10-Q 1 a13-8655_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


 

FORM 10-Q


 

(Mark One)

 

[ X ]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013.

 

or

 

[    ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.

 

Commission File Number:  000-25020

 

 

HERITAGE OAKS BANCORP

(Exact name of registrant as specified in its charter)

 

California

 

77-0388249

 

 

 

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

1222 Vine Street,

Paso Robles, California 93446

(Address of principal executive offices) (Zip Code)

 


(805) 369-5200

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

YES [ X ]     NO [    ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

YES [ X ]     NO [    ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one.)

 

Large accelerated filer [   ]   Accelerated filer [X ]   Non-accelerated filer (Do not check if a smaller reporting company)[    ]

Smaller reporting company [   ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

YES [    ]    NO [ X ]

 

 

As of April 26, 2013 there were 25,331,541 shares outstanding of the registrant’s common stock.

 

 

 

 

Heritage Oaks Bancorp

 



Table of Contents

 

Heritage Oaks Bancorp

FORM 10-Q for the Three Months Ended March 31, 2013

 

INDEX

 

 

 

 

Page

 

 

 

 

Part I.

 

Financial Information

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited).

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets at March 31, 2013 and December 31, 2012

3

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2013 and March 31, 2012

4

 

 

 

 

 

 

Condensed Consolidated Statement of Comprehensive Income for the Three Months Ended March 31, 2013 and March 31, 2012

5

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013  and March 31, 2012

6

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

28

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

50

 

 

 

 

 

Item 4.

Controls and Procedures.

52

 

 

 

 

Part II.

 

Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings.

53

 

 

 

 

 

Item 1A.

Risk Factors.

53

 

 

 

 

 

Item 2.

Unregistered Sales of Securities and Use of Proceeds.

54

 

 

 

 

 

Item 3.

Defaults upon Senior Securities.

54

 

 

 

 

 

Item 4.

Mine Safety Disclosures.

54

 

 

 

 

 

Item 5.

Other Information.

54

 

 

 

 

 

Item 6.

Exhibits.

54

 

 

 

 

 

 

Signatures

55

 

 

Heritage Oaks Bancorp | - 2 -

 



Table of Contents

 

Part I.  Financial Information

 

Item 1. Financial Statements

 

 

Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Balance Sheets

 

 

 

March 31,

 

December 31,

 

(dollar amounts in thousands except per share data)

 

2013

 

2012

 

 

 

(unaudited)

 

(audited)

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

20,560

 

$

23,425

 

Interest bearing deposits in other banks

 

17,957

 

10,691

 

Total cash and cash equivalents

 

38,517

 

34,116

 

 

 

 

 

 

 

Investment securities available for sale

 

247,890

 

287,682

 

Federal Home Loan Bank stock

 

4,575

 

4,575

 

Loans held for sale

 

9,138

 

22,549

 

Gross loans

 

704,880

 

689,608

 

Net deferred loan fees

 

(1,035

)

(937

)

Allowance for loan losses

 

(17,743

)

(18,118

)

Net loans held for investment

 

686,102

 

670,553

 

Premises and equipment

 

17,598

 

15,956

 

Deferred tax assets, net

 

18,959

 

21,933

 

Bank owned life insurance

 

15,472

 

15,349

 

Goodwill and other intangible assets

 

12,881

 

12,981

 

Other assets

 

13,552

 

11,838

 

 

 

 

 

 

 

Total assets

 

$

1,064,684

 

$

1,097,532

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing deposits

 

$

270,357

 

$

273,242

 

Interest bearing deposits

 

592,458

 

597,628

 

Total deposits

 

862,815

 

870,870

 

Short term FHLB borrowing

 

-

 

33,000

 

Long term FHLB borrowing

 

36,500

 

33,500

 

Junior subordinated debentures

 

8,248

 

8,248

 

Other liabilities

 

10,382

 

6,385

 

 

 

 

 

 

 

Total liabilities

 

917,945

 

952,003

 

 

 

 

 

 

 

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 as of March 31, 2013 and December 31, 2012

 

20,630

 

20,536

 

Series C preferred stock, $3.25 per share stated value; issued and outstanding: 1,189,538 shares as of March 31, 2013 and December 31, 2012

 

3,604

 

3,604

 

Common stock, no par value; authorized: 100,000,000 shares; issued and outstanding: 25,331,541 shares and 25,307,110 shares as of March 31, 2013 and December 31, 2012, respectively

 

101,359

 

101,354

 

Paid in capital

 

7,471

 

7,337

 

Retained earnings

 

12,146

 

8,773

 

Accumulated other comprehensive income, net of tax expense of $1,069 and $2,745 as of March 31, 2013 and December 31, 2012, respectively

 

1,529

 

3,925

 

 

 

 

 

 

 

Total stockholders’ equity

 

146,739

 

145,529

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

1,064,684

 

$

1,097,532

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

Heritage Oaks Bancorp | - 3 -

 



Table of Contents

 

Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Statements of Income

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

(dollar amounts in thousands except per share data)

 

2013

 

2012

 

 

 

(unaudited)

 

(unaudited)

 

Interest Income

 

 

 

 

 

Loans

 

$

9,597

 

$

9,927

 

Investment securities

 

1,433

 

1,798

 

Other

 

43

 

27

 

Total interest income

 

11,073

 

11,752

 

Interest Expense

 

 

 

 

 

Interest on deposits

 

660

 

822

 

Other borrowings

 

205

 

181

 

Total interest expense

 

865

 

1,003

 

Net interest income before provision for loan losses

 

10,208

 

10,749

 

Provision for loan losses

 

-     

 

3,331

 

Net interest income after provision for loan losses

 

10,208

 

7,418

 

Non-Interest Income

 

 

 

 

 

Fees and service charges

 

1,015

 

1,093

 

Mortgage gain on sale and origination fees

 

774

 

855

 

Gain on sale of investment securities

 

3,586

 

303

 

Other income

 

286

 

271

 

Total non-interest income

 

5,661

 

2,522

 

Non-Interest Expense

 

 

 

 

 

Salaries and employee benefits

 

5,192

 

4,536

 

Occupancy

 

782

 

1,017

 

Information technology

 

627

 

666

 

Professional services

 

662

 

503

 

Regulatory

 

369

 

551

 

Equipment

 

415

 

405

 

Sales and marketing

 

121

 

137

 

Foreclosed asset costs and write-downs

 

55

 

98

 

Provision for potential mortgage loan repurchases

 

570

 

118

 

Amortization of intangible assets

 

100

 

86

 

Other expense

 

855

 

612

 

Total non-interest expense

 

9,748

 

8,729

 

Income before income tax expense / (benefit)

 

6,121

 

1,211

 

Income tax expense / (benefit)

 

2,391

 

(374

)

Net income

 

3,730

 

1,585

 

Dividends and accretion on preferred stock

 

358

 

381

 

Net income available to common shareholders

 

$

3,372

 

$

1,204

 

 

 

 

 

 

 

Earnings Per Common Share

 

 

 

 

 

Basic

 

$

0.13

 

$

0.05

 

Diluted

 

$

0.13

 

$

0.05

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

Heritage Oaks Bancorp | - 4 -

 



Table of Contents

 

Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

 

 

 

For the Three Months

 

 

 

Ended March 31,

 

(dollar amounts in thousands)

 

2013

 

2012

 

 

 

(unaudited)

 

(unaudited)

 

Net income

 

$

3,730

 

$

1,585

 

Other comprehensive (loss) / income:

 

 

 

 

 

Unrealized security holding (losses) / gains arising during the period

 

(485

)

3,213

 

Reclassification for net gains on investments included in net income

 

(3,586

)

(303

)

Other comprehensive (loss) / income before income tax (benefit) / expense

 

(4,071

)

2,910

 

Income tax (benefit) / expense of other comprehensive income

 

(1,675

)

1,198

 

Other comprehensive (loss) / income

 

(2,396

)

1,712

 

Comprehensive income

 

$

1,334

 

$

3,297

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

Heritage Oaks Bancorp | - 5 -

 



Table of Contents

 

Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Statements of Cash Flows

 

 

 

For the Three Months

 

 

 

Ended March 31,

 

(dollar amounts in thousands)

 

2013

 

2012

 

 

 

(unaudited)

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

3,730

 

$

1,585

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

356

 

322

 

Provision for loan losses

 

-

 

3,331

 

Amortization of premiums / discounts on investment securities, net

 

1,078

 

693

 

Amortization of intangible assets

 

100

 

86

 

Share-based compensation expense

 

134

 

39

 

Gain on sale of available for sale securities

 

(3,586

)

(303

)

Originations of loans held for sale

 

(41,854

)

(41,056

)

Proceeds from sale of loans held for sale

 

55,265

 

46,822

 

Net increase in bank owned life insurance

 

(123

)

(131

)

Decrease / (increase) in deferred tax asset

 

4,650

 

(210

)

Deferred tax assets valuation allowance adjustment

 

-

 

(800

)

Tax impact of share based compensation expense

 

-

 

2

 

(Increase) / decrease in other assets

 

(1,714

)

743

 

Increase / (decrease) in other liabilities

 

3,996

 

(2,869

)

 

 

 

 

 

 

Net Cash Provided By Operating Activities

 

22,032

 

8,254

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of available for sale securities

 

(66,853

)

(49,987

)

Sale of available for sale securities

 

89,245

 

12,479

 

Maturities and calls of available for sale securities

 

544

 

3

 

Proceeds from principal paydowns of available for sale securities

 

15,293

 

10,012

 

Increase in loans, net

 

(17,045

)

(160

)

Allowance for loan and lease loss recoveries

 

285

 

242

 

Purchase of property, premises and equipment, net

 

(1,998

)

(10,380

)

Proceeds from sale of foreclosed collateral

 

1,211

 

176

 

 

 

 

 

 

 

Net Cash Provided By / (Used In) Investing Activities

 

20,682

 

(37,615

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

(Decrease) / increase in deposits, net

 

(8,055

)

20,152

 

Proceeds from Federal Home Loan Bank borrowing

 

21,000

 

48,500

 

Repayments of Federal Home Loan Bank borrowing

 

(51,000

)

(47,500

)

Proceeds from exercise of stock options

 

5

 

19

 

Preferred stock dividends paid

 

(263

)

-

 

 

 

 

 

 

 

Net Cash (Used In) / Provided By Financing Activities

 

(38,313

)

21,171

 

 

 

 

 

 

 

Net increase / (decrease) in cash and cash equivalents

 

4,401

 

(8,190

)

Cash and cash equivalents, beginning of period

 

34,116

 

34,892

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

38,517

 

$

26,702

 

 

 

(continued)

 

 

Heritage Oaks Bancorp | - 6 -

 



Table of Contents

 

Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(continued)

 

 

 

For the Three Months

 

 

 

Ended March 31,

 

(dollar amounts in thousands)

 

2013

 

2012

 

Cash Flow Information

 

 

 

 

 

Interest paid

 

$

865

 

$

961

 

Income taxes paid

 

$

2,100

 

$

-

 

 

 

 

 

 

 

Non-Cash Flow Information

 

 

 

 

 

(Decrease) / increase in unrealized gain on available for sale securities

 

$

(4,071

)

$

2,910

 

Loans transferred to foreclosed collateral

 

$

1,211

 

$

176

 

Preferred stock dividends accrued not paid

 

$

-

 

$

288

 

Accretion of preferred stock discount

 

$

95

 

$

93

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

Heritage Oaks Bancorp | - 7 -

 



Table of Contents

 

Heritage Oaks Bancorp

And Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Note 1.  Condensed Consolidated Financial Statements

 

Description of Business

 

Heritage Oaks Bancorp (“the Company”) is a California corporation organized in 1994 to act as the holding company for Heritage Oaks Bank (“the Bank”).  The Bank operates within San Luis Obispo, Santa Barbara and Ventura counties.  The Bank offers traditional banking products such as checking, savings, money market accounts and certificates of deposit, as well as mortgage loans and commercial and consumer loans to customers who are predominately small to medium-sized businesses and individuals.  As such, the Company is subject to a concentration risk associated with its banking operations in San Luis Obispo and Santa Barbara Counties. No one customer accounts for more than 10% of revenue or assets in any period presented and the Company has no assets nor does it generate any revenue from outside of the United States. While the chief decision-makers of the Company monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis.  Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of Heritage Oaks Bancorp and subsidiaries (the “Company”) have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for annual financial statements are not included herein. In the opinion of Management, all adjustments (which consist solely of normal recurring accruals) considered necessary for a fair presentation of results for the interim periods presented have been included. These interim condensed consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2012 Annual Report filed on Form 10-K, filed with the Securities and Exchange Commission on March 4, 2013, file number 000-25020.

 

The condensed consolidated financial statements include the accounts of Heritage Oaks Bancorp and its wholly-owned financial subsidiary, Heritage Oaks Bank.  All significant inter-company balances and transactions have been eliminated. Heritage Oaks Capital Trust II, which was formed solely for the purpose of issuing trust preferred securities, is an unconsolidated subsidiary as the Company is not the primary beneficiary of the trust. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. Certain amounts in the consolidated financial statements for the year ended December 31, 2012 and for the three months ended March 31, 2012 may have been reclassified to conform to the presentation of the condensed consolidated financial statements in 2013.

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.  Estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, the valuation of real estate acquired through foreclosure, the carrying value of the Company’s deferred tax assets and estimates used in the determination of the fair value of certain financial instruments.

 

The significant accounting policies that the Company applies are detailed in Note 1. Summary of Significant Accounting Policies, of the Company’s Annual Report filed on Form 10-K.  There have been no changes to these policies or their application other than as noted below, related to the adoption of standard updates issued by the Financial Accounting Standards Board (“FASB”).

 

 

Heritage Oaks Bancorp | - 8 -

 



Table of Contents

 

Recent Accounting Guidance Adopted

 

On July 27, 2012, the FASB issued ASU No. 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.  This update, like ASU 2011-08 which the Company adopted in 2011, allows companies the option to first evaluate qualitative factors to determine if events or circumstances exist that indicate that it is more likely than not that an indefinite-lived intangible asset is impaired.  If based on this assessment, a company concludes that there are no indicators that suggest an indefinitely-lived asset is more likely than not of having been impaired, then no further quantitative analysis is required.  The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The Company currently does not have any indefinite-lived intangible assets, other than goodwill, therefore adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

 

On October 1, 2012, the FASB issued ASU No. 2012-04, Technical Corrections and Improvements.  The amendments in ASU 2012-04 cover a wide range of Topics in the Codification and address technical corrections and improvements and conforming amendments related to fair value measurements.  For public entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2012.  Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

 

On February 15, 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  The update requires companies to present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts of reclassifications from each component of accumulated other comprehensive income based on its source and the income statement lines affected by the reclassification.  For public entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2012.  Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

 

Recent Accounting Guidance Not Yet Effective

 

There has been no recently released accounting guidance that is directly applicable to the Company, which is not yet effective.

 

Note 2.  Fair Value of Assets and Liabilities

 

Recurring Basis

 

The following table provides a summary of the financial instruments the Company measures at fair value on a recurring basis:

 

 

 

Fair Value Measurements Using

 

 

 

 

 

Quoted Prices in

 

Significant Other

 

Significant

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

(dollar amounts in thousands)

 

Inputs

 

Inputs

 

Inputs

 

Assets At

 

March 31, 2013

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

Obligations of U.S. government agencies

 

$

-

 

$

4,836

 

$

-

 

$

4,836

 

Mortgage backed securities:

 

 

 

 

 

 

 

 

 

Agency

 

-

 

155,793

 

-

 

155,793

 

Non-agency

 

-

 

23,926

 

-

 

23,926

 

Obligations of state and municipal securities

 

-

 

31,004

 

-

 

31,004

 

Asset backed securities

 

-

 

32,331

 

-

 

32,331

 

 

 

 

 

 

 

 

 

 

 

Total assets measured on a recurring basis

 

$

-

 

$

247,890

 

$

-

 

$

247,890

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Obligations of U.S. government agencies

 

$

-

 

$

7,567

 

$

-

 

$

7,567

 

Mortgage backed securities:

 

 

 

 

 

 

 

 

 

Agency

 

-

 

145,768

 

-

 

145,768

 

Non-agency

 

-

 

44,795

 

-

 

44,795

 

Obligations of state and municipal securities

 

-

 

68,968

 

-

 

68,968

 

Asset backed securities

 

 

 

20,584

 

-

 

20,584

 

 

 

 

 

 

 

 

 

 

 

Total assets measured on a recurring basis

 

$

-

 

$

287,682

 

$

-

 

$

287,682

 

 

 

Heritage Oaks Bancorp | - 9 -

 



Table of Contents

 

In determining the fair value of Level 3 instruments on a recurring basis the Company takes into consideration several variables, including but not limited to expectations about interest rate movements, prepayment speeds of the underlying mortgages for mortgage backed securities, expected default rates, and credit spreads over the risk free rate.  Of these variables, default rates and credit spreads are perhaps the least observable and most impactful on the long-term value of a Level 3 security.  Since a bond’s value is represented by its yield which reflects the risk-free yield curve plus compensation for various risks incurred in buying the bond, changes to the risk assumptions including probability of default and timing of future cash flows can materially impact the market value.  As of March 31, 2013 and December 31, 2012, there were no Level 3 instruments.

 

There were no changes in the balance sheet carrying value associated with recurring Level 3 financial instruments for the three months ended March 31, 2013.  The following table provides a summary of the changes in balance sheet carrying values associated with recurring Level 3 financial instruments:

 

 

 

 

 

 

 

Purchases,

 

 

 

 

 

 

 

 

 

Beginning

 

Gain / (Loss)

 

Issuances, and

 

Sales and

 

Transfers to / (from)

 

Ending

 

(dollar amounts in thousands)

 

Balance

 

Included in OCI (1)

 

Settlements

 

Maturities

 

Level III

 

Balance

 

For the three months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and municipal securities

 

$

259

 

$

1

 

$

-    

 

$

-    

 

$

 

$

260

 

Agency mortgage backed securities

 

-    

 

(191

)

4,674

 

-    

 

 

4,483

 

Non-agency mortgage backed securities

 

3,074

 

-    

 

-    

 

(3,074

)

 

-    

 

 

 

(1) Realized or unrealized gains from the changes in values of Level 3 financial instruments represent gains from changes in values of financial instruments only for the period(s) in which the instruments were classified as Level 3.

 

The assets presented under Level 3 of the fair value hierarchy, which are classified as obligations of state and municipal subdivisions, represent available for sale investment securities in the form of certificates of participation, where an active market for such securities is not currently available.

 

Non-recurring Basis

 

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis.  These include assets and liabilities that are measured at the lower of cost or fair value that were recognized at fair value which was below cost.   Certain impaired loans measured at fair value at December 31, 2012 are no longer recorded at fair value due to borrower payments reducing the carrying value of certain of these loans to less than fair value and due to other impaired loans now being evaluated under the discounted cash flow method versus the collateral method.  The discounted cash flow method as prescribed by Topic 310 is not a fair value measurement since the discount rate utilized is the loan’s effective interest rate, which is not a market rate. The discounted cash flow approach was determined to be the most appropriate impairment method to use for these impaired loans based on their significant payment history and the global cash flow analysis performed on each borrower.

 

 

Heritage Oaks Bancorp | - 10 -

 



Table of Contents

 

The following table provides a summary of assets the Company measures at fair value on a non-recurring basis:

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

Quoted Prices in

 

Significant Other

 

Significant

 

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

 

(dollar amounts in thousands)

 

Identical Assets

 

Inputs

 

Inputs

 

Assets At

 

Total

March 31, 2013

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Fair Value

 

(Gains) / Losses

Assets

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

 -

 

$

 -

 

$

 181

 

$

 181

 

$

 44

Land

 

-

 

-

 

1,993

 

1,993

 

(19)

 

 

 

 

 

 

 

 

 

 

 

Total assets measured on a non-recurring basis

 

$

 -

 

$

 -

 

$

 2,174

 

$

 2,174

 

$

 25

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

 -

 

$

 820

 

$

 213

 

$

 1,033

 

$

 1,941

Agriculture

 

-

 

72

 

-

 

72

 

28

Construction

 

-

 

1,656

 

-

 

1,656

 

460

Land

 

-

 

-

 

2,048

 

2,048

 

3,802

 

 

 

 

 

 

 

 

 

 

 

Total assets measured on a non-recurring basis

 

$

 -

 

$

 2,548

 

$

 2,261

 

$

 4,809

 

$

 6,231

 

There were no transfers in or out of Level 1 and Level 2 for assets reported at fair value on either a recurring and non-recurring basis during the three months ended March 31, 2013 and 2012.

 

Fair Value of Financial Instruments

 

The following table provides a summary of the estimated fair value of financial instruments:

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

Quoted Prices in

 

Significant Other

 

Significant

 

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

(dollar amounts in thousands)

 

Carrying

 

Identical Assets

 

Inputs

 

Inputs

 

 

March 31, 2013

 

Amount

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Fair Value

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 38,517

 

$

 38,517

 

$

 -

 

$

 -

 

$

 38,517

Investment securities available for sale

 

247,890

 

-

 

247,890

 

-

 

247,890

Federal Home Loan Bank stock

 

4,575

 

-

 

-

 

-

 

N/A

Loans receivable, net of deferred fees and costs

 

703,845

 

-

 

-

 

716,638

 

716,638

Loans held for sale

 

9,138

 

-

 

9,138

 

-

 

9,138

Accrued interest receivable

 

3,421

 

-

 

920

 

2,501

 

3,421

Liabilities

 

 

 

 

 

 

 

 

 

 

Non-interest bearing deposits

 

270,357

 

270,357

 

-

 

-

 

270,357

Interest bearing deposits

 

592,458

 

-

 

593,462

 

-

 

593,462

Federal Home Loan Bank advances

 

36,500

 

-

 

36,658

 

-

 

36,658

Junior subordinated debentures

 

8,248

 

-

 

-

 

7,186

 

7,186

Accrued interest payable

 

247

 

-

 

247

 

-

 

247

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 34,116

 

$

 34,116

 

$

 -

 

$

 -

 

$

 34,116

Investments and mortgage-backed securities

 

287,682

 

-

 

287,682

 

-

 

287,682

Federal Home Loan Bank stock

 

4,575

 

-

 

-

 

-

 

N/A

Loans receivable, net of deferred fees and costs

 

668,671

 

-

 

2,548

 

701,144

 

703,692

Loans held for sale

 

22,549

 

-

 

22,549

 

-

 

22,549

Accrued interest receivable

 

3,915

 

-

 

1,497

 

2,418

 

3,915

Liabilities

 

 

 

 

 

 

 

 

 

 

Non interest-bearing deposits

 

273,242

 

273,242

 

-

 

-

 

273,242

Interest-bearing deposits

 

597,628

 

-

 

598,664

 

-

 

598,664

Federal Home Loan Bank advances

 

66,500

 

-

 

67,059

 

-

 

67,059

Junior subordinated debentures

 

8,248

 

-

 

-

 

7,078

 

7,078

Accrued interest payable

 

192

 

-

 

192

 

-

 

192

 

 

Heritage Oaks Bancorp | - 11 -

 



Table of Contents

 

Information on off-balance sheet instruments follows:

 

 

 

March 31, 2013

 

December 31, 2012

 

 

Notional

 

Cost to Cede

 

Notional

 

Cost to Cede

(dollar amounts in thousands)

 

Amount

 

or Assume

 

Amount

 

or Assume

Off-balance sheet instruments, commitments to extend credit and standby letters of credit

 

$

 175,962

 

$

 1,760

 

$

 178,432

 

$

 1,784

 

Note 3.  Investment Securities

 

The following table sets forth the amortized cost and fair values of the Company’s investment securities, all of which are reported as available for sale:

 

(dollar amounts in thousands)

 

 

 

Gross

 

Gross

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

March 31, 2013

 

Cost

 

Gains

 

Losses

 

Fair Value

Obligations of U.S. government agencies

 

$

 4,781

 

$

 57

 

$

 (2)

 

$

 4,836

Mortgage backed securities

 

 

 

 

 

 

 

 

U.S. government sponsored entities and agencies

 

155,391

 

983

 

(581)

 

155,793

Non-agency

 

23,209

 

732

 

(15)

 

23,926

State and municipal securities

 

29,923

 

1,169

 

(88)

 

31,004

Asset backed securities

 

31,987

 

398

 

(54)

 

32,331

 

 

 

 

 

 

 

 

 

Total

 

$

 245,291

 

$

 3,339

 

$

 (740)

 

$

 247,890

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

Obligations of U.S. government agencies

 

$

 7,307

 

$

 262

 

$

 (2)

 

$

 7,567

Mortgage backed securities

 

 

 

 

 

 

 

 

U.S. government sponsored entities and agencies

 

145,430

 

1,136

 

(798)

 

145,768

Non-agency

 

43,402

 

1,578

 

(185)

 

44,795

State and municipal securities

 

64,824

 

4,240

 

(96)

 

68,968

Asset backed securities

 

20,049

 

568

 

(33)

 

20,584

 

 

 

 

 

 

 

 

 

Total

 

$

 281,012

 

$

 7,784

 

$

 (1,114)

 

$

 287,682

 

Other than Temporary Impairment (“OTTI”)

 

At the end of the first quarter of 2013, as part of its repositioning of the longer duration portion of the investment portfolio, the Company sold the two PMBS securities in which OTTI losses had been recognized, thereby eliminating all securities in the portfolio for which OTTI losses had been incurred.  These securities had an aggregate recorded fair value of $0.7 million ($1.0 million historical cost) at December 31, 2012. The following tables provide information related to these two securities:

 

 

 

For the Three Months Ended March 31, 2013

 

For the Three Months Ended March 31, 2012

 

 

 

 

OTTI Related

 

 

 

 

 

OTTI Related

 

 

 

 

OTTI Related

 

to All Other

 

Total

 

OTTI Related

 

to All Other

 

Total

(dollars in thousands)

 

to Credit Loss

 

Factors

 

OTTI

 

to Credit Loss

 

Factors

 

OTTI

Balance, beginning of the period

 

$

 109

 

$

 170

 

$

 279

 

  $

 109

 

$

 361

 

$

 470

Less: losses related to OTTI securities sold

 

(109)

 

(170)

 

(279)

 

-

 

-

 

-

Change in value attributable to other factors

 

-

 

-

 

-

 

-

 

(38)

 

(38)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of the period

 

$

 -

 

$

 -

 

$

 -

 

  $

 109

 

$

 323

 

$

 432

 

 

Heritage Oaks Bancorp | - 12 -

 



Table of Contents

 

The following table provides a summary of investment securities in an unrealized loss position:

 

 

Securities In A Loss Position For

 

 

 

 

(dollar amounts in thousands)

 

Less Than Twelve Months

 

Twelve Months or More

 

Total

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

March 31, 2013

 

Value

 

Loss

 

Value

 

Loss

 

Value

 

Loss

Obligations of U.S. government agencies

 

$

 -

 

$

 -

 

$

 43

 

$

 (2)

 

$

 43

 

$

 (2)

Mortgage backed securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government sponsored entities and agencies

 

62,409

 

(581)

 

-

 

-

 

62,409

 

(581)

Non-agency

 

2,871

 

(15)

 

-

 

-

 

2,871

 

(15)

State and municipal securities

 

5,754

 

(88)

 

-

 

-

 

5,754

 

(88)

Asset backed securities

 

9,803

 

(54)

 

-

 

-

 

9,803

 

(54)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

 80,837

 

$

 (738)

 

$

 43

 

$

 (2)

 

$

 80,880

 

$

 (740)

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government agencies

 

$

 -

 

$

 -

 

$

 44

 

$

 (2)

 

$

 44

 

$

 (2)

Mortgage backed securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government sponsored entities and agencies

 

83,092

 

(798)

 

-

 

-

 

83,092

 

(798)

Non-agency

 

7,204

 

(15)

 

719

 

(170)

 

7,923

 

(185)

State and municipal securities

 

9,813

 

(96)

 

-

 

-

 

9,813

 

(96)

Asset backed securities

 

9,828

 

(33)

 

-

 

-

 

9,828

 

(33)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

 109,937

 

$

 (942)

 

$

 763

 

$

 (172)

 

$

 110,700

 

$

 (1,114)

 

As of March 31, 2013, the Company believes that unrealized losses on state and municipal securities, asset backed securities and all mortgage related securities, including U.S. government sponsored entity and agency securities, such as those issued by the Federal Home Loan Mortgage Corporation (“FHLMC”), the Federal National Mortgage Association (“FNMA”) and the Government National Mortgage Association (“GNMA”), are not attributable to credit quality, but rather fluctuations in market prices for these types of investments.  Additionally, these securities have maturity dates that range from 1 to 40 years and in the case of the agency mortgage related securities have contractual cash flows guaranteed by agencies of the U.S. Government.  As of March 31, 2013, the Company does not believe unrealized losses related to any of its securities are other than temporary.

 

The proceeds from the sales and calls of securities and the associated gains and losses are listed below:

 

 

 

For the Three Months Ended March 31,

(dollar amounts in thousands)

 

2013

 

2012

Proceeds

 

$

 89,245

 

$

 12,482

Gross gains

 

4,204

 

303

Gross losses

 

(618)

 

-

 

The income tax expense related to these net realized gains was $1.5 million and $0.1 million, for the three months ended March 31, 2013 and 2012, respectively.

 

 

Heritage Oaks Bancorp | - 13 -

 



Table of Contents

 

The amortized cost and fair value maturities of available for sale investment securities at March 31, 2013 are shown below. The table reflects the expected lives of mortgage backed securities, based on the Company’s historical experience, because borrowers have the right to prepay obligations without prepayment penalties. Contractual maturities are reflected for all other security types. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

(dollar amounts in thousands)

 

 

 

 

 

 

 

 

 

 

March 31, 2013

 

One Year Or 
Less

 

Over 1 Through 
5 Years

 

Over 5 Years
Through 10
Years

 

Over 10 Years

 

Total

Obligations of U.S. government agencies

 

$

 91

 

$

 400

 

$

 1,860

 

$

 2,485

 

$

 4,836

Mortgage backed securities

 

 

 

 

 

 

 

 

 

 

U.S. government sponsored entities and agencies

 

21,152

 

54,941

 

32,691

 

47,009

 

155,793

Non-agency

 

6,108

 

14,674

 

1,617

 

1,527

 

23,926

State and municipal securities

 

-

 

7,778

 

19,213

 

4,013

 

31,004

Asset backed securities

 

-

 

5,446

 

10,735

 

16,150

 

32,331

Total available for sale securities

 

$

 27,351

 

$

 83,239

 

$

 66,116

 

$

 71,184

 

$

 247,890

 

 

 

 

 

 

 

 

 

 

 

Amortized cost

 

$

 27,131

 

$

 81,768

 

$

 65,222

 

$

 71,170

 

$

 245,291

 

 

 

 

 

 

 

 

 

 

 

Weighted average yield

 

2.34%

 

2.63%

 

2.34%

 

2.68%

 

2.54%

 

Securities having an amortized cost and a fair value of $7.5 million and $7.7 million, respectively at March 31, 2013, and $8.7 million and $9.0 million, respectively at December 31, 2012 were pledged to secure public deposits. As of March 31, 2013 and December 31, 2012, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of total securities.

 

The following table summarizes earnings on both taxable and tax-exempt investment securities:

 

 

 

For the Three Months

 

 

Ended March 31,

(dollar amounts in thousands)

 

2013

 

2012

Taxable earnings on investment securities

 

 

 

 

Obligations of U.S. government agencies

 

$

 31

 

$

 25

Mortgage backed securities

 

830

 

1,057

State and municipal securities

 

5

 

103

Corporate debt securities

 

-

 

176

Asset backed securities

 

112

 

25

Non-taxable earnings on investment securities

 

 

 

 

State and municipal securities

 

455

 

412

 

 

 

 

 

Total

 

$

 1,433

 

$

 1,798

 

 

Heritage Oaks Bancorp | - 14 -

 



Table of Contents

 

Note 4.  Loans

 

The following table provides a summary of outstanding loan balances:

 

 

 

March 31,

 

December 31,

(dollar amounts in thousands)

 

2013

 

2012

Real Estate Secured

 

 

 

 

Multi-family residential

 

$

 19,747

 

$

 21,467

Residential 1 to 4 family

 

46,894

 

41,444

Home equity lines of credit

 

32,852

 

31,863

Commercial

 

391,159

 

372,592

Farmland

 

25,936

 

25,642

Total real estate secured

 

516,588

 

493,008

 

 

 

 

 

Commercial

 

 

 

 

Commercial and industrial

 

120,988

 

125,340

Agriculture

 

27,820

 

21,663

Other

 

55

 

61

Total commercial

 

148,863

 

147,064

 

 

 

 

 

Construction

 

 

 

 

Single family residential

 

8,803

 

8,074

Single family residential - Spec.

 

847

 

535

Multi-family

 

767

 

778

Commercial

 

477

 

10,329

Total construction

 

10,894

 

19,716

 

 

 

 

 

Land

 

23,816

 

24,664

Installment loans to individuals

 

4,527

 

4,895

All other loans (including overdrafts)

 

192

 

261

 

 

 

 

 

Total gross loans

 

704,880

 

689,608

 

 

 

 

 

Net deferred loan fees

 

(1,035)

 

(937)

Allowance for loan losses

 

17,743

 

18,118

 

 

 

 

 

Total net loans

 

$

 686,102

 

$

 670,553

 

 

 

 

 

Loans held for sale

 

9,138

 

$

 22,549

 

Loans held for sale are primarily single-family residential mortgage loans under contract to be sold in the secondary market. In most cases, loans in this category are sold within thirty to sixty days.  Under the terms of the mortgage purchase agreements, the purchaser has the right to require the Company to either repurchase the mortgage or reimburse losses incurred by the purchaser, which are determined to have been directly caused by borrower fraud or misrepresentation.  At March 31, 2013, the Company had five related loans that were originated and sold in 2007, which are in various stages of discovery by the purchaser, including three that they are seeking reimbursement from the Company for losses sustained as a result of borrower fraud and/or misrepresentation.  Although the Company intends to vigorously challenge these and any future claims, the Company has a reserve of $1.1 million for these potential repurchases at March 31, 2013.  While the Company has generally been successful in its defense of these types of claims, it has incurred losses of $0.8 million related to the settlement of six loans since the beginning of 2011.

 

Concentration of Credit Risk

 

The Company held loans that were collateralized by various forms of real estate of $551.3 million and 537.4 million at March 31, 2013 and December 31, 2012, respectively.  Such loans are generally made to borrowers located in the counties of San Luis Obispo, Santa Barbara and Ventura.  The Company attempts to reduce its concentration of credit risk by making loans which are diversified by product type.  While Management believes that the collateral presently securing this portfolio is adequate, there can be no assurances that further deterioration in the California real estate market would not expose the Company to significantly greater credit risk.

 

 

Heritage Oaks Bancorp | - 15 -

 



Table of Contents

 

Loans serviced for others are not included in the accompanying balance sheets.  The unpaid principal balance of loans serviced for others, exclusive of Small Business Administration (“SBA”) loans, was $6.9 million at March 31, 2013 and $7.1 million at December 31, 2012.

 

From time to time, the Company also originates SBA loans for sale to governmental agencies and institutional investors.  At both March 31, 2013 and December 31, 2012, the unpaid principal balance of SBA loans serviced for others totaled $3.1 million.  The Company did not recognize any gains from the sale of SBA loans in the first three months of 2013 or 2012.

 

Impaired Loans

 

The following table provides a summary of the Company’s investment in impaired loans:

 

(dollar amounts in thousands)

 

 

 

Unpaid

 

Impaired Loans

 

Specific

 

 

Recorded

 

Principal

 

With Specific

 

Without Specific

 

Allowance for

March 31, 2013

 

Investment (1)

 

Balance

 

Allowance

 

Allowance

 

Impaired Loans

Real Estate Secured

 

 

 

 

 

 

 

 

 

 

Residential 1 to 4 family

 

$

 603

 

$

 751

 

$

 603

 

$

 -

 

$

 91

Home equity lines of credit

 

57

 

64

 

57

 

-

 

7

Commercial

 

707

 

1,413

 

39

 

668

 

3

Commercial

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

3,857

 

4,262

 

3,039

 

818

 

2,030

Agriculture

 

831

 

1,182

 

17

 

814

 

7

Land

 

7,317

 

11,103

 

6,711

 

606

 

4,090

Installment loans to individuals

 

101

 

149

 

101

 

-

 

33

 

 

 

 

 

 

 

 

 

 

 

Totals

 

$

 13,473

 

$

 18,924

 

$

 10,567

 

$

 2,906

 

$

 6,261

 

(1)          The recorded investment in loans includes the book value of impaired loans as adjusted for the net deferred costs and fees related to the impaired loans.

 

(dollar amounts in thousands)

 

 

 

Unpaid

 

Impaired Loans

 

Specific

 

 

Recorded

 

Principal

 

With Specific

 

Without Specific

 

Allowance for

December 31, 2012

 

Investment (1)

 

Balance

 

Allowance

 

Allowance

 

Impaired Loans

Real Estate Secured

 

 

 

 

 

 

 

 

 

 

Residential 1 to 4 family

 

$

 831

 

$

 1,035

 

$

 246

 

$

 585

 

$

 18

Home equity lines of credit

 

58

 

152

 

58

 

-

 

7

Commercial

 

933

 

1,799

 

42

 

891

 

-

Farmland

 

1,077

 

1,089

 

-

 

1,077

 

-

Commercial

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

4,337

 

4,813

 

3,410

 

927

 

2,172

Agriculture

 

907

 

1,235

 

30

 

877

 

13

Construction

 

 

 

 

 

 

 

 

 

 

Commercial

 

1,380

 

2,508

 

-

 

1,380

 

-

Land

 

7,504

 

11,307

 

6,106

 

1,398

 

3,829

Installment loans to individuals

 

285

 

333

 

285

 

-

 

22

 

 

 

 

 

 

 

 

 

 

 

Totals

 

$

 17,312

 

$

 24,271

 

$

 10,177

 

$

 7,135

 

$

 6,061

 

(1)          The recorded investment in loans includes the book value of impaired loans as adjusted for the net deferred costs and fees related to the impaired loans.

 

 

Heritage Oaks Bancorp | - 16 -

 



Table of Contents

 

The average recorded investment in impaired loans and the interest income recognized on impaired loans was:

 

 

 

 

For the Three Months Ended March 31,

 

 

 

2013

 

2012

 

 

 

Average

 

Interest

 

Average

 

Interest

 

 

 

Recorded

 

Income

 

Recorded

 

Income

 

(dollar amounts in thousands)

 

Investment

 

Recognized

 

Investment

 

Recognized

 

Real Estate Secured

 

 

 

 

 

 

 

 

 

Residential 1 to 4 family

 

$

718

 

$

-

 

$

616

 

$

-

 

Home equity lines of credit

 

58

 

-

 

373

 

-

 

Commercial

 

818

 

-

 

2,722

 

-

 

Farmland

 

539

 

-

 

-

 

-

 

Commercial

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

4,103

 

-

 

4,429

 

2

 

Agriculture

 

869

 

-

 

2,548

 

-

 

Construction

 

 

 

 

 

 

 

 

 

Commercial

 

690

 

-

 

-

 

-

 

Land

 

7,449

 

-

 

3,898

 

-

 

Installment loans to individuals

 

193

 

-

 

61

 

-

 

 

 

 

 

 

 

 

 

 

 

Totals

 

$

15,437

 

$

-

 

$

15,116

 

$

2

 

 

The Company did not record income from the receipt of cash payments related to non-accruing loans during the three month periods ended March 31, 2013 and 2012. If interest on non-accruing loans had been recognized at the original interest rates stipulated in the respective loan agreements, interest income would have increased $0.2 million and $0.3 million for the three months ended March 31, 2013 and 2012, respectively.  Interest income recognized on impaired loans in the table above, if any, represents interest the Company recognized on accruing troubled debt restructurings (“TDRs”). Because the loans currently identified as impaired have unique risk characteristics, the Company determined the related valuation allowances for such loans on a loan-by-loan basis.

 

At March 31, 2013 and December 31, 2012, $10.0 million and $11.6 million, respectively, in loans were classified as TDRs.  Of those balances $1.3 million and $17 thousand were accruing as of March 31, 2013 and December 31, 2012, respectively and the remaining balance of TDRs have been included in non-accruing loans.  In a majority of these loans, the Company has granted concessions regarding interest rates, payment structure and maturity.  During the three months ended March 31, 2013 and 2012, the terms of certain loans were modified as troubled debt restructurings. These term modifications included a combination of a partial charge-off of principal along with extensions of the maturity date at the loan’s original interest rate, which was lower than the current market rate for new debt with similar risk.  The maturity date extensions granted were for periods ranging from 12 months to 18 months.  Forgone interest related to concessions granted on TDRs totaled $45 thousand and $22 thousand for the three months ended March 31, 2013 and 2012, respectively.  As of March 31, 2013, the Company was not committed to lend any additional funds to borrowers whose obligations to the Company were restructured.

 

 

Heritage Oaks Bancorp | - 17 -

 



Table of Contents

 

The following tables present loan modifications by class which resulted in TDRs:

 

 

 

For the Three Months Ended March 31, 2013

 

 

 

 

 

Pre-Modification

 

Post-Modification

 

 

 

Number of

 

Outstanding Recorded

 

Outstanding Recorded

 

(dollar amounts in thousands)

 

TDRs

 

Investment

 

Investment

 

Trouble Debt Restructurings

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

Commercial and industrial

 

3

 

$

91

 

$

91

 

 

 

 

 

 

 

 

 

Totals

 

3

 

$

91

 

$

91

 

 

 

 

For the Three Months Ended March 31, 2012

 

 

 

 

 

Pre-Modification

 

Post-Modification

 

 

 

Number of

 

Outstanding Recorded

 

Outstanding Recorded

 

(dollar amounts in thousands)

 

TDRs

 

Investment

 

Investment

 

Trouble Debt Restructurings

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

Commercial and industrial

 

1

 

$

65

 

$

65

 

 

 

 

 

 

 

 

 

Totals

 

1

 

$

65

 

$

65

 

 

The following tables present loans by class modified as TDRs, for which there was a payment default within twelve months following the modification:

 

 

 

For the Three Months Ended March 31, 2013

 

 

 

Number of

 

 

 

(dollar amounts in thousands)

 

TDRs

 

Recorded Investment

 

Trouble Debt Restructurings

 

 

 

 

 

That Subsequently Defaulted

 

 

 

 

 

Commercial

 

 

 

 

 

Commercial and industrial

 

1

 

$