As Filed with the Securities and Exchange Commission on August 14, 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: June 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 July 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
Condensed Consolidated Balance Sheets:
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income:
Three and six months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Comprehensive Income:
Three and six months ended June 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows:
Six months ended June 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-15
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 15-16
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 16
Item 5. Other Information none
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
UMPQUA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 27,065,839 $ 30,058,897
Interest bearing deposits in other banks 31,127,364 15,630,197
------------ ------------
Total Cash and Cash Equivalents 58,193,203 45,689,094
Trading account assets 1,065,608 474,782
Investment securities available for sale 71,578,854 76,868,536
Mortgage loans held for sale 3,916,403 -
Loans receivable 261,096,726 248,533,933
Less: Allowance for loan losses (3,769,593) (3,469,350)
------------ ------------
Loans, net 257,327,133 245,064,583
Federal Home Loan Bank stock at cost 2,422,600 2,346,200
Property and equipment, net of depreciation 9,549,886 9,419,744
Interest receivable 1,139,420 1,141,308
Other assets 5,884,409 5,732,469
------------ ------------
Total Assets $411,077,516 $386,736,716
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 69,081,882 $ 59,709,104
Savings and interest-bearing checking 154,271,936 151,199,156
Time deposits 121,246,775 90,765,095
------------ ------------
Total Deposits 344,600,593 301,673,355
Securities sold under agreements to repurchase 625,271 -
Term debt to Federal Home Loan Bank 24,638,000 46,158,000
Accrued interest payable 604,200 543,424
Other liabilities 1,729,072 1,645,715
------------ ------------
Total Liabilities 372,197,136 350,020,494
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock 25,823,869 25,778,259
Retained earnings 14,797,825 12,708,368
Accumulated other comprehensive loss (1,741,314) (1,770,405)
------------ ------------
Total Shareholders' Equity 38,880,380 36,716,222
------------ ------------
Total Liabilities and Shareholders' Equity $411,077,516 $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 June 30, Six months ended June 30,
2000 1999 2000 1999
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $6,101,146 $4,580,956 $ 11,842,406 $8,946,613
Interest on investment securities
available for sale 1,126,819 1,233,480 2,302,290 2,478,360
Interest bearing deposits with other banks 180,221 127,005 313,830 239,849
---------------------------- -------------------------------
Total interest income 7,408,186 5,941,441 14,458,526 11,664,822
---------------------------- -------------------------------
Interest Expense
Interest on deposits 2,387,047 1,710,848 4,506,138 3,328,926
Interest on borrowings and repurchase
agreements 373,342 324,794 917,533 648,212
---------------------------- -------------------------------
Total interest expense 2,760,389 2,035,642 5,423,671 3,977,138
---------------------------- -------------------------------
Net Interest Income 4,647,797 3,905,799 9,034,855 7,687,684
Provision for loan losses 584,500 327,000 1,034,500 655,000
---------------------------- -------------------------------
Net interest income after provision for
loan losses 4,063,297 3,578,799 8,000,355 7,032,684
Noninterest Income
Service charges 801,614 744,211 1,591,220 1,396,203
Commissions 1,260,204 90,137 2,740,293 190,237
Other noninterest income 237,556 123,768 371,451 349,422
---------------------------- -------------------------------
Total noninterest income 2,299,374 958,116 4,702,964 1,935,862
---------------------------- -------------------------------
Noninterest Expense
Salaries and employee benefits 2,354,346 1,251,121 4,815,668 2,612,146
Premises and Equipment 566,387 434,112 1,139,623 799,641
Other noninterest expense 1,274,687 1,027,911 2,553,920 1,838,587
---------------------------- -------------------------------
Total noninterest expense 4,195,420 2,713,144 8,509,211 5,250,374
---------------------------- -------------------------------
Income before income taxes 2,167,251 1,823,771 4,194,108 3,718,172
Provision for income taxes 780,492 650,682 1,495,000 1,342,138
---------------------------- -------------------------------
Net Income $1,386,759 $1,173,089 $ 2,699,108 $2,376,034
============================ ===============================
Earnings Per Share
Basic $ 0.18 $ 0.15 $ 0.35 $ 0.31
Diluted $ 0.18 $ 0.15 $ 0.35 $ 0.30
</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 June 30, Six months ended June 30,
2000 1999 2000 1999
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Net income $ 1,386,759 $ 1,173,089 $ 2,699,108 $ 2,376,034
----------- ----------- ----------- -----------
Unrealized gains (losses) arising during
the period on investment securities
available for sale (1,932,792) (2,736,804)
165,670 47,192
----------- ----------- ----------- -----------
Income tax expense (benefit) related to
unrealized gains (losses) on investment
securities available for sale (1,015,389)
63,544 (741,341) 18,101
----------- ----------- ----------- -----------
Net unrealized gains (losses) on investment
securities available for sale (1,191,451) (1,721,415)
102,126 29,091
----------- ----------- ----------- -----------
Comprehensive Income (Loss) $ 1,488,885 $ (18,362) $ 2,728,199 $ 654,619
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
UMPQUA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
2000 1999
--------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,699,108 $ 2,376,034
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Federal Home Loan Bank stock dividends (76,400) (73,100)
Net increase in trading account assets (590,826) -
Amortization of investment premiums, net 75,230 91,447
Origination of loans held for sale (9,913,409) (9,045,400)
Proceeds from sales of loans held for sale 6,043,139 9,878,969
Amortization of intangibles 112,130 -
Provision for loan losses 1,034,500 655,000
Gain on sales of loans (133,436) (122,085)
Depreciation of premises and equipment 469,931 341,548
Net increase in other assets (280,283) (95,925)
Net increase (decrease) in other liabilities 189,761 (398,124)
--------------------- ------------------
Net cash provided (used) by operating activities (370,555) 3,608,364
--------------------- ------------------
Cash flows from investing activities:
Purchases of investment securities - (11,442,038)
Maturities of investment securities 3,196,473 4,774,244
Principal repayments received on mortgage-backed and related securities 2,065,171 5,111,235
Net loan originations (22,684,208) (22,676,669)
Purchase of loans (5,362) (1,001,927)
Proceeds from sales of loans 9,479,823 1,275,864
Purchases of premises and equipment (600,073) (1,268,803)
--------------------- ------------------
Net cash used in investing activities (8,548,176) (25,228,094)
--------------------- ------------------
Cash flows from financing activities:
Net increase in deposit liabilities 42,927,238 15,314,504
Net increase in securities sold under agreements to repurchase 625,271 -
Dividends paid on common stock (609,651) (611,741)
Repurchase of common stock (67,408) (689,210)
Proceeds from stock options exercised 67,390 105,011
Repayments of Federal Home Loan Bank borrowings (21,520,000) (20,000)
--------------------- ------------------
Net cash provided by financing activities 21,422,840 14,098,564
--------------------- ------------------
Net increase (decrease) in cash and cash equivalents 12,504,109 (7,521,166)
Cash and cash equivalents, beginning of period 45,689,094 36,967,543
--------------------- ------------------
Cash and cash equivalents, end of period $ 58,193,203 $ 29,446,377
===================== ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,362,895 $ 3,952,019
Income taxes $ 1,540,000 $ 1,410,000
</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), South Umpqua Bank (the Bank) and Strand,
Atkinson, Williams & York, Inc. 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
period 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 earnings per share computations were
7,625,132 and 7,637,527 for the three months ended June 30, 2000 and 1999,
respectively. For diluted earnings per share 108,762 and 134,414 were added to
weighted average shares outstanding for the three months ended June 30, 2000
and 1999, respectively, representing potential dilution for stock options
outstanding, calculated using the treasury stock method. The weighted average
number of common shares outstanding for basic earnings per share computations
were 7,617,430 and 7,652,156 for the six months ended June 30, 2000 and 1999,
respectively. For diluted earnings per share 114,462 and 136,148 were added to
weighted average shares outstanding for the six months ended June 30, 2000 and
1999, respectively, representing potential dilution for stock options
outstanding
Options to purchase 340,374 shares of common stock for prices ranging from
$8.375 to $12.00 per share were outstanding during the quarter ended June 30,
2000 but were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price
of the common shares during the period.
(2) SEGMENT INFORMATION
For purposes of measuring and reporting the financial results, the Company is
divided into two business segments; Community Banking and Retail Brokerage
Services. The Community Banking segment consists of the operations conducted
by the Company's subsidiary South Umpqua Bank. The Bank provides a full array
of credit and deposit products to meet the banking needs of its market area
and targeted customers. At June 30, 2000, the Bank had 13 full service stores.
The Retail Brokerage Service segment consists of the operations of the
Company's subsidiary Strand, Atkinson, Williams & York, Inc. which was
7
<PAGE>
acquired in December 1999. Strand, Atkinson, Williams & York, Inc. provides a
full range of retail brokerage services to its clients through its two
principal offices in Portland and Medford, Oregon as well as sales counters at
most of the Bank's stores. At June 30, 2000, Strand, Atkinson, Williams &
York, Inc. had 17 full time brokers. The following table presents summary
income statements and a reconciliation to the Company's consolidated totals
for the six months ended June 30, 2000.
<TABLE>
<CAPTION>
($ in thousands) Community Retail Brokerage
Banking Services Administration Eliminations Consolidated
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 14,427 $ 31 $ - $ - $ 14,458
Interest Expense 5,424 - - - 5,424
-------------------------------------------------------------------------------
Net Interest Income 9,003 31 - - 9,034
Provision for Loan Losses 1,034 - - - 1,034
Noninterest Income 2,026 2,724 - (47) 4,703
Noninterest Expense 6,155 2,319 82 (47) 8,509
-------------------------------------------------------------------------------
Income (Loss) before Taxes 3,840 436 (82) - 4,194
Income Tax Expense (Benefit) 1,342 182 (29) - 1,495
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Net Income (Loss) $ 2,498 $ 254 $ (53) $ - $ 2,699
===============================================================================
</TABLE>
Total assets by segment have not changed materially since December 31, 1999.
(2) IMPAIRED LOANS
The Company had loans totaling $1,389,000 and $1,052,000 at June 30, 2000 and
December 31, 1999, respectively, that were considered impaired. At June 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 $1,998,000
for the six months ended June 30, 2000. All payments received on the loans
were applied to principal and consequently no income has been recognized
during the six months ended June 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 June 30, 2000 and the operating results for
the three 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, 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;
8
<PAGE>
customer acceptance of new products and services; 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 $1,387 for the quarter ended June 30, 2000, an 18.2%
improvement over the same period in the previous year. Diluted earnings per
share also improved to $0.18 for the second quarter of 2000 compared with
$0.15 for the comparable in 1999. Return on equity was 14.7% and return on
assets was 1.44% for the quarter ended June 30, 2000.
For the six months ended June 30, 2000 the Company earned $2,699 compared with
$2,376 for the comparable period in 1999, a 13.6% increase. Diluted earnings
per share were $0.35 for the first six months of 2000, up from $0.30 during
the same period in 1999. Return on equity was 14.4% and return on assets was
1.42% for the six months ended June 30, 2000 compared with a return on equity
of 13.26% and a return on assets of 1.50% for the same period in 1999.
Loans and deposits grew to record highs at June 30, 2000. Loans have increased
from $248.5 million at December 31, 1999 to $261.1 million at June 30, 2000.
Deposits have increased $42.9 million, or 14.2% since December 31, 1999 to
$344.6 million at June 30, 2000.
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
"rate". Volume refers to the dollar level of interest earning assets and
interest bearing liabilities. Rate refers to the underlying earnings yields on
assets and costs of liabilities.
Taxable equivalent net interest income for second quarter of 2000 was $4,762
compared with $4,008 for the second quarter of 1999, a $754 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 8.53% during
the period compared with 8.09% in 1999, reflecting the increased yield on the
Company's loan portfolio and a shift in the mix of earning assets. The yield
on the Company's loan portfolio increased to 9.16% during the second quarter
of 2000 compared with 8.96% during the same period in 1999. The increase was
primarily due to repricing of the Company's variable rate loans. Additionally,
there was a shift in the mix of earning assets towards loans and out of
investments securities. Loans generally earn a higher rate of interest than
investment securities. In 1999 the ratio of loans to total earning assets was
68% compared with 75% in 2000. The cost of interest bearing liabilities
increased to 3.90% during the period compared with 3.48% in 1999 due primarily
to higher rates paid on time deposits. The net interest margin improved to
5.40% for the second quarter of 2000 compared with 5.36% in for the same
period in 1999.
9
<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>
Three Months ended Three Months ended
June 30, 2000 June 30, INCREASE (DECREASE)
AVERAGE INCOME/ AVERAGE INCOME/ DUE TO CHANGE IN
BALANCE EXPENSE RATE BALANCE EXPENSE RATE VOLUME RATE NET CHANGE
-------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans (1)(2) $267,299 $ 6,085 9.16% $204,207 $ 4,564 8.96% $ 1,406 115 $ 1,521
Loans held for sale 663 17 10.31% 388 16 16.54% 11 (10) 1
Trading account assets 932 25 10.79% 25 - 25
Investment securities
Taxable securities 53,685 878 6.54% 63,761 1,001 6.28% (158) 35 (123)
Nontaxable securities (1) 21,230 355 6.69% 20,590 335 6.51% 10 10 20
Temporary investments 10,703 162 6.09% 10,844 127 4.70% (2) 37 35
-------------------- ------------------- ----------------------
Total interest earning assets 354,512 7,522 8.53% 299,790 6,043 8.09% 1,292 187 1,479
Cash and due from banks 19,986 17,839
Allowance for loan losses (3,789) (2,921)
Other assets 16,738 10,600
----------- -----------
Total assets $387,447 $325,308
=========== ===========
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and
savings accounts $145,378 $ 805 2.23% $135,789 $ 855 2.53% 60 (110) (50)
Time deposits 111,986 1,582 5.68% 73,378 855 4.67% 449 279 727
Term debt and Repurchase .
agreements 27,443 373 5.47% 25,522 325 5.11% 24 23 48
-------------------- ------------------- ----------------------
Total interest-bearing liabiliti284,807 2,760 3.90% 234,689 2,035 3.48% 533 192 725
Non interest bearing deposits 62,248 52,938
Other liabilities 2,336 1,668
----------- -----------
Total liabilities 349,391 289,295
Shareholders' equity 38,056 36,013
----------- -----------
Total liabilities and
shareholders' equity $387,447 $325,308
=========== ===========
NET INTEREST INCOME (1) $ 4,762 $ 4,008 $ 759 $ (5) $ 754
========== ========= ===========================
NET INTEREST SPREAD 4.64% 4.61%
AVERAGE YIELD ON EARNING ASSETS (1),(2) 8.53% 8.09%
INTEREST EXPENSE TO EARNING ASSETS 3.13% 2.72%
-------- ---------
NET INTEREST INCOME TO EARNING
ASSETS (1),(2) 5.40% 5.36%
======== =========
</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 $114 and $101 for the three months ended June 30, 2000 and 1999
respectively.
(2) Non-accrual loans are included in average balance.
Taxable equivalent net interest income for the six months ended June 30, 2000
improved $1,389 over the same period in 1999 to $9,252 (see Table 2). The
improvement was due almost entirely to increases in the volume of earning
assets. Average earning assets increased $53.8 million in 2000 compared with
1999. Average loans, the largest component of average interest earning assets
increased $61.9 million for the six month ended June 30, 2000 compared with
10
<PAGE>
the same period in 1999. The yield on earning assets improved 0.43% and the
cost of interest bearing deposits also increased 0.43% while the net interest
margin decreased slightly for the six months ended June 30, 2000 to 5.36% from
5.39% for the same period in 1999.
Table 2
<TABLE>
<CAPTION>
Six Months ended Six Months ended
June 30, 2000 June 30, INCREASE (DECREASE)
AVERAGE INCOME/ AVERAGE INCOME/ DUE TO CHANGE IN
BALANCE EXPENSE RATE BALANCE EXPENSE RATE VOLUME RATE NET CHANGE
-------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans (1)(2) $260,406 $11,819 9.13% $198,530 $ 8,913 9.05% $ 2,785 121 $ 2,907
Loans held for sale 438 24 11.02% 509 34 13.47% (5) (5) (10)
Trading account assets 729 35 9.65% - - 35 - 35
Investment securities
Taxable securities 55,329 1,803 6.52% 66,756 2,063 6.18% (353) 93 (260)
Nontaxable securities (1) 21,275 712 6.69% 17,862 581 6.51% 111 20 131
Temporary investments 9,734 283 5.85% 10,453 249 4.80% (17) 51 34
-------------------- ------------------- ----------------------
Total interest earning assets 347,911 14,676 8.51% 294,110 11,840 8.12% 2,556 280 2,837
Cash and due from banks 19,944 17,151
Allowance for loan losses (3,718) (2,825)
Other assets 17,160 10,410
----------- -----------
Total assets $381,297 $318,846
=========== ===========
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and
savings accounts $143,992 $1,666 2.33% $131,230 $1,628 2.50% 159 (121) 38
Time deposits 104,402 2,840 5.47% 72,448 1,701 4.73% 752 387 1,139
Term debt and Repurchase
agreements 33,259 917 5.54% 25,474 648 5.13% 199 70 269
-------------------- ------------------- ----------------------
Total interest-bearing
liabilities 281,653 5,423 3.87% 229,152 3,977 3.50% 1,110 336 1,446
Non interest bearing deposits 59,552 51,626
Other liabilities 2,529 1,927
----------- -----------
Total liabilities 343,734 282,705
Shareholders' equity 37,563 36,141
----------- -----------
Total liabilities and
shareholders' equity $381,297 $318,846
=========== ===========
NET INTEREST INCOME (1) $ 9,253 $ 7,863 $ 1,446 $ (56) $1,390
========== ========= ===========================
NET INTEREST SPREAD 4.63% 4.62%
AVERAGE YIELD ON EARNING ASSETS (1),(2) 8.51% 8.12%
INTEREST EXPENSE TO EARNING ASSETS 3.14% 2.73%
-------- ---------
NET INTEREST INCOME TO EARNING
ASSETS (1),(2) 5.36% 5.39%
======== =========
</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 $217 and $175 for the six months ended June 30, 2000 and 1999
respectively.
(2) Non-accrual loans are included in average balance.
11
<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 second
quarter of 2000 was $592 compared with $327 during the second quarter of 1999.
Net charge-offs were $589 for the three months ended June 30, 2000 compared
with net charge-offs of $296 for the same period in 1999. Nonperforming assets
increased from $1,604 at December 31, 1999 to $1,718 at June 30, 2000. The
allowance for loan losses totaled $3,770, or 1.44% of total loans, at June 30,
2000 compared with $3,469, or 1.40% of total loans at December 31, 1999.
Noninterest Income
Noninterest income totaled $2,299 for the quarter ended June 30, 2000 compared
with $958 for the same period in 1999. The primary reason for the increase was
revenue generated by the Company's subsidiary Strand, Atkinson, Williams &
York, which was acquired in December 1999. The subsidiary generated $1,260 in
noninterest income during the quarter. Other noninterest income also increased
during the quarter to $238 from $124 for the same period in 1999. The primary
reason for this increase was an $87 gain on the sale of approximately $6
million of loans during the quarter.
Noninterest income was $4,703 for the six months ended June 30, 2000 compared
with $1,936 for the same period in 1999. The increase is primarily
attributable to $2,724 of noninterest income generated by Strand, Atkinson,
Williams and York. Service charges on deposit also increased $195 for the six
month period ending June 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 June 30, 2000 was $4,195 compared
with $2,713 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 June 30, 2000
Community Retail Brokerage
Banking Services Administration Eliminations Consolidated
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 1,529 $ 825 $ - $ - $ 2,354
Premises and Equipment 535 31 - - 566
Other noninterest expense 966 282 63 (36) 1,275
-----------------------------------------------------------------------------------
Total noninterest expense $ 3,030 $ 1,138 $ 63 $ (36) $ 4,195
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
For the quarter ended June 30, 1999
Community Retail Brokerage
Banking Services Administration Eliminations Consolidated
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 1,251 $ - $ - $ - $ 1,251
Premises and Equipment 434 - - - 434
Other noninterest expense 941 - 92 (5) 1,028
-----------------------------------------------------------------------------------
Total noninterest expense $ 2,626 $ - $ 92 $ (5) $ 2,713
===================================================================================
</TABLE>
12
<PAGE>
The increase in salaries and employee benefits in the Community Banking
segment was due to the opening of the Salem store in early 2000 and additional
lending staff. The increase in premises and equipment expense in the Community
Banking segment is also due to the opening of the Salem store.
For the six months ended June 30, 2000 noninterest expense was $8,509 compared
with $5,250 for the same period in 1999. The primary reason for the increase
was due to expenses incurred by Strand, Atkinson, Williams & York. Details of
noninterest expense by business segment is detailed below:
<TABLE>
<CAPTION>
NONINTEREST EXPENSE DETAIL For the six months ended June 30, 2000
Community Retail Brokerage
Banking Services Administration Eliminations Consolidated
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 3,111 $ 1,704 $ - $ - $ 4,815
Premises and Equipment 1,076 64 - - 1,140
Other noninterest expense 1,968 552 82 (48) 2,554
-----------------------------------------------------------------------------------
Total noninterest expense $ 6,155 $ 2,320 $ 82 $ (48) $ 8,509
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
For the six months ended June 30, 1999
Community Retail Brokerage
Banking Services Administration Eliminations Consolidated
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 2,612 $ - $ - $ - $ 2,612
Premises and Equipment 800 - - - 800
Other noninterest expense 1,751 - 92 (5) 1,838
-----------------------------------------------------------------------------------
Total noninterest expense $ 5,163 $ - $ 92 $ (5) $ 5,250
===================================================================================
</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.
Income taxes
The effective tax rate for the Company was 36.0% during the second quarter of
2000 compared with 35.7% during the second quarter of 1999. For the six months
ended June 30, 2000 the Company's effective tax rate was 35.6% compared with
36.1% for the same period in 1999.
13
<PAGE>
Financial Condition
Significant changes in the Company's financial position from December 31, 1999
to June 30, 2000 are as follows:
Loans have increased $12.6 million since December 31, 1999 to $261.1 million
at June 30, 2000. Details of the loan portfolio at June 30, 2000 and December
31, 1999 were as follows:
June 30, 2000 December 31, 1999
---------------------------------------
Commercial & Industrial $ 59,208 $ 60,137
Real Estate:
Construction 32,984 29,962
Residential Mortgage 26,162 23,099
Commercial Real Estate 111,063 104,823
Individuals 30,691 30,309
Other 989 204
---------------------------------------
Total Loans $ 261,097 $ 248,534
=======================================
The Company had no off balance sheet derivative instruments at June 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
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
14
<PAGE>
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 six
month periods ending June 30, 2000:
Three months ended Year to Date
June 30, 2000 June 30, 2000
---------------------------------------
Beginning Balance $ 3,777 $ 3,469
Provision for Loan Losses 585 1,035
Charge-offs (606) (763)
Recoveries 14 29
---------------------------------------
Net charge-offs/recoveries (592) (734)
---------------------------------------
Ending Balance $ 3,770 $ 3,770
=======================================
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 investments 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 June 30, 2000 that Company had a total funding line
with the Federal Home Loan Bank of $98.1 million of which $24.6 million was
outstanding. The Company also had available lines of $18.4 million from
other financial institutions.
At June 30, 2000 the Company had approximately $72 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 $2.2 million to $38.9 million at June 30,
2000. The increase was the result of earnings of $2.7 million, offset by
dividends paid of $0.6 million. At June 30, 2000 the Company's Tier 1 and
total risk-based capital ratios were approximately 13.38% and 14.63%. 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.
15
<PAGE>
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.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual shareholders' meeting on April 26, 2000. At the
meeting the following Directors were elected to serve 3-year terms:
Votes For Votes Withheld
Scott Chambers 6,126,836 32,981
Ron Doan 6,116,972 42,845
Allyn Ford 6,126,206 33,611
The following Directors continued to serve out the remainder of their terms,
either 1 or 2 years:
Harold L. Ball
Raymond P. Davis
David B. Frohnmayer
Lynn K. Herbert
Neil D. Hummel
Frances Jean Phelps
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) There were no current reports on Form 8-K filed by the registrant
during the quarter ended June 30, 2000
16
<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 August 11, 2000 /s/ Raymond P. Davis
--------------------------------------
Raymond P. Davis
President and Chief Executive Officer
Dated August 11, 2000 /s/ Daniel A. Sullivan
--------------------------------------
Daniel A. Sullivan
Senior Vice President and Chief
Executive Officer
17
