Just days after receiving orders from federal regulators to submit a plan to keep its capital levels up, Paso Robles-based Heritage Oaks Bank said March 10 it intends to raise $60 million by selling securities.
The bank, which has 13 tri-county branches and is the parent of Business First Bank in Santa Barbara, said the money will be used to increase the bank’s capital and strengthen its balance sheet. The deal is expected to close March 12, Heritage Oaks said.
The bulk of the capital will be raised by selling non-voting shares that would convert to voting stock if shareholders approve the deal at shareholder meeting slated for Sept. 30. If the deal receives approval from shareholders and federal regulators, one investor, who was not immediately named, could end up owning 14.4 percent of the bank, according to a release.
On March 8, federal banking regulators halted dividends at Heritage Oaks and gave the company two months to submit a plan to keep up its capital levels. At the end of the year, Heritage Oaks had a tier-one capital ratio — its free capital divided by its loans and other assets — of 9.9 percent.
That figure remains above the 4 percent required by federal regulators. But throughout the financial crisis, regulators have demanded that banks maintain higher-than-minimum capital levels to guard against higher risk in their loan portfolios.
The order was expected. In November, Heritage Oaks filed documents with the Securities and Exchange Commission to raise capital and warned investors it might receive orders from regulators because of the bank’s heavy dependence on real estate loans in the battered North San Luis Obispo County market.
As it has experienced trouble in SLO County, Heritage Oaks’ Santa Barbara operations have contributed to growth in loans and deposits. At the end of 2009, the bank had $947 million in assets, up 17.6 percent from the year before. It also grew total deposits 28 percent to $775 million.
Heritage Oaks’ stock closed at $3.45 on March 10, down 8 percent from the day before.