Federal banking regulators have halted dividends at Paso Robles-based Heritage Oaks Bank and given the company two months to submit a plan to keep up its capital levels.

The order was expected. In November, Heritage Oaks filed documents with the Securities and Exchange Commission to raise capital and warned it might be subject to orders from regulators after an examination.

“We presently expect to receive a formal agreement or enforcement order from the FDIC requiring us to take certain steps to further strengthen the bank, such as reducing the level of classified assets, increasing capital levels and addressing other criticisms from the examination,” the bank said in filings.

Larry Ward, chief executive of Heritage Oaks, couldn’t immediately be reached for comment. Heritage Oaks had $881.3 million in assets at the end of the year and has 13 tri-county branches. It is the parent of Business First Bank in Santa Barbara.

Disclosed March 8, the order prevents Heritage Oaks from distributing any dividends to shareholders or taking on debt without federal regulators’ permission. It also requires the bank to submit a plan to keep its capital up and lay out its cash flow projections.

At the end of the year, Heritage Oaks had a tier-one leverage ratio — its free capital divided by its loans and other assets — of 8 percent, down from 9.3 percent from the quarter before. That figure remains above the 4 percent required by federal regulators.

Heritage Oaks turned in $4.7 million loss for 2009, down from a $2.2 million profit the year before. The company has struggled with souring real estate loans.

“We are highly dependent on real estate, and a continuing downturn in the real estate market and decreasing appraisal values may hurt our business,” Heritage Oaks warned in SEC filings in November.

Heritage Oaks stock was up about 1 percent to $4.48 in midday trading on the news of the order.

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