Umpqua Reports Second Quarter 2019 Results

PORTLAND, Ore., July 17, 2019 /PRNewswire/ -- Umpqua Holdings Corporation (NASDAQ: UMPQ) (the "Company") reported net income of $111.8 million for the second quarter of 2019, compared to $74.0 million for the first quarter of 2019 and $66.0 million for the second quarter of 2018.  Earnings per diluted common share were $0.51 for the second quarter of 2019, compared to $0.34 for the first quarter of 2019 and $0.30 for the second quarter of 2018.

"Umpqua's strong deposit growth of $575 million and loan and lease growth of $547 million demonstrate our focus on the growth initiatives within our Next Gen strategy," said Cort O'Haver, president and CEO of Umpqua Holdings Corporation. "Last quarter we made several strategic moves to enhance the Company's long-term profitability. These included an opportunistic sale of our Visa Class B shares, which generated proceeds to strategically re-balance our securities portfolio and continue to invest in efficient, revenue-generating businesses. We've also begun the process of selling material portions of our mortgage servicing rights portfolio to reduce volatility and expect the sale of the first tranche to close in the fourth quarter. We also continue to innovate and invest in our human digital banking experience and are pleased with the early results and strong customer response to our Go-To app, which launched in April."

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

• $81.9 million gain on sale for all shares of Visa Class B stock held by the Company, partially offset by a $7.2 million loss on debt securities.
• $24.7 million loss on fair value change of the MSR asset attributable to the decrease in long-term interest rates during the quarter, compared to a $14.0 million loss in the prior quarter and a $5.4 million loss in the same period of the prior year.
• $4.0 million loss related to the fair value of the debt capital market swap derivatives attributable to the decrease in long-term interest rates during the quarter, compared to a loss of $2.5 million in the prior quarter and a gain of $0.3 million in the same period of the prior year.
• $1.5 million of exit and disposal costs, compared to $1.4 million in the prior quarter and $2.6 million in the same period of the prior year.

Second Quarter 2019 Highlights (compared to prior quarter):

• Net interest income decreased by $10.5 million on a quarter to quarter basis primarily driven by higher levels of bond premium amortization as the decrease in long-term rates during the second quarter resulted in higher prepayment speeds compared to the prior quarter;
• Provision for loan and lease losses increased by $5.7 million, due to growth in the overall loan portfolio;
• Net charge-offs decreased by one basis point to 0.26% of average loans and leases (annualized);
• Non-interest income increased by $76.1 million, driven primary by the $81.9 million gain resulting from the sale of the Visa Class B stock and partially offset by a $7.2 million loss on debt securities;
• Non-interest expense increased by $8.8 million, driven primarily by higher mortgage banking-related expenses, higher loss on OREO, higher marketing expenses, partially offset by a seasonal decrease in payroll taxes and lower group insurance charges;
• Non-performing assets to total assets improved to 0.28% from 0.32%;
• Estimated total risk-based capital ratio of 13.7% and estimated Tier 1 common to risk weighted assets ratio of 10.9%;
• Declared a quarterly cash dividend of $0.21 per common share.

Balance Sheet
Total consolidated assets were $28.0 billion as of June 30, 2019, compared to $27.4 billion as of March 31, 2019 and $26.5 billion as of June 30, 2018.  Including secured off-balance sheet lines of credit, total available liquidity was $10.5 billion as of June 30, 2019, representing 38% of total assets and 48% of total deposits.

Gross loans and leases were $21.0 billion as of June 30, 2019, an increase of $547.4 million relative to March 31, 2019.  Strong loan production in the commercial loan category as well as residential real estate fueled the balance sheet growth.

Total deposits were $21.8 billion as of June 30, 2019, an increase of $575.1 million from $21.2 billion as of March 31, 2019.  This increase was attributable to growth in non-interest bearing demand deposits of $275.5 million and money market deposit growth of $319.8 million.

Net Interest Income
Net interest income was $227.2 million for the second quarter of 2019, down $10.5 million from the prior quarter.  This decrease was primarily attributable to taxable bond premium amortization of $10.4 million in the second quarter compared to $1.6 million in the first quarter of 2019.

The Company's net interest margin was 3.70% for the second quarter of 2019, down 33 basis points from 4.03% for the first quarter of 2019 primarily driven by the aforementioned higher levels of bond premium amortization and higher  cost of interest bearing deposits compared to the prior quarter.

Credit Quality
The allowance for loan and lease losses was $151.1 million, or 0.72% of loans and leases, as of June 30, 2019, which was up from $144.9 million, or 0.71% of loans and leases, as of March 31, 2019.  The provision for loan and lease losses was $19.4 million for the second quarter of 2019, an increase of $5.7 million from the prior quarter level, driven primarily by growth in the loan portfolio.  Net charge-offs decreased by one basis point to 0.26% of average loans and leases (annualized).  As of June 30, 2019, non-performing assets were 0.28% of total assets, compared to 0.32% as of March 31, 2019 and 0.34% as of June 30, 2018.

Non-interest Income
Non-interest income was $121.8 million for the second quarter of 2019, up $76.1 million from the prior quarter,  reflecting the nonrecurring $81.9 million gain on sale of Visa Class B stock.

Revenue from the origination and sale of residential mortgages was $23.2 million for the second quarter of 2019, an increase of $8.8 million from the prior quarter.  This increase reflects a sequential quarter increase of 43% in for-sale mortgage origination volume and an increase of 37 basis points in the home lending gain on sale margin to 3.32% for the second quarter of 2019.  Of the current quarter's mortgage production, 70% related to purchase activity, compared to 71% for the prior quarter and 81% for the same period of the prior year.

Non-interest Expense
Non-interest expense was $180.4 million for the second quarter of 2019, up $8.8 million from the prior quarter level.  This increase was driven primarily by higher mortgage banking-related expenses, higher loss on OREO, and higher marketing expenses, partially offset by a seasonal decrease in payroll taxes and lower group insurance charges.

Capital
As of June 30, 2019, the Company's tangible book value per common share¹ was $10.97, compared to $10.44 in the prior quarter and $9.84 in the same period of the prior year.  During the second quarter of 2019, the Company declared a dividend of $0.21 per common share.

The Company's estimated total risk-based capital ratio was 13.7% and its estimated Tier 1 common to risk weighted assets ratio was 10.9% as of June 30, 2019.  The Company remains above current "well-capitalized" regulatory minimums.  The regulatory capital ratios as of June 30, 2019 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 second quarter 2019 earnings conference call on July 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 second quarter 2019 financial results.  There will be a live question-and-answer session following the presentation.  To join the call, please dial (800) 289-0459 ten minutes prior to the start time and enter conference ID: 942314.  A re-broadcast will be available approximately two hours after the call by dialing (888) 203-1112 and entering conference ID 2627879.  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 strategic investments, fee income initiatives, sale of MSR 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.