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Heritage Oaks still has more work to do to fully comply with BSA consent order

PasoRobles, Calif.-based Heritage OaksBancorp has made significant progress in its Bank Secrecy Actprogram, according to President and CEO Simone Lagomarsino.

But she acknowledgedthat Heritage still has additional remediation work to do to fully comply withthe BSA consent orderissued to unit Heritage Oaks Bankin 2014.

"Wewill remain focused on this goal until the issues identified are fullyremediated and the BSA consent order is lifted," the chief executive saidduring an April 29 conference call to discuss first-quarter results, accordingto a transcript.

Respondingto a question about the remediation work, Lagomarsino said Heritage has 13full-time-equivalent employees and one open position, and has also augmentedstaffing with the use of outside consultants. She added that the companyexpects some reduction of the outside consulting cost over time.

"Weexpect that our overall BSA cost to be about $100,000 per quarter. That'sexcluding our employees, but about $100,000 per quarter going forward, aroundthat third and fourth quarter of this year, in that level," Lagomarsinosaid.

On April28, the company reportednet income available to common shareholders of $4.0 million, or 12 cents pershare, for the first quarter, compared to $4.1 million, or 12 cents per share,for the year-ago period.

Noninterestexpense increased to $12.6 million for the first quarter from $11.8 million forthe quarter a year ago due to a $500,000 increase in professional servicesexpense; a $200,000 increase in write-downs on other real estate owned; and a$200,000 increase in other expense. The increase in professional servicesexpense is primarily due to a $300,000 increase in temporary consulting costsattributable to the company's BSA/anti-money laundering program remediationefforts, as well as a $200,000 increase in audit and tax costs.

Theincrease in other expense was attributable to operating losses due to a recentdata breach that occurred at another company, and impacted some of Heritage'scustomers. Heritage said in the earnings release that its own systems were notbreached. But it added that it was responsible for reimbursing its customersfor these losses.