Annual Shareholders Meeting

May 7th, 2009

5:30 pm, Heritage Bank Main Branch, 1401 S. Virginia St. Reno

Letter from the President

I am excited to announce that Heritage Bancorp produced its ninth consecutive year of record profitability despite the extremely challenging economy that occurred during 2008. As a result of building our bank on common-sense banking fundamentals, we continue to grow and remain profitable even with these times of rapid change in both our national and local economies.

During 2008, Heritage Bancorp was able to grow total assets by an amazing 11.5% from $300,283,445 FYE 2007 to $334,935,584 FYE 2008.  Our substantial growth in total assets occurred in 2008 during a time when the average peer group growth nationally was only 8.8%.  This continued quality asset growth allowed the basic earnings per share to increase 11.1% from $2.80 per share 2007 to $3.10 per share 2008.

The loan portfolio expanded 10.4%, increasing from $255,057,156 FYE 2007 to $281,498,667 FYE 2008.  The commercial lending group, managed by Senior Vice President and Chief Credit Officer Tom Traficanti, continues to do an excellent job in the management, underwriting and collection of the loan portfolio. Solid core earnings from this division allowed us to fund a higher than normal loan loss provision during 2008 and still report record earnings.  The loan loss reserve as a percentage of total loans increased from 1.12% FYE 2007 to 1.27% FYE 2008.   

We continue to work diligently with our customers who need assistance during these difficult economic conditions.  Even though the economy has taken a major downturn, the majority of our customers are moving forward with their business strategies.   Our experienced lenders closely monitor the credits that are most affected by the economic downturn.  It is essential that we recognize credit problems early to minimize future loan losses.  Loan losses for 2008 were $288,510 which represents .11% of total loans.  This is substantially less than the average bank in the national peer of .50%.

As always, and especially in today’s competitive environment, it is mandatory that we continue to rigorously manage our cost control.  During the past year, we were able to grow the bank in excess of 11% with no increase in overhead expense.  Our efficiency ratio improved from 52.59% FYE 2007 to 49.93% FYE 2008 which compares favorably to the national peer group of 65.07%.  The efficiency ratio is computed by taking non-interest expense as a percentage of net interest income and non-interest income.

Total shareholder’s equity at December 31, 2008 was $29,962m, up $4,310,087 (16.8%) from December 31, 2007.  During 2008, Heritage Bancorp repurchased 17,075 shares of common stock at a total cost of $415,350.   The company’s subsidiary, Heritage Bank of Nevada, remains considerably above the regulatory requirements for a well-capitalized bank.  At December 31, 2008, Heritage Bank’s Tier 1 capital to average assets ratio was 10.3%, and total capital to risk weighted assets was 13.3%.  In December, 2008, as part of our capital planning, Heritage Bancorp applied for and was approved to participate in the United States Treasury’s Capital Purchase Plan (CPP).  After reviewing the bank’s growth and income projections for 2009, coupled with our current capital adequacy, the Board of Directors decided against taking CPP money from the United States Treasury.

Heritage Bank of Nevada is well positioned to remain profitable for 2009 and its fundamental earning power will become even more apparent in the years to come.  We expect the economy to continue to be very challenging for the duration of 2009.  As always, we remain focused on providing an outstanding banking experience for our customers, and a work environment in which our employees can be proud.  We appreciate our team of employees, our Board of Directors, our Stockholders and our customers who continue to support the goals and ambitions of Heritage Bank of Nevada.