Biz Buzz: Feds want plan from Heritage Oaks Bank

Federal regulators have ordered Heritage Oaks Bancorp, which owns Heritage Oaks Bank, to submit a capital plan in the next 60 days to ensure it maintains solid financial footing, according to a written agreement with the Federal Reserve Bank of San Francisco.

As part of the agreement, the Paso Robles-based company cannot pay dividends to shareholders without the Reserve Bank’s approval, take dividends or any other form of payment, “representing a reduction in capital from Heritage Oaks Bank.” As well, the company may not incur or guarantee any debt without the Reserve Bank’s approval, or purchase or redeem any shares of its stock.

Moreover, if the company’s capital ratios fall below the approved capital plan’s minimum ratios, it must notify regulators and offer a plan to correct it.

As of the fourth quarter of last year, the company was well-capitalized with a leverage ratio of 8.65 percent, a Tier 1 capital ratio of 9.91 percent and total risk-based capital ratio of more than 11 percent.

Lawrence P. Ward, chief executive officer, said the agreement is the result of a regulatory examination in September 2009, and that the company has had several months to address regulator concerns.

As for restrictions on dividend payments, Ward said Heritage Oaks has a history of reinvesting its retained earnings back into its capital account and has not paid cash dividends, with the exception of 2006 and 2007. If the bank chose to pay a dividend or debt payment, it would make a request to do so as the company has a “strong cash position.”

The issue of share redemption is also not an issue for the company, he said, because it does not currently have a stock repurchase plan in place. Finally, the restriction on the guarantee of debt is in regards to the company “establishing a borrowing relationship,” he said.

“We do not have any plans in place to borrow,” Ward noted.

Heritage Oaks Bancorp, which had total assets of more than $887 million as of Dec. 31, 2009, posted a net loss of $5.2 million for all of last year and a net loss of $1.6 million for the fourth quarter of 2009.

— Julie Lynem