As Filed with the Securities and Exchange Commission on November 13, 2000
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: September 30, 2000
[_] 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 October 31, 2000: 7,625,627
<PAGE>
UMPQUA HOLDINGS CORPORATION
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets:
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income:
Three and nine months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Comprehensive Income:
Three and nine months ended September 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows:
Nine months ended September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-18
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 none
Item 5. Other Information none
Item 6. Exhibits and Reports on Form 8-K 18-19
SIGNATURES 19
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
UMPQUA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 22,511,016 $ 30,058,897
Interest bearing deposits in other banks 30,431,820 15,630,197
------------ ------------
Total Cash and Cash Equivalents 52,942,836 45,689,094
Trading account assets 1,477,753 474,782
Investment securities available for sale 71,153,768 76,868,536
Mortgage loans held for sale 2,207,281 -
Loans receivable 274,205,819 248,533,933
Less: Allowance for loan losses (4,118,589) (3,469,350)
------------ ------------
Loans, net 270,087,230 245,064,583
Federal Home Loan Bank stock at cost 2,462,100 2,346,200
Property and equipment, net of depreciation 10,287,494 9,419,744
Intangibles 3,435,359 2,284,415
Interest receivable 2,720,008 2,422,829
Other assets 2,083,047 2,166,533
------------ ------------
Total Assets $418,856,876 $386,736,716
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 71,197,916 $ 59,709,104
Savings and interest-bearing checking 149,708,909 151,199,156
Time deposits 134,176,990 90,765,095
------------ ------------
Total Deposits 355,083,815 301,673,355
Securities sold under agreements to repurchase 5,107,215 -
Term debt to Federal Home Loan Bank 14,628,000 46,158,000
Accrued interest payable 758,397 543,424
Other liabilities 2,635,449 1,645,715
------------ ------------
Total Liabilities 378,212,876 350,020,494
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock 25,823,869 25,778,259
Retained earnings 15,903,362 12,708,368
Accumulated other comprehensive loss (1,083,231) (1,770,405)
------------ ------------
Total Shareholders' Equity 40,644,000 36,716,222
------------ ------------
Total Liabilities and Shareholders' Equity $418,856,876 $386,736,716
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
UMPQUA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 6,363,230 $ 4,853,961 $18,205,636 $13,800,572
Interest on taxable investment securities 848,904 971,121 2,652,770 3,034,981
Interest on tax-exempt investment securities 274,095 253,165 803,817 658,620
Interest bearing deposits with other banks 429,455 204,108 711,987 453,003
------------------------------- ------------------------------
Total interest income 7,915,684 6,282,355 22,374,210 17,947,176
------------------------------- ------------------------------
Interest Expense
Interest on deposits 2,820,295 1,805,353 7,326,432 5,134,279
Interest on borrowings and repurchase
agreements 250,808 325,724 1,168,340 973,936
------------------------------- ------------------------------
Total interest expense 3,071,103 2,131,077 8,494,772 6,108,215
------------------------------- ------------------------------
Net Interest Income 4,844,581 4,151,278 13,879,438 11,838,961
Provision for loan losses 375,000 226,000 1,409,500 881,000
------------------------------- ------------------------------
Net interest income after provision
for loan loss 4,469,581 3,925,278 12,469,938 10,957,961
Noninterest Income
Service charges 832,884 780,373 2,424,104 2,159,130
Commissions 1,778,758 64,016 4,519,051 254,253
Other noninterest income 216,147 128,318 587,597 477,740
------------------------------- ------------------------------
Total noninterest income 2,827,789 972,707 7,530,752 2,891,123
------------------------------- ------------------------------
Noninterest Expense
Salaries and employee benefits 2,827,732 1,463,873 7,643,399 4,076,019
Premises and Equipment 612,597 449,184 1,752,220 1,248,825
Other noninterest expense 1,619,480 1,029,899 4,173,406 2,851,040
------------------------------- ------------------------------
Total noninterest expense 5,059,809 2,942,956 13,569,025 8,175,884
------------------------------- ------------------------------
Income before income taxes 2,237,561 1,955,029 6,431,665 5,673,200
Provision for income taxes 827,000 711,822 2,322,000 2,053,960
------------------------------- ------------------------------
Net Income $ 1,410,561 $ 1,243,207 $4,109,665 $3,619,240
=============================== ==============================
Earnings Per Share
Basic $ 0.18 $ 0.16 $ 0.54 $ 0.47
Diluted $ 0.18 $ 0.16 $ 0.53 $ 0.46
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
UMPQUA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
------------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net income $ 1,410,561 $ 1,243,207 $ 4,109,665 $ 3,619,240
------------------ ---------------- ---------------- ----------------
Unrealized gains (losses) arising during the period on
investment securities available for sale 1,067,555 (281,888) 1,114,747 (3,018,692)
------------------ ---------------- ---------------- ----------------
Income tax expense (benefit) related to unrealized gains
(losses) on investment securities 409,472 (108,121) 427,573 (1,123,510)
------------------ ---------------- ---------------- ----------------
Net unrealized gains (losses) on investment
securities available for sale 658,083 (173,767) 687,174 (1,895,182)
------------------ ---------------- ---------------- ----------------
Comprehensive Income (Loss) $ 2,068,644 $ 1,069,440 $ 4,796,839 $ 1,724,058
================== ================ ================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
UMPQUA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
------------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,109,665 $ 3,619,240
Adjustments to reconcile net income to net cash provided by
operating activities:
Federal Home Loan Bank stock dividends (115,900) (110,000)
Net increase in trading account assets (1,002,971) -
Amortization of investment premiums, net 108,209 150,356
Origination of loans held for sale (12,419,823) (12,645,495)
Proceeds from sales of loans held for sale 10,292,069 14,141,005
Amortization of intangibles 188,502 -
Provision for loan losses 1,409,500 881,000
Gain on sales of loans (222,579) (220,651)
Depreciation of premises and equipment 688,785 522,556
Net increase in other assets (1,980,712) (387,985)
Net increase in other liabilities 1,250,335 167,695
------------------ ---------------
Net cash provided by operating activities 2,305,080 6,117,721
------------------ ---------------
Cash flows from investing activities:
Purchases of investment securities - (11,442,038)
Maturities of investment securities 3,196,473 6,454,479
Principal repayments received on mortgage-backed and related securities 3,524,833 7,206,279
Net loan originations (37,473,248) (39,701,459)
Purchase of loans (5,362) (1,334,966)
Proceeds from sales of loans 11,189,515 2,275,864
Purchases of premises and equipment (1,556,535) (2,024,022)
------------------ ---------------
Net cash used in investing activities (21,124,324) (38,565,863)
------------------ ---------------
Cash flows from financing activities:
Net increase in deposit liabilities 53,410,460 33,763,633
Net increase in securities sold under agreements to repurchase 5,107,215 -
Dividends paid on common stock (914,671) (916,516)
Repurchase of common stock (67,408) (771,400)
Proceeds from stock options exercised 67,390 105,011
Repayments of Federal Home Loan Bank borrowings (31,530,000) (30,000)
------------------ ---------------
Net cash provided by financing activities 26,072,986 32,150,728
------------------ ---------------
Net increase (decrease) in cash and cash equivalents 7,253,742 (297,414)
Cash and cash equivalents, beginning of year 45,689,094 36,967,543
------------------ ---------------
Cash and cash equivalents, end of period $ 52,942,836 $ 36,670,129
================== ===============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 8,279,799 $ 6,004,476
Income taxes $ 1,920,500 $ 1,875,000
</TABLE>
See accompanying notes to condensed consolidated financial statements
6
<PAGE>
NOTES TO CONDENSED 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.
The condensed consolidated financial statements include the accounts of Umpqua
Holdings Corporation (the Company), and its wholly-owned subsidiaries South
Umpqua Bank (the Bank) and Strand, Atkinson, Williams & York, Inc (Strand,
Atkinson). All significant intercompany balances and transactions have been
eliminated in consolidation. 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 1999 annual report to shareholders. The results
of operations for the 2000 interim periods shown in this report are not
necessarily indicative of the results for any future interim period or the
entire fiscal year.
(b) Earnings per share
Basic and diluted earnings 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 and diluted earnings per share
computations were as follows:
<TABLE>
<CAPTION>
Three months ended Three months ended
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Weighted Average Shares Outstanding 7,625,627 7,625,830
Common Stock Equivalents 105,977 139,803
------------------ ------------------
Diluted Shares Outstanding 7,731,604 7,765,633
================== ==================
</TABLE>
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Weighted Average Shares Outstanding 7,620,182 7,643,284
Common Stock Equivalents 111,634 141,125
------------------ ------------------
Diluted Shares Outstanding 7,731,816 7,784,409
================== ==================
</TABLE>
Options to purchase 371,500 shares of common stock for prices ranging from
$8.375 to $12.00 per share were outstanding during the quarter ended September
30, 2000 but were not included in the computation of diluted earnings per
share because the options' exercise price was greater than the average market
price of the common shares during the period.
7
<PAGE>
(2) ACQUISITION OF ADAMS, HESS, MOORE & CO.
On August 4, 2000, the Company acquired the retail brokerage firm of
Adams, Hess, Moore & Co. (Adams, Hess). Adams, Hess has offices in Portland,
Eugene and Salem and 18 investment representatives. The operations of Strand,
Atkinson and Adams, Hess have been combined and the combined company is
operating under the Strand, Atkinson name. The acquisition was accounted for
using the purchase method of accounting and accordingly, the assets and
liabilities of Adams, Hess were recorded at their respective fair values on
the balance sheet of the Company on the date of the acquisition. Intangible
assets acquired are being amortized over the lives of such assets. Goodwill is
being amortized over 15 years. Revenues and expenses since the acquisition
date have been included in the results of operations for the Company.
(3) SEGMENT INFORMATION
For purposes of measuring and reporting the financial results, the
Company is divided into two business segments; Community Banking and Retail
Brokerage Services. The Community Banking segment consists of the operations
conducted by the Company's subsidiary South Umpqua Bank. The Bank provides a
full array of credit and deposit products to meet the banking needs of its
market area and targeted customers. At September 30, 2000, the Bank had 13
full service stores. The Retail Brokerage Service segment consists of the
operations of the Company's subsidiary Strand, Atkinson, Williams & York, Inc.
which was acquired in December 1999. Strand, Atkinson provides a full range of
retail brokerage services to its clients through its two principal offices in
Portland and Medford, Oregon as well as sales counters at most of the Bank's
stores. At September 30, 2000, Strand, Atkinson, Williams & York, Inc. had 37
full time brokers. The following table presents summary income statements and
a reconciliation to the Company's consolidated totals for the nine months
ended September 30, 2000.
<TABLE>
<CAPTION>
($ in thousands) Community Retail Brokerage
Banking Services Administration Eliminations Consolidated
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 22,317 $ 57 $ - $ - $ 22,374
Interest Expense 8,495 21 - (21) 8,495
---------------------------------------------------------------------------
Net Interest Income 13,822 36 - (21) 13,879
Provision for Loan Losses 1,410 - - - 1,410
Noninterest Income 3,105 4,503 - (77) 7,531
Noninterest Expense 9,528 3,982 136 (78) 13,568
---------------------------------------------------------------------------
Income before Taxes 5,989 557 (136) (20) 6,432
Income Tax Expense (Benefit) 2,116 244 (38) - 2,322
---------------------------------------------------------------------------
Net Income $ 3,873 $ 313 $ (98) $ (20) $ 4,110
===========================================================================
</TABLE>
Total assets by segment have not changed materially since December 31, 1999.
(3) IMPAIRED LOANS
The Company had loans totaling $763,000 and $1,052,000 at September 30,
2000 and December 31, 1999, respectively, that were considered impaired. At
September 30, 2000 the allowance for loan losses dedicated to impaired loans
was $450,000 and at December 31, 1999 the allowance for loan losses allocated
to impaired loans was $540,000. The average investment in impaired loans was
8
<PAGE>
$958,000 for the nine months ended September 30, 2000. All payments received
on the loans were applied to principal and consequently no income has been
recognized during the nine months ended September 30, 2000.
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) financial condition at September 30, 2000 and the
operating results for the three and nine months then ended. When warranted,
comparisons are made to the same period in 1999 and to December 31, 1999. 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.
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 to 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 the 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.
Financial Highlights
The Company earned $1,411 for the quarter ended September 30, 2000
compared with $1,243 for the same period in 1999, a 13.5% increase. Diluted
earnings per share improved from $0.16 for the third quarter of 1999 to $0.18
for the third quarter of 2000. Return on average shareholders' equity was
14.1% and return on average assets was 1.39% for the quarter ended September
30, 2000.
For the nine months ended September 30, 2000 the Company earned $4,110
compared with $3,619 for the same period in 1999. Diluted earnings per share
improved to $0.53 in 2000 from $0.46 in 1999. Return on average equity was
14.3% and return on average assets was 1.41% for the nine months ended
September 30, 2000.
Total assets have increased $32 million, or 8.3% since December 31, 1999
to $419 million at September 30, 2000.
On August 15, 2000 the Company announced the signing of a definitive
merger agreement between itself and VRB Bancorp. The transaction will be
accounted for using the pooling-of-interests method of accounting. The merger,
expected to close in the fourth quarter 2000, is subject to customary
regulatory approvals and the shareholder approval of both companies.
9
<PAGE>
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 generated from
earning assets, primarily loans and investment securities, and interest
expense paid on customer deposits and debt. Changes in net interest income
result from changes in "volume" and "rate". Volume refers to the level of
interest earning assets and interest bearing liabilities while rate refers to
the underlying yields on assets and costs of liabilities.
Taxable equivalent net interest income for third quarter of 2000 was
$4,964 compared with $4,263 for the third quarter of 1999, a $701 increase
(See Table 1). The increase was due almost entirely to increases in the volume
of earning assets. The yield on average earning assets improved to 8.64%
during the period compared with 8.03% in 1999, reflecting the increased yield
on the Company's loan portfolio. The yield on the Company's loan portfolio
increased to 9.45% during the third quarter of 2000 compared with 8.95% during
the same period in 1999. The increase was primarily due to repricing of the
Company's adjustable rate loans. The cost of interest bearing liabilities
increased to 4.15% during the period compared with 3.43% in 1999 due primarily
to higher rates paid on time deposits. As a result of these factors, the net
interest margin was relatively unchanged during the period, decreasing 0.01%
to 5.34% for the third quarter of 2000.
10
<PAGE>
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:
<TABLE>
<CAPTION>
Nine Months ended Nine Months ended
September 30, 2000 September 30, 1999 INCREASE (DECREASE)
AVERAGE INCOME/ AVERAGE INCOME/ DUE TO CHANGE IN NET
BALANCE EXPENSE RATE BALANCE EXPENSE RATE VOLUME RATE CHANGE
----------------------------- ---------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
INTEREST-EARNING ASSETS:
Loans (1)(2) $267,123 $6,342 9.45% $214,618 $4,844 8.95% $1,169 $329 $1,498
Loans held for sale 910 21 9.18% 322 10 12.32% 18 (7) 11
Trading account assets (1) 1,466 39 10.58% - - 39 - 39
Investment securities
Taxable securities 52,303 849 6.46% 62,697 972 6.15% (163) 40 (123)
Nontaxable securities (1) 21,565 355 6.55% 22,037 364 6.55% (9) (0) (9)
Temporary investments 26,400 429 6.46% 16,139 204 5.01% 129 96 225
----------------- ------------------ ---------------------
Total interest earning assets 369,767 8,035 8.64% 315,813 6,394 8.03% 1,183 458 1,641
Cash and due from banks 20,940 18,660
Allowance for loan losses (4,029) (3,062)
Other assets 16,952 12,244
--------- --------
Total assets $403,630 $343,655
========= ========
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and
savings accounts $147,342 $ 878 2.37% $140,584 $ 867 2.45% 39 (28) 11
Time deposits 128,584 1,942 6.01% 80,382 938 4.63% 558 446 1,004
Term debt and Repurchase
agreements 18,755 251 5.32% 25,171 326 5.14% (84) 9 (75)
----------------- ----------------- ---------------------
Total interest-bearing liabilities 294,681 3,071 4.15% 246,137 2,131 3.43% 513 427 940
Non interest bearing deposits 66,240 59,996
Other liabilities 2,777 1,296
--------- --------
Total liabilities 363,698 307,429
Shareholders' equity 39,932 36,226
--------- --------
Total liabilities and
shareholders' equity $403,630 $343,655
========= ========
NET INTEREST INCOME (1) $4,964 $4,263 $ 670 $31 $ 701
======= ======= ====================
NET INTEREST SPREAD 4.50% 4.60%
AVERAGE YIELD ON EARNING ASSETS (1),(2) 8.64% 8.03%
INTEREST EXPENSE TO EARNING ASSETS 3.30% 2.68%
----- -----
NET INTEREST INCOME TO EARNING ASSETS (1),(2) 5.34% 5.35%
===== =====
</TABLE>
(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 $119,316 and $111,645 for the three months ended September 30,
2000 and 1999 respectively.
(2) Non-accrual loans are included in average balance.
11
<PAGE>
Taxable equivalent net interest income for the nine months ended
September 30, 2000 was $14,216 compared with $12,125 for the same period in
1999. The improvement was due almost entirely to increases in the volume of
earning assets. Average earning assets increased $53.7 million in 2000
compared with 1999. Average loans, the largest component of average interest
earning assets increased $58.7 million for the nine months ended September 30,
2000 compared with the same period in 1999. The yield on earning assets
improved 0.49% and the cost of interest bearing deposits also increased 0.49%
while the net interest margin improved slightly for the nine months ended
September 30, 2000 to 5.39% from 5.38% for the same period in 2000.
12
<PAGE>
TABLE 2
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:
<TABLE>
<CAPTION>
Nine Months ended Nine Months ended
September 30, 2000 September 30, 1999 INCREASE (DECREASE)
AVERAGE INCOME/ AVERAGE INCOME/ DUE TO CHANGE IN NET
BALANCE EXPENSE RATE BALANCE EXPENSE RATE VOLUME RATE CHANGE
----------------------------- ---------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
INTEREST-EARNING ASSETS:
Loans (1)(2) $ 262,662 $ 18,161 9.24% $ 203,952 $ 13,756 9.02% $ 3,977 $ 428 $ 4,405
Loans held for sale 597 44 9.84% 446 44 13.19% 15 (15) (0)
Trading account assets (1) 977 74 10.12% - - NA 74 - 74
Investment securities
Taxable securities 54,312 2,653 6.51% 65,495 3,035 6.18% (518) 136 (382)
Nontaxable securities (1) 21,372 1,067 6.66% 19,302 945 6.53% 101 21 122
Temporary investments 15,330 712 6.20% 12,369 453 4.90% 110 149 259
----------------------- ---------------------- -------------------------------
Total interest earning assets 355,250 22,711 8.54% 301,564 18,233 8.08% 3,759 719 4,478
Cash and due from banks 20,278 17,701
Allowance for loan losses (3,822) (2,905)
Other assets 17,090 10,932
----------- -----------
Total assets $ 388,796 $ 327,292
=========== ===========
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and
savings accounts $ 145,117 $ 2,544 2.34% $ 134,383 $ 2,494 2.48% 202 (152) 50
Time deposits 112,521 4,783 5.68% 75,122 2,640 4.70% 1,319 824 2,143
Term debt and repurchase
agreements 28,389 1,168 5.50% 25,372 974 5.13% 116 78 194
----------------------- ---------------------- -------------------------------
Total interest-bearing
liabilities 286,027 8,495 3.97% 234,877 6,108 3.48% 1,637 750 2,387
-------------------------------
Non interest bearing deposits 61,797 54,446
Other liabilities 2,613 1,694
----------- -----------
Total liabilities 350,437 291,017
Shareholders' equity 38,359 36,175
----------- -----------
Total liabilities and
shareholders' equity $ 388,796 $ 327,192
=========== ===========
NET INTEREST INCOME (1) $ 14,216 $ 12,125 $ 2,122 $ (31) $ 2,091
============ =========== ===============================
NET INTEREST SPREAD 4.57% 4.60%
AVERAGE YIELD ON EARNING ASSETS (1),(2) 8.54% 8.08%
INTEREST EXPENSE TO EARNING ASSETS 3.19% 2.70%
-------- --------
NET INTEREST INCOME TO EARNING ASSETS (1),(2) 5.35% 5.38%
======== ========
</TABLE>
(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 $336,790 and $285,824 for the nine months ended September 30,
2000 and 1999 respectively.
(2) Non-accrual loans are included in average balance.
13
<PAGE>
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 future losses in the loan portfolio (see additional
discussion under Allowance for Loan Losses). The provision for loan losses for
the third quarter of 2000 was $375 compared with $226 during the third quarter
of 1999. Net charge-offs were $26 for the three months ended September 30,
2000 compared with net charge-offs of $66 for the same period in 1999. For the
nine months ended September 30, 2000 net charge-offs totaled $760 compared
with $442 for the same period in 1999. Nonperforming assets decreased from
$1,604 at December 31, 1999 to $763 at September 30, 2000. The allowance for
loan losses totaled $4,119, or 1.50% of total loans, at September 30, 2000
compared with $3,469, or 1.40% of total loans at December 31, 1999.
Noninterest Income
Noninterest income totaled $2,828 for the quarter ended September 30,
2000 compared with $973 for the same period in 1999. The primary reason for
the increase was revenue generated by the Company's subsidiary Strand,
Atkinson which was acquired in December 1999. The subsidiary generated $1,779
in noninterest income during the quarter. Other noninterest income also
increased during the quarter to $216 from $128.
Noninterest income was $7,531 for the nine months ended September 30,
2000 compared with $2,891 for the same period in 1999. The increase is
primarily attributable to $4,519 of noninterest income generated by Strand,
Atkinson. Service charges on deposits also increased $265 for the nine month
period ending September 30, 2000 compared with the same period in 1999. This
increase was due to increases in the number of accounts as well as selected
service fee repricing that occurred at the end of the second quarter 1999.
Noninterest Expense
Noninterest expense for the quarter ended September 30, 2000 was $5,060
compared with $2,943 for the same period in 1999. The primary reason for the
increase was expenses incurred by Strand, Atkinson, Williams & York. Details
of noninterest expense by business segment for the second quarter of 2000 and
1999 are detailed below:
<TABLE>
<CAPTION>
For the quarter ended September 30, 2000
Community Retail Brokerage
Banking Services Administration EliminationsConsolidated
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 1,586 $ 1,242 $ - $ - $ 2,828
Premises and Equipment 565 58 - (10) 613
Other noninterest expense 1,224 383 54 (42) 1,619
-----------------------------------------------------------------------
Total noninterest expense $ 3,375 $ 1,683 $ 54 $ (52) $ 5,060
=======================================================================
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
For the quarter ended September 30, 1999
Community Retail Brokerage
Banking Services Administration EliminationsConsolidated
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 1,464 $ - $ - $ - $ 1,464
Premises and Equipment 449 - - - 449
Other noninterest expense 982 - 59 (11) 1,030
-----------------------------------------------------------------------
Total noninterest expense $ 2,895 $ - $ 59 $ (11) $ 2,943
=======================================================================
</TABLE>
The increase in expenses in the Community Banking segment was due to the
opening of the Salem store in early 2000 and additional lending staff.
For the nine months ended September 30, 2000 noninterest expense was
$13,569 compared with $8,176 for the same period in 1999. The primary reason
for the increase was due to expenses incurred by Strand, Atkinson. Details of
noninterest expense by business segment is detailed below:
<TABLE>
<CAPTION>
For the nine months ended September 30, 2000
Community Retail Brokerage
Banking Services Administration EliminationsConsolidated
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 4,697 $ 2,946 $ - $ $ 7,643
Premises and Equipment 1,642 121 - (11) 1,752
Other noninterest expense 3,189 915 136 (67) 4,173
-----------------------------------------------------------------------
Total noninterest expense $ 9,528 $ 3,982 $ 136 $ (78) $ 13,568
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended September 30, 1999
Community Retail Brokerage
Banking Services Administration EliminationsConsolidated
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 4,076 $ - $ - $ $ 4,076
Premises and Equipment 1,249 - - 1,249
Other noninterest expense 2,732 - 151 (32) 2,851
-----------------------------------------------------------------------
Total noninterest expense $ 8,057 $ - $ 151 $ (32) $ 8,176
=======================================================================
</TABLE>
The primary reason for the increase in salaries and employee benefits in the
community banking segment was staff associated with the opening of the
Portland store in July 1999 and the Salem store in January 2000 as well as
additional lending staff. Premises and equipment expense also increased as a
result of the two new stores.
15
<PAGE>
Income taxes
The effective tax rate for the Company was 37.0% during the third quarter of
2000 compared with 36.4% during the third quarter of 1999. For the nine months
ended September 30, 2000 the Company's effective tax rate was 36.1% compared
with 36.2% for the same period in 1999.
Financial Condition
Significant changes in the Company's financial position from December 31, 1999
to September 30, 2000 are as follows:
Loans
Loans have increased $25.7 million since December 31, 1999 to $274.2 million
at September 30, 2000. Details of the loan portfolio at September 30, 2000 and
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
09/30/00 12/31/99
-------- --------
<S> <C> <C>
Commercial & Industrial $ 60,792 $ 60,137
Real Estate:
Construction 35,402 29,962
Residential Mortgage 27,122 23,099
Commercial Real Estate 118,441 104,823
Individuals 32,253 30,309
Other 196 204
-------- --------
Total Loans $274,206 $248,534
======== ========
</TABLE>
The Company had no off balance sheet derivative instruments at September 30,
2000 or December 31, 1999.
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 and evaluates the adequacy of the allowance on an ongoing
basis. The following tools are used to manage and evaluate the loan portfolio:
o Internal credit review and risk grading system
o Regulatory examination results
o Monitoring of charge-off, past due and non-performing activity and trends
o Assessment of economic and business conditions in our market areas
On a quarterly basis losses inherent in the portfolio are estimated by
reviewing the following key elements of the loan portfolio:
o Portfolio performance measures
o Portfolio mix
o Portfolio growth rates
o Historical loss rates
o Portfolio concentrations
o Current economic conditions in our market areas
16
<PAGE>
The Company also tests the adequacy of the allowance for loan losses using
the following methodologies:
o Loss allocation by internally assigned risk rating
o Loss allocation by portfolio type based on historic loan loss experience
o The allowance as a percentage of total loans
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.
Activity in the allowance for loan losses was as follows for the three and
nine month periods ending September 30, 2000:
<TABLE>
<CAPTION>
Three months ended Year to Date
September 30, 2000 September 30, 2000
------------------ ------------------
<S> <C> <C>
Beginning Balance $ 3,770 $ 3,469
Provision for Loan Losses 375 1,410
Charge-offs (65) (828)
Recoveries 39 68
------------- -------------
Net charge-offs (26) (760)
------------- -------------
Ending Balance $ 4,119 $ 4,119
============= =============
</TABLE>
Deposits
Deposits have grown from $301.7 million at December 31, 1999 to $355.1 million
at September 30, 2000. Details of deposits at December 31, 1999 and September
30, 2000 were as follows:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Noninterest bearing demand $ 71,198 $ 59,709
Interest bearing demand and
Money market accounts 127,405 128,321
Savings 22,304 22,878
Time deposits 134,177 90,765
------------- ------------
Total Deposits $ 355,084 $ 301,673
============= ============
</TABLE>
Liquidity
Liquidity enables the Company to meet the borrowing needs of its
customers and withdrawals of its depositors. The Company meets its liquidity
needs through the maintenance of cash resources, lines of credit with other
financial institutions, maturities and sales of investment securities
available for sale, and a stable base of core deposits. Having a stable and
diversified deposit base is a significant factor in the Company's long-term
liquidity structure. At September 30, 2000 that Company had a total funding
line with the Federal Home Loan Bank of $101.9 million of which $14.6 million
17
<PAGE>
was outstanding. The Company also had available lines of $18.4 million from
other financial institutions.
At September 30, 2000 the Company had approximately $77.4 million in
outstanding commitments to extend credit. The Company anticipates that a
portion of these commitments will expire or terminate without funding and that
the Company has sufficient available resources to fund these commitments in
the normal course of business.
Capital Resources
Total shareholders' equity increased $3.9 million to $40.6 million at
September 30, 2000. The increase was the result of earnings of $4.1 million
and a $0.7 million increase in accumulated other comprehensive income offset
by dividends paid of $0.9 million. At September 30, 2000 the Company's Tier 1
and total risk-based capital ratios were approximately 12.8% and 14.1%. The
Federal Reserve Board's minimum risk-based capital ratio guidelines for Tier 1
and total capital are 4% and 8% respectively.
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 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's judgment and future expected
pricing behavior. Actual results could vary significantly from the results
derived from the model. The Company's interest rate risk has not changed
materially since December 31, 1999. The Company also has increased its
emphasis on noninterest sources of revenue in order to further stabilize
future earnings.
Part II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are being filed herewith and this list
constitutes the exhibit index.
Exhibit 27 Financial Data Schedule
(b) On August 15, 2000 the registrant filed a Form 8-K to report the
definitive agreement to merge with VRB Bancorp.
18
<PAGE>
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 November 10, 2000 /s/ Raymond P. Davis
------------------------------------
Raymond P. Davis
President and Chief Executive
Officer
Dated November 10, 2000 /s/ Daniel A. Sullivan
------------------------------------
Daniel A. Sullivan
Senior Vice President and
Chief Financial Officer
