
Junior subordinated debentures  8,248 2.07%  42  8,248 2.02%  42  13,403 3.90%  129
Total borrowed funds  60,470 0.78%  117  63,139 0.41%  66  79,369 1.19%  232
Total interest bearing liabilities  663,129 0.85%  1,390  681,396 0.96%  1,645  691,964 1.47%  2,503
Non interest bearing demand  183,880      183,123      169,149    
Total funding  847,009 0.67%  1,390  864,519 0.75%  1,645  861,113 1.18%  2,503
Other liabilities  10,127      9,867      8,667    
Total liabilities  $ 857,136      $ 874,386      $ 869,780    
                   
Stockholders' Equity                  
Total shareholders' equity  122,549      122,470      95,350    
Total liabilities and shareholders' equity  $ 979,685      $ 996,856      $ 965,130    
                   
Net interest margin   4.73%     4.58%     4.43%  
                   
(1) Nonaccrual loans have been included in total loans.  
(2) Loan fees of $108, $156 and $200 for the three months ending March 31, 2011, December 31, 2010 and March 31, 2010, respectively

have been included in interest income computation.
 
 
Additional Financial Information      
(dollar amounts in thousands) For the Quarters Ended
Loans 3/31/2011 12/31/2010 3/31/2010
Real Estate Secured      
Multi-family residential  $ 16,380  $ 17,637  $ 20,530
Residential 1 to 4 family  21,674  21,804  25,846
Home equity lines of credit  31,413  30,801  29,383
Commercial  352,471  348,583  335,733
Farmland  12,670  15,136  12,804
Commercial      
Commercial and industrial  141,516  145,811  152,291
Agriculture  15,278  15,168  19,591
Other  126  153  238
Construction      
Single family residential  10,940  11,525  15,732
Single family residential - Spec.  898  2,391  3,295
Tract  --   --   1,245
Multi-family  1,728  2,218  1,883
Hospitality  --   --   13,126
Commercial  26,755  27,785  30,704
Land  28,716  30,685  51,557
Installment loans to individuals  7,070  7,392  8,407
All other loans (including overdrafts)  196  214  378
Total gross loans  $ 667,831  $ 677,303  $ 722,743
Deferred loan fees  1,420  1,613  1,699
Reserve for loan losses  24,367  24,940  18,559
Net loans  $ 642,044  $ 650,750  $ 702,485
Loans held for sale  $ 4,115  $ 11,008  $ 7,815
       
  For the Quarters Ended
Allowance for Loan Losses 3/31/2011 12/31/2010 3/31/2010
Balance, beginning of period   $ 24,940  $ 21,571  $ 14,372
Provision for loan losses  1,985  5,831  5,200
Loans charged-off:      
 Residential 1 to 4 family  --   155  -- 
Commercial real estate  286  1,396  -- 
Commercial and industrial  963  901  949
Agriculture  --   236  -- 
Construction  --   250  463
Land  9  356  -- 
Installment loans to individuals  19  248  98
Total loan charge-offs  1,277  3,542  1,510
Loan sale charged-off:      
 Residential 1 to 4 family  3  --   -- 
Commercial real estate  1,288  --   -- 
Commercial and industrial  12  --   -- 
Construction  291  --   -- 
Land  665  --   -- 
Total loan sale charge-offs  2,259  --   -- 
Recoveries of loans previously charged-off  978  1,080  497
Balance, end of period   $ 24,367  $ 24,940  $ 18,559
       
Net charge-offs  $ 2,558  $ 2,462  $ 1,013
       
  For the Quarters Ended
Non-Performing Assets 3/31/2011 12/31/2010 3/31/2010
Loans on non-accrual status:      
Residential 1-4 family  $ 531  $ 748  $ 1,145
Home equity lines of credit  1,074  1,019  320
Commercial real estate  14,376  17,752  14,310
Farmland  875  2,626  2,704
Commercial and industrial  4,477  3,921  9,740
Agriculture  404  246  3,493
Construction  1,293  3,040  3,351
Land  4,061  3,371  13,839
Installment  76  96  81
Total non-accruing loans  $ 27,167  $ 32,819  $ 48,983
Loans more than 90 days delinquent, still accruing  --   --   -- 
Total non-performing loans  27,167  32,819  48,983
Other real estate owned (OREO)  6,085  6,668  741
Total non-performing assets  $ 33,252  $ 39,487  $ 49,724
       
       
  For the Quarters Ended
Deposits 3/31/2011 12/31/2010 3/31/2010
Non-interest bearing demand  $ 193,283  $ 182,658  $ 178,976
Interest-bearing demand  64,918  67,938  79,585
Savings  28,368  29,144  28,373
Money market  274,689  287,120  270,768
Time deposits  225,070  231,346  237,714
Total deposits  $ 786,328  $ 798,206  $ 795,416

The following table reconciles the linked-quarter changes in the balance of loans on non-accrual status during the first quarter of 2011:

(dollars in thousands) Balance

December 31,

2010
Additions to

Non-Accruing

Balances


Net

Paydowns
Transfers

to Foreclosed

Collateral


Returns to 

Accrual




Charge-offs


Transferred to

Held for Sale
Balance

March 31,

2011
Real Estate Secured                
Multi-family residential  $ --   $ --   $ --   $ --   $ --   $ --   $ --   $ -- 
Residential 1 to 4 family  748  12  (7)  --   --   (3)  (219)  531
Home equity line of credit  1,019  64  (9)  --   --   --   --   1,074
Commercial  17,752  917  (287)  (1,585)  (821)  (802)  (798)  14,376
Farmland  2,626  --   (56)  --   (1,695)  --   --   875
Commercial                
Commercial and industrial  3,921  2,106  (527)  --   --   (984)  (39)  4,477
Agriculture  246  164  (6)  --   --   --   --   404
Other  --   --   --   --   --   --   --   -- 
Construction                
Single family residential  1,311  --   (18)  --   --   --   --   1,293
Single family residential - Spec.  1,250  --   --   --   --   (291)  (959)  -- 
Tract  --   --   --   --   --   --   --   -- 
Multi-family  479  --   (479)  --   --   --   --   -- 
Hospitality  --   --   --   --   --   --   --   -- 
Commercial  --   --   --   --   --   --   --   -- 
Land  3,371  838  (138)  --   --   (10)  --   4,061
Installment loans to individuals  96  85  (4)  (92)  --   (9)  --   76
All other loans  --   --   --   --   --   --   --   -- 
   .               
Totals  $ 32,819  $ 4,186  $ (1,531)  $ (1,677)  $ (2,516)  $ (2,099)  $ (2,015)  $ 27,167

The following table reconciles the linked-quarter changes in the balance of OREO during the first quarter of 2011:

(dollars in thousands) Balance

December 31, 

2010




Additions




Sales




Writedowns
Balance

March 31,

2011
Real Estate Secured          
Multi-family residential  $ --   $ --   $ --   $ --   $ -- 
Residential 1 to 4 family  160  --   (160)  --   -- 
Home equity line of credit  --   --   --   --   -- 
Commercial  3,953  1,585  --   (688)  4,850
Farmland  --   --   --   --   -- 
Commercial          
Commercial and industrial  464  --   (464)  --   -- 
Agriculture  --   --   --   --   -- 
Other  --   --   --   --   -- 
Construction          
Single family residential  --   --   --   --   -- 
Single family residential - Spec.  475  --   --   (16)  459
Tract  251  --   --   --   251
Multi-family  --   --   --   --   -- 
Hospitality  --   --   --   --   -- 
Commercial  --   --   --   --   -- 
Land  1,365  --   (811)  (29)  525
Installment loans to individuals  --   --   --   --   -- 
All other loans  --   --   --   --   -- 
           
Totals  $ 6,668  $ 1,585  $ (1,435)  $ (733)  $ 6,085
CONTACT: Lawrence P. Ward, CEO
         805-369-5200
         Tom Tolda, CFO
         805-369-5107

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