Umpqua Reports First Quarter 2019 Results

PORTLAND, Ore., April 17, 2019 /PRNewswire/ -- Umpqua Holdings Corporation (NASDAQ: UMPQ) (the "Company") reported net income of $74.0 million for the first quarter of 2019, compared to $80.3 million for the fourth quarter of 2018 and $79.0 million for the first quarter of 2018.  Earnings per diluted common share were $0.34 for the first quarter of 2019, compared to $0.36 for the fourth quarter of 2018 and $0.36 for the first quarter of 2018.

"Umpqua's financial performance in the first quarter illustrates how our Next Gen strategy is driving enhanced profitability and creating long-term shareholder value," said Cort O'Haver, president and CEO of Umpqua Holdings Corporation. "Although higher than usual payoffs in our commercial real estate portfolio impacted sequential quarter loan growth, it was otherwise an effective quarter of loan production across all lines of business. And the Company's operational excellence initiative led to total non-interest expense of $171.6 million, which represents a $14.5 million, or 8%, decrease when compared to results from the first quarter of 2018. In addition, we continue to be focused on generating consistent earnings, both by generating increased fee income and by exploring how to reduce future income statement volatility of the MSR asset."

Notable items that impacted the first quarter 2019 financial results included:

• $14.0 million loss on fair value change of the MSR asset, compared to a $13.1 million loss in the prior quarter and a $5.1 million gain in the same period of the prior year.
• $2.5 million loss related to the fair value of the debt capital market swap derivatives, compared to a loss of $3.0 million in the prior quarter and a gain of $1.1 million in the same period of the prior year.
• $1.9 million in restructuring charges related to operational excellence initiatives, all in professional fees. This compares to $4.0 million in the prior quarter and $2.7 million in the same period of the prior year.
• $1.4 million of exit and disposal costs, compared to $0.8 million in the prior quarter and $2.5 million in the same period of the prior year.

First Quarter 2019 Highlights (compared to prior quarter):

• Net interest income decreased by $9.7 million on a quarter to quarter basis primarily driven by bond premium amortization as compared to the bond premium recapture recorded in the prior quarter.
• Provision for loan and lease losses decreased by $3.5 million, as net charge-offs decreased by five basis points to 0.27% of average loans and leases (annualized);
• Non-interest income decreased by $11.1 million, driven primary by the nonrecurring $5.8 million gain on sale of Pivotus assets in the fourth quarter of 2018 and lower residential mortgage banking revenue in the current quarter;
• Non-interest expense decreased by $6.9 million, driven primarily by operational excellence initiatives, lower restructuring charges (see notable items above), lower mortgage banking-related expense, lower group insurance charges, and lower loss on OREO, partially offset by a seasonal increase in payroll taxes.
• Non-performing assets to total assets improved to 0.32%;
• Estimated total risk-based capital ratio of 13.5% and estimated Tier 1 common to risk weighted assets ratio of 10.7%;
• Declared a quarterly cash dividend of $0.21 per common share.

Balance Sheet
Total consolidated assets were $27.4 billion as of March 31, 2019, compared to $26.9 billion as of December 31, 2018 and $25.8 billion as of March 31, 2018.  Including secured off-balance sheet lines of credit, total available liquidity was $10.9 billion as of March 31, 2019, representing 40% of total assets and 51% of total deposits.

Gross loans and leases were $20.4 billion as of March 31, 2019, a decrease of $16.7 million relative to December 31, 2018.  The timing of commercial and corporate loan closings in the prior quarter as well as an increase in payoffs of our commercial real estate portfolio offset new loan production.

Total deposits were $21.2 billion as of March 31, 2019, an increase of $106.4 million from $21.1 billion as of December 31, 2018.  This increase was attributable to higher time deposits partially offset with the seasonal run-off of public money market deposits.

Net Interest Income
Net interest income was $237.7 million for the first quarter of 2019, down $9.7 million from the prior quarter driven primarily by the amortization of bond purchase premium in the quarter as compared to the recapture in the prior quarter.

The Company's net interest margin was 4.03% for the first quarter of 2019, down 12 basis points from 4.15% for the fourth quarter of 2018.  This decrease was primarily attributable to a quarter over quarter change in bond purchase premium amortization/recapture.

Credit Quality
The allowance for loan and lease losses was $144.9 million, or 0.71% of loans and leases, as of March 31, 2019, which was unchanged from $144.9 million, or 0.71% of loans and leases, as of December 31, 2018.  The provision for loan and lease losses was $13.7 million for the first quarter of 2019, a decrease of $3.5 million from the prior quarter level, driven by the reduction of net charge-offs in the quarter. Net charge-offs decreased by five basis points to 0.27% of average loans and leases (annualized).  As of March 31, 2019, non-performing assets were 0.32% of total assets, compared to 0.36% as of December 31, 2018 and 0.33% as of March 31, 2018.

Non-interest Income
Non-interest income was $45.7 million for the first quarter of 2019, down $11.1 million from the prior quarter,  reflecting the nonrecurring $5.8 million gain on sale of Pivotus assets in the fourth quarter of 2018, and lower net revenue from the origination and sale of residential mortgages.

Net revenue from the origination and sale of residential mortgages was $14.4 million for the first quarter of 2019, down $2.3 million from the prior quarter.  This decrease reflects a 17% sequential quarter decrease in for-sale mortgage origination volume, partially offset by a 12 basis point increase in the home lending gain on sale margin to 2.95% for the first quarter of 2019.  The increase in the home lending gain on sale margin was primarily related to an increase in the mortgage rate lock pipeline.  Of the current quarter's mortgage production, 71% related to purchase activity, compared to 80% for the prior quarter and 68% for the same period of the prior year.

Non-interest Expense
Non-interest expense was $171.6 million for the first quarter of 2019, down $6.9 million from the prior quarter level.  This decrease was driven primarily by the Company's operational excellence initiatives, lower restructuring charges (see notable items above), lower mortgage banking-related expense, lower group insurance charges, and lower loss on OREO, partially offset by a seasonal increase in payroll taxes.

Capital
As of March 31, 2019, the Company's tangible book value per common share¹ was $10.44, compared to $10.19 in the prior quarter and $9.77 in the same period of the prior year.  During the first quarter of 2019, the Company declared a dividend of $0.21 per common share.

The Company's estimated total risk-based capital ratio was 13.5% and its estimated Tier 1 common to risk weighted assets ratio was 10.7% as of March 31, 2019.  The Company remains above current "well-capitalized" regulatory minimums.  The regulatory capital ratios as of March 31, 2019 are estimates, pending completion and filing of the Company's regulatory reports.

Presentation of Prior Period Financials
Certain prior period amounts in the financial statements presented in this earnings release have been re-stated from prior earnings releases, due to prior period adjustments as disclosed in the notes to the financial statements for the December 31, 2018 10-K.  Additional explanation will be included in Note 1 to the financial statements for the quarter ended March 31, 2019 as part of the Form 10-Q.

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.  The Company believes that these non-GAAP financial measures provide investors with information useful in understanding the Company's financial performance; however, readers of this document are urged to review these non-GAAP financial measures in conjunction with the GAAP results as reported.

Management believes tangible common equity and the tangible common equity ratio are useful measures of capital adequacy because they provide a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in assessing the capital of the Company and the ability to absorb potential losses. Tangible common equity is calculated as total shareholders' equity less goodwill and other intangible assets, net (excluding MSRs). Tangible assets are total assets less goodwill and other intangible assets, net (excluding MSRs).  The tangible common equity ratio is calculated as tangible common shareholders' equity divided by tangible assets.

The following table provides reconciliations of ending shareholders' equity (GAAP) to ending tangible common equity (non-GAAP), and ending assets (GAAP) to ending tangible assets (non-GAAP).

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 customer experience, and distinctive banking solutions. Umpqua Bank has locations across Oregon, Washington, California, Idaho and Nevada.  Umpqua Holdings also owns a retail brokerage subsidiary, Umpqua Investments, Inc., which has locations in Umpqua Bank stores and in dedicated offices in Oregon. Umpqua Holdings Corporation is headquartered in Portland, Oregon. For more information, visit umpquabank.com.

Earnings Conference Call Information
The Company will host its first quarter 2019 earnings conference call on Thursday, April 18, 2019, at 10:00 a.m. PT (1:00 p.m. ET).  During the call, the Company will provide an update on recent activities and discuss its first quarter 2019 financial results.  There will be a live question-and-answer session following the presentation.  To join the call, please dial (888) 394-8218 ten minutes prior to the start time and enter conference ID: 3915258.  A re-broadcast will be available approximately two hours after the call by dialing (888) 203-1112 and entering conference ID 3915258.  The earnings conference call will also be available as an audiocast, which can be accessed on the Company's investor relations page at umpquabank.com.

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 fee income initiatives and MSR fair value volatility. Risks that could cause results to differ from forward-looking statements we make are set forth in our filings with the SEC and include, without limitation, prolonged low interest rate environment; the effect of interest rate increases on the cost of deposits; unanticipated weakness in loan demand or loan pricing; deterioration in the economy; lack of strategic growth opportunities or our failure to execute on those opportunities; our ability to effectively manage problem credits; our ability to successfully implement efficiency and operational excellence initiatives on time and in amounts projected; our ability to successfully develop and market new products and technology; and changes in laws or regulations.