Umpqua Holdings Reports Second Quarter 2007 Operating Earnings of $0.35 Per Diluted Share

Umpqua Holdings Corporation (NASDAQ:UMPQ), parent company of Umpqua Bank and Strand, Atkinson, Williams & York, Inc., today announced second quarter 2007 operating earnings of $21.3 million, or $0.35 per diluted share, compared to $20.6 million, or $0.42 per diluted share, for the second quarter of 2006. Operating earnings exclude merger related expenses, net of tax.

Including merger related expenses, net income for the second quarter of 2007 was $19.9 million, or $0.32 per diluted share, compared to $19.6 million, or $0.40 per diluted share for the second quarter of 2006.

Significant items for the second quarter include:

  • North Bay Bancorp acquisition and system conversion complete, anticipated cost savings are on track;
  • Year to date annualized loan growth of 7%, excluding the acquisition;
  • Year to date annualized deposit growth of 4%, excluding the acquisition, with non-interest bearing demand deposit mix increasing from 20.2% to 21.2%;
  • Net interest margin, on a tax equivalent basis, declined 13 basis points during the second quarter, to 4.34%, of which 7 basis points related to interest reversal on non-performing loans;
  • Cost of interest bearing deposits increased 4 basis points during second quarter, lowest rate of quarterly growth in three years;
  • Provision for loan losses of $3.4 million, related to a $34.7 million net increase in non-performing loans, and $1.2 million interest reversal in the second quarter, represents a $0.04 reduction per diluted share;
  • Net recoveries of $59 thousand year to date;
  • Total non-interest income increased 14% on a sequential quarter basis;
  • On track with non-acquisition related cost saving initiatives announced in first quarter;
  • Bank efficiency ratio, excluding merger related expenses, improved from 55.88% in the first quarter to 54.32% in the second quarter;
  • Repurchased 2.37 million shares during the second quarter.

"Although the financial services industry is currently operating in a challenging environment, Umpqua has a team of seasoned and professional bank executives that have successfully faced similar challenges in the past, said Umpqua Holdings Corporation president and CEO, Ray Davis. We remain ever mindful of shareholder interests and will continue to build value for our investors. Accordingly, as a growth company we will open more stores, will roll out new product offerings and continue our innovative approach to banking.

The following is a comparison of net income to operating earnings for all periods presented:

Quarter ended: Six months ended:
(Dollars in thousands, except per share data) 6/30/07 3/31/07 6/30/06 6/30/07 6/30/06
Net Income $ 19,913 $ 20,662 $ 19,631 $ 40,575 $ 37,058
Add Back: Merger related expenses, net of tax 1,430 332 994 1,762 1,144
Operating Earnings $ 21,343 $ 20,994 $ 20,625 $ 42,337 $ 38,202
Earnings per diluted share:
Net Income $ 0.32 $ 0.35 $ 0.40 $ 0.67 $ 0.79
Operating Earnings $ 0.35 $ 0.36 $ 0.42 $ 0.70 $ 0.81

Total consolidated assets as of June 30, 2007 were $8.1 billion, compared to $7.2 billion a year ago. Total gross loans and leases, and deposits, were $6.0 billion and $6.4 billion, respectively, as of June 30, 2007, compared to $5.3 billion and $5.5 billion, respectively, a year ago.

The Company completed its acquisition of North Bay Bancorp on April 26, 2007. The Company issued 5,170,941 shares in connection with the acquisition, with a total deal value of $142.3 million. The system integration with North Bay Bancorp was completed in May 2007.

The following table presents the year to date 2007 organic growth rates, which exclude the effects of the North Bay Bancorp acquisition:

(in thousands) Loans and Leases Deposits Assets
As reported, 6/30/07 $ 5,981,750 $ 6,414,425 $ 8,144,558
less: 12/31/06 balances 5,361,862 5,840,294 7,344,236
Total growth 619,888 574,131 800,322
less: acquisition 442,950 462,624 725,205
Organic growth $ 176,938 $ 111,507 $ 75,117
Annualized organic growth rate 7% 4% 2%

During the first half of 2007, the Company had net recoveries of $59 thousand, compared to net recoveries of $513 thousand for the first half of 2006. Non-performing loans and leases were $48.0 million at June 30, 2007, representing 0.80% of total loans and leases. The allowance for credit losses was 1.17% of total loans and leases at June 30, 2007. During the second quarter, the Company reversed $1.2 million of interest related to new non-performing loans.

The Company reported a tax equivalent net interest margin of 4.34% for the second quarter of 2007, compared to 4.68% for the second quarter of 2006, and 4.47% for the first quarter of 2007. The decrease in net interest margin over these time periods resulted from increases in short-term market interest rates and the competitive climate, characterized by increasing deposit costs combined with declining earning asset yields, which was partially attributed to the interest reversal discussed previously. The interest reversal noted above resulted in a 7 basis point decline in the tax equivalent net interest margin during the quarter.

Excluding merger related expenses, the Bank efficiency ratio was 54.32% for the second quarter, down from 55.88% for the first quarter. The decrease related primarily to achievement of cost saving initiatives during the second quarter.

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, 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. The income effect of this fair value adjustment for the first quarter of 2007 of $329 thousand was previously reported in interest expense on junior subordinated debentures. During the second quarter of 2007, this amount was reclassified to other non-interest income.

As of June 30, 2007, total shareholders equity was $1.3 billion. Book value per share was $20.48 and tangible book value per share was $7.96. During the second quarter, the Company repurchased 2,366,421 shares of stock at a weighted average price of $25.48 per share.

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 non-GAAP financial measures provide 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 opening new stores and introducing new products.

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 144 locations between Napa, Calif. and Bellevue, Wash., along the Oregon and Northern California Coast and in Central Oregon. Umpqua Holdings also owns a 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, July 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 800-369-2088 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 800-365-4718, or by visiting the Companys website.

Umpqua Holdings Corporation

Consolidated Statements of Income
(Unaudited)
Quarter Ended:
Dollars in thousands, except per share dataJune 30, 2007March 31, 2007June 30, 2006
Interest income
Loans and leases $111,797 $103,981 $86,004
Interest and dividends on investments:
Taxable 8,720 7,519 6,693
Exempt from federal income tax 1,335 1,228 854
Dividends 88 65 56
Temporary investments 616 894 336
Total interest income 122,556 113,687 93,943

Interest expense

Deposits 44,581 41,031 25,953
Repurchase agreements and
fed funds purchased 824 403 1,802
Junior subordinated debentures 4,022 3,863 3,376
Term debt 813 80 2,055
Total interest expense 50,240 45,377 33,186
Net interest income 72,316 68,310 60,757
Provision for loan and lease losses 3,413 83 54
Non-interest income
Service charges 8,148 7,052 6,450
Brokerage fees 2,679 2,417 2,534
Mortgage banking revenue 2,607 1,799 2,503
Gain (loss) on sale of securities (2 ) 5 (1 )
Other income 2,498 2,692 2,320
Total non-interest income 15,930 13,965 13,806

Non-interest expense

Salaries and benefits 28,898 28,269 23,337
Occupancy and equipment 8,782 8,826 7,199
Intangible amortization 1,490 1,143 791
Other 12,392 11,220 10,260
Merger related expenses 2,383 554 1,656
Total non-interest expense 53,945 50,012 43,243
Income before provision for income taxes 30,888 32,180 31,266
Provision for income tax 10,975 11,518 11,635
Net income $19,913 $20,662 $19,631
Weighted average shares outstanding 60,679,485 58,176,465 48,528,525
Weighted average diluted shares outstanding 61,397,575 58,830,444 48,994,482
Earnings per share Basic $0.33 $0.36 $0.40
Earnings per share Diluted $0.32 $0.35 $0.40
Umpqua Holdings Corporation
Consolidated Statements of Income
(Unaudited)
Six Months Ended:
Dollars in thousands, except per share dataJune 30, 2007June 30, 2006
Interest income
Loans and leases $215,778 $159,124
Interest and dividends on investments:
Taxable 16,239 13,404
Exempt from federal income tax 2,563 1,598
Dividends 153 100
Temporary investments 1,510 463
Total interest income 236,243 174,689
Interest expense
Deposits 85,612 46,991
Repurchase agreements and
fed funds purchased 1,227 4,191
Trust preferred securities 7,885 6,388
Other borrowings 893 2,083
Total interest expense 95,617 59,653
Net interest income 140,626 115,036
Provision for loan and lease losses 3,496 75
Non-interest income
Service charges 15,200 11,934
Brokerage fees 5,096 4,902
Mortgage banking revenue 4,406 4,347
Gain (loss) on sale of securities 3 (1 )
Other income 5,190 4,826
Total non-interest income 29,895 26,008
Non-interest expense
Salaries and benefits 57,167 45,138
Occupancy and equipment 17,608 14,367
Intangible amortization 2,633 1,338
Other 23,612 19,473
Merger related expenses 2,937 1,907
Total noninterest expense 103,957 82,223
Income before income taxes 63,068 58,746
Provision for income tax 22,493 21,688
Net income $40,575 $37,058
Weighted average shares outstanding 59,434,889 46,604,165
Weighted average diluted shares outstanding 60,131,603 47,111,951
Earnings per share Basic $0.68 $0.80
Earnings per share Diluted $0.67 $0.79
Umpqua Holdings Corporation
Consolidated Balance Sheets
(Unaudited)
Dollars in thousands, except per share dataJune 30, 2007March 31, 2007June 30, 2006
Assets:
Cash and due from banks $182,739 $140,986 $176,983
Temporary investments 40,904 87,877 61,981
Investment securities:
Trading 3,090 3,010 376
Available for sale 893,125 786,301 692,910
Held to maturity 8,333 8,698 9,676
Loans held for sale 16,953 16,515 31,118
Loans and leases 5,981,750 5,392,137 5,296,720
Less: Allowance for loan and lease losses (68,723 ) (60,263 ) (58,516 )
Loans and leases, net 5,913,027 5,331,874 5,238,204
Restricted equity securities 16,715 15,510 20,538
Premises and equipment, net 108,656 100,189 100,040
Other real estate owned -- -- 69
Mortgage servicing rights, net 9,966 9,524 11,550
Goodwill and other intangibles 767,710 677,854 682,789
Other assets 183,340 159,700 153,709
Total assets $8,144,558 $7,338,038 $7,179,943
Liabilities:
Deposits $6,414,425 $5,830,905 $5,464,770
Securities sold under agreements to repurchase
59,553 48,434 61,720
Fed funds purchased 48,000 -- 200,000
Term debt 75,095 7,461 57,081
Junior subordinated debentures, at fair value 99,808 100,076 --
Junior subordinated debentures, at amortized cost 105,213 105,480 204,222
Other liabilities 86,426 77,323 79,050
Total liabilities 6,888,520 6,169,679 6,066,843
Shareholders' equity:
Common stock 1,019,618 933,064 923,309
Retained earnings 251,715 242,870 208,335
Accumulated other comprehensive loss (15,295 ) (7,575 ) (18,544 )
Total shareholders' equity 1,256,038 1,168,359 1,113,100
Total liabilities and shareholders' equity $8,144,558 $7,338,038 $7,179,943
Common shares outstanding at period end 61,315,960 58,223,810 57,651,533
Book value per share $20.48 $20.07 $19.31
Tangible book value per share $7.96 $8.42 $7.46
Tangible equity $488,328 $490,505 $430,311
Umpqua Holdings Corporation
Loan Portfolio
(Unaudited)
Dollars in thousandsJune 30, 2007March 31, 2007June 30, 2006
Loans and leases by class:
Commercial real estate $3,058,774 $2,732,029 $2,728,367
Residential real estate 371,894 315,764 301,390
Construction 1,148,726 1,155,821 1,142,487
Total real estate 4,579,394 4,203,614 4,172,244
Commercial 1,323,640 1,123,654 1,065,874
Leases 35,477 24,293 18,192
Installment and other 54,504 51,175 54,713
Deferred loan fees, net (11,265 ) (10,599 ) (14,303 )
Total loans and leases $5,981,750 $5,392,137 $5,296,720
Quarter EndedQuarter EndedQuarter Ended
Dollars in thousandsJune 30, 2007March 31, 2007June 30, 2006
Allowance for credit losses
Balance beginning of period $60,263 $60,090 $44,546
Provision for loan and lease losses 3,413 83 54
Acquisitions 5,078 -- 14,043
Charge-offs (870 ) (713 ) (947 )
Less recoveries 839 803 820
Net (charge-offs) recoveries (31 ) 90 (127 )
Total Allowance for loan and lease losses 68,723 60,263 58,516
Reserve for unfunded commitments 1,273 1,231 2,145
Total Allowance for credit losses $69,996 $61,494 $60,661
Net charge-offs (recoveries) to average loans and leases (annualized)
0.00 % (0.01 )% 0.01 %
Recoveries to gross charge-offs 96 % 113 % 87 %
Allowance for credit losses to
loans and leases 1.17 % 1.14 % 1.15 %
Allowance for credit losses to
nonperforming loans and leases 146 % 463 % 828 %
Nonperforming loans and leases
to total loans and leases 0.80 % 0.25 % 0.14 %
Nonperforming assets:
Nonperforming loans and leases $47,955 $13,296 $7,330
Real estate owned -- -- 69
Total nonperforming assets $47,955 $13,296 $7,399
Umpqua Holdings Corporation
Loan Portfolio
(Unaudited)

Six Months Ended:
Dollars in thousandsJune 30, 2007June 30, 2006
Allowance for credit losses
Balance beginning of period $60,090 $43,885
Provision for loan and lease losses 3,496 75
Acquisitions 5,078 14,043
Charge-offs (1,583 ) (1,560 )
Less recoveries 1,642 2,073
Net recoveries 59 513
Total Allowance for loan and lease losses 68,723 58,516
Reserve for unfunded commitments 1,273 2,145
Total Allowance for credit losses $69,996 $60,661
Net recoveries to average
loans and leases 0.00 % (0.02 )%
Recoveries to gross charge-offs 104 % 133 %
Deposits by Type
(Unaudited)
June 30, 2007March 31, 2007June 30, 2006
Dollars in thousandsAmountMixAmountMixAmountMix
Demand, non interest-bearing $1,358,235 21.2 % $1,180,536 20.2 % $1,264,249 23.1 %
Demand, interest-bearing 2,801,455 43.7 % 2,543,560 43.6 % 2,198,838 40.3 %
Savings 373,438 5.8 % 361,100 6.2 % 421,248 7.7 %
Time 1,881,297 29.3 % 1,745,709 30.0 % 1,580,435 28.9 %
Total Deposits $6,414,425 100.0 % $5,830,905 100.0 % $5,464,770 100.0 %

Umpqua Holdings Corporation

Selected Ratios
(Unaudited)
Quarter Ended:
June 30, 2007March 31, 2007June 30, 2006
Net Interest Spread:
Yield on loans and leases 7.74 % 7.81 % 7.63 %
Yield on taxable investments 4.72 % 4.61 % 4.53 %
Yield on tax-exempt investments (1) 5.06 % 5.89 % 5.56 %
Yield on temporary investments 5.13 % 5.28 % 4.13 %
Total yield on earning assets (1) 7.33 % 7.42 % 7.22 %
Cost of interest bearing deposits 3.66 % 3.62 % 2.93 %
Cost of securities sold under agreements to repurchase and fed funds purchased
3.74 % 3.00 % 4.09 %
Cost of term debt 4.63 % 3.76 % 5.04 %
Cost of junior subordinated debentures 7.62 % 7.60 % 7.63 %
Total cost of interest bearing liabilities 3.84 % 3.78 % 3.27 %
Net interest spread (1) 3.49 % 3.64 % 3.95 %
Net interest margin (1) 4.34 % 4.47 % 4.68 %
As reported:
Return on average assets 1.02 % 1.15 % 1.31 %
Return on average tangible assets 1.13 % 1.27 % 1.42 %
Return on average equity 6.44 % 7.22 % 9.18 %
Return on average tangible equity 16.11 % 17.36 % 21.17 %
Excluding merger related expense net of tax (2):
Return on average assets 1.09 % 1.17 % 1.37 %
Return on average tangible assets 1.21 % 1.29 % 1.49 %
Return on average equity 6.91 % 7.33 % 9.64 %
Return on average tangible equity 17.26 % 17.64 % 22.24 %
Bank Only Ratios:
Umpqua Bank efficiency ratio (2) 54.32 % 55.88 % 51.78 %
Umpqua Bank net interest margin (1) 4.57 % 4.72 % 4.93 %
(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.
Umpqua Holdings Corporation
Selected Ratios
(Unaudited)
Six Months Ended:
June 30, 2007June 30, 2006
Net Interest Spread:
Yield on loans and leases 7.77 % 7.51 %
Yield on taxable investments 4.66 % 4.49 %
Yield on tax-exempt investments (1) 5.42 % 5.57 %
Yield on temporary investments 5.22 % 4.17 %
Total yield on earning assets (1) 7.37 % 7.10 %
Cost of interest bearing deposits 3.64 % 2.79 %
Cost of securities sold under agreements to repurchase and fed funds purchased
3.46 % 4.12 %
Cost of borrowings 4.54 % 5.02 %
Cost of trust preferred securities 7.61 % 7.51 %
Total cost of interest bearing liabilities 3.81 % 3.12 %
Net interest spread (1) 3.56 % 3.98 %
Net interest margin (1) 4.40 % 4.69 %
As reported:
Return on average assets 1.08 % 1.31 %
Return on average tangible assets 1.20 % 1.42 %
Return on average equity 6.81 % 9.32 %
Return on average tangible equity 16.72 % 21.10 %
Excluding merger related expense net of tax (2):
Return on average assets 1.13 % 1.35 %
Return on average tangible assets 1.25 % 1.46 %
Return on average equity 7.11 % 9.61 %
Return on average tangible equity 17.45 % 21.76 %
Bank Only Ratios:
Umpqua Bank efficiency ratio (2) 55.08 % 52.64 %
Umpqua Bank net interest margin (1) 4.64 % 4.94 %
(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.
Umpqua Holdings Corporation
Average Balances
(Unaudited)
Quarter Ended:
Dollars in thousandsJune 30, 2007March 31, 2007June 30, 2006
Loans held for sale $15,468 $15,004 $14,619
Loans and leases 5,777,447 5,383,958 4,505,246
Earning assets 6,735,849 6,245,170 5,236,760
Goodwill & other intangibles 743,801 678,577 486,167
Total assets 7,840,422 7,256,788 6,030,752
Non interest bearing demand deposits 1,271,311 1,158,203 1,048,201
Interest bearing deposits 4,881,499 4,595,377 3,547,093
Total deposits 6,152,810 5,753,580 4,595,294
Interest bearing liabilities 5,252,179 4,864,543 4,064,871
Total shareholders equity 1,239,691 1,161,185 858,168
Tangible equity 495,890 482,608 372,001
Umpqua Holdings Corporation
Average Balances
(Unaudited)
Six Months Ended:
Dollars in thousandsJune 30, 2007June 30, 2006
Loans held for sale $15,237 $12,099
Loans and leases 5,581,789 4,261,765
Earning assets 6,491,865 4,980,754
Goodwill & other intangibles 711,369 447,405
Total assets 7,550,217 5,722,796
Non interest bearing demand deposits 1,215,069 1,008,573
Interest bearing deposits 4,739,228 3,396,277
Total deposits 5,954,297 4,404,850
Interest bearing liabilities 5,059,432 3,856,833
Total shareholders equity 1,200,655 801,494
Tangible equity 489,286 354,089
Umpqua Holdings Corporation
Mortgage Banking Statistical Analysis
(unaudited)
Quarter Ended:
June 30, 2007March 31, 2007June 30, 2006
Dollars in thousands
Mortgage Servicing Rights (MSR):
Mortgage loans serviced for others $897,696 $925,541 $1,004,148
MSR Asset $9,966 $9,524 $13,735
Less: Valuation reserve (1) -- -- (2,185 )
MSR Asset net $9,966 $9,524 $11,550
MSR net as % of serviced portfolio 1.11 % 1.03 % 1.15 %
Dollars in thousands
Mortgage Banking Revenue:
Origination and sale $1,700 $1,728 $1,937
Servicing 670 637 665
Amortization of MSR (1) -- -- (321 )
MSR valuation reserve change -- -- 222
Change in fair value of MSR 237 (566 ) --
Total Mortgage Banking Revenue $2,607 $1,799 $2,503
Six Months Ended:
June 30, 2007June 30, 2006
Dollars in thousands
Mortgage Banking Revenue:
Origination and sale $3,428 $3,460
Servicing 1,307 1,340
Amortization of MSR (1) -- (642 )
MSR valuation reserve change -- 189
Change in fair value of MSR (329 ) --
Total Mortgage Banking Revenue $4,406 $4,347
(1) The Company adopted SFAS No. 156 effective January 1, 2007, resulting in elimination of the mortgage servicing right valuation reserve and MSR amortization.

Contacts:

Umpqua Holdings Corporation
President/CEO
Ray Davis, 503-727-4101
raydavis@umpquabank.com
or
SVP/Finance
Ron Farnsworth, 503-727-4108
ronfarnsworth@umpquabank.com

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