Federal action against Heritage Oaks Bank

March 9, 2010


Federal regulators have banned the parent company of Paso Robles-based Heritage Oaks Bank from paying dividends or incurring debt as part of a written agreement the company and the Federal Reserve Bank of San Francisco signed on Monday.

As part of Monday’s action, federal regulators have ordered officials of Heritage Oaks Bancorp to come up with a plan within 60 days to maintain sufficient capital while taking into account allowances for problematic loans.

The bank, which operates 15 branches in San Luis Obispo and Santa Barbara counties, reported a loss of $1.6 million that it primarily attributed to $6.5 million in bad loans. In addition, the parent company reported it has in excess of $34 million in “non-performing” loans, referring to loans in which borrowers are behind on their payments.

For all of 2009, the parent company reported a net loss of $5.2 million.

“In response to these issues, management significantly enhanced the bank’s internal loan review and implemented an independent semi-annual loan review during 2009, which was recently completed in the third quarter,” said Lawrence P. Ward, the bank’s president and chief executive officer.

In the past, bank officials have battled to secure a handful of questionable loans they made to local hard money lenders and builders.

In 2008, former North County developer Kelly Gearhart secured a $1 million loan for his Paso Robles Vista del Hombre golf course and mixed 32-lot development project east of downtown Paso Robles even though the property, valued at around $5 million, was already saddled with $27 million in previous loans by Hurst Financial Inc.

The bank determined, two months after bank officials provided the funds to Gearhart, that the loan’s approval was based on “erroneous” and questionable claims, according to the bank’s appraisal of the property.

In June 2009, a group of investors filed a lawsuit against the parent company, alleging that the bank aided and abetted and/or conspired with Hurst in defrauding hundreds of seniors through illegal investment schemes.

The bank is also on the hook for an unsecured loan of more than $5 million it provided former Estate Financial President Karen Guth. After it became apparent Guth’s financial empire was crumbling, the bank allowed her to guarantee the loan with property that was not hers, according to court records.

Last year, bank attorney William Raver asked the court to allow the bank to foreclose on some of Guth’s personal assets.

However, San Luis Obispo Superior Court Judge Jac Crawford voiced his concerns over the validity of the bank’s request during a hearing last year.

“You loaned large sums of money when crimes were being committed,” Crawford said.

Investors in Guth’s Estate Financial have also accused the bank of allowing her to defraud investors by pumping up her company’s financial reputation.

“If Heritage Oaks hadn’t provided an unencumbered line of credit to Guth, many of the injured investors might not have been robbed of their retirements,” investor and real estate broker Jeri Kirkpatrick told CalCoastNews.

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Coast National, Los Padres, San Luis Trust, Heritage Oaks….all zombies just waiting for their turn to star in the new hit show Bank Failure Friday.

And you know this for sure…..I heard Los Padres Bank was super conservative. No, i don’t work there.

At the current price of $3.45 per share, Heritage Oaks Bank has a market cap (total present value of the company) of only $26.7 million dollars. This might seem like a lot until one thinks back about a year and recalls that they accepted $21 million in taxpayer dollars (“bailout” money) from the federal government under the TARP. Sure seems to me like this outfit is teetering on the edge.

On the edge of bankruptcy?

On the edge of being quietly taken over some weekend by the FDIC, which is basically bank bankruptcy.. Folks who had their accounts and deposits with Heritage Oaks on Friday will walk in on Monday morning and it’ll be an entirely different bank holding their money, one that’s better capitalized and specifically chosen by the FDIC to take over and make good on all the deposits and time accounts of the failed bank which the FDIC insured. Depositors are protected, but shareholders lose all. That’s why Heritage Oaks stock price has plummeted lately – the likelihood of an FDIC takeover is is growing and folks are selling while they can. Of course it may not happen – the trib ran a story today about a $60 million recapitalization plan that’s in the works, but didn’t reveal who might be putting up the money. We’ll see.

Sorry I didn’t get back sooner, this really gets my attention didn’t know about it,”$60 million recapitalization plan that’s in the works,” Thanks!

Are Heritage Oaks Banks actions normal with all FDIC Bank loans?

Heritage Oaks Bank, must really be having some banking problems as today I received a letter from Greg Chilina that my payment with Heritage Oaks Bank was four days late and is now in ‘Serious Default.”?

Heritage Oaks Bank refers to my promissory note? Ok, Heritage Oaks Bank lets start reviewing your actions if you believe this is true!

Another thought on Heritage. For anybody that has been or was around in the mid 80’s, let’s not forget that this is the exact SAME bank that was caught up in the debacle of another prolific builder at that time of Block and Bower in Paso Robles.

Also said bank to my understanding on a very good source, was put on five years probabation at the time by the F.B.I. That may or may not have been in paper at time but I didn’t hear about till years later.

You would think they would learn. So are they going to go for a third strike?

“The bank is also on the hook for an unsecured loan of more than $5 million it provided former Estate Financial President Karen Guth. After it became apparent Guth’s financial empire was crumbling, the bank allowed her to guarantee the loan with property that was not hers, according to court records.” according to the article, seems to me, this is exactly what Gearhart did with Vista Del Hombre and now Heritage is being sued rightfully so, because it just seems they should have learned their lesson, the lawsuits are in fact true and Heritage Oaks Bank is and has been fully involved in the conspiracy from the sole beginning of an onset of horror for many investors. In plain English their forthcoming Bankruptcy was planned the same as Gearharts, Hurst Financial’s, Courtney Brard’s and James Miller’s. Should of heard Paul Deline from Heritage telling me he had plenty of sympathy for Hurst investors but,”The title company has informed us we are in first position and we are going ahead with the sale of Vista Del Hombre.” Take a guess who the title company was and the picture gets sharper.

“If Heritage Oaks hadn’t provided an unencumbered line of credit to Guth, many of the injured investors might not have been robbed of their retirements,” investor and real estate broker Jeri Kirkpatrick told CalCoastNews.

Boo-hoo-hoo. I have NO sympathy for any investors in Estate Financial, even if you did LOSE your retirement. EVERYONE knows that as you age, your monies should be invested in a conservative fashion. You decided to roll the dice and it came up snake eyes. Shame on you!

I have some beach front property in Arizona I’d like to sell you.

A bad investment vs somebody defrauding investors, is two different things my friend.

Against all the rules of posting here I would like to stick a hot stake in your eye, wils. You are a real bum.

I have noticed in past, that when the subject of bad money loans in this area come up, this poster always appears. My guess it is either Jay or Kelley or one of their relatives.

Is BTDT referring to me, or jlwils? If the latter then the comment is appropriate. If the former then it couldn’t be further from the truth. I have always defended the defrauded souls; not from bad investments, but from fraud. No one should suffer that. We have continually seen accusations of stupidity, greed and other insults heaped upon the victims, whereas the perps should suffer our scorn. The evil here is gearhead, HOBank, EFI, 21st Century, and Hurst (Miller, Brard and others)-and perhaps many others not yet indicted or mentioned. Our hope is the FBI will rake in these crooks soon.

Is my position clear now?

Sorry dog. Not you. Obviously from you comment about poker in eye, I knew where you stood.

Jwils has an interesting photo on ksby blogs, I agree with Hotdog, he has got to be one of the alleged conspirators to be so heartless, the criminal parties involved here go beyond the scope of the FBI, and too, shoot at the defrauded investors from a grassy knoll, after having all their body guards abandon their posts, has got to be one of the lowest things even a criminal could do.

My best guess it’s cousin jowls in Ohio. You know him the great big fat naked guy, eating a turkey leg, in the Austin Powers movie. To Jwils, I liked your picture you posted and it turned out to be a fake, are you the same? Can I merely suggest that you go jump in a lake!

In closing it took a comment like that, to bring me out of retirement,,,!!

From the FDIC

From: Ombudsman Washington [mailto:Ombudsman@FDIC.gov]

Sent: Monday, November 02, 2009 7:37 AM

To: Bill Bookout


Subject: RE:

Good morning Mr. Bookout:

Thank you for copying the FDIC Ombudsman on this email. It apprears from your email that you have a complaint against Heritage Oaks Bank. I have taken the liberty of copying the FDIC Consumer Response Center on your behalf to look into your situation.

To expedite the process, please complete the following form: https://www2.fdic.gov/starsmail/index.asp

The Conumer Response center can also be reached by telephone at (800) 378-9581.


FDIC Office of the Ombudsman

(877) ASK- FDIC

As stated by Heritage Oaks Bank and turned into the San Luis Obispo District Attorney after Heritage Oaks Bank filed Foreclosure Notice on a Current Business Loan.

From: William Raver [mailto:wraver@heritageoaksbank.com]

Sent: Friday, November 06, 2009 9:36 AM

To: Bill Bookout

Subject: RE: TS# F391304 Bookout-Heritage Oaks

Mr. Bookout,

Because you have filed a complaint with the FDIC, to which we are required to respond, we will be providing a full response to that agency. We will not be responding directly to you about the loan in question other than to notify you of payments due. I have requested previously that you cease barraging the bank and its staff with redundant e-mails, and am repeating that request now. Greg Chilina is the loan officer assigned to your loan, and you may communicate with him regarding payments due and what we require from you in order to keep your loan from going into default yet again.

William R. Raver

Executive Vice President

General Counsel

Heritage Oaks Bank

P.O. Box 7012

Paso Robles, Ca 93447-7012

(805)369-5290 Office Phone

(805)369-5062 Fax

The end is near for Heritage Oaks. Watch as it gurgles and sputters it’s last breaths before sinking below the surface for good:


Hey if it keeps going it could became penny stock!!


Seems to me that fundamentally, HOB has a lot going for it: Good management, good community presence, ok reserves. While it is trading at its 52-week low, it might be an opportunity to get on and ride it back up.

Don’t invest more than you can afford to lose.

Boy I hope you don’t invest. Did you catch the part about working capital? If they don’t have much working capital they are in trouble. Then throw in potential problems of questionable loans made to Gearhart, Miller and Guth. This isn’t a case of a potential low stock that is undervalued. It is low because of what the article states.

Going back to working captial. Why do you think all these hard money lenders are in trouble now but not in past??? It is because they were fine till all the working capital was GONE. Then that and all their slight of hand games came to light.

Racket, I agree with the important exception of management. Good management would never have taken a promising community bank like HEOP down to where it is today. If there were to be a serious mgt house-cleaning it might be worth bottom fishing with some risk capital, otherwise not. Bad decisions of epic proportions have been made, and as far as I can tell nothing’s changed.