Umpqua Holdings Reports First Quarter 2007 Operating Earnings of $0.36 Per Diluted Share

Umpqua Holdings Corporation (NASDAQ:UMPQ), parent company of Umpqua Bank and Strand, Atkinson, Williams & York, Inc., today announced first quarter 2007 operating earnings of $21.0 million, or $0.36 per diluted share, compared to $17.6 million, or $0.39 per diluted share, for the first quarter of 2006. Operating earnings exclude merger related expenses, net of tax.

Including merger related expenses, net income for the first quarter of 2007 was $20.7 million, or $0.35 per diluted share, compared to $17.4 million, or $0.39 per diluted share for the first quarter of 2006.

Quarter ended:
(Dollars in thousands, except per share data) 3/31/2007  12/31/2006  3/31/2006 
Net Income $ 20,662  $ 24,533  $ 17,427 
Add Back: Merger related expenses, net of tax 332  249  151 
Operating Earnings $ 20,994  $ 24,782  $ 17,578 
Earnings per diluted share:
Net Income $ 0.35  $ 0.42  $ 0.39 
Operating Earnings $ 0.36  $ 0.42  $ 0.39 

Total consolidated assets as of March 31, 2007 were $7.3 billion, compared to $5.5 billion a year ago. Total gross loans and leases, and deposits, were $5.4 billion and $5.8 billion, respectively, as of March 31, 2007, compared to $4.1 billion and $4.2 billion, respectively, a year ago. The Company completed the acquisition of Western Sierra Bancorp in June 2006.

Umpqua Bank, Umpqua Holdings bank subsidiary, reported on a tax equivalent basis a net interest margin of 4.72% for the first quarter of 2007, compared to 4.95% for the first quarter of 2006, and 4.97% for the fourth quarter of 2006. The decrease in net interest margin over these time periods resulted from increases in short-term market interest rates and the competitive climate, with the cost of deposits increasing more than earning asset yields.

"Our first quarter 2007 earnings reflected the economic pressures facing the banking industry as a whole, said Ray Davis, Umpqua Holdings Corporation president and CEO. In response, management has made multiple changes to lower the cost structure of the Company, and are confident that these adjustments, combined with our long term strategy, have positioned us for improved earnings over the balance of the year."

During the first quarter of 2007, the Company had net recoveries of $90 thousand or 0.01% of average loans and leases. This compares to net recoveries of $640 thousand and net charge-offs of $510 thousand for the first and fourth quarters of 2006, respectively. Non-performing loans and leases were $13.3 million at March 31, 2007, representing just 0.25% of total loans and leases. The allowance for credit losses was 1.14% of total loans and leases at March 31, 2007.

Excluding merger related expenses, the Bank efficiency ratio was 55.9% for the first quarter of 2007, compared to 53.6% for the first quarter of 2006. The increase related primarily to the decline in the net interest margin as discussed previously.

During the first quarter of 2007, the Company elected early adoption of Statements of Financial Accounting Standard (SFAS) 157 and 159, effective January 1, 2007. SFAS 159, which was issued in February 2007, generally permits the measurement of selected financial instruments at fair value as of specified election dates. Upon adoption of SFAS 159, the Company selected the fair value measurement option only on certain junior subordinated debentures. The initial fair value measurement of these debentures resulted in a $2.1 million cumulative-effect adjustment, net of tax, recorded as a reduction in retained earnings as of January 1, 2007.

As of March 31, 2007, total shareholders equity was $1.2 billion. Book value per share was $20.07 and tangible book value per share was $8.42.

Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. Umpqua believes that providing non-GAAP financial measures provides investors with information useful in understanding Umpquas financial performance. Umpqua provides measures based on operating earnings, which exclude merger-related expenses. Operating earnings per diluted share is calculated by dividing operating earnings by the same diluted share total used in determining diluted earnings per share.

A reconciliation of these non-GAAP measures to the most comparable GAAP equivalent is included in the attached financial tables or where the non-GAAP measure is presented.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of the Safe-Harbor provisions of the Private Securities Litigation Reform Act of 1995, which management believes are a benefit to shareholders. These statements are necessarily subject to risk and uncertainty and actual results could differ materially due to various risk factors, including those set forth from time to time in our filings with the SEC. You should not place undue reliance on forward-looking statements and we undertake no obligation to update any such statements. In this press release we make forward-looking statements about the prospects for growth and the positive effect of adjustments to Umpqua Bank's cost structure.

About Umpqua Holdings Corporation

Umpqua Holdings Corporation (NASDAQ:UMPQ) is the parent company of Umpqua Bank, an Oregon-based community bank recognized for its entrepreneurial approach, innovative use of technology, and distinctive banking solutions. Umpqua Bank has 134 locations between Sacramento, Calif. and Bellevue, Wash., along the Oregon and Northern California Coast and in Central Oregon. Umpqua Holdings also owns retail brokerage subsidiary Strand, Atkinson, Williams & York, Inc., which has locations in Umpqua Bank stores and in dedicated offices throughout Oregon and Southwest Washington. Umpqua Bank's Private Client Services Division provides tailored financial services and products to individual customers. Umpqua Holdings Corporation is headquartered in Portland, Ore. For more information, visit www.umpquaholdingscorp.com.

Umpqua Holdings Corporation will conduct a quarterly earnings conference call Thursday, April 19, 2007, at 10:00 a.m. PST (1:00 p.m. EST) during which the Company will discuss first quarter 2007 results and provide an update on recent activities. There will be a question-and-answer session following the presentation. Shareholders, analysts and other interested parties are invited to join the call by dialing 800-857-1742 a few minutes before 10:00 a.m. The password is UMPQUA. Information to be discussed in the teleconference will be available on the Companys website prior to the call at www.umpquaholdingscorp.com. A rebroadcast can be found approximately one hour after the conference call by dialing 800-860-4707, or by visiting that website.

Umpqua Holdings Corporation

Consolidated Statements of Income
(Unaudited)
Quarter Ended:
Dollars in thousands, except per share dataMarch 31, 2007December 31, 2006March 31, 2006
Interest income
Loans and leases $103,981  $106,757  $73,120 
Interest and dividends on investments:
Taxable 7,519  7,169  6,711 
Exempt from federal income tax 1,228  1,141  744 
Dividends 65  80  44 
Temporary investments 894  1,367  127 
Total interest income 113,687  116,514  80,746 

Interest expense

Deposits 41,031  38,769  21,038 

Repurchase agreements and fed funds purchased

403  483  2,389 
Junior subordinated debentures 3,534  3,856  3,012 
Term debt 80  117  28 
Total interest expense 45,048  43,225  26,467 
Net interest income 68,639  73,289  54,279 
Provision for loan and lease losses 83  125  21 
Non-interest income
Service charges 7,052  7,435  5,484 
Brokerage fees 2,417  2,241  2,368 
Mortgage banking revenue 1,799  1,768  1,844 
Gain (loss) on sale of securities (20) -- 
Other income 2,363  2,689  2,506 
Total non-interest income 13,636  14,113  12,202 

Non-interest expense

Salaries and benefits 28,269  27,315  21,801 
Occupancy and equipment 8,826  8,845  7,168 
Other 12,363  12,465  9,760 
Merger related expenses 554  415  251 
Total non-interest expense 50,012  49,040  38,980 
Income before provision for income taxes 32,180  38,237  27,480 
Provision for income tax 11,518  13,704  10,053 
Net income $20,662  $24,533  $17,427 
Weighted average shares outstanding 58,176,465  58,045,755  44,658,423 
Weighted average diluted shares outstanding 58,830,444  58,774,890  45,029,063 
Earnings per share Basic $0.36  $0.42  $0.39 
Earnings per share Diluted $0.35  $0.42  $0.39 
Umpqua Holdings Corporation
Consolidated Balance Sheets
(Unaudited)
Dollars in thousands, except per share dataMarch 31, 2007December 31, 2006March 31, 2006
Assets:
Cash and due from banks $140,986  $169,769  $120,615 
Temporary investments 87,877  165,879  1,855 
Investment securities:
Trading 3,010  4,204  372 
Available for sale 786,301  715,187  648,487 
Held to maturity 8,698  8,762  7,633 
Loans held for sale 16,515  16,053  11,760 
Loans and leases 5,392,137  5,361,862  4,096,194 
Less: Allowance for loan and lease losses (60,263) (60,090) (44,546)
Loans and leases, net 5,331,874  5,301,772  4,051,648 
Restricted equity securities 15,510  15,255  14,264 
Premises and equipment, net 100,189  101,830  88,857 
Other real estate owned --  --  69 
Mortgage servicing rights, net 9,524  9,952  11,203 
Goodwill and other intangibles 677,854  679,493  408,156 
Other assets 159,700  156,080  110,925 
Total assets $7,338,038  $7,344,236  $5,475,844 
Liabilities:
Deposits $5,830,905  $5,840,294  $4,229,648 

Securities sold under agreements to repurchase

48,434  47,985  65,490 
Fed funds purchased --  --  207,500 
Term debt 7,461  9,513  3,111 
Junior subordinated debentures, at fair value 100,076  --  -- 
Junior subordinated debentures, at amortized cost 105,480  203,688  165,643 
Other liabilities 77,323  86,545  53,670 
Total liabilities 6,169,679  6,188,025  4,725,062 
Shareholders' equity:
Common stock 933,064  930,867  567,369 
Retained earnings 242,870  234,783  195,639 
Accumulated other comprehensive loss (7,575) (9,439) (12,226)
Total shareholders' equity 1,168,359  1,156,211  750,782 
Total liabilities and shareholders' equity $7,338,038  $7,344,236  $5,475,844 
Common shares outstanding at period end 58,223,810  58,080,171  44,721,027 
Book value per share $20.07  $19.91  $16.79 
Tangible book value per share $8.42  $8.21  $7.66 
Tangible equity $490,505  $476,718  $342,626 
Umpqua Holdings Corporation
Loan Portfolio
(Unaudited)
Dollars in thousandsMarch 31, 2007December 31, 2006March 31, 2006
Loans and leases by class:
Commercial real estate $2,732,029  $2,657,040  $2,231,075 
Residential real estate 315,764  320,412  216,740 
Construction 1,155,821  1,203,657  712,454 
Total real estate 4,203,614  4,181,109  3,160,269 
Commercial 1,123,654  1,126,189  877,102 
Leases 24,293  22,870  16,959 
Installment and other 51,175  43,108  52,691 
Deferred loan fees, net (10,599) (11,414) (10,827)
Total loans and leases $5,392,137  $5,361,862  $4,096,194 
Quarter EndedQuarter EndedQuarter Ended
Dollars in thousandsMarch 31, 2007December 31, 2006March 31, 2006
Allowance for credit losses
Balance beginning of period $60,090  $60,475  $43,885 
Provision for loan and lease losses 83  125  21 
Charge-offs (713) (1,618) (613)
Less recoveries 803  1,108  1,253 
Net (charge-offs) recoveries 90  (510) 640 
Total Allowance for loan and lease losses 60,263  60,090  44,546 
Reserve for unfunded commitments 1,231  1,313  1,642 
Total Allowance for credit losses $61,494  $61,403  $46,188 
Net charge-offs (recoveries) to average
loans and leases (annualized) (0.01)% 0.04% (0.06)%
Recoveries to gross charge-offs 113% 68% 204%
Allowance for credit losses to
loans and leases 1.14% 1.15% 1.13%
Allowance for credit losses to
nonperforming loans and leases 463% 678% 592%
Nonperforming loans and leases
to total loans and leases 0.25% 0.17% 0.19%
Nonperforming assets:
Nonperforming loans and leases $13,296  $9,058  $7,796 
Real estate owned --  --  69 
Total nonperforming assets $13,296  $9,058  $7,865 

Umpqua Holdings Corporation

Selected Ratios
(Unaudited)
Quarter Ended:
March 31, 2007December 31, 2006March 31, 2006
Net Interest Spread:
Yield on loans and leases 7.81% 7.91% 7.37%
Yield on taxable investments 4.61% 4.71% 4.44%
Yield on tax-exempt investments (1) 5.89% 5.51% 5.59%
Yield on temporary investments 5.28% 5.41% 4.28%
Total yield on earning assets (1) 7.42% 7.50% 6.96%
Cost of interest bearing deposits 3.62% 3.44% 2.63%

Cost of securities sold under agreements to repurchase and fed funds purchased

3.00% 2.90% 4.14%
Cost of term debt 3.76% 4.19% 3.62%
Cost of junior subordinated debentures 6.96% 7.50% 7.37%
Total cost of interest bearing liabilities 3.76% 3.61% 2.94%
Net interest spread (1) 3.66% 3.89% 4.02%
Net interest margin (1) 4.49% 4.73% 4.69%
As reported:
Return on average assets 1.15% 1.35% 1.31%
Return on average tangible assets 1.27% 1.49% 1.41%
Return on average equity 7.22% 8.47% 9.50%
Return on average tangible equity 17.36% 20.77% 21.04%
Excluding merger related expense net of tax (2):
Return on average assets 1.17% 1.37% 1.32%
Return on average tangible assets 1.29% 1.51% 1.42%
Return on average equity 7.33% 8.56% 9.58%
Return on average tangible equity 17.64% 20.98% 21.22%
Bank Only Ratios:
Umpqua Bank efficiency ratio (2) 55.88% 51.66% 53.59%
Umpqua Bank net interest margin (1) 4.72% 4.97% 4.95%

(1) Tax exempt interest has been adjusted to a taxable equivalent basis using a 35% tax rate.

(2) Excludes merger related expense, net of tax.

Deposits by Type
(Unaudited)
March 31, 2007December 31, 2006March 31, 2006
Dollars in thousandsAmountMixAmountMixAmountMix
Demand, non interest-bearing $1,180,536  20.2% $1,222,107  20.9% $990,803  23.4%
Demand, interest-bearing 2,543,560  43.6% 2,490,386  42.7% 1,768,347  41.8%
Savings 361,100  6.2% 368,238  6.3% 355,280  8.4%
Time 1,745,709  30.0% 1,759,563  30.1% 1,115,218  26.4%
Total Deposits $5,830,905  100.0% $5,840,294  100.0% $4,229,648  100.0%
Umpqua Holdings Corporation
Average Balances
(Unaudited)
Quarter Ended:
Dollars in thousandsMarch 31, 2007December 31, 2006March 31, 2006
Loans held for sale $15,004  $17,936  $9,551 
Loans and leases 5,383,958  5,339,111  4,015,579 
Earning assets 6,245,170  6,190,573  4,721,904 
Goodwill & other intangibles 678,577  680,030  408,212 
Total assets 7,256,788  7,201,791  5,411,417 
Non interest bearing demand deposits 1,158,203  1,228,026  968,506 
Interest bearing deposits 4,595,377  4,474,364  3,243,784 
Total deposits 5,753,580  5,702,390  4,212,290 
Interest bearing liabilities 4,864,543  4,755,568  3,646,484 
Total shareholders equity 1,161,185  1,148,682  744,190 
Tangible equity 482,608  468,652  335,978 
Umpqua Holdings Corporation
Mortgage Banking Statistical Analysis
(unaudited)
Quarter Ended:
March 31, 2007December 31, 2006March 31, 2006
Dollars in thousands
Mortgage Servicing Rights (MSR):
Mortgage loans serviced for others $925,541  $955,444  $1,014,680 
MSR Asset $9,524  $13,553  $13,610 
Less: Valuation reserve (1) --  (3,601) (2,407)
MSR Asset net $9,524  $9,952  $11,203 
MSR net as % of serviced portfolio 1.03% 1.04% 1.10%
Dollars in thousands
Mortgage Banking Revenue:
Origination and sale $1,728  $1,753  $1,523 
Servicing 637  639  675 
Amortization of MSR (1) --  (264) (321)
MSR valuation reserve change --  (360) (33)
Change in fair value of MSR (566) --  -- 
Total Mortgage Banking Revenue $1,799  $1,768  $1,844 
(1) The Company adopted SFAS No. 156 effective January 1, 2007, resulting in elimination of the mortgage servicing right valuation reserve and MSR amortization.
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