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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1999 or
[ ] 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:
Umpqua Holdings Corporation
(Exact name of registrant as specified in its charter)
Oregon 93-1261319
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
445 S.E. Main Street, Roseburg, Oregon 97470
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 541-440-3900
Securities registered pursuant to Section 12(b) of the Act: None
Name of exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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. Yes X No
Indicate by check mark if disclosure of delinquent filing pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 20, 2000, there were 7,606,927 shares of common stock
outstanding. The aggregate market value of common stock held by non-affiliates
was $50,194,421 at March 20, 2000, based on the last reported sale price on
such date as reported by the Nasdaq National Market.
Documents Incorporated by Reference:
Portions of the 1999 Annual Report to Shareholders are incorporated by
reference in Part II hereof. Portions of the registrant's definitive proxy
statement for the 2000 annual meeting of shareholders are incorporated by
reference in Part III hereof.
Part I
Item 1. Business
Introduction
Umpqua Holdings Corporation (the Company) is a bank holding company
formed in March 1999. At that time, the Company acquired 100% of the
outstanding shares of South Umpqua Bank. The Company is headquartered in
Roseburg, Oregon, and engages primarily in the business of commercial and
retail banking and the delivery of retail brokerage services. The Company
provides a wide range of banking, asset management, mortgage banking, and
other financial services to corporate, institutional and individual customers
through its wholly-owned banking subsidiary South Umpqua Bank (the Bank). The
Company engages in the retail brokerage business through its wholly-owned
subsidiary Strand, Atkinson, Williams & York, Inc. The Company and its
subsidiaries are subject to the regulations of certain federal agencies and
undergo periodic examinations by these regulatory agencies.
South Umpqua Bank ("South Umpqua") is one of the most innovative
community banks in the United States, combining a retail product delivery
approach with an emphasis on quality-assured personal service. The Company is
the fourth largest community bank in the State of Oregon, currently operating
14 full-service stores (or branches) in Douglas, Lane, Marion and Multnomah
Counties in Oregon. At December 31, 1999, South Umpqua had assets of $387
million and deposits of $302 million.
Since 1995, South Umpqua has transformed itself from a traditional
community bank into a community-oriented financial services retailer. The
Company has implemented a variety of retail marketing strategies to increase
revenue and differentiate itself from its competition. To establish itself as
a financial services retailer, the Company has remodeled a majority of its
branches to resemble retail stores. These new stores incorporate "serious
about service centers" that are the focal point for customer information and
"investment opportunity centers" providing broker-dealer services and
featuring financial and investment information in a multimedia format. The
Company has introduced smaller, 1,100 square foot "neighborhood stores," which
are lower cost, new format stores located in residential areas. To monitor the
quality of its customer service, South Umpqua introduced a "return on quality"
program for its sales associates and implemented an in-house "banking college"
to train its personnel in cross-selling and effective customer service.
Strand, Atkinson, Williams & York offer a full range of investment
products and services including:
o Stocks
o Fixed Income (municipals, corporates, preferreds, governments, agencies,
CDs, money market instruments)
o Mutual Funds
o Annuities
o Options
o Retirement Planning
o Money management Services (Strand, Atkinson, Williams & York is a
Registered Investment Advisor)
o Life Insurance, Disability Insurance and Medical Supplement Policies
Industry Overview
The commercial banking industry continues to undergo increased
competition, consolidation and change. Non-insured financial service companies
such as mutual funds, brokerage firms, insurance companies, mortgage companies
and leasing companies are offering alternative investment opportunities for
customers' funds or lending sources for their needs. Banks have been granted
extended powers to better compete including the limited right to sell
insurance and securities products, but the percentage of financial
transactions handled by commercial banks has dropped steadily. Although the
amount of deposits in banks is remaining steady, such deposits represent less
than 20% of household financial assets compared to over 35% twenty-five years
ago. This trend represents a continuing shift to stocks, bonds, mutual funds
and retirement accounts.
Nonetheless, commercial banks are reducing costs by consolidation and
exploring alternative ways of providing bank products. Although new community
banks continue to be organized, bank mergers substantially outstrip
formations.
1
To more effectively and efficiently deliver its products, banks are
opening in-store branches, installing more automated teller machines ("ATMs")
and investing in technology to permit telephone, personal computer and
internet banking. While all banks are experiencing the effects of the changing
environment, the manner in which banks choose to compete is increasing the gap
between larger super-regional banks, committed to becoming national or
regional "brand names" providing a broad selection of products at low cost and
with advanced technology, and community banks which provide most of the same
products but with a commitment to personal service and with local ties to the
customers and communities they serve.
The Gramm-Leach-Bliley Act of 1999 eliminates many of the restrictions
placed on the activities of certain qualified bank holding companies.
Effective March 11, 2000, our bank holding company qualified as a "financial
holding company" and we are now qualified to expand into a wide variety of
financial services, including additional securities activities, and insurance
without the prior approval of the Federal Reserve Board.
Business Strategy
Umpqua Holdings Corporation's ("Company") objective is to become the
leading community-oriented financial services retailer throughout Oregon. The
Company intends to continue to grow its assets and increase profitability and
shareholder value by differentiating itself from its competitors through the
following strategy:
Capitalize On Its Innovative Product Delivery System: The Company's
philosophy has been to develop an environment for the customer that makes the
customer's banking experience an enjoyable one. With this approach in mind,
the Company developed a prototype store that offers "one-stop" shopping and
that includes distinct physical areas or boutiques, such as a "serious about
service center," an "investment opportunity center" and a "computer cafe,"
which make the Company's products and services more tangible and accessible.
The Company's initial prototype store was opened in 1996 in Roseburg, Oregon,
a community with historically low deposit growth. This new store,
nevertheless, captured $12 million in deposits from competitors by the end of
its first year of operation. On the basis of this initial success, the Company
opened four additional stores featuring the new format during 1997, two
additional stores in 1999, and plans to open additional stores in the near
future.
Deliver Superior Quality Service: The Company has insisted on quality
service as an integral part of the Company's culture, from the Board of
Directors to new sales associates. South Umpqua believes it was among the
first banks to introduce a measurable quality service program. Under its
"return on quality" program introduced in 1995, each sales associate's and
store's performance is evaluated monthly based on specific measurable factors
such as the "sales effectiveness ratio" that measures the average number of
banking products purchased by each new customer. The evaluations also
encompass factors such as the number of referrals generated for the sale of
investment products, the number of new loans and deposits generated in each
store, reports by incognito "mystery shoppers" and customer surveys. Based on
scores achieved, the return on quality program rewards both individual sales
associates and store teams with financial incentives. Through such programs,
the Company believes it can measure the quality of service provided to its
customers and maintain employee focus on quality customer service.
Establish Strong Brand Awareness: As a financial services retailer, the
Company has devoted considerable resources to developing the "South Umpqua
Bank" brand. This campaign has included the redesign of the Company's
corporate logo to emphasize its geographical origin, and promotion of the
"South Umpqua Bank" brand in advertising and merchandise bearing the South
Umpqua Bank logo, such as coffee beans, mugs, tee-shirts, hats and umbrellas.
The store's unique "look and feel" and innovative product displays help
position South Umpqua as an innovative, customer friendly retailer of
financial products and services. The Company believes it can build consumer
preference for its products and services through high quality service and
strong brand awareness.
2
Use Technology to Expand Customer Base: Although the Company's strategy
will continue to emphasize superior personal service, the Company will also
continue to expand user-friendly, technology-based systems to attract
customers that may prefer to interact with their financial institution
electronically. Over the past years, the Company has introduced
technology-based services which include voice response banking, debit cards,
automatic payroll deposit programs, a "bank@home" program, automated loan
machines, advanced function ATMs and an internet web site. The Company
believes the availability of both traditional bank services and the newer
electronic banking services will enhance its ability to attract a broad range
of customers.
Increase Market Share in Existing Markets and Expand Into New Markets: As
a result of its innovative retail product orientation, measurable quality
service program and strong brand awareness, the Company believes that there is
significant potential to increase business with current customers, to attract
new customers in its existing markets and to enter new markets. Since its
introduction of these programs, South Umpqua has experienced significant
growth in deposits within Douglas County, increasing its share of commercial
bank deposits from 21.1% at June 30, 1995 to 32.2% at June 30, 1999. In July
1996, South Umpqua opened its first store in Eugene, Oregon, and as of
December 31, 1999, had four new format stores in the Eugene market with total
deposits of $80 million. During 1999, the Company opened new stores in Salem
and Portland, Oregon. From time to time, the Company has held discussions with
other institutions about the possibility of acquiring these banks. The Company
plans on pursuing further acquisition discussions and opening new stores to
expand into other markets outside of Douglas and Lane Counties through
acquisitions or the opening of new stores.
Marketing and Sales
South Umpqua's goal to increase its share of financial services in the
market areas it serves is driven by a marketing plan comprising several key
components.
Media Advertising. Over the years, the Company has introduced several
comprehensive media advertising campaigns. These campaigns augment the
Company's goal of strengthening its brand image and heightening public
awareness of its innovative product delivery system. These campaigns, entitled
"The Banking Revolution" and "Expect the Unexpected," were designed to
showcase South Umpqua's innovative style of banking, as well as the Company's
commitment to providing quality service to its customers. "The Banking
Revolution" campaign is designed to differentiate South Umpqua from other
financial institutions in its market area, while "Expect the Unexpected"
challenged them to visit the Company's stores and experience first-hand its
quality service. Both of these campaigns utilized various forms of media,
which included television, radio, print, billboards and direct mail flyers and
letters.
Retail Store Concept. As a financial services provider, the Company
believes that store environment is critical to successfully market and sell
its products and services. Retailers for years have displayed their
merchandise within their stores to encourage customers to purchase their
products. Purchases are made on the spur of the moment due to the products'
availability and attractiveness. South Umpqua believes this same concept can
be applied to financial institutions and accordingly displays its financial
services and products through tactile merchandising within its stores. Recent
displays have included enticements for mortgage loans, retirement accounts,
investments, and checking account programs. Unlike many financial institutions
whose strategy is to discourage customers from visiting their facilities in
favor of ATMs or other forms of electronic banking, South Umpqua encourages
its customers to visit its stores, where they are greeted by well-trained
sales associates, and encouraged to browse and to make "impulse buys." South
Umpqua introduced its first "prototype" store in mid-1996, which included such
services as a 24-hour banking vestibule with an automated loan machine, an
advanced function ATM and a 24-hour self-service U.S. Postal service center.
Neighborhood Stores. To bring financial services to the customer in a
cost-effective way, South Umpqua has created "neighborhood stores." These
facilities are constructed near high volume traffic areas, close to
neighborhood shopping centers. These stand-alone stores are, on average,
approximately 1,100 square feet in size and include all the features of the
prototype store described above. To strengthen brand recognition, all
neighborhood stores are identical in appearance. The Company currently has
three neighborhood stores, all located in the Eugene/Springfield area.
3
Sales Culture. Although a successful marketing program will attract
customers to visit its stores, a sales environment and a well-trained sales
team is critical to selling the Company's products and services. The Company
believes that its sales culture has become well established throughout the
Company due to its unique facility design and its commitment to ongoing
training of sales associates on all aspects of sales and service. South Umpqua
trains its sales associates in its own banking college and pays commissions
for the sale of the Company's products and services. The Company's sales
culture has helped South Umpqua transform itself from a traditional community
bank to a nationally recognized marketing company focused on selling financial
products and services.
Products and Services
The Company offers a full array of financial products to meet the banking
needs of its market area and targeted customers. To ensure the ongoing
viability of its product offerings, the Company regularly examines the
desirability and profitability of existing and potential new products. To make
it easy for new prospective customers to bank with South Umpqua and access its
products, the Company introduced its "Switch Kit," which allows a customer to
open their primary checking account with the Company in less than four
minutes. These products and services have helped the Company grow its number
of deposit accounts from 18,200 in 1994 to 40,000 in 1999, a 100% increase.
Other avenues through which customers can access the Company's products
include the Company's web site and its 24-hour voice response system.
Deposit Products. The Company has a traditional array of deposit
products, including non-interest checking accounts, interest-bearing checking
and savings accounts, money market accounts and certificates of deposit. These
accounts earn interest at rates established by management based on competitive
market factors and management's desire to increase certain types or maturities
of deposit liabilities. In order to increase the number of relationships with
customers and increase service fee income, the Company also introduced its
line of "Value Packages" in 1996. These packages are comprised of several
products bundled together to provide added value to the customer and increase
the customer's ties to the Company. The Company also offers a seniors program,
the "Platinum Account," which offers an array of banking services and other
amenities such as purchase discounts, vacation trips and seminars, to
customers over fifty years old.
Investment Services. Strand, Atkinson, Williams & York, Inc. provides a
variety of investment products and services. These products include: equity
and debt securities, annuities, certificates of deposit, mutual funds,
retirement plans, life and health insurance and U.S. Government securities.
Commercial Loans. The Company offers specialized loans for its business
and commercial customers, including equipment and inventory financing, real
estate construction loans and SBA loans for qualified businesses. Commercial
lending is the primary focus of the Company's lending activities and a
significant portion of the Company's loan portfolio consists of commercial
loans. For regulatory reporting purposes, a substantial portion of the
Company's commercial loans are designated as real estate loans, because the
loans are secured by mortgages and trust deeds on real property, even though
the loans may be made for purposes of financing commercial activities, such as
accounts receivable, equipment purchases and leasing.
Real Estate Loans. Real estate loans are available for construction,
purchase and refinancing of residential owner-occupied and rental properties.
Borrowers can choose from a variety of fixed and adjustable rate options and
terms. Generally, the Company originates residential real estate loans as an
accommodation to its customers and sells most mortgages into the secondary
market. Real estate loans reflected in the loan portfolio are in large part
loans made to commercial customers that are secured by real property.
Consumer Loans. The Company provides loans to individual borrowers for a
variety of purposes, including secured and unsecured personal loans, home
equity and personal lines of credit and motor vehicle loans.
4
Market Area
South Umpqua primarily accepts deposits and makes loans in Douglas,
Marion, Multnomah and Lane Counties of Oregon. As a community bank, the
Company has certain competitive advantages in its local focus. The Company is,
however, also more dependent on, and exposed to changes in, the local economy
than competitors who serve a number of geographic markets.
Douglas County
Douglas County, where most of the Company's stores are located, is the
eighth most populous county in Oregon with a population in 1999 of
approximately 99,200. Roseburg is the most populous city in the county, with a
population in 1999 of approximately 19,900. Population growth, which has been
modest since 1990, is largely attributable to a significant increase in new
residents over the age of 65, offset by a decline in younger residents. Most
of the population in the county resides near in the Interstate 5 corridor, the
Company's primary market area. According to the Oregon Employment Department,
the county's population is projected to increase over the next decade, but at
a slower rate than that of Oregon as a whole.
Douglas County is known as the "timber capital" of Oregon with
approximately 2.8 million acres of commercial forest land, most of which is
owned and managed by the federal government. The lumber and wood products
industry accounted for approximately 20% of the county's private-sector
employment in 1999, according to the Oregon Employment Department. Timber
harvests on public lands have declined significantly over the past several
years, as various court and administrative challenges and limits reduced the
amount of timber available for harvest. Decreased economic activity in Asia
has further dampened log exports and related logging activity. Employment in
the timber and forest products industry has declined accordingly, as it has in
related industries and governmental agencies, such as transportation companies
serving the forest products industry, the Bureau of Land Management and the
National Forest Service. Government employment still accounts for
approximately 20% of total employment in the county. Increases in service
jobs, particularly in health care and tourism, have helped to offset
timber-related job losses, with the result that total employment has been
essentially flat from the late 1970's to the mid-1990's, compared to a
state-wide growth of approximately 29% for the same period. It is expected
that the economy of Douglas County will continue to be dependent on the timber
and forest products industry.
Lane, Marion and Multnomah Counties
Lane County, where the Company has recently opened four new stores, has
experienced modest growth in population in the past several years, from
approximately 283,000 in 1990 to approximately 320,000 in 1999, an increase of
13%. A considerable amount of the growth is believed to be attributable to the
growth in technology-related employment in the Springfield/Eugene area.
Lane, Marion and Multnomah County have a significantly more diverse
economy than Douglas County. Their economies are dependent primarily on
service businesses, trade and government. Manufacturing employment has shifted
toward technology and non-timber-related manufacturing. The University of
Oregon, located in Eugene, is one of the largest employers in Lane County,
with approximately 4,560 employees.
Technology
The Company is committed to supporting its business with the best
available technology consistent with prudent management of resources. This
commitment applies to the delivery of financial services to its customers, as
well as internal operations such as data processing and accounting. Although
the Company considers personal contact with customers important to the overall
quality of service, the Company believes that providing customers access to
technology-driven financial services is crucial to maintaining its competitive
position in the financial services marketplace. As a result, the Company
provides automated teller machines at each store with access to nationwide ATM
networks, and offers telephone and internet banking, both in the "Computer
Cafe" in its newer stores and through the Company's home banking system.
5
Competition
The community banking business is highly competitive. The Company
competes with other commercial banks and with other financial institutions,
including savings and loan associations, mutual savings banks, finance
companies, mortgage banking companies, credit unions, and investment
companies. In recent years, competition has increased from institutions not
subject to the same regulatory restrictions as banks and bank holding
companies.
The geographic market area served by South Umpqua is highly competitive
for both deposits and loans. The Company competes with traditional banking and
thrift institutions, as well as non-bank financial services providers, such as
credit unions, brokerage firms and mortgage companies. The major commercial
bank competitors are super-regional institutions headquartered outside the
state of Oregon, and their deposits represent a significant majority of total
statewide commercial bank deposits. The major banks have competitive
advantages over the Company in that they have higher lending limits and are
able to offer statewide facilities and services that the Company does not
offer.
The Company, however, views non-bank financial services providers, such
as credit unions, brokerage firms, insurance companies and mortgage companies,
as its principal competition. As the industry becomes increasingly dependent
on and oriented toward technology-driven delivery systems, permitting
transactions to be conducted by telephone, computer and the internet, such
non-bank institutions are able to attract funds and provide lending and other
financial services even without offices located in the Company's primary
service area. Some insurance companies and brokerage firms compete for
deposits by offering rates that are higher than may be appropriate for the
bank in relation to its asset/liability objectives, although the Company
offers a wide array of deposit products and believes it can compete
effectively through select rate-driven product promotions.
The acquisition of Strand, Atkinson, Williams & York, the retail
brokerage firm with offices in Portland and Medford, Oregon, as well as
Kalama, Washington, expanded the Company's business into the area of brokerage
services including equity and fixed income products, mutual funds, annuities,
options, retirement planning, and money management services. Additionally,
Strand, Atkinson, Williams & York offers life insurance, disability insurance
and medical supplement policies. As a result, in addition to competition for
banking services, the Company also competes with full service investment firms
for non-bank financial products and services.
Credit unions present a significant competitive challenge for the
Company. As credit unions currently enjoy an exemption from taxes, they are
able to offer higher deposit rates and lower loan rates than the Company.
Credit unions are also not currently subject to certain regulatory constraints
applicable to the Company, such as the Community Reinvestment Act, which,
among other things, requires regulated financial institutions to implement
procedures to make and monitor loans throughout the communities it serves.
Adhering to such regulatory requirements raises the costs associated with the
Company's lending activities, and reduces potential operating profits.
Accordingly, the Company seeks to compete by focusing on building customer
relations, providing superior service and offering a wide variety of
commercial banking products that do not compete directly with products and
services offered by the credit unions, such as commercial real estate loans,
inventory and accounts receivable financing, and SBA loans for qualified
businesses.
Employees
As of December 31, 1999, the Company had a total of 170 full-time
equivalent employees. None of the employees are subject to a collective
bargaining agreement. The Company considers its relationship with its
employees to be good.
Government Policies
The operations of the Company's subsidiaries are affected by state and
federal legislative changes and by policies of various regulatory authorities,
including those of the State of Oregon. These policies include, for example,
6
statutory maximum legal lending rates, domestic monetary policies of the Board
of Governors of the Federal Reserve System, Unites States fiscal policy, and
capital adequacy and liquidity constraints imposed by national and state
regulatory agencies.
Supervision and Regulation
General - The Company is extensively regulated under federal and state
law. These laws and regulations are generally intended to protect depositors,
not shareholders. To the extent that the following information describes
statutory or regulatory provisions, it is qualified in its entirety by
reference to the particular statutory or regulatory provisions. Any change in
applicable laws or regulations may have a material effect on the business and
prospects of the Company. The operations of the Company may be affected by
legislative changes and by the policies of various regulatory authorities. The
Company cannot accurately predict the nature or the extent of the effects on
its business and earnings that fiscal or monetary policies, or new federal or
state legislation may have in the future.
Holding Company Regulation - The Company is a registered Financial
Holding Company under the Gramm-Leach-Bliley Act of 1999 (the "Act"), and is
subject to the supervision of, and regulation by, the Board of Governors of
the Federal Reserve System (the "Federal Reserve"). As a financial holding
company, the Company is examined by and files reports with the Federal
Reserve.
Financial holding companies are bank holding companies that satisfy
certain criteria and are permitted to engage in activities that traditional
bank holding companies are not. The qualifications and permitted activities of
financial holdings companies are described below under "Changing Regulatory
Structure of the Financial Service Industry".
Federal and State Bank Regulation - The Bank, as a state chartered bank
with deposits insured by the Federal Deposit Insurance Corporation ("FDIC"),
is subject to the supervision and regulation of the Oregon Department of
Consumer and Business Services, and of the FDIC. These agencies may prohibit
the Company from engaging in what they believe constitute unsafe or unsound
banking practices. In practice, the primary state regulator makes regular
examinations of the bank subject to its regulatory review or participates in
joint examinations with federal regulator. Areas subject to review by federal
authorities include the allowance for credit losses, investments, loans,
mergers, payments of dividends, establishment of stores and other aspects of
operations.
Strand, Atkinson, Williams & York is a member of the National Association
of Securities Dealers and is subject to their regulatory supervision. Areas
subject to this regulatory review include compliance with trading rules,
financial reporting, investment suitability for respective clients, and
compliance with NYSE rules and regulations.
The Community Reinvestment Act ("CRA") requires that, in connection with
examinations of financial institutions within its jurisdiction, the FDIC
evaluate the record of the financial institutions in meeting the credit needs
of their local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those institutions. These
factors are also considered in evaluating mergers, acquisitions and
applications to open a branch or new facility. The Company's current CRA
rating is "Satisfactory."
Banks are also subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors,
principal shareholders or any related interest of such persons. Extensions of
credit (i) must be made on substantially the same terms, including interest
rates and collateral as, and follow credit underwriting procedures that are
not less stringent than, those prevailing at the time for comparable
transactions with persons not affiliated with the Company, and (ii) must not
involve more than the normal risk of repayment or present other unfavorable
features. Banks are also subject to certain lending limits and restrictions on
overdrafts to such persons. A violation of these restrictions may result in
the assessment of substantial civil monetary penalties on the affected bank or
any officer, director, employee, agent or other person participating in the
conduct of the affairs of that bank, the imposition of a cease and desist
order, and other regulatory sanctions.
7
The Federal Reserve and the FDIC have adopted non-capital safety and
soundness standards for institutions under their authority. These standards
cover internal controls, information and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, and standards for asset quality, earnings and
stock valuation. An institution which fails to meet these standards must
develop a plan acceptable to the agency, specifying the steps that the
institution will take to meet the standards. Failure to submit or implement
such a plan may subject the institution to regulatory sanctions. Management
believes that the Company is in substantial compliance with these standards.
Deposit Insurance - The deposits of the Company are currently insured to
a maximum of $100,000 per depositor through the Bank Insurance Fund ("BIF"),
administered by the FDIC. The Company is required to pay semi-annual deposit
insurance premium assessments to the FDIC. Assessments are based on how much
risk a bank is deemed to present to the BIF. Banks with higher levels of
capital and a low degree of supervisory concern are assessed lower premiums
than banks with lower levels of capital or involving a higher degree of
supervisory concern. The Bank qualifies for the lowest premium level, and
currently pays only the statutory minimum rate.
Dividends - Under the Oregon Bank Act, the Bank is subject to
restrictions on the payment of cash dividends to its parent company. A bank
may not pay cash dividends if that payment would reduce the amount of its
capital below that necessary to meet minimum applicable regulatory capital
requirements. In addition, the amount of the dividend may not be greater than
its net unreserved retained earnings, after first deducting (i) to the extent
not already charged against earnings or reflected in a reserve, all bad debts,
which are debts on which interest is unpaid and past due at least six months;
(ii) all other assets charged off as required by the Oregon Director or state
or federal examiner; and (iii) all accrued expenses, interest and taxes.
In addition, the appropriate regulatory authorities are authorized to
prohibit banks and bank holding companies from paying dividends which would
constitute an unsafe or unsound banking practice. The Company is not currently
subject to any regulatory restrictions on dividends other than those noted
above.
Capital Adequacy - The federal and state bank regulatory agencies use
capital adequacy guidelines in their examination and regulation of financial
holding companies and banks. If the capital falls below the minimum levels
established by these guidelines, a holding company or a bank may be denied
approval to acquire or establish additional banks or non-bank businesses or to
open new facilities.
The FDIC and Federal Reserve have adopted risk-based capital guidelines
for banks and bank holding companies. The risk-based capital guidelines are
designed to make regulatory capital requirements more sensitive to differences
in risk profile among banks and bank holding companies, to account for
off-balance sheet exposure and to minimize disincentives for holding liquid
assets. Assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate weights. The resulting capital ratios
represent capital as a percentage of total risk-weighted assets and
off-balance sheet items. The capital adequacy guidelines limit the degree to
which a bank or bank holding company may leverage its equity capital.
Effects of Government Monetary Policy - The earnings and growth of the
Company are affected not only by general economic conditions, but also by the
fiscal and monetary policies of the federal government, particularly the
Federal Reserve. The Federal Reserve can and does implement national monetary
policy for such purposes as curbing inflation and combating recession, by its
open market operations in U.S. Government securities, control of the discount
rate applicable to borrowings from the Federal Reserve, and establishment of
reserve requirements against certain deposits. These activities influence
growth of bank loans, investments and deposits, and also affect interest rates
charged on loans or paid on deposits. The nature and impact of future changes
in monetary policies and their impact on the Company cannot be predicted with
certainty.
Changing Regulatory Structure of the Financial Services Industry -
Federal laws and regulations governing banking and financial services have
undergone significant changes in recent years. Of particular significance is
the recently enacted Gramm-Leach-Bliley Act that repealed sections of the
Banking Act of 1933, commonly referred to as the Glass-Steagall Act, that
prohibited banks from engaging in securities activities, and prohibited
securities firms from engaging in banking. The GLB Act created a new form of
holding company, known as a financial holding company, that is permitted to
acquire subsidiaries that are variously engaged in banking, securities
underwriting and dealing, and insurance underwriting.
8
A bank holding company, if it meets specified criteria, may become a
financial holding company by filing a declaration with the Federal Reserve,
and may thereafter provide its customers with a far broader spectrum of
products and services than a traditional bank holding company is permitted to
do. A financial holding company may, through a subsidiary, engage in any
activity that is deemed to be financial in nature and activities that are
incidental or complementary to activities that are financial in nature. These
activities include traditional banking services and activities previously
permitted to bank holding companies under Federal Reserve regulations, but
also include underwriting and dealing in securities, providing investment
advisory services, underwriting and selling insurance, merchant banking
(holding a portfolio of commercial businesses, regardless of the nature of the
business, for investment), and arranging or facilitating financial
transactions for third parties.
To qualify as a financial holding company, the bank holding company must
be deemed to be well-capitalized and well-managed, as those terms are used by
the Federal Reserve. In addition, each subsidiary bank of a bank holding
company must also be well-capitalized and well-managed. Further, each
subsidiary bank must be rated at least "satisfactory" under the Community
Reinvestment Act.
A bank holding company that does not qualify, or has not chosen, to
become a financial holding company must limit its activities to traditional
banking activities and those non-banking activities the Federal Reserve has
deemed to be permissible because they are closely related to the business of
banking.
Legislation enacted by Congress in 1995 permits interstate banking and
branching, which allows banks to expand nationwide through acquisition,
consolidation or merger. Under this law, an adequately capitalized bank
holding company may acquire banks in any state or merge banks across state
lines if permitted by state law. Further, banks may establish and operate
branches in any state subject to the restrictions of applicable state law.
Under Oregon law, an out-of-state bank or bank holding company may merge with
or acquire an Oregon state chartered bank or bank holding company if the
Oregon bank, or in the case of a bank holding company, the subsidiary bank,
has been in existence for a minimum of three years, and the law of the state
in which the acquiring bank in located permits such merger. Branches may not
be acquired or opened separately, but once an out-of-state bank has acquired
branches in Oregon, either through a merger with or acquisition of
substantially all the assets of an Oregon bank, the acquirer may open
additional branches.
Item 2. Properties
South Umpqua's main office is located in Roseburg, Oregon. The Company
conducts its business through fourteen full-service financial stores
throughout its market area with stores located in Roseburg (4), Eugene (3),
Salem, Portland, Sutherlin, Canyonville, Myrtle Creek, Glendale and
Springfield. All of the stores have automated teller machines and 13 of the 14
stores have drive-up windows. The Company owns all but two stores, and leases
the land on which two others are located. The Company has options to extend
existing leases on the leased facilities. The Company's fourteen stores range
in size from approximately 1,100 square feet to slightly more than 15,000
square feet. In one store, excess space is leased to others. The Company
opened a Loan service center in February 1999 in Roseburg, Oregon. The
property, which is leased, is approximately 4,828 square feet and houses loan
processing staff.
Item 3. Legal Proceedings
No material legal proceedings, to which the Company is a party or which
involve any of its properties, was pending as of the date of this report on
Form 10-K.
Item 4. Submissions of Matters to a Vote of Securities Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded over-the-counter on the NASDAQ Stock
Market National Market System under the symbol "UMPQ." Prior to the second
9
quarter of 1998, when the Company completed a public offering and registered
its stock under the Securities Exchange Act of 1934, the Common Stock was
traded over-the-counter through the Bulletin Board Service of the NASDAQ Stock
Market and the Pink Sheet Service of the National Quotation Bureau . The
following lists the high and low trade prices for each period, as adjusted for
subsequent stock dividends and stock splits including a four-for-one stock
split paid on February 2, 1998. Prices do not include retail mark-ups,
mark-downs or commissions:
High Trade Low Trade Cash
Price Price Dividends
for Period for Period Declared
-------------------------------------------
1998
First Quarter .............. $ 16.75 $ 9.00 $ 0.0250
Second Quarter ............. $ 16.75 $ 13.13 $ 0.0250
Third Quarter .............. $ 14.38 $ 7.75 $ 0.0250
Fourth Quarter ............. $ 11.88 $ 7.25 $ 0.0400
1999
First Quarter .............. $ 11.00 $ 8.75 $ 0.04
Second Quarter ............. $ 10.63 $ 8.25 $ 0.04
Third Quarter .............. $ 10.63 $ 8.00 $ 0.04
Fourth Quarter ............. $ 11.00 $ 8.50 $ 0.04
As of December 31, 1999, the Common Stock was held of record by approximately
600 shareholders.
The Board of Directors' dividend policy is to review the Company's
financial performance, capital adequacy, regulatory compliance and cash
resources on a quarterly basis, and, if such review is favorable, to declare
and pay a cash dividend to shareholders. Although the Company expects to
continue to pay cash dividends, future dividends are subject to these
limitations and to the discretion of the Board of Directors, and could be
reduced or eliminated.
The Company has a dividend reinvestment plan that permits participants to
have shares purchased at the then-current market price in lieu of the receipt
of cash dividends.
Item 6. Selected Financial Data
Financial Highlights 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
Net Income .................................... $ 4,874,000 $ 4,110,000 $ 3,044,000 $ 2,361,000 $ 2,207,000
Basic Earnings Per Common Share ............... $ 0.64 $ 0.56 $ 0.47 $ 0.36 $ 0.34
Fully Diluted Earnings Per Common Share ....... $ 0.63 $ 0.55 $ 0.46 $ 0.35 $ 0.34
Total Shareholders' Equity .................... $ 36,716,000 $ 36,146,000 $ 19,973,000 $ 17,022,000 $ 15,211,000
Total Assets .................................. $386,737,000 $318,887,000 $257,746,000 $203,838,000 $172,096,000
Total Loans ................................... $248,534,000 $186,167,000 $155,078,000 $112,861,000 $ 82,713,000
Total Deposits ................................ $301,673,000 $255,805,000 $221,726,000 $172,837,000 $149,751,000
Selected Ratios 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
Return on Average Assets ...................... 1.45% 1.47% 1.31% 1.27% 1.37%
Return on Average Equity ...................... 13.55% 13.14% 16.50% 14.71% 15.38%
Net Interest Margin ........................... 5.37% 5.37% 5.24% 5.14% 5.15%
Efficiency Ratio .............................. 55.60% 55.31% 61.86% 58.91% 57.93%
Loans/Deposits ................................ 82.39% 72.78% 69.94% 65.30% 55.23%
Asset Quality Ratios 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses to:
Ending Total Loans ............................... 1.40% 1.43% 1.38% 1.76% 1.50%
Nonperforming Assets ............................. 216.19% 432.37% 170.27% 815.44% 541.43%
Nonperforming assets to
ending total loans ............................. 0.65% 0.33% 0.81% 0.21% 0.27%
Net loan charge-offs (recoveries)
to average loans ............................... 0.28% 0.30% 0.30% -0.16% 0.09%
10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
The response to this item is incorporated by reference to the Company's
1999 Annual Report to Shareholders, pages 17-28.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information called for by this item is incorporated by reference to
the Company's 1999 Annual Report to Shareholders, pages 17-28.
Item 9. Changes in and Disagreements With Accountants
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The response to this item is incorporated by reference to the Company's
Proxy Statement for the 2000 annual meeting of shareholders scheduled to be
held April 26, 2000, under the captions "Election of Directors" and
"Executive Officers."
Item 11. Executive Compensation
The response to this item is incorporated by reference to the Company's
Proxy Statement for the 2000 annual meeting of shareholders scheduled to be
held April 26, 2000, under the caption "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The response to this item is incorporated by reference to the Company's
Proxy Statement for the 2000 annual meeting of shareholders scheduled to be
held April 26, 2000, under the caption "Security Ownership of Management and
Others."
Item 13. Certain Relationships and Related Transactions
The response to this item is incorporated by reference to the Company's
Proxy Statement for the 2000 annual meeting of shareholders scheduled to be
held April 26, 2000, under the caption "Transactions with Directors and
Officers."
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements: The consolidated financial statements are
incorporated by reference to pages 30-43 of the Company's 1999 Annual
Report to Shareholders
(2) Financial Statement Schedules:
All schedules have been omitted because the information is not
required, not applicable, not present in amounts sufficient to
require submission of the schedule, or is included in the financial
statements or notes thereto.
(3) The exhibits filed with this report are listed in the Exhibit Index on
sequential page 16.
(b) There were no current reports on Form 8-K filed by the registrant during
the last quarter of the year ended December 31, 1999.
11
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
UMPQUA HOLDINGS CORPORATION
(Registrant)
By: /s/ Raymond P. Davis Date: March 15, 2000
----------------------------------------------
Raymond P. Davis, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Allyn C. Ford Date: March 15, 2000
----------------------------------------------
Allyn C. Ford, Chairman of the Board
of Directors
By: Date: March 15, 2000
----------------------------------------------
Lynn K. Herbert, Director
By: /s/ Harold L. Ball Date: March 15, 2000
----------------------------------------------
Harold L. Ball, Director
By: /s/ Ronald O. Doan Date: March 15, 2000
----------------------------------------------
Ronald O. Doan, Director
By: Date: March 15, 2000
----------------------------------------------
David B. Frohnmayer, Director
By: /s/ Neil D. Hummel Date: March 15, 2000
----------------------------------------------
Neil D. Hummel, Director
By: /s/ Frances Jean Phelps Date: March 15, 2000
----------------------------------------------
Frances Jean Phelps, Director
By: /s/ Raymond P. Davis Date: March 15, 2000
----------------------------------------------
Raymond P. Davis, Director, President and
Chief Executive Officer
By: /s/ Scott Chambers Date: March 15, 2000
----------------------------------------------
Scott Chambers, Director
12
EXHIBIT INDEX
Exhibit
3.1 Articles of Incorporation of Umpqua Holdings Corporation*
3.2 Bylaws of Umpqua Holdings Corporation*
4.0 Specimen Stock Certificate*
10.1 Executive Employment and Compensation Agreement dated July 10,
1998, for Ray Davis
10.2 Executive Employment Agreement dated June 1, 1999, for Steven
May
10.3 Executive Employment Agreement dated March 31, 1999, for
Daniel A. Sullivan
10.4 Executive Employment Agreement dated April 19, 1999, for Dolly
Lusty
10.5 South Umpqua Bank Stock Option Plan dated January 26, 1995, as
adopted by Umpqua Holdings Corporation as of March 12, 1999*
10.6 Form of Stock Option Agreement
10.7 Description of South Umpqua State Bank's 1997 Incentive Plan
for Senior Management**
10.8 Retail Lease Agreement dated November 1, 1994, relating to
lease of Garden Valley Shopping Center Branch Office in
Roseburg, Oregon**
10.9 Lease Agreement dated November 5, 1996, relating to lease of
Gateway Mall Brach Office in Springfield, Oregon**
10.10 Commercial Building Lease dated August 29, 1996, relating to
lease of 40th and Donald Street Branch Office in Eugene,
Oregon**
10.11 Commercial Lease dated October 23, 1973, and related
agreements relating to lease of Glendale, Oregon, Branch
Office**
10.12 Strand, Atkinson, Williams & York, Inc. Purchase Agreement
dated May 10, 1999
10.13 Ground Lease (including First Amendment) dated 2/12/99
relating to lease of the Salem, Oregon store
10.14 Commercial lease agreement dated February 25, 1999 related to
lease of the Northeast Portland store
10.15 Commercial lease agreement dated November 5, 1998 relating to
the Roseburg, Oregon Loan Center
13
13.0 Annual Report to Shareholders
21.1 Subsidiaries of the Registrant
23.0 Consent of Independent Auditors
27.0 Financial Data Schedule
* Incorporated by reference to the registration statement on
Form S-8 filed on April 23, 1999.
** Incorporated herein by reference to the registration statement
on Form 10 filed by South Umpqua Bank as predecessor
registrant, as declared effective by the Federal Deposit
Insurance Corporation on April 1, 1998.
14