-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KmQ6EAiUfkYG9HFlW6h8C+yMaVjENKWTXXfhnnYIb81XYPLfG7bvIIzA/duHACm5 MHjeX2IyW41B3Xqh/Bl2tw== 0000896595-99-000043.txt : 19990813 0000896595-99-000043.hdr.sgml : 19990813 ACCESSION NUMBER: 0000896595-99-000043 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UMPQUA HOLDINGS CORP CENTRAL INDEX KEY: 0001077771 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25597 FILM NUMBER: 99684747 BUSINESS ADDRESS: STREET 1: 445 SE MAIN STREET STREET 2: P.O. BOX 1820 CITY: ROSEBURG STATE: OR ZIP: 97470 BUSINESS PHONE: 5414403963 MAIL ADDRESS: STREET 1: UMPQUA HOLDINGS CORP STREET 2: 445 SE MAIN ST P.O. BOX 1820 CITY: ROSEBURG STATE: OR ZIP: 97470 10-Q 1 UMPQUA HOLDINGS CORPORATION 10-Q As Filed with the Securities and Exchange Commission on August 11, 1999 U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended: June 30, 1999 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____________ to _____________. Commission File Number: 000-25597 Umpqua Holdings Corporation (Exact Name of Registrant as Specified in Its Charter) OREGON 93-1261319 --------------------------------- ---------------------- (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification Number) 445 SE Main St Roseburg, Oregon 97470 (address of Principal Executive Offices)(Zip Code) (541) 440-3963 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. __X__ Yes _____ No Indicate the number of shares outstanding for each of the issuer's classes of common stock, as of the latest practical date: Common stock, no par value, outstanding as of June 30, 1999: 7,627,977 UMPQUA HOLDINGS CORPORATION FORM 10-Q QUARTERLY REPORT TABLE OF CONTENTS _____________ PART I FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Condensed Balance Sheets: June 30, 1999 and December 31,1998 3 Consolidated Condensed Statements of Income: Three and six months ended June 30, 1999 and 1998 4 Consolidated Statements of Comprehensive Income: Three and six months ended June 30, 1999 and 1998 5 Consolidated Statements of Cash Flows: Six months ended June 30, 1999 and 1998 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-18 Item 3. Quantitative and Qualitative Disclosures about Market Risk 18 PART II OTHER INFORMATION Item 1. Legal Proceedings none Item 2. Changes in Securities none Item 3. Defaults Upon Senior Securities none Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information none Item 6. Exhibits and Reports on Form 8-K 19 SIGNATURES 20 1 PART I: FINANCIAL INFORMATION Item 1. Financial Statements UMPQUA HOLDINGS CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
June 30, December 31, 1999 1998 ASSETS Cash and due from banks $ 21,233,107 $ 17,765,938 Interest bearing deposits in other banks 8,213,270 19,201,605 ------------ ------------ Total Cash and Cash Equivalents 29,446,377 36,967,543 Investment securities available for sale 83,616,300 84,887,992 Mortgage loans held for sale 1,063,078 1,780,225 Loans receivable 208,198,811 186,166,966 Less: Allowance for loan losses (2,942,364) (2,663,914) ------------ ------------ Loans, net 205,256,447 183,503,052 Federal Home Loan Bank stock at cost 2,022,300 1,949,200 Property and equipment, net of depreciation 8,089,205 7,161,950 Interest receivable 2,300,331 2,131,553 Other assets 1,448,002 505,467 ------------ ------------ Total Assets $ 333,242,040 $ 318,886,982 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest bearing $ 59,044,285 $ 52,235,927 Savings and interest-bearing checking 135,378,540 131,357,171 Time deposits 76,696,400 72,211,623 ------------ ------------ Total Deposits 271,119,225 255,804,721 Term debt to Federal Home Loan Bank 25,178,000 25,198,000 Accrued interest payable 378,173 353,054 Other liabilities 864,969 1,385,581 ------------ ------------ Total Liabilities 297,540,367 282,741,356 ------------ ------------ Commitments and contingencies SHAREHOLDERS' EQUITY Common stock 25,938,370 26,425,200 Retained earnings 10,819,623 9,055,331 Cumulative other comprehensive income (loss) (1,056,320) 665,095 ------------ ------------ Total Shareholders' Equity 35,701,673 36,145,626 Total Liabilities and Shareholders' Equity $333,242,040 $318,886,982 ============ ============
See accompanying notes to condensed consolidated financial statements 3 UMPQUA HOLDINGS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Three months ended June 30, Six months ended June 30, 1999 1998 1999 1998 --------------------------- --------------------------- Interest Income Interest and fees on loans $ 4,580,954 $ 3,926,623 $ 8,946,611 $ 7,626,429 Interest on investment securities available for sale 1,233,480 1,110,855 2,469,314 2,134,082 Interest bearing deposits with other banks 127,006 102,039 248,896 201,735 ----------- ----------- ----------- ----------- Total interest income 5,941,440 5,139,517 11,664,821 9,962,246 ----------- ----------- ----------- ----------- Interest Expense Interest on deposits 1,710,847 1,576,983 3,328,926 3,159,372 Interest on borrowings 324,794 208,206 648,212 406,891 ----------- ----------- ----------- ----------- Total interest expense 2,035,641 1,785,189 3,977,138 3,566,263 ----------- ----------- ----------- ----------- Net Interest Income 3,905,799 3,354,328 7,687,683 6,395,983 Provision for loan losses 327,000 237,150 655,000 510,650 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 3,578,799 3,117,178 7,032,683 5,885,333 Noninterest Income Service charges 744,211 517,406 1,378,757 1,006,606 Commissions 90,137 146,287 190,237 333,978 Other noninterest income 123,768 183,765 349,422 353,708 ----------- ----------- ----------- ----------- Total noninterest income 958,116 847,458 1,918,416 1,694,292 ----------- ----------- ----------- ----------- Noninterest Expense Salaries and employee benefits 1,251,121 1,128,147 2,612,146 2,245,041 Premises and equipment 434,112 363,703 799,641 709,841 Other noninterest expense 1,027,911 831,969 1,821,141 1,563,267 ----------- ----------- ----------- ----------- Total noninterest expense 2,713,144 2,323,819 5,232,928 4,518,149 ----------- ----------- ----------- ----------- Income before income taxes 1,823,771 1,640,817 3,718,171 3,061,476 Provision for income taxes 650,682 610,607 1,342,138 1,139,266 ----------- ----------- ----------- ----------- Net Income $ 1,173,089 $ 1,030,210 $ 2,376,033 $ 1,922,210 =========== =========== =========== =========== Earnings Per Share Basic $ 0.15 $ 0.13 $ 0.31 $ 0.27 Diluted $ 0.15 $ 0.13 $ 0.30 $ 0.27
See accompanying notes to condensed consolidated financial statements. 4 UMPQUA HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three months ended June 30, Six months ended June 30, ---------------------------- --------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Net income $ 1,173,089 $ 1,030,210 $ 2,376,032 $ 1,922,210 ----------- ----------- ----------- ----------- Unrealized gains (losses) arising during the period on investment securities available for sale (1,932,792) 250,171 (2,736,804) 238,365 ----------- ----------- ----------- ----------- Income tax (benefit) expense related to unrealized gains on investment securities (741,341) 87,560 (1,015,389) 83,429 ----------- ----------- ----------- ----------- Net unrealized gains (losses) on investment securities available for sale (1,191,451) 162,611 (1,721,415) 154,936 ----------- ----------- ----------- ----------- Comprehensive Income (Loss) $ (18,362) $ 1,192,821 $ 654,617 $ 2,077,146 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 5 UMPQUA HOLDINGS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS (UNAUDITED)
Six months ended June 30, ---------------------------- 1999 1998 ----------- ------------ Cash flows from operating activities: Net income $ 2,376,033 $ 1,922,210 Adjustments to reconcile net income to net cash provided by operating activities: Federal Home Loan Bank stock dividends (73,100) (70,000) Amortization of investment premiums, net 91,447 146,383 Origination of loans held for sale (9,045,400) (16,108,125) Proceeds from sales of loans held for sale 9,878,969 16,166,644 Provision for loan losses 655,000 510,650 Gain on sales of loans (122,085) (195,794) Depreciation of premises and equipment 341,548 332,518 Net increase in other assets (95,924) (385,700) Net increase in other liabilities (398,124) (1,072,145) ---------- ---------- Net cash provided by operating activities 3,608,364 1,246,641 Cash flows from investing activities: Purchases of investment securities (11,442,038) (19,139,377) Maturities of investment securities 4,774,244 4,175,009 Principal repayments received on mortgage-backed and related securities 5,111,235 5,185,649 Net loan originations (22,676,669) (13,187,528) Purchase of loans (1,001,927) (187,758) Proceeds from sales of loans 1,275,864 238,553 Purchases of premises and equipment (1,268,803) (193,249) ---------- ---------- Net cash used in investing activities (25,228,094) (23,108,701) ---------- ---------- Cash flows from financing activities: Net increase in deposit liabilities 15,314,504 12,892,870 Dividends paid on common stock (611,741) (354,494) Proceeds from stock offering -- 12,384,000 Common stock retired (689,210) -- Proceeds from stock options exercised 105,011 24,728 Repayments of Federal Home Loan Bank borrowings, net (20,000) (20,000) ---------- ---------- Net cash provided by financing activities 14,098,564 24,927,104 ---------- ---------- Net (decrease) increase in cash and cash equivalents (7,521,166) 3,065,044 Cash and cash equivalents, beginning of year 36,967,543 24,114,566 ---------- ---------- Cash and cash equivalents, end of year 29,446,377 27,179,610 ---------- ---------- Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 3,952,019 $ 3,617,644 Income taxes $ 1,410,000 $ 1,155,000 Non-cash financing activities Tax benefit of stock options exercised $ 97,369 $ --
See accompanying notes to consolidated financial statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of financial statement preparation The accompanying condensed consolidated financial statements have been prepared by the Company without audit and in conformity with generally accepted accounting principles for interim financial information. Accordingly, certain financial information and footnotes have been omitted or condensed. In the opinion of management, the condensed consolidated financial statements include all necessary adjustments (which are of a normal and recurring nature) for the fair presentation of the results of the interim periods presented. These financial statements should be read in conjunction with the Company's 1998 annual report to shareholders. The results of operations for the interim period shown in this report are not necessarily indicative of results for any future interim period or the entire fiscal year. (b) EARNINGS PER SHARE Basic and diluted net income per share are based on the weighted average number of common shares outstanding during each period, with diluted including the effect of potentially dilutive common shares. The weighted average number of common shares outstanding for basic net income per share computations were 7,652,156 and 7,075,173 for the six months ended June 30, 1999 and 1998 respectively. For diluted net income per share 141,785 and 175,864 were added to weighted average shares outstanding for the six months ended June 30, 1999 and 1998 respectively, representing potential dilution for stock options outstanding, calculated using the treasury stock method. The weighted average number of common shares outstanding for basic net income per share computations were 7,637,527 and 7,631,336 for the three months ended June 30, 1999 and 1998 respectively. For diluted net income per share 139,965 and 191,750 were added to weighted average shares outstanding for the three months ended June 30, 1999 and 1998 respectively, representing potential dilution for stock options outstanding, calculated using the treasury stock method. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion contains a review of Umpqua Holdings Corporation's (Company) and the Company's principal subsidiary, South Umpqua Bank's (Bank) financial condition at June 30, 1999 and the operating results for the three and six months then ended. When warranted, comparisons are made to the same periods in 1998 and to December 31, 1998. This discussion should be read in conjunction with the financial statements (unaudited) contained elsewhere in this report. All numbers, except per share data, are expressed in thousands of dollars in the text of this filing, but not in the financial statements or "Table 1" or "Table 2". This discussion contains certain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those stated. These risks and uncertainties include the Company's ability to maintain or expand its market share and net interest margins, or implement its marketing and growth strategies. Further, actual results may be affected by the Company's ability to compete on price and other factors with other financial institutions; customer acceptance of new products and services; and general trends in the banking and regulatory environment, as they relate to the Company's cost of funds and returns on assets. In addition there are risks inherent in the banking industry relating to the collectability of loans and changes in interest rates. The reader is advised that this list of risks is not exhaustive and should not be construed as any prediction by the Company as to which risks would cause actual results to differ materially from those indicated by the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. HIGHLIGHTS The Company earned $1,173 during the three months ended June 30, 1999, a 13.9% increase over the comparable period in 1998. For the six month period ended June 30, 1999 the Company earned $2,376, a 23.6% increase over the comparable 1998 period. Diluted earnings per share were $0.15 and $0.30 for the three and six month periods ended June 30, 1999, respectively compared with $0.13 and $0.27 for the comparable periods in 1998 respectively. Annualized return on average assets was 1.45% and 1.50% for the three and six month periods ended June 30, 1999, respectively and the annualized return on average equity was 13.07% and 13.26% for the same periods, respectively. Total assets were $333.2 million, up $14.3 million from December 31, 1998. Total loans outstanding have increased $22.0 million since December 31, 1998 to $208.2 million at quarter end and total deposits have increased $15.3 million to $271.1 million during the same period. On May 11, 1999 the Company announced the pending acquisition of Strand, Atkinson, Williams and York, Inc., a full service investment firm headquartered in Portland, Oregon. The acquisition is subject to regulatory approval, which is expected in the third quarter of 1999. At June 30, 1999 Strand, Atkinson, Williams and York, Inc. had total assets of $1.0 million and total revenues of $2.1 million for the six months then ended. The Bank continued its expansion by opening a new store in Portland, Oregon in July and announcing plans for a new store in Salem opening in late 1999. 8 RESULTS OF OPERATIONS Net Interest Income Net interest income is the primary source of the Company's revenue. Net interest income is the difference between interest income earned from loans and investment securities, and interest expense paid on customer deposits and debt. Changes in net interest income result from changes in "volume" and changes in "rate". Volume refers to the dollar level of interest earning assets and interest bearing liabilities. Rate refers to the underlying yields on assets and costs of liabilities. Net interest income on a tax-equivalent basis was $4,008 for the second quarter ended June 30, 1999 compared with $3,392 for the same period in 1998 (see Table 1). The $616 increase was primarily the result of an increase in the average volume of earning assets which were up $49.4 million over the 1998 level. The increase in the average volume of earning assets was due to loans outstanding which were up $38.9 million compared with the same period in 1998 and nontaxable securities which grew $13.7 million compared with the same period. The net interest spread, which is the difference between the yield of interest earning assets less the cost of interest bearing liabilities, increased 0.01% during the second quarter of 1999 compared with the second quarter of 1998. The net interest margin, which is annualized net interest income divided by interest earning assets, decreased 0.07% during the second quarter of 1999 compared with the second quarter of 1998. This decrease was the result of increased funding requirements due to the growth in earning assets. Average interest bearing liabilities were 78.3% of interest earning assets during the second quarter of 1999 compared with 77.6% of interest earning assets in 1998. 9 Table 1 AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID. The following table shows average balances and interest income or interest expense, with the resulting average yield or rates by category of average earning asset or interest-bearing liability:
Three Months ended Three Months ended June 30, 1999 June 30, 1998 Increase (Decrease) ---------------------------- -------------------------- ------------------------- Average Income/ Average Income/ Due to Change In Net Balance Expense Rate Balance Expense Rate Volume Rate Change ---------------------------- -------------------------- ------------------------- (in thousands) INTEREST-EARNING ASSETS: Loans (1)(2) $204,207 $ 4,564 8.96% $165,351 $ 3,889 9.43% $ 914 $ (239) $ 675 Loans held for sale 388 16 16.54% 2,315 41 7.10% (34) 9 (25) Investment securities Taxable securities 63,761 1,001 6.28% 68,627 1,027 5.99% (73) 47 (26) Nontaxable securities (1) 20,590 335 6.51% 6,916 118 6.82% 233 (16) 217 Temporary investments 10,844 127 4.70% 7,207 102 5.68% 51 (26) 25 -------- ------- -------- ------- ------ ------ ------ Total interest earning assets 299,790 6,043 8.09% 250,416 5,177 8.29% 1,091 (225) 866 Cash and due from banks 17,839 14,103 Allowance for loan losses (2,921) (2,460) Other assets 10,600 9,764 -------- -------- Total assets $325,308 $271,823 ======== ======== INTEREST-BEARING LIABILITIES: Interest-bearing checking and savings accounts $135,789 $ 855 2.53% $118,752 $ 799 2.70% $ 115 $ (59) $ 56 Time deposits 73,378 855 4.67% 61,415 778 5.08% 152 (75) 77 Term debt 25,522 325 5.11% 14,086 208 5.92% 169 (52) 117 -------- ------- -------- ------- ------ ------ ------ Total interest-bearing liabilities 234,689 2,035 3.48% 194,253 1,785 3.69% 436 (186) 250 ------ ------ ------ Non interest bearing deposits 52,938 43,501 Other liabilities 1,668 1,289 -------- -------- Total liabilities 289,295 239,043 Shareholders' equity 36,013 32,780 -------- -------- Total liabilities and shareholders' equity $325,308 $271,823 ======== ======== NET INTEREST INCOME (1) $ 4,008 $ 3,392 $ 655 $ (39) $ 616 ======= ======= ===== ===== ===== NET INTEREST SPREAD 4.61% 4.60% AVERAGE YIELD ON EARNING ASSETS (1),(2) 8.09% 8.29% INTEREST EXPENSE TO EARNING ASSETS 2.73% 2.86% ----- ----- NET INTEREST INCOME TO EARNING ASSETS (1),(2) 5.36% 5.43% ===== =====
(1) Tax exempt income ha been adjusted to a tax equivalent basis at a 34% effective rate. The amount of such adjustment was an addition to recorded income of $101 and $37 for the three months ended June 30, 1999 and 1998 respectively. (2) Non-accrual loans are included in average balance. Tax-equivalent net interest income for the six months ended June 30, 1999 was $7,863, a $1,399 increase over the same period of 1998 (see Table 2). The primary reason for the increase was the increase of average earning assets. Average earning assets increased 21.2% for the six months ended June 30, 1999 compared with the same period in 1998. The yield on interest earning assets decreased 0.22% as did the cost of interest bearing liabilities, leaving the net interest spread unchanged at 4.62%. The net interest margin was 5.39% for the six months ended June 30, 1999 compared with 5.38% for the same period in 1998. 10 Table 2
Six Months ended Six Months ended June 30, 1999 June 30, 1998 Increase (Decrease) ---------------------------- -------------------------- ------------------------- Average Income/ Average Income/ Due to Change In Net Balance Expense Rate Balance Expense Rate Volume Rate Change ---------------------------- -------------------------- ------------------------- (in thousands) INTEREST-EARNING ASSETS: Loans (1)(2) $198,530 $ 8,913 9.05% $161,075 $ 7,562 9.47% $1,758 $ (407) $1,351 Loans held for sale 509 34 13.47% 1,615 70 8.74% (48) 12 (36) Investment securities Taxable securities 66,756 2,063 6.18% 66,804 1,996 5.98% (1) 68 67 Nontaxable securities (1) 17,862 581 6.51% 5,792 201 6.94% 419 (39) 380 Temporary investments 10,453 249 4.80% 7,325 202 5.56% 86 (39) 47 -------- ------- -------- ------- ------ ------ ------ Total interest earning assets 294,110 11,840 8.12% 242,611 10,031 8.34% 2,214 (405) 1,809 Cash and due from banks 17,151 13,982 Allowance for loan losses (2,825) (2,343) Other assets 10,410 9,781 -------- -------- Total assets $318,846 $264,031 ======== ======== INTEREST-BEARING LIABILITIES: Interest-bearing checking and savings accounts $131,230 $1,628 2.50% $116,286 $1,556 2.70% $ 200 $(128) $ 72 Time deposits 72,448 1,701 4.73% 62,916 1,604 5.14% 243 (146) 97 Term debt 25,474 648 5.13% 14,057 407 5.84% 331 ( 90) 241 -------- ------- -------- ------- ------ ------ ------ Total interest-bearing liabilities 229,152 3,977 3.50% 193,259 3,567 3.72% 774 (364) 410 ------ ------ ------ Non interest bearing deposits 51,626 42,640 Other liabilities 1,927 1,151 -------- -------- Total liabilities 282,705 237,050 Shareholders' equity 36,141 26,981 -------- -------- Total liabilities and shareholders' equity $318,846 $264,031 ======== ======== NET INTEREST INCOME (1) $ 7,863 $ 6,464 $1,440 $ (41) $1,399 ======= ======= ====== ===== ====== NET INTEREST SPREAD 4.62% 4.62% AVERAGE YIELD ON EARNING ASSETS (1),(2) 8.12% 8.34% INTEREST EXPENSE TO EARNING ASSETS 2.73% 2.96% ----- ----- NET INTEREST INCOME TO EARNING ASSETS (1),(2) 5.39% 5.38% ===== =====
(1) Tax exempt income has been adjusted to a tax equivalent basis at a 34% effective rate. The amount of such adjustment was an addition to recorded income of $175 and $69 for the six months ended June 30, 1999 and 1998 respectively. (2) Non-accrual loans are included in average balance. Provision for Loan Losses The provision for loan losses is management's estimate of the amount necessary to maintain an allowance for loan losses that is considered adequate based on the risk of losses inherent in the loan portfolio (see additional discussion under Allowance for Loan Losses). The provision for loan losses was $327 for the quarter ended June 30, 1999 compared with $237 for the same quarter in 1998. For the six months ended June 30, 1999 the provision for loan losses was $655 compared with $511 for the same period in 1998. 11 Noninterest Income Noninterest income for the second quarter of 1999 increased 13.1% over the same period in 1998 to $958. Service fees on deposit accounts increased 43.8% due to increases in the number of accounts and increases in service charge fees. Total deposit accounts on hand at June 30, 1999 were 39,000 compared with 34,000 at June 30, 1998. ATM fees also increased due to the expansion of the Company's ATM network. Commissions in the second quarter of 1999 decreased $56 compared with the second quarter of 1998 due to lower sales volume at the Company's brokerage subsidiary. Other noninterest income in the second quarter of 1999 decreased $60 due to decreases in servicing release fees generated from the origination and sale of residential mortgages. Origination of residential loans during the second quarter of 1999 declined due to less refinancing activity compared with 1998. Noninterest income for the six months ended June 30, 1999 was $1,918 compared with 1,694 for the comparable period in 1998. Service fees on deposit accounts were up $372 due to increases in the number of accounts as well as increases in service charge fees. ATM fees were also up during the period. Commissions income was $144 lower for the six months ended June 30, 1999 compared with the same period in 1999 due to lower sales volumes at the Company's brokerage subsidiary. Noninterest Expense Noninterest expense for the quarter ended June 30, 1999 was $2,713, an increase of $389 over the same period in 1998. Salaries and employee benefits increased due to additional staffing required to support the growth in loans and deposits. At June 30, 1999 the Company had 167 full-time equivalent employees compared with 145 full-time equivalent employees at June 30, 1998. Premises and equipment increased $70 for the quarter ended June 30, 1999 compared with the same period in 1998. This increase was due to expansion of the Company's support facilities and the acquisition of a store site in Portland, Oregon. Other noninterest expense was $1,028 for the quarter ended June 30, 1999 compared with $832 in the second quarter of 1998. Significant increases in professional fees due to expansion initiatives including the Company's pending acquisition of the brokerage firm of Strand, Atkinson, Williams and York was the primary cause of the increase. Noninterest expense for the six months ended June 30, 1999 was $5,233 compared with $4,518 for the same period in 1998. Salaries and benefits increased $367 for the six months ended June 30, 1999 compared with the same period in 1998 due to increase staffing levels to support the growth in loans and deposits. Premises and Equipment expense for the six months ended June 30, 1999 was $800, an increase of $90 over the same period in 1998. This increase was due to the expansion of the Company's support facilities during early 1999 and the acquisition of a future store site in Portland, Oregon. Other noninterest expense for the six months ended June 30, 1999 increased $258 over the same period in 1998 to $1,821. This increase was due primarily to higher professional fees due to expansion activities. 12 FINANCIAL CONDITION Significant changes in the Company's financial position from December 31, 1998 to June 30, 1999 are as follows: Loans Loans have increased $22 million from December 31, 1998 to $208.2 million at June 30, 1999. This increase was primarily due to increases in commercial real estate loans outstanding which have increased $16 million during the period. Loans outstanding at June 30, 1999 and December 31, 1998 were as follows: June 30, 1999 December 31, 1998 ------------- ----------------- Commercial & $ 49,994 $ 48,140 Industrial Real Estate: Construction 18,257 13,766 Residential Mortgage 20,309 19,825 Commercial Real Estate 90,102 73,767 Individuals 29,292 30,309 Other 245 360 --------- --------- Total Loans $ 208,199 $ 186,167 ========= ========= Allowance for Loan Losses The allowance for loan losses is maintained at a level considered by management to be adequate to absorb losses inherent in the loan portfolio. Management monitors the adequacy of the allowance based on a probable loss rate assigned to an internal risk rating for each loan or pool of loans, by the Company's historical loan loss rate and management's judgement. As shown in the preceding table, the loan portfolio has a concentration in real estate secured loans. Although management believes the location and repayment sources of these loans are well diversified, the risk of market depreciation in property values is an inherent risk to this portion of the loan portfolio. The commercial loan portfolio carries the risks associated with asset based lending and unsecured loans. The consumer portfolio, while well diversified, carries risk associated with economic and bankruptcy issues, particularly unsecured lending. At June 30, 1999 the allowance for loan losses was 1.41% of total loans compared with 1.43% of total loans at December 31, 1998. The allowance for loan losses is based upon estimates of losses inherent in the portfolio. The amount of losses actually incurred can vary significantly from these estimates. Assessing the adequacy of the allowance on a quarterly basis allows management to adjust these estimates based upon the most recent information available. 13 Activity in the allowance for loan losses was as follows for the three and six month periods ending June 30, 1999. Three months ended Six months ended June 30, 1999 June 30, 1999 ------------------ ---------------- Beginning Balance $2,912 $2,664 Provision for Loan Losses 327 655 Less: Charge-offs Commercial (243) (292) Individuals (64) (135) Recoveries 10 50 ------ ------ Ending Balance $2,942 $2,942 ====== ====== Non-performing assets, comprised of loans on nonaccrual status, loans past due 90 days or more and other real estate owned were $1,166 or 0.35% of total assets at June 30, 1999 compared with $616 or 0.19% or total assets at December 31, 1998. The primary reason for the increase was the addition of two commercial real estate credits to the non-performing category. The Company does not currently have any other real estate owned. Deposits Deposits have increased $15 million since December 31, 1998 due to successful sales and marketing efforts. Deposits consisted of the following at June 30, 1999 and December 31, 1998: June 30, 1999 December 31, 1998 ------------------ ----------------- Noninterest bearing demand $ 59,044 $ 52,236 Interest bearing demand and Money market accounts 112,933 111,389 Savings 22,446 19,968 Time deposits 76,696 72,212 -------- -------- Total Deposits $271,119 $255,805 ======== ======== Shareholder's Equity Shareholder's equity has decreased $0.4 million since December 31, 1998. Increases due to net income of $2,376 have been offset by dividends of $612 and the change in net unrealized gains/losses on investment securities available for sale, net of applicable taxes, of $1,721. The change in unrealized gains/losses on investment securities is due to the generally increasing interest rate environment that has existed for the first six months of 1999. 14 LIQUIDITY AND CAPITAL RESOURCES The Company derives liquidity though the growth of core deposits and the maturity of investment securities and loans. Additional liquidity is provided by the Company's ability to borrow funds on an overnight or long-term basis. There has been no erosion in the Company's liquidity position since December 31, 1998. At June 30, 1999 the Company's Tier 1 and Total Risk-Based capital ratios were 16.41% and 17.66%. EFFECTS OF THE YEAR 2000 INTRODUCTION. The Year 2000 creates challenges with respect to the automated systems used by financial institutions and other companies. Many software programs are not able to recognize the year 2000, since most programs and systems were designed to store calendar year in the 1900's by assuming the "19" and storing only the last two digits of the year. For example, these automated systems would recognize a year stored as "00" as the year "1900", rather than as the year "2000". If these automated systems are not appropriately re-coded, updated or replaced before the year 2000, they will likely confuse data, crash or fail in some manner. In addition, many software programs and automated systems will fail to recognize the year 2000 as a leap year. The problem is not limited to computer systems. Year 2000 issues will potentially affect every system that has an embedded microchip, such as automated teller machines, elevators and vaults. The year 2000 challenge is especially problematic for financial institutions, since many transactions such as interest accruals and payments are date sensitive. It also may affect the operations of third parties with whom the Company does business, including the Company's vendors, suppliers, utility companies and customers. THE COMPANY'S STATE OF READINESS. The Company is committed to addressing these year 2000 challenges in a prompt and responsible manner and has dedicated resources to do so. Management has completed an assessment of its automated systems and has implemented a plan to resolve these issues, including purchasing appropriate computer technology. The Company's year 2000 compliance plan ("Year 2000 Plan") has five phases. These phases are (1) project management, (2) awareness, (3) assessment, (4) testing, and (5) renovation and implementation. The Company has substantially completed all phases of the year 2000 plan. Appropriate follow-up activities are continuing to occur which include contingency planning, and testing of the contingency plan. Project Management. The Company has assigned primary responsibility for year 2000 project management to its Chief Financial Officer. The Company has also formed a year 2000 compliance committee, consisting of appropriate representatives from its critical operational areas to assist in implementing the Year 2000 Plan. In addition, the Company provides periodic reports to its Board of Directors in order to assist them in overseeing the Company's year 2000 readiness. 15 Awareness. The Company has completed several projects designed to promote awareness of year 2000 issues throughout our organization and our customer base. These projects include communication through local seminars in each of the communities the Company serves, mailing information brochures to deposit and loan customers, providing training for lending officers and other staff, and responding to vendor, customer, and shareholder inquiries. Assessment. Assessment is the process of identifying all mission-critical applications that could potentially be negatively affected by dates in the year 2000 and beyond. The Company's assessment phase is complete. Systems examined during this phase included telecommunication systems, account-processing applications, and other software and hardware used in connection with customer accounts. The Company's operations, like those of many other companies, are intertwined with the operations of certain of its business partners. Accordingly, the Company's operations could be materially affected if the operations of those companies who provide the Company with mission-critical applications, systems, and services are materially affected. For example, the Company depends upon vendors who provide equipment, technology, and software to it in connection with its business operations. Failure of these software vendors to achieve year 2000 readiness could substantially affect the operations of the Company. In addition, lawsuits and other financial challenges materially affecting the financial viability of these vendors could materially affect the Company. In response to this concern, the Company has identified and contacted those vendors who provide our mission-critical applications. The Company has assessed their year 2000 compliance efforts and will continue to monitor their progress as the year 2000 approaches. Testing. Initial testing of the Company's computer system used to account for customer accounts has been successful. Management completed this in the second quarter of 1999. Renovation and Implementation. This phase involves obtaining and implementing renovated software applications provided by our vendors. As these applications are received and implemented, the Company will test them for year 2000 compliance. This phase also involves upgrading and replacing automated systems where appropriate and will continue throughout 1999. Although this phase will be substantially complete before the end of 1999, additional follow-up activities may take place in the year 2000 and beyond. ESTIMATED COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. The total financial effect of these year 2000 challenges on the Company cannot be predicted with certainty at this time. In fact, in spite of all efforts being made to rectify these problems, the success of these efforts cannot be predicted until the year 2000 actually arrives. The Company will upgrade or replace certain automated systems before the year 2000; however, some of these systems would have been replaced before the year 2000 without regard to year 2000 compliance issues, due to technology updates and Company expansion. Management does not believe that expenses related to meeting the Company's year 2000 challenges will have a material effect on the operations or financial performance of the Company. However, factors beyond the control of management, such as the effects on vendors of our mission-critical software and systems, the effects of year 2000 issues on the economy, and the development of the risks identified below under "The Risks of the Company's Year 2000 Issues," among other things, could have a material effect on the operations or financial performance of the Company. 16 For 1999, the Company has incurred approximately $15 of external operating expenses relative to year 2000 compliance issues. In 1999, the Company expects to incur external additional operating expenses of approximately the $100. These amounts do not include the significant internal costs associated with the year 2000 issues, such as compensation costs of the technology staff. THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES. The year 2000 presents certain risks to the Company and its operations. Some of these risks are present because the Company purchases technology applications from other parties who face year 2000 challenges. Other of these risks are inherent in the business of banking or are risks faced by many companies with stock traded on a national stock exchange. Although it is impossible to identify every possible risk that the Company may face moving into the new millennium, management has, to date, identified the following potential risks: o Commercial banks, such as the Company, may experience a contraction in their deposit base, if a significant amount of deposited funds are withdrawn by customers prior the year 2000. This potential deposit contraction could make it necessary for the Company to change its sources of funding and could materially impact future earnings. Significant demand for funds by other banks could reduce the amount of funds available for the Company to borrow. If insufficient funds are available from a Federal Home Loan Bank or other correspondents, the Company may also sell investment securities or other liquid assets to meet liquidity needs. Despite these efforts, a significant deposit contraction could materially impact the Company's earnings or future operations, particularly if funds availability at the Federal Home Loan Bank is impaired. o The Company lends significant amounts to businesses in its market area. If these businesses are adversely affected by year 2000 issues, their ability to repay loans could be impaired. This increased credit risk could affect the Company's financial performance. During the assessment phase of the Company's Year 2000 Plan, significant borrowers were identified. Management is currently monitoring the year 2000 compliance efforts of these credit customers. o The Company's operations, like those of many other companies, can be affected by the year 2000 triggered failures of other companies upon whom the Company depends for the functioning of its automated systems. Accordingly, the Company's operations could be materially affected, if the operations of those companies who provide the Company with mission-critical applications, systems, and services are materially affected. As described previously, the Company has identified its mission-critical vendors and is monitoring their year 2000 compliance progress. o All companies with stock traded on a national stock exchange, including the Company, could experience a drop in stock price as investors change their investment portfolios or sell stock prior to the new millennium. At this time, it is impossible to predict whether or not this will in fact be the case with respect to the stock of the Company or any other company. 17 o The Company's ability to operate effectively in the year 2000 could be affected by communications abilities and access to utilities, such as electricity, water, telephone, and others, to the extent access is interrupted due to the effects of year 2000 issues on these and other utilities. THE COMPANY'S CONTINGENCY PLANS. In addition to renovation and implementation of software applications, as may be required, the Company has developed contingency plans in the event of year 2000 developments. These contingency plans may be triggered if full year 2000 compliance is not achieved for the Company's mission-critical systems, or if external factors are viewed as potentially impacting the Company. These contingency plans are focused on liquidity requirements, funding requirements, credit monitoring, and storage and retrieval of computer based records, as well as staff availability at critical dates including the beginning of the year 2000. REGULATORY AGENCY OVERSIGHT. The Federal Financial Institutions Examination Council ("FFIEC") has made recommendations and has issued guidelines to the financial community for preparing for the year 2000. In addition, the FFIEC monitors the Company's progress towards critical dates for each guideline. The Company is in full compliance with the recommendations and guidelines, and is ahead of the schedule established for critical dates. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company considers interest rate, credit and operations risks as the most significant risks impacting the Company. Other types of market risk, such as foreign exchange risk and commodity price risk, do not impact the Company in the normal course of operations. The Company relies on prudent underwriting standards, loan reviews and an adequate allowance for loan losses to mitigate credit risk. Internal controls and periodic internal audits of business operations mitigate operations risk. The Company uses an asset/liability model to measure and monitor interest rate risk. The model projects net interest income for the upcoming twelve months in various interest rate scenarios. The Company's current one-year position is slightly liability sensitive, meaning that more interest-bearing liabilities mature or reprice within the next year than interest-earning assets. Therefore, if market interest rates increased significantly, net interest income could be adversely affected. In contrast, if market rates decreased significantly, net interest income could improve. The Company attempts to mitigate interest rate risk through the management of the maturity and repricing characteristics of its interest earning assets and interest bearing liabilities. The Company also has increased its emphasis on non-interest sources of revenue in order to further stabilize future earnings. The model the Company uses includes assumptions regarding prepayments of assets and early withdrawals of liabilities, the level and mix of interest earning assets and interest bearing liabilities, the level and responsiveness of interest rates on deposit products without stated maturities and the level of nonperforming assets. These assumptions are based on management judgement and future expected pricing behavior. Actual results could vary significantly from the results derived from the model. 18 Item 4. Submission of Matters to a Vote of Security Holders The annual shareholders meeting of Umpqua Holdings Corporation was held on April 28, 1999 in Roseburg, Oregon. At the meeting the following directors were elected: Name Term - --------------------------------------------------------------------- Scott Chambers 1 year Ronald O. Doan 1 year Allyn C. Ford 1 year Frances Jean Phelps 2 years Raymond P. Davis 2 years Harold L. Ball 2 years Lynn K. Herbert 2 years David B. Frohnmayer 3 years Neil D. Hummel 3 years No other matters were submitted to a vote of security holders at the meeting. Item 6. Exhibits and Reports on Form 8-K a) Exhibit 27 Financial Data Schedule 19 SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UMPQUA HOLDINGS CORPORATION (Registrant) Dated: August 12, 1999 /s/ Raymond P. Davis ------------------------------------------------ Raymond P. Davis President and Chief Executive Officer Dated: August 12, 1999 /s/ Daniel A. Sullivan ------------------------------------------------ Daniel A. Sullivan Senior Vice President and Chief Financial Officer 20 EX-27 2 FDS - SIX MONTH PERIOD ENDING 6/30/99
9 This Schedule contains summary financial information extracted from the unaudited financial statements for the six-month period ending June 30, 1999, and is qualified in its entirety b y reference to such financial statements. 0001077771 Umpqua Holdings Corporation 1 US Dollars 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1.000 21,233,107 8,213,270 0 0 83,616,300 0 0 208,198,811 2,942,364 333,242,040 271,119,225 0 1,243,142 25,178,000 0 0 25,938,370 9,763,303 333,242,040 4,580,954 1,233,480 127,006 5,941,440 1,710,847 2,035,641 3,905,799 327,000 0 2,713,144 1,823,771 1,823,771 0 0 1,173,089 0.15 0.15 5.36 671,459 494,615 0 0 2,911,586 306,832 10,610 2,942,364 2,942,364 0 0
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