Part 10
Dear Clients, Friends and Neighbors,
In this, the 10th in the Q & A series, I’d like to tell you about how the investment community is looking at the success of our organization. Plus, I’d like to share how remarkably well we’re navigating these uncertain economic times.
Question: You were recently one of the guest speakers at the KBW Community Bank Investors Conference in New York City. What did the investor community want to know about Heritage Oaks Bank?
Answer: There were two primary themes discussed at the conference this year. Foremost on everyone’s mind is asset quality. Every bank investor I talked to spent considerable time questioning every aspect of our loan portfolio trying to determine the overall quality of the portfolio and how our management team is working to minimize the impact this recession is having on our asset quality. I was very happy to be able to provide detailed information showing that we had a significant improvement in the level of non-performing assets on a linked quarter basis. I was able to demonstrate through our reports that our management is very aggressive in the identification and resolution of problem credits and that asset quality is a top priority within our organization.
With so much negative news surrounding the banking industry today, I felt that I had some very positive news to deliver. Not only is our asset quality much better than a majority of our peer banks, I was thrilled to be able to deliver news on our outstanding deposit growth through the first 6 months of 2009. Operating in one of the worst recessions in the past 50 years, our bank was able to report record levels of deposit growth. Overall deposit growth of 16.5% and demand deposit growth of 21.5% in only 6 months. No other bank at the conference was even close to our deposit growth percentages.
The good news for our company is that we have significant capital strength which allows us to take advantage of the growth opportunities we are encountering even in this economy.
Question: How do you explain the success of the bank in the first half of the year and what are you most proud of?
Answer: Our success does not just go back 6 months. We have been working to achieve success for the past 16 years, each year building on the success of the previous year. Our management team has been in place for many years and many of us have the experience of working through past recessions and know that there is no substitute for being conservative. We did not jump into the speculative construction lending business like so many of our competitors did over the past several years. Our exposure to construction lending as a percentage of our total loan portfolio is very small.
Early in 2008 we recognized that the economy was headed for a turn. We began working to conserve our capital and build our reserve for potential loan losses knowing that recessions bring with them asset quality issues. As it turned out, this was time well spent as we were able to address many potential problems before they actually became problems. Throughout, we have been very proactive in addressing new problem loans head on, eliminating them from our loan portfolio as quickly as we can. Being proactive as it relates to asset quality is a key to minimizing potential loss within the portfolio, and we have and will continue to be very aggressive in this arena.
I would say that the thing I am most proud of is that we have an outstanding team of banking professionals who have rallied together in a very difficult environment. We have taken on the challenge of not only getting through this recession, but coming out the other side much stronger. We are posting record deposit growth totals in every one of our offices from Santa Barbara to Paso Robles. We are using this economy to strengthen our staff by bringing in very talented bankers to help our company meet the challenges of not only today but well into the future. Throughout this recession, we have been able to post positive earnings while at the same time we have put a substantial sum of money aside to build our allowance for loan loss.
Question: With so much momentum going what does the bank need to do to keep it sustained for the remainder of the year and into the New Year?
Answer: In this business you can never rest. My motto is that the only constant is change. We must change to meet the challenges of tomorrow. With that said, we are making some major changes within the management team of our company. We just hired Ron Oliveira to come on board in the position of Chief Operating Officer. Ron brings with him a background of banking professionalism and his experience, knowledge and leadership skills will be a catalyst for our future success.
One thing we do not do in this company is manage on a month to month basis or focus on quarterly results at the expense of our future. We are in this business of banking for the long haul and as such our strategic planning keeps our focus on the future. We have a very strong capital position and our ability to generate core earnings is exceptional.
We will never lose sight of the fact that we are a community bank and as such are the economic heart and soul of our community. As a leader in the banking industry, we are committed to being the community bank our entire Central and South Coast communities will be able to rely on for many years to come.
###