Industry Veteran Comes Back to Banking, Looks to Build Heritage Oaks

Simone Lagomarsino has returned to community banking after a five-year absence to revamp Heritage Oaks Bancorp, rather than dress it up for a quick sale, as has been her wont.

The veteran banker, who left the industry in 2006 to run a credit union, began her new post as the president and chief executive at Heritage Oaks Bancorp on Monday. She brings with her a lengthy resume normally reserved for an executive charged with cleaning a bank up for eventual sale.

Lagomarsino, however, said she is joining the Paso Robles, Calif., company to improve it, not to unload it. "I want to be clear in saying that I have no directions from the board to come in and sell the bank," she said in an interview Friday from Kauai, where she was vacationing before taking the reins of the company.

"I am coming in to run it in a way that builds franchise value that is reflected in the stock price," she added. "Sure, I've sold a few banks as part of the overall consolidation of our industry, but that is not my [modus operandi]."

As Lagomarsino seeks to create value, she said fixing the $973.5 million-asset company's credit quality and removing a related consent order from its regulators are paramount.

A group of investors led by private equity firms recapitalized Heritage Oaks a year and a half ago, pouring $60 million into the well-capitalized, but struggling, company. With the additional capital, Heritage Oaks was able to meaningfully slice its nonperforming assets by 30% from a year earlier, to $26.9 million at the end of second quarter.

While Heritage Oaks has considerably stronger footing than it did in early 2010, the company and its new CEO still have a long way to go, analysts said.

"She will have to continue to clean up credit," said Tim O'Brien, an analyst at Sandler O'Neill & Partners LP. "That's the main thing on her plate. There is still a lot of work that needs to be done, but I have full confidence they are going to get there and when they do shareholders will benefit."

Lagomarsino succeeded Lawrence Ward, who had served as the company's chief executive since 1993. Ward announced his retirement earlier this year and will remain on the board. Lagomarsino is flanked by Ron Oliveira, the chief operating officer, and Tom Tolda, the chief financial officer.

Lagomarsino said existing management has already laid the ground work for a solid rebound. In that regard, she sees her job as continuing the momentum, not changing the game.

On Tuesday, her second day on the job, Lagomarsino said she is looking to improve the company's efficiency. At June 30, Heritage Oaks Bank's efficiency ratio was 73.95%, compared to 57.84% for all commercial banks in California, according to data from the Federal Deposit Insurance Corp.

"When we look at our results compared to others, we are not as efficient as we should be," Lagomarsino said. "We should be somewhere in the 60s, so we will need to look at where our fixed costs are and also consider our revenue."

While Lagomarsino said she was not hired to sell the company, Tim Coffey, an analyst at FIG Partners LLC, said she and the board must be mindful of the investors that financially backed them up last year, including private equity firms Castle Creek Capital LLC and Patriot Financial Partners LP.

"They have to recognize that they have a new class of shareholders that bring a different kind of sophistication," Coffey said. "They are going to want to know what the plan is to maximize their investments."

Coffey also said that Lagomarsino is skilled in renovating companies. For instance, under her direction, Hawthorne Financial Corp. in El Segundo, Calif., transformed from a thrift to a more traditional community bank model. The $2.7 billion-asset company was sold in 2004 to Commercial Capital Bancorp Inc. in Irvine, Calif., for $493 million.

Lagomarsino said Heritage Oaks reminds her a bit of Hawthorne, in that she sees a strong platform that could be enhanced with more products and possibly the addition of more branches. The company's central California market, however, reminds her of Ventura County National Bank, where she served as the chief financial officer during the 1990s.

"This is a rural area and when you go into communities like this or in Ventura, the names of your customers are often the same names as the streets," Lagomarsino said. "The customers here are part of the community and their names and reputation means something."