As Filed with the Securities and Exchange Commission on May 14, 2001
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: March 31, 2001 |
[_] | 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 of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
445 SE Main St.
Roseburg, Oregon 97470
(address of Principal Executive Offices)
(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 April 30, 2001: 14,422,959
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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: March 31, 2001 and December 31, 2000 | 3 | |
Condensed Consolidated Statements of Income: Three months ended March 31, 2001 and 2000 | 4 | |
Condensed Consolidated Statements of Comprehensive Income: Three months ended March 31, 2001 and 2000 | 5 | |
Condensed Consolidated Statements of Cash Flows: Three months ended March 31, 2001 and 2000 | 6 | |
Notes to Condensed Consolidated Financial Statements | 7-8 | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 9-15 |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 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 | none |
Item 5. | Other Information | none |
Item 6. | Exhibits and Reports on Form 8-K | 16 |
SIGNATURES | 17 |
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
UMPQUA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31, 2001 2000 ------------- ------------- ASSETS Cash and due from banks $ 35,618,103 $ 43,998,452 Federal funds sold 38,400,000 23,750,000 Interest bearing deposits in other banks 31,539,271 9,203,982 ------------- ------------- Total Cash and Cash Equivalents 105,557,374 76,952,434 Trading account assets 1,494,483 1,105,868 Investment securities available for sale, at fair value 88,185,851 123,649,847 Investment securities held to maturity, at amortized cost 16,961,810 17,060,488 Mortgage loans held for sale 7,886,117 1,534,060 Loans receivable 541,971,898 530,143,203 Less: Allowance for loan losses (7,298,181) (7,096,499) ------------- ------------- Loans, net 534,673,717 523,046,704 Federal Home Loan Bank stock at cost 4,599,800 4,527,300 Property and equipment, net of depreciation 19,485,514 18,678,617 Intangible assets 11,208,485 11,113,258 Other assets 7,184,903 7,979,686 ------------- ------------- Total Assets $ 797,238,054 $ 785,648,262 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest bearing $ 163,463,733 $ 161,351,466 Savings and interest-bearing checking 279,383,519 289,264,421 Time deposits 244,173,130 230,689,407 ------------- ------------- Total Deposits 687,020,382 681,305,294 Securities sold under agreements to repurchase 7,829,040 4,513,924 Term debt to Federal Home Loan Bank 14,608,000 14,618,000 Accrued interest payable 6,341,359 6,410,511 ------------- ------------- Total Liabilities 715,798,781 706,847,729 ------------- ------------- Commitments and contingencies SHAREHOLDERS' EQUITY Common stock 44,706,391 44,618,852 Retained earnings 36,279,247 34,523,533 Cumulative other comprehensive income (loss) 453,635 (341,852) ------------- ------------- Total Shareholders' Equity 81,439,273 78,800,533 ------------- ------------- Total Liabilities and Shareholders' Equity $ 797,238,054 $ 785,648,262 ============= =============
See accompanying notes to financial statements
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UMPQUA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended March 31, 2001 2000 ---------------- ---------------- Interest Income Interest and fees on loans $ 12,270,156 $ 10,235,518 Interest on taxable securities 1,401,642 1,798,983 Interest on non-taxable securities 464,269 481,313 Interest on temporary investments 516,208 133,252 Interest on trading account assets 20,057 6,261 ------------------------------------------ Total interest income 14,672,332 12,655,327 ------------------------------------------ Interest Expense Interest on deposits 5,490,504 3,724,847 Interest on repurchase agreements 62,518 -- Interest on borrowings 182,753 576,380 ------------------------------------------ Total interest expense 5,735,775 4,301,227 ------------------------------------------ Net Interest Income 8,936,557 8,354,100 Provision for loan losses 260,000 450,000 ------------------------------------------ Net interest income after provision for loan losses 8,676,557 7,904,100 Noninterest Income Service charges 1,405,715 1,143,227 Brokerage fees and commissions 1,930,334 1,480,089 Other noninterest income 465,057 364,385 ------------------------------------------ Total noninterest income 3,801,106 2,987,701 ------------------------------------------ Noninterest Expense Salaries and employee benefits 4,262,671 4,066,731 Premises and equipment 1,111,756 1,042,758 Other noninterest expense 2,376,285 1,858,308 Merger expenses 787,618 -- ------------------------------------------ Total noninterest expense 8,538,330 6,967,797 ------------------------------------------ Income before income taxes 3,939,333 3,924,004 Provision for income taxes 1,604,073 1,394,508 ------------------------------------------ Net Income $ 2,335,260 $ 2,529,496 ========================================== Earnings Per Share Basic $ 0.16 $ 0.18 Diluted $ 0.16 $ 0.17
See accompanying notes to financial statements
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UMPQUA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three months ended March 31, 2001 2000 ----------- ----------- Net income $ 2,335,260 $ 2,529,496 ----------- ----------- Unrealized gains (losses) arising during the period on investment securities available for sale 1,281,814 (389,118) Income tax (benefit) expense related to unrealized gains on investment securities 486,327 (147,851) ----------- ----------- Net unrealized gains (losses) on investment securities available for sale 795,487 (241,267) ----------- ----------- Comprehensive Income $ 3,130,747 $ 2,288,229 =========== ===========
See accompanying notes to financial statements
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UMPQUA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended March 31, 2001 2000 ---------------- --------------- Cash flows from operating activities: Net income $ 2,335,260 $ 2,529,496 Adjustments to reconcile net income to net cash provided by operating activities: Federal Home Loan Bank stock dividends (72,500) (68,500) Net increase in trading account assets (388,615) (178,537) Amortization of investment premiums, net 13,480 38,589 Origination of loans held for sale (16,391,408) (2,573,479) Proceeds from sales of loans held for sale 10,228,787 1,677,418 Provision for loan losses 260,000 450,000 Gain on sales of loans (189,436) (10,468) Depreciation of premises and equipment 332,577 376,145 Amortization of intangibles 238,108 216,281 Net increase in other assets (24,879) (242,831) Net (decrease) increase in other liabilities (46,997) 1,244,023 ---------------- --------------- Net cash (used in) provided by operating activities (3,705,623) 3,458,137 ---------------- --------------- Cash flows from investing activities: Purchases of investment securities available for sale (6,035,625) -- Maturities/calls of investment securities available for sale 41,897,521 -- Principal repayments received on mortgage-backed and related securities 869,112 898,144 Maturities of investment securities held to maturity 100,000 -- Net loan originations (11,887,013) (16,661,390) Purchases of premises and equipment (1,139,474) (512,622) ---------------- --------------- Net cash provided by (used in) investing activities 23,804,521 (16,275,868) ---------------- --------------- Cash flows from financing activities: Net increase in deposit liabilities 5,715,088 14,347,306 Net increase in securities sold under agreements to repurchase 3,315,116 -- Dividends paid on common stock (576,580) (1,301,128) Repurchase of common stock -- (49,257) Proceeds from stock options exercised 62,418 17,838 Repayments of Federal Home Loan Bank borrowings (10,000) (2,010,000) ---------------- --------------- Net cash provided by financing activities 8,506,042 11,004,759 ---------------- --------------- Net increase (decrease) in cash and cash equivalents 28,604,940 (1,812,972) Cash and cash equivalents, beginning of period 76,952,434 63,510,056 ---------------- --------------- Cash and cash equivalents, end of period $ 105,557,374 $ 61,697,084 ================ =============== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 5,685,319 $ 4,321,338 Income taxes $-- $ 445,000
See accompanying notes to financial statements
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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 in the United States of America 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 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 2000 annual report to shareholders. The results of operations for the 2001 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:
3 months ended | ||
March 31, 2001 | March 31, 2000 | |
Net Income | $ 2,335,260 | $ 2,335,260 |
Average O/S shares | 14,402,380 | 14,359,337 |
Basic EPS | $ 0.16 | $ 0.18 |
=========== | =========== | |
Common Stock Equivalents | 158,409 | 156,247 |
Fully diluted shares | 14,560,789 | 14,515,584 |
Fully diluted EPS | $ 0.16 | $ 0.17 |
=========== | =========== |
Options to purchase 208,643 shares of common stock for prices ranging from $10.05 to $13.59 per share were outstanding during the quarter ended March 31, 2001 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.
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(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 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 March 31, 2001, the Bank had 27 full service stores. The Retail Brokerage Services 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 and has sales counters at most of the Bank's stores. At March 31, 2001, Strand, Atkinson, Williams & York, Inc. had 47 full time brokers. The following table presents summary income statements and a reconciliation to the Company's consolidated totals for the three months ended March 31, 2001 and 2000 (in thousands).
Three months ended March 31, 2001 Community Retail Brokerage Admin- Elimin- Banking Services istration ations Consolidated ---------------------------------------------------------------- Interest Income $ 14,652 $ 20 $ 32 $ (32) $ 14,672 Interest Expense 5,736 32 -- (32) 5,736 ---------------------------------------------------------------- Net Interest Income 8,916 (12) 32 -- 8,936 Provision for Loan Losses 260 -- -- -- 260 Noninterest Income 1,893 1,931 -- (23) 3,801 Noninterest Expense 6,670 1,841 50 (23) 8,538 ---------------------------------------------------------------- Income before Taxes 3,879 78 (18) -- 3,939 Income Tax Expense (Benefit) 1,566 53 (14) -- 1,605 ---------------------------------------------------------------- Net Income $ 2,313 $ 25 $ (4) $ -- $ 2,334 ================================================================ Three months ended March 31, 2000 Community Retail Brokerage Admin- Elimin- Banking Services istration ations Consolidated ---------------------------------------------------------------- Interest Income $ 12,649 $ 6 $ -- $ -- $ 12,655 Interest Expense 4,301 -- -- -- 4,301 ---------------------------------------------------------------- Net Interest Income 8,348 6 -- -- 8,354 Provision for Loan Losses 450 -- -- -- 450 Noninterest Income 1,538 1,465 -- (15) 2,988 Noninterest Expense 5,778 1,186 19 (15) 6,968 ---------------------------------------------------------------- Income before Taxes 3,658 285 (19) -- 3,924 Income Tax Expense (Benefit) 1,292 110 (7) -- 1,395 ---------------------------------------------------------------- Net Income $ 2,366 $ 175 $ (12) $ -- $ 2,529 ================================================================
Total assets by segment have not changed materially since December 31, 2000.
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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 (the Company) financial condition at March 31, 2001 and the operating results for the three months then ended. When warranted, comparisons are made to the same period in 2000 and to December 31, 2000. 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
On a pre-merger expense basis, the Company earned $2,821 for the quarter ended March 31, 2001 compared with $2,529 for the same period in 2000, an 11.5% increase. Diluted earnings per share excluding merger expenses improved to $0.19 for the first quarter of 2001 compared with $0.17 for the first quarter of 2000. Return on average shareholders' equity was 14.2% and return on average assets was 1.46% for the quarter ended March 31, 2001 before merger related expenses. Including merger expenses of $486 (net of tax) the Company earned $2,335 for the quarter ended March 31, 2001.
Total assets reached $797.2 million at March 31, 2001, an $11.6 million increase since December 31, 2001.
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.
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Net interest income on a taxable equivalent basis was $9,165 for the quarter ended March 31, 2001 compared with $8,598 for the same period in 2000 (Table 1 and 2). The increase of $567 was primarily attributable to an increase in the volume of earning assets, offset by a compression in rates. Average earning assets increased $88 million or 14% compared with the prior year period. Loans, the largest component of earning assets, increased $80 million on average compared with the prior year period. Average investment securities available-for-sale decreased $24 million in the current year due to maturities and calls. Partly due to these maturities and calls, the average volume of temporary investments increased $32 million compared with prior year. Overall, the yield on earning assets improved to 8.51% for the quarter compared with 8.35% for the same period in the prior year. Average interest bearing liabilities increased $60 million compared with the prior year period. Of this increase, $85 million was in the time deposit category, generally the most expensive deposit product, offset by a $26 million decrease in term borrowings. As a result of the mix changes in interest bearing liabilities, the average cost of those liabilities increased 0.71% to 4.31% for the quarter ended March 31, 2001. Somewhat offsetting the increase in interest bearing liability cost was an increase in average noninterest bearing funding sources. Average noninterest bearing funding sources consist of noninterest bearing deposits, capital and other liabilities. Average noninterest bearing funding sources increased $34 million compared with the prior year period. As a result of the preceding changes, the interest spread (the difference between the yield on earning assets and the cost of interest bearing liabilities) decreased 0.54% to 4.20% for the quarter ended March 31, 2001 compared with the same period in the prior year. The net interest margin for the quarter ended March 31, 2001 was 5.24%, a decrease of 0.32% from the same period in the prior year.
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Table 1 QUARTER ENDED MARCH 31, 2001 QUARTER ENDED MARCH 31, 2000 AVERAGE INTEREST INCOME AVERAGE YIELDS AVERAGE INTEREST INCOME AVERAGE YIELDS BALANCE OR EXPENSE OR RATES BALANCE OR EXPENSE OR RATES (in thousands) INTEREST-EARNING ASSETS: Loans and loans held for sale (2) $539,141 $ 12,270 9.23% $ 458,516 $ 10,236 8.98% Investment securities- Available for sale Taxable securities 88,238 1,402 6.36% 113,757 1,799 6.33% Non-taxable securities(1) 22,406 375 6.70% 21,319 357 6.70% Investment securities- Held to maturity (1) 17,036 311 7.30% 18,011 365 8.11% Trading account assets 1,241 27 8.70% 527 9 6.83% Temporary investments 41,941 516 4.99% 9,520 133 5.62% ------------------------- ------------------------- Total interest earning assets 710,003 14,901 8.51% 621,650 12,899 8.35% Allowance for loan losses (7,195) (7,381) Other assets 77,785 72,633 --------- --------- Total assets $780,593 $ 686,902 ========= ========= INTEREST-BEARING LIABILITIES: Interest-bearing checking and savings accounts $279,501 $ 1,839 2.67% $ 283,337 $ 1,832 2.60% Time deposits 240,264 3,651 6.16% 155,324 1,893 4.90% Repurchase agreements 5,301 63 4.82% 0 0 Term debt 14,613 183 5.08% 41,230 576 5.62% ------------------------- ------------------------- Total interest-bearing liabilities 539,679 5,736 4.31% 479,891 4,301 3.60% Non-interest-bearing deposits 157,234 131,146 Other liabilities 3,257 4,779 --------- --------- Total liabilities 700,170 615,816 Shareholders' equity 80,423 71,086 --------- --------- Total liabilities and shareholders' equity $780,593 $ 686,902 ========= ========= NET INTEREST INCOME (1) $ 9,165 $ 8,598 ========= ========= NET INTEREST SPREAD 4.20% 4.74% AVERAGE YIELD ON EARNING ASSETS (1),(2) 8.51% 8.35% INTEREST EXPENSE TO EARNING ASSETS 3.28% 2.78% -------- --------- NET INTEREST INCOME TO EARNING ASSETS (1),(2) 5.24% 5.56%
(1) | Tax exempt income has been adjusted to a tax equivalent basis at a 35% effective rate. The amount of such adjustment was an addition to recorded income of $229 and $244 for 2001 and 2000, respectively. |
(2) | Non-accrual loans are included in average balance. |
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2001 COMPARED TO 2000 ---------------------------------- INCREASE (DECREASE) DUE TO CHANGE IN ---------------------------------- Table 2 VOLUME RATE NET CHANGE (in thousands) INTEREST-EARNING ASSETS: Loans(1) $ 1,700 $ 334 $ 2,034 Investment securities- Available for sale Taxable securities (404) 7 (397) Non-taxable securities(1) 18 -- 18 Investment securities- Held to maturity (1) (20) (34) (54) Trading account assets 12 6 18 Temporary investments 448 (65) 383 ---------------------------------- Total (1) 1,755 247 2,002 INTEREST-BEARING LIABILITIES: Interest-bearing checking and savings accounts (40) 47 7 Time deposits 1,011 747 1,758 Repurchase agreements 63 -- 63 Term debt (374) (19) (393) ---------------------------------- Total 660 774 1,435 ---------------------------------- Net increase (decrease) in net interest income $ 1,095 $ (528) $ 567 ==================================
(1) | Tax-exempt interest income has been adjusted to a tax equivalent basis at a 35% effective tax rate. |
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 in the loan portfolio (see additional discussion under Allowance for Loan Losses). The provision for loan losses for the quarter ended March 31, 2001 was $260 compared with $450 during the first quarter of 2000. Net charge-offs were $58 for the three months ended March 31, 2001 compared with net charge-offs of $144 for the same period in 2000. Nonperforming assets at March 31, 2001 were relatively unchanged from year-end 2000 levels at $996. The allowance for loan losses totaled $7,298, or 1.35% of total loans, at March 31, 2001 compared with $7,096, or 1.34% of total loans at December 31, 2000.
Noninterest Income
Noninterest income for the quarter ended March 31, 2001 was $3,801, an $814 increase over the same period in 2000. Brokerage commissions and fees, the largest component of noninterest income increased $450 over the prior year. This increase was due to the acquisition of Adams, Hess, Moore & Co. (Adams, Hess) by Strand, Atkinson in August 2000. Revenue generated by Adams, Hess was $620 in the first quarter of 2001. Service charges, the second largest component of noninterest income increased $263 compared with the same quarter in the prior year. Service charges increased primarily due to deposit fee repricings that occurred during the quarter. These repricings were a result of the integration of the deposit products at the Bank.
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Noninterest Expense
Noninterest expense for the quarter ended March 31, 2001 was $8,538 compared with $6,968 for the same period in 2000. The primary reason for the increase were merger expenses incurred as a result of the merger of Valley of the Rogue Bank and South Umpqua Bank. Details of merger expenses incurred in 2001 were as follows:
Professional fees | $46 | |
Severance and relocation | 263 | |
Premises and equipment write-downs | 234 | |
Computer conversions | 62 | |
Supplies | 36 | |
Other | 147 | |
Total | $788 |
Accrued merger expenses at March 31, 2001 were $367 and consisted of accrued severance and related expenses.
Salaries and employee benefits expense was $4,263 for the quarter ended March 31, 2001, up $196 compared with the same period in 2000. Salaries and benefits at Strand, Atkinson increased $412 due primarily to the acquisition of Adams, Hess in August 2000. Premises and equipment expense was $1,112 for the quarter ended March 31, 2001, an increase of $69 from the same period in the prior year. Again, the increase was primarily attributable to the acquisition of Adams, Hess. Additionally, the Bank opened a new store in Central Point in February 2001. Other noninterest expense which consists of marketing, services, insurance, other fees, communication costs, intangible amortization and other expense increased $518 over the first quarter of 2000 to $2,376.
Income taxes
The effective tax rate for the Company was 40.7% during the first quarter of 2001 compared with 35.5% during the first quarter of 2000. The increase was partially attributable to certain merger expenses which are not deductible for income tax purposes.
Financial Condition
Significant changes in the Company's financial position from December 31, 2000 to March 31, 2001 are as follows:
Investment securities available for sale-
Investment securities have decreased $35.5 million since year-end 2000 due primarily to early calls of approximately $34 million of U.S. agency securities. The cash flows from these calls has been temporarily invested in federal funds sold and interest bearing balances in other banks, which together have increased $37 million since year end.
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Loans
Loans have increased $12 million since year end. Details of the loan portfolio at March 31, 2001 and December 31, 2000:
March 31, 2001 | December 31, 2000 | |
Commercial & Industrial | $86,219 | $104,559 |
Real Estate: | ||
Construction | 63,034 | 67,790 |
Residential and commercial | 363,228 | 308,423 |
Individuals | 28,307 | 47,662 |
Other | 1,184 | 1,709 |
Total Loans | $541,972 | $530,143 |
========== | ========== |
Commitments to extend credit were $108 million at March 31, 2001 and $108 million at December 31, 2001.
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:
• | Internal credit review and risk grading system |
• | Regulatory examination results |
• | Monitoring of charge-off, past due and non-performing activity and trends |
• | 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:
• | Portfolio performance measures |
• | Portfolio mix |
• | Portfolio growth rates |
• | Historical loss rates |
• | Portfolio concentrations |
• | Current economic conditions in our market areas |
The Company also tests the adequacy of the allowance for loan losses using the following methodologies:
• | Loss allocation by internally assigned risk rating |
• | Loss allocation by portfolio type based on historic loan loss experience |
• | The allowance as a percentage of total loans |
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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 month periods ending March 31:
Three months ended | ||||
March 31, 2001 | March 31, 2000 | |||
Beginning Balance | $ 7,096 | $ 6,973 | ||
Provision for Loan Losses | 260 | 450 | ||
Charge-offs | (73 | ) | (165 | ) |
Recoveries | 15 | 21 | ||
Net charge-offs/recoveries | (58 | ) | (144 | ) |
Ending Balance | $ 7,298 | $ 7,279 | ||
========== | ========== |
Deposits
Deposits have grown from $681 million at December 31, 2000 to $687 million at March 31, 2001. Details of deposits at December 31, 2000 and March 31, 2001 were as follows:
March 31, 2001 | December 31, 2000 | |
Noninterest bearing demand | $ 163,464 | $161,351 |
Interest bearing demand and Money market accounts | 234,969 | 246,192 |
Savings | 44,415 | 43,072 |
Time deposits | 244,172 | 230,690 |
Total Deposits | $687,020 | $681,305 |
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 March 31, 2001 the Company had overnight investments of $70 million and available lines of credit of approximately $142 million with various financial institutions.
Capital Resources
Total shareholders' equity increased $2.6 million to $81.4 million at March 31, 2001. The increase was the result of earnings of $2.3 million, a $0.8 million increase in accumulated other comprehensive income and $0.1 million from the exercise of stock options, offset by dividends paid of $0.6 million. At March 31, 2001 the Company's Tier 1 and total risk-based capital ratios were approximately 11.70% and 12.87%. The Federal Reserve Board's minimum risk-based capital ratio guidelines for Tier 1 and total capital are 4% and 8% respectively.
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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, 2000. 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) Exhibits.
NONE
b) Reports on Form 8-K.
NONE
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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 May 14, 2001 | /s/ Raymond P. Davis | |
Raymond P. Davis President and Chief Executive Officer |
Dated May 14, 2001 | /s/ Daniel A. Sullivan | |
Daniel A. Sullivan Executive Vice President and Chief Financial Officer |
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