Part 4
Dear Clients, Friends and Neighbors
Our hope here at Heritage Oaks Bank is that you find this monthly Q&A insightful and that it answers many of the questions you have regarding current issues. This month, our focus is on the TARP CPP program wherein the US Treasury Department is investing equity into the banking system. If after reading the Q&A you have any additional questions, please feel free to forward them on to info@heritageoaksbank.com. We will continue to focus our attention on current issues surrounding our industry as well as the current state of the economy.
Here is some information I hope you will find helpful:
Question 1) Why did Heritage Oaks Bank/Business First decide to participate in the treasury program?
In today's economic climate, being well capitalized is of critical importance. Capital is what allows a bank to grow, lend money and overcome many of the obstacles we are confronted with during a recession such as the one we are now experiencing. Heritage Oaks Bank studied extensively the Treasury's Capital Purchase Program prior to submitting an application for acceptance. Our conclusion was this was a very inexpensive source of capital. In addition, the FDIC encouraged all financial institutions who qualified under this Capital
Program to apply. The reasons for this are many, but in short, the regulatory agencies are concerned that banks remain well capitalized thereby allowing us to continue servicing our communities no matter the economic climate we are experiencing. It is important to note that we had to submit an application and meet strict approval criteria prior to being approved for this funding. With this newly acquired capital, Heritage Oaks Bank will be well above the "well capitalized" levels required by the regulatory agencies and better prepared to continue servicing our clients throughout the Central Coast.
Question 2) What will the bank do with the capital?
It is difficult to be specific when asked this type of question as our company is very fluid and as an SEC reporting company we have not made it our practice to give forward looking guidance. What I can say is that with the addition of $21 million in newly acquired capital, our lending capabilities will be greatly expanded, and lending is the core of our business. This is tempered, however, in that we are always focused on the quality of our credit underwriting and in times of recession, loan quality is always a concern. A bank's ability to lend is predicated on the level of capital is possesses. With the addition of this new capital, Heritage OaksBank will have over $90 million in core capital. As we see opportunities for asset growth, we will now have the capital to take advantage of these opportunities. This is a very uncertain time, so just having the capital strength behind us will be very important to our company and our ability to service our customers
well into the future.
Question 3) Does being eligible for the treasury program send a positive message to the consumer?
As I stated above, Heritage Oaks Bank was required to submit an application and had to meet strict qualifications in order to qualify under the Treasury's Capital Purchase Program. It is clear that the way this program was set up, not all banks will be able to participate. The fact that we were qualified for the maximum capital purchase available under the program speaks highly of the overall strength of Heritage Oaks Bank. Our bank was already classified as "well capitalized" prior to this investment, and we will now enjoy superior capital strength as we meet 2009 head on.
As far as additional regulation as it pertains to participation in this program, it is important to note that banks are already extensively regulated. Today, our bank is regulated by the California Department of Financial Institutions, (DFI); the FDIC; the Federal Reserve (FRB) and the SEC. In addition we are audited by three outside firms throughout the year. The additional reporting required under the TARP Program is minimal in comparison to the existing regulatory burden. I also believe that as a result of everything that unfolded in Washington and New York during the 4th quarter of 2008, the banking industry will see an entire new set of regulations that will most likely change the landscape of banking forever. This will impact all banks, not just TARP participating banks. Participating in the Treasury's Capital Purchase Program will provide the additional capital Heritage Oaks Bank will need to maintain its competitive advantage in a highly competitive and regulated industry.
Thank you for your continued interest in Heritage Oaks Bank/Business First. Every day we serve in the best interest of our customers and employees as we strive to become the best Community bank in California.
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