Umpqua Reports Quarterly And Annual Results

PORTLAND, Ore., Jan. 22, 2020 /PRNewswire/ -- Umpqua Holdings Corporation (NASDAQ: UMPQ) (the "Company") reported net income of $83.8 million for the fourth quarter of 2019, compared to $84.5 million for the third quarter of 2019 and $80.3 million for the fourth quarter of 2018.  Earnings per diluted common share were $0.38 for the fourth quarter of 2019, compared to $0.38 for the third quarter of 2019 and $0.36 for the fourth quarter of 2018.

For the twelve months ended December 31, 2019, the Company reported net income of $354.1 million, or $1.60 per diluted common share, up from $316.3 million, or $1.43 per diluted common share, for the twelve months ended December 31, 2018.

"I am very pleased with the continued progress we made in 2019 on executing against our ambitious Next Gen goals," said Cort O'Haver, president and CEO of Umpqua Holdings Corporation.  "Annual loan and lease growth of $773 million in addition to deposit growth of $1.3 billion shows our emphasis on balanced growth has been effective.  We took the opportunity to reposition a portion of the balance sheet in the fourth quarter by selling loans with lower yields while reducing higher cost time deposits.  We will continue to focus on balanced growth, executing on our expense initiatives and investing in strategic digital initiatives in 2020, which will drive sustained profitability and long-term shareholder value." 

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

• $10.4 million loss on the fair value of the MSR asset, compared to the net $4.2 million gain in the prior quarter and the $13.1 million loss in the same period of the prior year.
• $5.0 million gain on the fair value of the debt capital market swap derivatives attributable to the increase in long-term interest rates during the quarter.  This compares to the $4.6 million loss in the prior quarter and the$3.0 million loss in the same period of the prior year.
• $1.9 million of exit or disposal costs, related primarily to planned store consolidations, compared to $2.0 million in the prior quarter and $0.8 million in the same period of the prior year.

Full-Year 2019 Highlights (compared to prior year):

• Gross loan and lease growth of $773.0 million, or 4%;
• Deposit growth of $1.3 billion, or 6%;
• Net interest income decreased by $18.0 million, driven primarily by a decrease in short and long-term interest rates during the annual period which led to a decline in net interest margin, partially offset by an increase in loans and leases;
• Provision for loan and lease losses increased by $16.6 million primarily due to loan and lease growth and a slightly higher net charge-off ratio;
• Non-interest income increased by $60.4 million, driven primarily by the $76.3 million net gain recorded from the sale of the Visa Class B stock and other debt securities, partially offset by a reduction in net residential mortgage banking revenue;
• Non-interest expense decreased by $20.4 million, driven primarily by lower salaries and benefits expense, lower occupancy and equipment expense, lower professional fees, and lower FDIC assessment expense, partially offset by a higher loss on other real estate owned (OREO); 
• Paid dividends of $0.84 per common share (versus $0.82 per share in the prior year) and repurchased 300,000 shares of common stock; and
• Book value increased by 6%, or $1.17 per common share, and tangible book value¹ increased by 12%, or $1.20 per common share.

Fourth Quarter 2019 Highlights (compared to prior quarter):

• Gross loan and lease balance diminishment of $325.1 million, or 2%, partially due to $117.9 million in non-SBA loan sales closed during the quarter.  Average loan and lease balances increased $208.3 million, or 1%, compared to the prior quarter;
• Deposit growth of $46.8 million;
• Net interest income decreased by $2.2 million, attributable to a lower average yield on loans and leases,  partially offset by lower funding costs;
• Provision for loan and lease losses decreased by $7.0 million, driven by lower net charge offs of $14.9 million during the quarter compared to $18.0 million in the prior quarter;
• Non-interest income decreased by $4.8 million reflecting the linked quarter decline in the fair value of the MSR asset, partially offset by the linked quarter increase in the fair value of debt capital market swap derivatives;
• Non-interest expense decreased by $0.1 million, driven by lower state and local business taxes, lower marketing expense, and a lower loss on OREO, partially offset by lower deferred origination costs and higher charitable contribution expense;
• Non-performing assets to total assets decreased by two basis points to 0.23%;
• Estimated total risk-based capital ratio of 13.9% and estimated Tier 1 common to risk weighted assets ratio of 11.2%; and
• Declared quarterly cash dividend of $0.21 per common share.

Balance Sheet

Total consolidated assets were $28.8 billion as of December 31, 2019, compared to $28.9 billion as of September 30, 2019 and $26.9 billion as of December 31, 2018.  Including secured off-balance sheet lines of credit, total available liquidity was $11.4 billion as of December 31, 2019, representing 40% of total assets and 51% of total deposits.

Gross loans and leases were $21.2 billion as of December 31, 2019, a decrease of $0.3 billion from $21.5 billion as of September 30, 2019.  This decrease reflects non-SBA loan sales of $117.9 million consistent with management plans to reposition a portion of the balance sheet by reducing lower yielding loans and leases while also reducing higher cost time deposits. 

Total deposits were $22.5 billion as of December 31, 2019, an increase of $46.8 million from $22.4 billion as of September 30, 2019.  This increase was primarily attributable to growth in money market and interest bearing demand accounts, partially offset by a seasonal decline in non-interest demand deposits.

Net Interest Income

Net interest income was $226.8 million for the fourth quarter of 2019, down $2.2 million from the prior quarter.  This decrease was driven primarily by lower average yields on earnings assets, partially offset by lower funding costs and a higher average balance of loans and leases.

The Company's net interest margin was 3.51% for the fourth quarter of 2019, down 12 basis points from 3.63% for the third quarter of 2019.  This decrease was driven primarily by the lower average yields on loans and leases, partially offset by lower funding costs and lower bond premium amortization.

Credit Quality

The allowance for loan and lease losses was $157.6 million, or 0.74% of loans and leases, as of December 31, 2019.  The provision for loan and lease losses was $16.3 million for the fourth quarter of 2019, a decrease of $7.0 million from the prior quarter level driven primarily lower net charge-offs.  Net charge-offs decreased by 6 basis points from the prior quarter to 0.28% of average loans and leases for the fourth quarter of 2019 (annualized).  As of December 31, 2019, non-performing assets decreased to 0.23% of total assets, from 0.25% as of September 30, 2019 and 0.36% as of  December 31, 2018.

Non-interest Income

Non-interest income was $83.7 million for the fourth quarter of 2019, down $4.8 million from the prior quarter.  This decrease reflects the decline in fair value for the MSR asset, partially offset by the gain on the debt capital market swap derivatives (see notable items above) and the $4.6 million gain related to the sale of loans recorded in the period compared to $1.8 million recorded in the third quarter of 2019.

Net revenue from the origination and sale of residential mortgages was $35.4 million for the fourth quarter of 2019, up $4.0 million from the prior quarter.  For-sale mortgage origination volume increased by 26% from the prior quarter, while the home lending gain on sale margin decreased to 3.34% for the fourth quarter of 2019.  Of the current quarter's mortgage production, 55% related to purchase activity, compared to 60% for the prior quarter and 80% for the same period in the prior year.

Non-interest Expense

Non-interest expense was $183.4 million for the fourth quarter of 2019, down $0.1 million from the prior quarter level.  This decrease was attributable to lower state and local business taxes, lower marketing expense, a lower loss on OREO, partially offset by lower deferred origination costs and higher charitable contribution expense.

Capital

As of December 31, 2019, the Company's book value per common share increased to $19.59 from $19.48 in the prior quarter, and its tangible book value per common share¹ increased to $11.39 from $11.27 in the prior quarter.  During the fourth quarter of 2019, the Company declared a dividend of $0.21 per share.

The Company's estimated total risk-based capital ratio was 13.9% and its estimated Tier 1 common equity to risk weighted assets ratio was 11.2% as of December 31, 2019.  The Company remains above current "well-capitalized" regulatory minimums.  The regulatory capital ratios as of December 31, 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 www.umpquabank.com.

Earnings Conference Call Information

The Company will host its fourth quarter 2019 earnings conference call on Thursday, January 23, 2020, 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 2019 financial results.  There will be a live question-and-answer session following the presentation.  To join the call, please dial (866) 440-7407 ten minutes prior to the start time and enter conference ID: 9756638.  A re-broadcast will be available approximately two hours after the call by dialing (855) 859-2056 and entering conference ID 9756638.  The earnings conference call will also be available as an audiocast, which can be accessed on the Company's investor relations page at www.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 projected impact of strategic investments. 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; 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.