As Filed with the Securities and Exchange Commission on May 18, 1999
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended: March 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________ to
_____________.
Commission File Number: 000-25597
Umpqua Holdings Corporation
(Exact Name of Registrant as Specified in Its Charter)
OREGON 93-1261319
--------------------------------- -----------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
445 SE Main St
Roseburg, Oregon 97470
(address of Principal Executive Offices)(Zip Code)
(541) 440-3963
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
__X__ Yes _____ No
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practical date:
Common stock, no par value, outstanding as of March 31, 1999: 7,665,552
1
UMPQUA HOLDINGS CORPORATION
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS
_____________
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Statements of Income:
Three months ended March 31, 1999 and 1998 3
Condensed Consolidated Statements of Comprehensive Income:
Three months ended March 31, 1999 and 1998 4
Condensed Consolidated Balance Sheets:
March 31, 1999 and December 31, 1998 5
Condensed Consolidated Statements of Cash Flows:
Three months ended March 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-16
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 17
SIGNATURES 18
2
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
UMPQUA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended March 31,
1999 1998
------------ ------------
Interest Income
Interest and fees on loans $ 4,365,657 $ 3,699,806
Interest on investment securities available for sale 1,244,880 1,023,227
Interest bearing deposits with other banks 112,844 99,696
----------- -----------
Total interest income 5,723,381 4,822,729
----------- -----------
Interest Expense
Interest on deposits 1,618,078 1,582,389
Interest on borrowings 323,418 198,685
----------- -----------
Total interest expense 1,941,496 1,781,074
----------- -----------
Net Interest Income 3,781,885 3,041,655
Provision for loan losses 328,000 273,500
----------- -----------
Net interest income after provision for loan losses 3,453,885 2,768,155
Noninterest Income
Service charges 634,546 489,200
Commissions 100,100 187,691
Other noninterest income 225,654 169,943
----------- -----------
Total noninterest income 960,300 846,834
----------- -----------
Noninterest Expense
Salaries and employee benefits 1,361,025 1,126,254
Premises and Equipment 365,529 346,138
Other noninterest expense 793,230 721,938
----------- -----------
Total noninterest expense 2,519,784 2,194,330
----------- -----------
Income before income taxes 1,894,401 1,420,659
Provision for income taxes 691,456 528,659
----------- -----------
Net Income $ 1,202,945 $ 892,000
=========== ===========
Earnings Per Share
Basic $ 0.16 $ 0.14
Diluted $ 0.15 $ 0.13
See accompanying notes to condensed consolidated financial statements
3
UMPQUA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three months ended March
1999 1998
------------ ------------
Net income $ 1,202,945 $ 892,000
----------- -----------
Unrealized losses arising during the period on
investment securities available for sale (804,012) (11,806)
----------- -----------
Income tax benefits related to unrealized
losses on investment securities 274,048 4,132
----------- -----------
Net unrealized losses on investment securities
available for sale (529,964) (7,674)
----------- -----------
Comprehensive Income $ 672,981 $ 884,326
=========== ===========
See accompanying notes to condensed consolidated financial statements
4
UMPQUA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1999 1998
------------ ------------
ASSETS
Cash and due from banks $ 17,806,612 $ 17,765,938
Interest bearing deposits in other banks 6,535,859 19,201,605
------------ ------------
Total Cash and Cash Equivalents 24,342,471 36,967,543
Investment securities available for sale 81,706,691 84,887,992
Mortgage loans held for sale 671,251 1,780,225
Loans receivable 200,636,958 186,166,966
Less: Allowance for loan losses (2,911,586) (2,663,914)
------------ ------------
Loans, net 197,725,372 183,503,052
Federal Home Loan Bank stock at cost 1,986,400 1,949,200
Property and equipment, net of depreciation 7,438,413 7,161,950
Interest receivable 2,284,919 2,131,553
Other assets 981,705 505,467
------------ ------------
Total Assets $317,137,222 $318,886,982
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 49,890,457 $ 52,235,927
Savings and interest-bearing checking 128,426,709 131,357,171
Time deposits 75,317,519 72,211,623
------------ ------------
Total Deposits 253,634,685 255,804,721
Term debt to Federal Home Loan Bank 25,188,000 25,198,000
Accrued interest payable 314,690 353,054
Other liabilities 1,602,325 1,385,581
------------ ------------
Total Liabilities 280,739,700 282,741,356
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock, no par value 26,310,737 26,425,200
Retained earnings 9,951,654 9,055,331
Cumulative other comprehensive income 135,131 665,095
------------ ------------
Total Shareholders' Equity 36,397,522 36,145,626
------------ ------------
Total Liabilities and Shareholders' Equity $317,137,222 $318,886,982
============ ============
See accompanying notes to condensed consolidated financial statements
5
UMPQUA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended March 31,
1999 1998
----------- ---------
Cash flows from operating activities:
Net income $ 1,202,945 $ 892,000
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Federal Home Loan Bank stock dividends (37,200) (34,500)
Deferred income tax benefit
Amortization of investment premiums, net 48,646 74,351
Origination of loans held for sale (4,354,450) (8,270,092)
Proceeds from sales of loans held for sale 5,527,690 7,335,920
Provision for loan losses 328,000 273,500
Gain on sales of mortgage servicing rights
Gain on sales of loans (69,929) (93,096)
Net realized losses on sale of investment securities available for sale
Depreciation of premises and equipment 164,855 167,616
(Gain) loss on sale of premises and equipment
Net (increase) decrease in other assets (355,557) 77,600
Net increase (decrease) in other liabilities 275,795 (1,085,756)
----------- -----------
Net cash provided by (used in) operating activities 2,730,795 (662,457)
----------- -----------
Cash flows from investing activities:
Purchases of investment securities (5,114,945) (6,270,290)
Maturities of investment securities 4,518,056 4,050,000
Principal repayments received on mortgagebacked and related securities 2,925,532 1,895,626
Proceeds from sales of investment securities available for sale
Net loan originations (15,057,141) (8,407,722)
Purchase of loans (763,380)
Proceeds from sales of loans 1,275,864 238,553
Purchases of premises and equipment (441,318) (37,563)
----------- -----------
Proceeds from sale of premises and equipment - -
----------- -----------
Net cash used in investing activities (12,657,332) (8,531,396)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in deposit liabilities (2,170,036) 3,701,793
Dividends paid on common stock (306,702) (162,709)
Repurchase of common stock (303,113)
Proceeds from stock options exercised 91,316 24,729
Proceeds from (repayments of) Federal Home Loan Bank borrowings net (10,000) 4,990,000
----------- -----------
Net cash provided by (used in) financing activities (2,698,535) 8,553,813
----------- -----------
Net decrease in cash and cash equivalents (12,625,072) (640,040)
Cash and cash equivalents, beginning of period 36,967,543 24,114,566
----------- -----------
Cash and cash equivalents, end of period $24,342,471 $23,474,526
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,979,860 $ 1,846,666
Income taxes $ - $ -
Noncash financing activities
Tax benefit of stock options exercised $ 97,374 $ -
See accompanying notes to condensed consolidated financial statements
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF FINANCIAL STATEMENT PREPARATION
The accompanying condensed consolidated financial statements have
been prepared by the Company without audit and in conformity with
generally accepted accounting principles for interim financial
information. Accordingly, certain financial information and footnotes
have been omitted or condensed. In the opinion of management, the
condensed consolidated financial statements include all necessary
adjustments (which are of a normal and recurring nature) for the fair
presentation of the results of the interim periods presented. These
financial statements should be read in conjunction with the Company's
audited condensed consolidated financial statements for the year ended
December 31, 1998 included as part of the Company's 1998 annual report
to shareholders. The results of operations for the interim period shown
in this report are not necessarily indicative of results for any future
interim period or the entire fiscal year.
(b) EARNINGS PER SHARE
Basic and diluted net income per share are based on the weighted
average number of common shares outstanding during each period, with
diluted including the effect of potentially dilutive common shares. The
weighted average number of common shares outstanding for basic net
income per share computations were 7,666,949 and 6,512,830 for the three
month periods ended March 31, 1999 and 1998, respectively. For diluted
net income per share 143,606 and 165,167 were added to weighted average
shares outstanding for 1999 and 1998, respectively, representing
potential dilution for stock options outstanding, calculated using the
treasury stock method. Options to purchase 14,107 shares at $12 per
share were outstanding during the first quarter of 1999 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. The options, which expire on March 31, 2009, were still
outstanding at March 31, 1999.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion contains a review of Umpqua Holdings
Corporation's (Company) financial condition at March 31, 1999 and the
operating results for the three months then ended. When warranted, comparisons
are made to the same period in 1998 and to December 31, 1998. This discussion
should be read in conjunction with the financial statements (unaudited)
contained elsewhere in this report. All numbers, except per share data, are
expressed in thousands of dollars.
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; 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.
8
HIGHLIGHTS
The Company earned $1,203 during the first quarter of 1999, an increase
of 34.9% over first quarter 1998 earnings of $892. Diluted earnings per share
for the first quarters of 1999 and 1998 were $0.15 and $0.13, respectively. At
March 31, 1999 total assets were $317,137, a 1% decrease from December 31,
1998. Comparing the first quarter of 1999 to the same period in 1998, return
on average assets increased from 1.41% in 1998 to 1.56% in 1999 while return
on average equity decreased to 13.3% from 17.1%. Return on average equity has
declined as the Company absorbs $12,384 of additional capital raised in its
public stock offering April 1, 1998.
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.
Net interest income on a tax-equivalent basis for the first quarter 1999
was $3,856, an increase of 25% over net interest income of $3,081 in the first
quarter of 1998 (see table 1). Average earning assets during the three months
ended March 31, 1999 increased 23% over the comparable period in 1998.
The overall earning asset yield for the first quarter of 1999 was 8.15%,
down 0.25% from the comparable prior year period. Average loans during the
first quarter 1999 were $192,792, a 23% increase over the first quarter of
1998. Investment securities also increased 22% during the same period.
The cost of interest bearing liabilities during the first quarter 1999
was 3.52%, down 0.24% from the first quarter of 1998. Interest bearing
liabilities comprised 77% of the earning asset base during the first quarter
of 1999 compared to 82% during the first quarter of 1998. Additional funding
was provided by the capital raised from the Company's $12,284 stock offering
April 1, 1998.
9
AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID The following table
shows average balances and interest income or interest expense, with the
resulting average yield or rates by category of average earning asset or
interest-bearing liability:
Three Months ended Three Months ended
March 31, 1989 March 31, 1989
----------------------------- ---------------------------------
INCREASE (DECREASE)
AVERAGE INCOME/ AVERAGE INCOME/ DUE TO CHANGE IN
BALANCE EXPENSE RATE BALANCE EXPENSE RATE VOLUME RATE NET CHANGE
----------------------------- --------------------------------- -----------------------------
(in thousands)
INTEREST-EARNING ASSETS:
Loans (1)(2) $ 192,792 $ 4,348 9.15% $ 156,717 $ 3,688 9.54% $ 849 (189) $ 660
Loans held for sale 632 18 11.55% 895 15 6.80% (4) 7 3
Investment securities
Taxable securities 69,877 1,072 6.14% 64,921 968 5.96% 74 30 104
Nontaxable securities (1) 15,133 247 6.53% 4,657 83 7.13% 187 (23) 164
Temporary investments 10,057 113 4.56% 7,528 100 5.39% 34 (21) 13
------------------- ------------------------- --------------------------
Total interest earning assets 288,491 5,798 8.15% 234,718 4,854 8.39% 1,140 (196) 944
Cash and due from banks 16,456 13,817
Allowance for loan losses (2,729) (2,231)
Other assets 10,171 9,793
--------- ---------
Total assets $ 312,389 $ 256,097
========= =========
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and
savings accounts $ 126,622 $ 775 2.48% $ 113,773 $ 757 2.70% 85 (67) 18
Time deposits 71,507 844 4.79% 64,464 825 5.19% 90 (71) 19
Term debt 25,425 323 5.15% 14,011 199 5.76% 162 (38) 124
------------------- ------------------------- --------------------------
Total interest-bearing
liabilities 223,554 1,942 3.52% 192,248 1,781 3.76% 337 (176) 161
Non interest bearing deposits 50,300 41,751 --------------------------
Other liabilities 1,840 960
--------- ---------
Total liabilities 275,694 234,959
Shareholders' equity 36,695 21,138
--------- ---------
Total liabilities and
shareholders' equity $ 312,389 $ 256,097
========= =========
NET INTEREST INCOME (1) $ 3,856 $ 3,073 $ 803 $ (20) $ 783
======= ======= ======= ====== ======
NET INTEREST SPREAD 4.63% 4.63%
AVERAGE YIELD ON EARNING ASSETS (1),(2) 8.15% 8.39%
INTEREST EXPENSE TO EARNING ASSETS 2.73% 3.08%
----- -----
NET INTEREST INCOME TO EARNING ASSETS (1),(2) 5.42% 5.31%
===== =====
(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 $74 and $31 for the three months ended March 31, 1999
and 1998, respectively.
(2) Non-accrual loans are included in average balance.
Provision for Loan Losses
The provision for loan losses is management's estimate of the amount
necessary to maintain an allowance for loan losses that is considered adequate
based on the risk of future losses in the loan portfolio. The provision for
loan losses for the first quarter 1999 was $328 compared with $274 during the
first quarter of 1998. Net charge-offs were $80 for the three months ended
March 31, 1999 compared with net charge-offs of $57 for the same period in
1998. Nonperforming assets increased to $1,425 at March 31, 1999 from $616 at
December 31, 1998. The $809 increase in nonperforming assets was primarily
attributable to two real estate credits that the Company believes are
adequately secured. The allowance for loan losses totaled $2,912, or 1.45% of
total loans, at March 31, 1999 compared to $2,664, or 1.43% of total loans, at
December 31, 1998.
10
Noninterest Income
Noninterest income increased 13% from $847 to $960 during the first
quarter of 1999 compared with the same period in 1998. This increase results
from growth in service fees on deposit accounts and an expansion of ATM
revenue through the addition of ATM machines during the second half on 1998.
Commissions income decreased $88 due to lower sales volume at the Company's
brokerage subsidiary.
Noninterest Expense
Other operating expenses consist principally of employees' salaries and
benefits, occupancy costs, data processing and communications expenses,
marketing, insurance premiums, professional fees and other noninterest
expenses. A measure of the Company's ability to contain noninterest expense is
the efficiency ratio. This statistic is derived by dividing total noninterest
expenses by the sum of net interest income and noninterest income. The
efficiency ratio has improved steadily during 1999 as net interest income and
noninterest income have increased without a corresponding percentage increase
in noninterest expenses. The efficiency ratio for the first quarter 1999 was
52% compared to 56% for the first quarter 1998.
Salaries and employee benefits increased 20.8% during the first quarter
1999 as compared to 1998. The increase over 1998 was due primarily to changes
in the Company's compensation structure at its brokerage subsidiary.
Approximately $70 of brokerage commissions were paid to an independent
contractor in the first quarter of 1998 and recorded in Other noninterest
expense. In 1999 all brokerage personnel were employees of the Company and the
corresponding commissions expense was recorded in Salaries and benefits
expense. Expansion of the Company's infrastructure due to growth, and merit
increases account for the remainder of the increase in Salaries and benefits
expense.
Premises and equipment expenses and other noninterest expense for first
quarter 1999 increased 5.6% and 9.9% respectively from the prior year. These
increases were attributable to the opening of a new business and real estate
loan center in March 1999, expansion of the ATM network and increased
activity.
FINANCIAL CONDITION
Significant changes in the Company's financial position from December
31, 1998 to March 31, 1999 are as follows:
Interest bearing deposits with banks - Interest bearing deposits with
banks decreased from $19,202 at December 31, 1998 to $6,536 at March 31, 1999.
These balances consist of short-term deposits at the Federal Home Loan Bank
and fluctuate in response to loan demand and deposit fluctuations.
11
Loans - Loans increased $14,470 from December 31, 1998 to March 31,
1999. This increase was primarily related to increases in commercial real
estate loans.
Shareholders' equity - Shareholders' equity increased $252 from December
31, 1998. Retained earnings increased as a result of quarterly earnings offset
by dividends accrued of $307. Cumulative other comprehensive income decreased
from $665 at December 31, 1998 to $135 at March 31, 1999 due to decreases in
the market value of investments available for sale.
LIQUIDITY AND CAPITAL RESOURCES
The Company derives liquidity through the growth of core deposits and
the maturity of investment securities and loans. Additional liquidity is
provided by the Company's ability to borrow funds on an overnight or long-term
basis. There was no erosion in the Company's liquidity position between
December 31, 1998 and March 31, 1999.
At March 31, 1999 the Company was required to have Tier 1 and Total
Risk-Based Capital ratios of 4.0% and 8.0%, respectively. The Company's actual
ratios at that date were 17.2% and 18.5 respectively.
EFFECTS OF THE YEAR 2000
INTRODUCTION. The Year 2000 creates challenges with respect to the
automated systems used by financial institutions and other companies. Many
software programs are not able to recognize the year 2000, since most programs
and systems were designed to store calendar year in the 1900's by assuming the
"19" and storing only the last two digits of the year. For example, these
automated systems would recognize a year stored as "00" as the year "1900",
rather than as the year "2000". If these automated systems are not
appropriately re-coded, updated or replaced before the year 2000, they will
likely confuse data, crash or fail in some manner. In addition, many software
programs and automated systems will fail to recognize the year 2000 as a leap
year. The problem is not limited to computer systems. Year 2000 issues will
potentially affect every system that has an embedded microchip, such as
automated teller machines, elevators and vaults.
The year 2000 challenge is especially problematic for financial
institutions, since many transactions such as interest accruals and payments
are date sensitive. It also may affect the operations of third parties with
whom the Company does business, including the Company's vendors, suppliers,
utility companies and customers.
THE COMPANY'S STATE OF READINESS. The Company is committed to addressing
these year 2000 challenges in a prompt and responsible manner and has
dedicated resources to do so. Management has completed an assessment of its
automated systems and has implemented a plan to resolve these issues,
including purchasing appropriate computer technology. The Company's year
2000 compliance plan ("Year 2000 Plan") has five phases. These phases are
(1) project management, (2) awareness, (3) assessment, (4) testing, and (5)
renovation and implementation. The Company has substantially completed
12
phases one through four, and has made significant progress in the renovation
and implementation phase of the Year 2000 Plan. Appropriate follow-up
activities are continuing to occur.
Project Management. The Company has assigned primary responsibility for
year 2000 project management to its Chief Financial Officer. The
Company has also formed a year 2000 compliance committee, consisting of
appropriate representatives from its critical operational areas to
assist in implementing the Year 2000 Plan. In addition, the Company
provides periodic reports to its Board of Directors in order to assist
them in overseeing the Company's year 2000 readiness.
Awareness. The Company has completed several projects designed to
promote awareness of year 2000 issues throughout our organization and
our customer base. These projects include communication through local
seminars in each of the communities the Company serves, mailing
information brochures to deposit and loan customers, providing training
for lending officers and other staff, and responding to vendor,
customer, and shareholder inquiries.
Assessment. Assessment is the process of identifying all
mission-critical applications that could potentially be negatively
affected by dates in the year 2000 and beyond. The Company's assessment
phase is complete. Systems examined during this phase included
telecommunication systems, account-processing applications, and other
software and hardware used in connection with customer accounts. The
Company's operations, like those of many other companies, are
intertwined with the operations of certain of its business partners.
Accordingly, the Company's operations could be materially affected if
the operations of those companies who provide the Company with
mission-critical applications, systems, and services are materially
affected. For example, the Company depends upon vendors who provide
equipment, technology, and software to it in connection with its
business operations. Failure of these software vendors to achieve year
2000 readiness could substantially affect the operations of the
Company. In addition, lawsuits and other financial challenges
materially affecting the financial viability of these vendors could
materially affect the Company. In response to this concern, the Company
has identified and contacted those vendors who provide our
mission-critical applications. The Company has assessed their year 2000
compliance efforts and will continue to monitor their progress as the
year 2000 approaches.
Testing. Initial testing of the Company's computer system used to
account for customer accounts has been successful. Management expects
all testing to be completed by the second quarter of 1999.
13
Renovation and Implementation. This phase involves obtaining and
implementing renovated software applications provided by our vendors.
As these applications are received and implemented, the Company will
test them for year 2000 compliance. This phase also involves upgrading
and replacing automated systems where appropriate and will continue
throughout 1999. Although this phase will be substantially complete
before the end of 1999, additional follow-up activities may take place
in the year 2000 and beyond.
ESTIMATED COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. The total
financial effect of these year 2000 challenges on the Company cannot be
predicted with certainty at this time. In fact, in spite of all efforts being
made to rectify these problems, the success of these efforts cannot be
predicted until the year 2000 actually arrives. The Company will upgrade or
replace certain automated systems before the year 2000; however, some of these
systems would have been replaced before the year 2000 without regard to year
2000 compliance issues, due to technology updates and Company expansion.
Management does not believe that expenses related to meeting the
Company's year 2000 challenges will have a material effect on the operations
or financial performance of the Company. However, factors beyond the control
of management, such as the effects on vendors of our mission-critical software
and systems, the effects of year 2000 issues on the economy, and the
development of the risks identified below under "The Risks of the Company's
Year 2000 Issues," among other things, could have a material effect on the
operations or financial performance of the Company.
For 1999, the Company has incurred approximately $15 of external
operating expenses relative to year 2000 compliance issues. In 1999, the
Company expects to incur external additional operating expenses of
approximately the $100. These amounts do not include the significant internal
costs associated with the year 2000 issues, such as compensation costs of the
technology staff.
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES. The year 2000 presents
certain risks to the Company and its operations. Some of these risks are
present because the Company purchases technology applications from other
parties who face year 2000 challenges. Other of these risks are inherent in
the business of banking or are risks faced by many companies with stock traded
on a national stock exchange. Although it is impossible to identify every
possible risk that the Company may face moving into the new millennium,
management has, to date, identified the following potential risks:
o Commercial banks, such as the Company, may experience a contraction in
their deposit base, if a significant amount of deposited funds are
withdrawn by customers prior the year 2000. This potential deposit
contraction could make it necessary for the Company to change its
sources of funding and could materially impact future earnings.
Significant demand for funds by other banks could reduce the amount of
14
funds available for the Company to borrow. If insufficient funds are
available from a Federal Home Loan Bank or other correspondents, the
Company may also sell investment securities or other liquid assets to
meet liquidity needs. Despite these efforts, a significant deposit
contraction could materially impact the Company's earnings or future
operations, particularly if funds availability at the Federal Home Loan
Bank is impaired.
o The Company lends significant amounts to business in its market area.
If these businesses are adversely affected by year 2000 issues, their
ability to repay loans could be impaired. This increased credit risk
could affect the Company's financial performance. During the assessment
phase of the Company's Year 2000 Plan, significant borrowers were
identified. Management is currently monitoring the year 2000 compliance
efforts of these credit customers.
o The Company's operations, like those of many other companies, can be
affected by the year 2000 triggered failures of other companies upon
whom the Company depends for the functioning of its automated systems.
Accordingly, the Company's operations could be materially affected, if
the operations of those companies who provide the Company with
mission-critical applications, systems, and services are materially
affected. As described previously, the Company has identified its
mission-critical vendors and is monitoring their year 2000 compliance
progress.
o All companies with stock traded on a national stock exchange, including
the Company, could experience a drop in stock price as investors change
their investment portfolios or sell stock prior to the new millennium.
At this time, it is impossible to predict whether or not this will in
fact be the case with respect to the stock of the Company or any other
company.
o The Company's ability to operate effectively in the year 2000 could be
affected by communications abilities and access to utilities, such as
electricity, water, telephone, and others, to the extent access is
interrupted due to the effects of year 2000 issues on these and other
utilities.
THE COMPANY'S CONTINGENCY PLANS. In addition to renovation and
implementation of software applications, as may be required, the Company has
developed contingency plans in the event of year 2000 developments. These
contingency plans may be triggered if full year 2000 compliance is not
achieved for the Company's mission-critical systems, or if external factors
are viewed as potentially impacting the Company. These contingency plans are
focused on liquidity requirements, funding requirements, credit monitoring,
and storage and retrieval of computer based records, as well as staff
availability at critical dates including the beginning of the year 2000.
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REGULATORY AGENCY OVERSIGHT. The Federal Financial Institutions
Examination Council ("FFIEC") has made recommendations and has issued
guidelines to the financial community for preparing for the year 2000. In
addition, the FFIEC monitors the Company's progress towards critical dates for
each guideline.
The Company is in full compliance with the recommendations and
guidelines, and is ahead of the schedule established for critical dates.
Item 3. Quantitative and Qualitative disclosures about market risk
Please refer to the section above "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 8-16.
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Part II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 3 (i) The articles of incorporation are incorporated herein by
reference to Exhibit 3.1 of the Company's Form S-8 dated April 27, 1999
(File # 333-77259).
Exhibit 3 (ii) The bylaws of the Company are incorporated herein by
reference to Exhibit 3.2 of the Company's Form S-8 dated April 27, 1999
(File # 333-77259).
Exhibit 4 The Company's specimen common stock certificate is
incorporated herein by reference to Exhibit 4.1 of the Company's Form
S-8 dated April 27, 1999 (File # 333-77259).
Exhibit 10 The Company's stock option plan is incorporated herein by
reference to Exhibit 99 of the Company's Form S-8 dated April 27, 1999
(File # 333-77259).
Exhibit 27 Financial Data Schedule
b) The Company filed a form 8-K dated March 15, 1999 reporting the
formation of a Bank Holding Company and subsequent reorganization
whereby South Umpqua Bank became a wholly-owned subsidiary of Umpqua
Holdings Corporation.
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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 18, 1999 /s/ Raymond P. Davis
------------------------------------
Raymond P. Davis
President and Chief Executive
Officer
Dated May 18, 1999 /s/ Daniel A. Sullivan
------------------------------------
Daniel A. Sullivan
Senior Vice President and
Chief Financial Officer
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