Umpqua Reports Quarterly And Annual Results

PORTLAND, Ore., Jan. 23, 2019 /PRNewswire/ -- Umpqua Holdings Corporation (NASDAQ: UMPQ) (the "Company") reported net earnings available to common shareholders of $80.3 million for the fourth quarter of 2018, compared to $91.0 million for the third quarter of 2018 and $75.2 million for the fourth quarter of 2017.  Earnings per diluted common share were $0.36 for the fourth quarter of 2018, compared to $0.41 for the third quarter of 2018 and $0.34 for the fourth quarter of 2017.

For the twelve months ended December 31, 2018, the Company reported net earnings available to common shareholders of $316.2 million, or $1.43 per diluted common share, up from $242.3 million, or $1.10 per diluted common share, for the twelve months ended December 31, 2017.

"We finished 2018 on a strong note, delivering another quarter of solid financial performance to cap a year in which we made terrific progress implementing the priorities laid out in our Next Gen strategy," said Cort O'Haver, president and CEO of Umpqua Holdings Corporation.  "The significant improvement in Umpqua's 2018 financial performance reflects our success implementing key Next Gen initiatives, which included generating strong loan and deposit growth and higher fee income to offset the decrease in mortgage banking revenues while reducing expenses. Building on that momentum, we're focused on achieving the remaining cost savings and continuing to advance our human digital strategy, which we're confident will continue to drive sustained profitability and long-term shareholder value."

Notable items that impacted the fourth quarter 2018 financial results included:

• $5.8 million net gain related to the previously announced sale of substantially all of the assets of Pivotus, Inc.
• $4.0 million in professional fees related to operational excellence initiatives, compared to $3.5 million in the prior quarter.
• $13.1 million loss on the fair value of the MSR asset attributable to the decrease in long-term interest rates during the quarter.  This compares to $0.2 million gain in the prior quarter and $2.0 million gain in the same period of the prior year.
• $3.0 million loss on the fair value of the debt capital market swap derivatives attributable to the decrease in long-term interest rates during the quarter.  This compares to gains of $0.2 million in both the prior quarter and in the same period of the prior year.
• $0.8 million of exit or disposal costs, related primarily to planned store consolidations, compared to $1.0 million in the prior quarter and $3.1 million in the same period of the prior year.
• $0.4 million unrealized holding gain on equity securities, compared to a loss of $0.5 million in the prior quarter and no gain or loss recorded in the same period of the prior year.

Full-Year 2018 Highlights (compared to prior year):

• Gross loan and lease growth of $1.4 billion, or 7%;
• Deposit growth of $1.2 billion, or 6%;
• Net interest income increased by $73.0 million, driven primarily by higher average balances of loans and leases, along with a 10 basis point increase in net interest margin;
• Provision for loan and lease losses increased by $8.7 million primarily due to loan and lease growth and higher net charge-offs;
• Non-interest income increased by $0.9 million, reflecting higher levels of other fee income, the gain related to Pivotus, Inc. (see notable items above) and the net loss on junior subordinated debentures carried at fair value no longer being recognized in earnings, partially offset by lower net mortgage banking revenue and lower portfolio loan sale gains;
• Non-interest expense decreased by $8.4 million, driven primarily by lower salaries and benefits expense and lower merger-related expense, partially offset by higher services expense;
• Paid dividends of $0.82 per common share (versus $0.68 per share in the prior year) and repurchased 327,000 shares of stock; and
• Book value increased by 2%, or $0.39 per common share, and tangible book value¹ increased by 4%, or $0.42 per common share.

Fourth Quarter 2018 Highlights (compared to prior quarter):

• Gross loan and lease growth of $568.6 million, or 11% annualized;
• Deposit growth of $244.7 million, or 5% annualized;
• Net interest income increased by $6.0 million, attributable to higher average balances of loans and leases, along with an increase in average yields on loans and leases and a lower level of premium amortization on the investment securities portfolio, partially offset by higher funding costs;
• Provision for loan and lease losses increased by $5.5 million, driven primarily by the strong loan and lease growth during the quarter and a seven basis point increase in net charge-offs to 0.32% of average loans and leases (annualized);
• Non-interest income decreased by $15.6 million, reflecting the linked quarter declines in the fair value of the MSR asset and debt capital market swap derivatives (see notable items above), partially offset by the gain related to Pivotus, Inc. (see notable items above);
• Non-interest expense decreased by $0.8 million, driven primarily by lower salaries and benefits and FDIC assessments, partially offset by higher other expense and loss on other real estate owned;
• Non-performing assets to total assets decreased by one basis point to 0.36%;
• Estimated total risk-based capital ratio of 13.4% and estimated Tier 1 common to risk weighted assets ratio of 10.7%; and
• Declared quarterly cash dividend of $0.21 per common share;

Balance Sheet
Total consolidated assets were $26.9 billion as of December 31, 2018, compared to $26.6 billion as of September 30, 2018 and $25.7 billion as of December 31, 2017.  Including secured off-balance sheet lines of credit, total available liquidity was $10.4 billion as of December 31, 2018, representing 39% of total assets and 49% of total deposits.

Gross loans and leases were $20.4 billion as of December 31, 2018, an increase of $568.6 million from $19.9 billion as of September 30, 2018.  This increase reflects balanced growth across the Company's commercial, commercial real estate and residential real estate portfolios.

Total deposits were $21.1 billion as of December 31, 2018, an increase of $244.7 million from $20.9 billion as of September 30, 2018.  This increase was primarily attributable to growth in money market and time accounts, partially offset by a decline in non-interest demand deposits due to the timing of year-end deposit inflows.

Net Interest Income
Net interest income was $247.4 million for the fourth quarter of 2018, up $6.0 million from the prior quarter.  This increase was driven primarily by higher average loans and leases, resulting from the strong growth during the quarter, and a lower level of premium amortization on the investment securities portfolio.  These were partially offset by lower accretion related to acquired loans, which decreased to $4.2 million for the fourth quarter of 2018, compared to $4.9 million in the prior quarter.

The Company's net interest margin was 4.15% for the fourth quarter of 2018, up 6 basis points from 4.09% for the third quarter of 2018.  This increase was driven primarily by the lower level of premium amortization on the investment securities portfolio and an increase in average yields on loans and leases, partially offset by higher funding costs.

Credit Quality
The allowance for loan and lease losses was $144.9 million, or 0.71% of loans and leases, as of December 31, 2018.  The provision for loan and lease losses was $17.2 million for the fourth quarter of 2018, an increase of $5.5 million from the prior quarter level driven primarily by the growth in the loan and lease portfolio and higher net charge-offs.

Net charge-offs increased by 7 basis points from the prior quarter to 0.32% of average loans and leases for the fourth quarter of 2018 (annualized).  As of December 31, 2018, non-performing assets decreased to 0.36% of total assets, from 0.37% as of September 30, 2018 and December 31, 2017.

Non-interest Income
Non-interest income was $56.8 million for the fourth quarter of 2018, down $15.6 million from the prior quarter.  This decrease reflects the decline in fair value for both the MSR asset and the debt capital market swap derivatives (see notable items above), partially offset by the gain related to Pivotus, Inc. (see notable items above).

Net revenue from the origination and sale of residential mortgages was $16.7 million for the fourth quarter of 2018, down $4.3 million from the prior quarter.  For-sale mortgage origination volume decreased by 22% from the prior quarter, while the home lending gain on sale margin increased by 6 basis points to 2.83% for the fourth quarter of 2018.  Of the current quarter's mortgage production, 80% related to purchase activity, compared to 82% for the prior quarter and 67% for the same period in the prior year.

Non-interest Expense
Non-interest expense was $178.5 million for the fourth quarter of 2018, down $0.8 million from the prior quarter level.     This decrease was attributable to lower mortgage banking-related expense, consistent with the decrease in mortgage originations, additional savings associated with the operational excellence initiatives and lower FDIC assessments.  These were partially offset by higher group insurance, annual incentive compensation expenses and loss on other real estate owned.

Capital
As of December 31, 2018, the Company's book value per common share increased to $18.42 from $18.18 in the prior quarter, and its tangible book value per common share¹ increased to $10.19 from $9.95 in the prior quarter.  During the fourth quarter of 2018, the Company declared a dividend of $0.21 per share.

The Company's estimated total risk-based capital ratio was 13.4% and its estimated Tier 1 common equity to risk weighted assets ratio was 10.7% as of December 31, 2018.  The Company remains above current "well-capitalized" regulatory minimums.  The regulatory capital ratios as of December 31, 2018 are estimates, pending completion and filing of the Company's regulatory reports.

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 fourth quarter 2018 earnings conference call on Thursday, January 24, 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 fourth quarter and full-year 2018 financial results.  There will be a live question-and-answer session following the presentation.  To join the call, please dial (800) 458-4148 ten minutes prior to the start time and enter conference ID: 2359675.  A re-broadcast will be available approximately two hours after the call by dialing (888) 203-1112 and entering conference ID 2359675.  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 the timing and impact of digital and technology initiatives.  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.