Umpqua Reports Second Quarter 2014 Results

Operating earnings1 of $53.9 million, or $0.27 per share, up 29% sequentially
Organic non-covered loan growth of $294 million, or 8% annualized
Organic deposit growth of $189 million, or 5% annualized
Tangible book value per share1 of $8.69; up 2% sequentially
Sterling integration on track

Business Wire

PORTLAND, Ore.--(BUSINESS WIRE)--

Umpqua Holdings Corporation (UMPQ) (the “Company”) reported net earnings available to common shareholders of $17.1 million for the second quarter of 2014, as compared to $18.7 million for the first quarter 2014, and $26.1 million for the second quarter of 2013. Earnings per diluted common share was $0.09 for the second quarter of 2014, as compared to $0.17 for the first quarter of 2014, and $0.23 for the second quarter of 2013.

Operating earnings1, which represent earnings available to common shareholders before gains or losses on junior subordinated debentures carried at fair value, net of tax, and merger related expenses, net of tax, were $53.9 million for the second quarter of 2014, as compared to $24.0 million for the first quarter of 2014, and $26.9 million for the second quarter of 2013. Operating earnings per diluted common share was $0.27 for the second quarter of 2014, as compared to $0.21 for the first quarter of 2014, and $0.24 for the second quarter of 2013.

“Our results this quarter reflect our ability to continue to grow Umpqua in a profitable manner,” said Ray Davis, president and CEO of Umpqua Holdings Corporation. “The Company's second quarter 2014 performance includes strong organic loan and deposit growth, a higher net interest margin, increased mortgage banking revenues and strong credit quality, while at the same time completing the Sterling acquisition. We remain on track with the integration, and believe we are well-positioned to leverage the franchise value of the combined company to drive future growth.”

Second Quarter 2014 Financial Highlights:

  • Delivered improved operating results:
    • Adjusted net interest margin1 increased to 4.85%, from 4.12% in the prior quarter;
    • Efficiency ratio (operating basis)1 improved to 60.33%, from 68.34% in the prior quarter;
    • Return on average tangible common equity (operating basis)1 improved to 12.76%;
  • Continued to generate organic loan growth and gather core deposits:
    • Non-covered loans and leases grew organically (exclusive of loans acquired or divested) by $338.0 million, partially offset by $44.4 million in loan sales, for net growth of $293.6 million, or 8% annualized;
    • Deposits grew organically (exclusive of deposits acquired or divested) by $188.5 million, or 5% annualized;
  • Credit quality remained strong:
    • Non-covered, non-performing assets to total assets decreased to 0.36%, from 0.53% for the prior quarter;
  • Disciplined capital management:
    • Tangible common equity ratio1 of 9.34%, up from 8.67% in the prior quarter;
    • Tangible book value per share1 of $8.69, up 2% from $8.54 in the prior quarter;
    • Estimated total risk-based capital of 14.7% and Tier 1 common to risk weighted asset ratio of 11.0%;
    • Declared a dividend of $0.15 per common share;

For the six months ended June 30, 2014, the Company reported net earnings available to common shareholders of $35.8 million, or $0.23 per diluted common share, as compared to $49.2 million, or $0.44 per diluted common share, for the six months ended June 30, 2013. For the six months ended June 30, 2014, operating earnings1 were $77.9 million, or $0.50 per diluted common share, as compared to $51.3 million, or $0.46 per diluted common share, for the six months ended June 30, 2013.

Acquisition of Sterling Financial

The Company completed its acquisition of Sterling Financial Corporation (“Sterling”) on April 18, 2014, and as required under purchase accounting rules, recorded Sterling’s balance sheet at its estimated fair value as of that date. After fair value adjustments, Umpqua Bank acquired assets totaling $9.9 billion, loans and leases (including loans held for sale) totaling $7.3 billion, and deposits totaling $7.1 billion.

The results of operations from Sterling have been included in the Company’s current quarter results since the completion of the acquisition beginning on April 19, 2014.

Subsequent to the acquisition, and prior to the end of the second quarter of 2014, the Company completed the required divestiture of six branches to another financial institution, in which it sold $83.0 million of non-covered loans and $224.6 million of deposits.

The table below provides additional information related to the preliminary fair value determinations of the assets acquired and the liabilities assumed as a result of the acquisition of Sterling.

(In thousands)        
April 18, 2014
Fair value of consideration to Sterling shareholders:  
Cash paid $ 136,200
Liability recorded for warrants 6,453
Fair value of common shares issued 1,939,497
Fair value of warrants, common stock options, and restricted stock exchanged 50,317
Total purchase price 2,132,467
Fair value of assets acquired:
Cash and cash equivalents $ 253,067
Investment securities 1,378,300
Loans held for sale 215,208
Non-covered loans and leases, net 7,122,989
Premises and equipment, net 124,881
Residential mortgage servicing rights 62,770
Other intangible assets, net 54,561
Non-covered other real estate owned 8,140
Bank owned life insurance 193,246
Deferred tax asset, net 295,371
Accrued interest receivable 23,553
Other assets 147,338  
Total assets acquired 9,879,424
Fair value of liabilities assumed:
Deposits 7,086,052
Securities sold under agreements to repurchase 584,746
Term debt 854,737
Junior subordinated debentures 156,171
Other liabilities 80,679  
Total liabilities assumed $ 8,762,385
Net assets acquired 1,117,039
Preliminary goodwill $ 1,015,428

The net assets acquired from Sterling were recorded at their estimated fair value as of the date of acquisition. Subsequent to the acquisition, the Company paid off the majority of the Sterling repurchase agreements, which was funded by the sale of investment securities.

For the second quarter of 2014, the Sterling acquisition was 32% accretive to operating earnings per share1. Under Generally Accepted Accounting Principles, the Sterling allowance for loan losses was eliminated and a fair value discount of approximately $315 million was recorded against the loans. This included a credit discount of approximately $264 million as of the date of acquisition. Of this credit discount, approximately $180 million is expected to accrete into interest income over the life of the Sterling loan portfolio. During the second quarter of 2014, $24.5 million of the credit discount accreted into interest income.

New loans originated by the former Sterling workforce since April 19, 2014 are accounted for separately from the discounted acquired loans. As a result, the Company recognized $7.7 million in provision for loan losses, related primarily to new loan production, along with loans that matured and renewed, from the former Sterling offices.

Together, the accretion from the credit discount, offset by the provision for loan losses related to new production by former Sterling offices, added $10.1 million to net income, or $0.05 per diluted share. Excluding the net items above, the Sterling acquisition was 7% accretive to operating earnings per share1 for the second quarter of 2014. This is in line with the previously announced earnings per share accretion target of 12% following full realization of cost synergies.

Integration efforts are proceeding as planned, with previously announced store consolidations in process, system conversions scheduled through early 2015, and the organization chart finalized on the date of acquisition. Cost synergies are on track to the previously announced target of $87 million (annualized), which are expected to be fully realized following system conversions.

Balance Sheet

Total consolidated assets were $22.0 billion as of June 30, 2014, as compared to $11.8 billion as of March 31, 2014 and $11.4 billion as of June 30, 2013. Total gross loans and leases (covered and non-covered) and deposits, were $15.1 billion and $16.3 billion, respectively, as of June 30, 2014, as compared to $7.8 billion and $9.3 billion, respectively, as of March 31, 2014, and $7.2 billion and $9.0 billion, respectively, as of June 30, 2013.

Total non-covered loans and leases held for investment increased to $14.8 billion as of June 30, 2014, as compared to $7.4 billion as of March 31, 2014 and $6.8 billion as of June 30, 2013. This included organic growth (exclusive of loans acquired via Sterling acquisition and loans sold as part of branch divestiture) of $338.0 million from the prior quarter. This growth was partially offset by other loan sales of $44.4 million during the quarter, which included $24.0 million in multifamily loans and $20.4 million in government guaranteed loans, resulting in net organic loan growth of $293.6 million.

Total covered loans were $297.6 million as of June 30, 2014, a $44.7 million decline from the prior quarter and a $121.4 million decline from the same period in the prior year. This portfolio will continue to decrease over time as loan payments are received, covered loans are refinanced or modified out of loss sharing, and as troubled credits are resolved and worked out. The Company did not acquire any covered loans as a result of the acquisition of Sterling.

Total deposits increased to $16.3 billion as of June 30, 2014, as compared to $9.3 billion as of March 31, 2014 and $9.0 billion as of June 30, 2013. This included organic growth (exclusive of deposits acquired via Sterling acquisition and deposits sold as part of branch divestiture) of $188.5 million from the prior quarter.

Including secured off-balance sheet lines of credit, total available liquidity to the Company was $7.0 billion as of June 30, 2014, representing 32% of total assets and 43% of total deposits. This compares to total available liquidity to the Company of $4.5 billion, or 38% of total assets and 48% of total deposits, as of March 31, 2014.

Net Interest Income

Net interest income was $212.3 million for the second quarter of 2014, up $104.4 million from the prior quarter and $118.4 million from the same period in the prior year. The increases from prior periods were primarily driven by the acquisition of Sterling, along with continued organic loan growth. Net interest income for the second quarter of 2014 included interest income arising from the accretion of the credit discount recorded on the loans acquired from the acquisition of Sterling.

The Company’s net interest margin was 5.01% for the second quarter of 2014, as compared to 4.28% for the first quarter of 2014, and 3.73% for the second quarter of 2013. The increases from prior periods were primarily driven by the acquisition of Sterling, an improvement in the yield earned on interest-earnings assets, and a slightly lower cost of funds.

Adjusted Net Interest Income1

The Company’s adjusted net interest income and margin excludes gains on covered loan disposals, and interest and fee reversals related to non-accrual loans.

Loan disposal activities within the covered loan portfolio, either through loans being paid off in full or transferred to OREO, result in gains within covered loan interest income to the extent assets received in satisfaction of debt (such as cash or the net realizable value of OREO received) exceed the allocated carrying value of the loan disposed of from the pool. Loan disposal activities contributed $7.1 million of interest income for the second quarter of 2014, as compared to $4.3 million for the first quarter of 2014 and $4.2 million for the second quarter of 2013. While dispositions of covered loans positively impact interest income and net interest margin, the Company recognizes a corresponding decrease to the change in the FDIC indemnification asset within non-interest income that partially offsets the impact to net income. Interest and fee reversals related to non-accrual loans during the second quarter of 2014 totaled $450 thousand, as compared to $122 thousand for the first quarter of 2014 and $33 thousand for second quarter of 2013.

Adjusted net interest income was $207.0 million for the second quarter of 2014, as compared to $104.8 million for the first quarter of 2014 and $90.8 million for the second quarter of 2013. The Company’s adjusted net interest margin was 4.85% for the second quarter of 2014, as compared to 4.12% for the first quarter of 2014 and 3.57% for the second quarter of 2013.

Non-Interest Income

Total non-interest income was $44.5 million for the second quarter of 2014, up $21.5 million from the prior quarter and $10.0 million from the same period in the prior year. The increases from prior periods were primarily driven by the acquisition of Sterling.

Residential mortgage banking revenue, which includes income generated from the origination and sale of residential mortgage loans, income from the servicing of residential mortgage loans and changes to the fair value of the residential mortgage servicing rights (“MSR”) asset, increased to $24.3 million for the second quarter of 2014, up $13.9 million from the prior quarter, and flat with the same period in the prior year. The linked quarter increase was primarily driven by the acquisition of Sterling, partially offset by a decrease in the fair value of the MSR asset due to a decline in mortgage interest rates, which resulted in a loss of $3.2 million for the quarter.

The Company’s gain on sale margin, as a percentage of total residential mortgage production, was 2.47% for the second quarter of 2014, down from 2.87% in the prior quarter, primarily related to the acquisition of Sterling. Of the current quarter’s mortgage production, 74% related to purchase activity, as compared to 69% for the prior quarter and 49% for the same period in the prior year.

As of June 30, 2014, the Company serviced $10.8 billion of residential mortgage loans for others, and its related MSR asset was valued at $114.2 million, or 1.05% of the total serviced portfolio principal balance. This compares to $4.5 billion of residential mortgage loans serviced for others as of March 31, 2014, with a related MSR asset of $49.2 million, or 1.09% of the total serviced portfolio principal balance. As of June 30 2013, the Company serviced $3.9 billion of residential mortgage loans serviced for others, and its related MSR asset was valued at $38.2 million, or 0.98% of the total serviced portfolio principal balance.

Total other non-interest income decreased by $1.4 million from the prior quarter and by $2.7 million from the same period in the prior year. The largest recurring component of other non-interest income is Debt Capital Markets revenue, which was a loss of $1.2 million for the second quarter of 2014, as compared to a gain of $0.8 million for the first quarter of 2014 and a gain of $2.4 million for the second quarter of 2013. The decrease from the prior quarter was primarily driven by a fair value loss on the related swap derivatives.

Non-interest Expense

Non-interest expense was $214.1 million for the second quarter of 2014, which included $57.5 million of merger-related expenses. This compares to $96.5 million, including $6.0 million of merger-related expenses, for the first quarter of 2014 and $87.9 million, including $0.8 million of merger-related expenses, for the second quarter of 2013. The increase in the Company’s non-interest expense from the prior quarter was primarily driven by increased salaries, benefits, and occupancy and equipment expenses associated with Sterling. The second quarter of 2014 run-rate does not reflect the full benefit of the anticipated merger cost synergies.

On an operating basis1, which excludes merger-related expenses, the Company’s efficiency ratio was 60.33% for the second quarter of 2014, an improvement from 68.34% for the first quarter of 2014 and 66.97% for the second quarter of 2013.

Income taxes

The Company recorded a provision for income taxes of $10.7 million for the second quarter of 2014, representing an effective tax rate of 38% for the quarter. The increase in the quarterly effective tax rate was driven by higher actual and projected income resulting from the acquisition of Sterling. This increased the year-to-date effective tax rate to 36%, which is the anticipated full-year 2014 effective tax rate.

Capital

As of June 30, 2014, the Company’s tangible book value per common share1 was $8.69 and its ratio of tangible common equity to tangible assets1 was 9.34%. These are up from $8.54 and 8.67%, respectively, from the prior quarter.

The Company made no open market or privately negotiated purchases of common stock under the Company’s previously announced share repurchase plan during the second quarter of 2014. The Company may repurchase up to 12.0 million of additional shares under this plan.

The Company’s estimated total risk-based capital ratio was 14.7% as of June 30, 2014, and its estimated Tier 1 common to risk weighted assets ratio was 11.0% of June 30, 2014. The Company remains well above current “well-capitalized” regulatory minimums. These capital ratios, as of June 30, 2014, are estimates pending completion and filing of the Company’s regulatory reports.

On July 2, 2013, federal banking regulators approved the final proposed rules that revise the regulatory capital rules to incorporate certain revisions by the Basel Committee on Banking Supervision to the Basel capital framework (“Basel III”). Under Basel III, the Company's combined trust preferred issuances must be phased out of Tier 1 and into Tier 2 capital (75% in 2015 and 100% in 2016). As of June 30, 2014, the total par value of trust preferred securities was $461.2 million. In addition, the Company is required under Basel III to exclude the entire deferred tax asset related to net operating losses (“NOLs”) from Tier 1 capital. As of June 30, 2014, the Company’s total deferred tax asset was $260.0 million, and the portion related to NOLs was $214.5 million.

Credit Quality – Non-covered Loan Portfolio

Under purchase accounting rules, loans (including those considered non-performing) acquired from Sterling were recorded at their estimated fair value, and the related allowance for loan losses was eliminated. As a result, the Company wrote down the value of the non-covered loan and lease portfolio acquired from Sterling. This credit mark is not reflected in the reported allowance for loan losses, or its related allowance coverage ratios, but should be considered when comparing the current quarter ratios to prior periods.

The allowance for non-covered loan losses was $98.0 million, or 0.66% of non-covered loans and leases, as of June 30, 2014. To provide better comparability to prior periods, this ratio would have been approximately 2.2% after grossing up the allowance for loan losses and the non-covered loans and leases by the amount of the remaining credit mark remaining as of quarter-end. The allowance for non-covered loan losses to non-covered loans and leases was 1.17% as of March 31, 2014 and 1.26% as of June 30, 2013.

The provision for non-covered loan losses was $15.4 million for the second quarter of 2014, up from $5.4 million for the first quarter of 2014 and $3.0 million for the second quarter of 2013. Of the second quarter of 2014 provision for loan losses, $7.7 million related to new loan production from former Sterling offices, $5.5 million related to growth in the Financial Pacific Leasing portfolio, and the remaining amount was driven primarily by organic loan growth from legacy Umpqua Bank.

Non-covered, non-performing assets were $79.4 million, or 0.36% of total assets, as of June 30, 2014, as compared to $62.2 million, or 0.53% of total assets, as of March 31, 2014, and $68.1 million, or 0.60% of total assets, as of June 30, 2013. The level of non-covered, non-performing assets increased from prior periods as a result of the merger with Sterling and expected fluctuations in the legacy Umpqua portfolio, while the ratio of non-covered, non-performing assets to total assets decreased due to the increase in total assets.

Non-covered loans past due 30 to 89 days were $28.9 million, or 0.19% of non-covered loans and leases, as of June 30, 2014, as compared to $29.4 million, or 0.40% of non-covered loans and leases, as of March 31, 2014, and $22.0 million, or 0.32% of non-covered loans and leases, as of June 30, 2013. The decreases in the ratio of non-covered loans past due 30 to 89 days to non-covered loans and leases from prior periods were due to the increase in non-covered loans and leases. Non-covered restructured loans on accrual status were $67.5 million as of June 30, 2014, as compared to $67.9 million as of March 31, 2014, and $73.9 million as of June 30, 2013.

1 “Non-GAAP” financial measure. More information regarding this measurement and a reconciliation to the comparable GAAP measurement is provided under the heading Non-GAAP Financial Measures below.

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

The Company recognizes gains or losses on its junior subordinated debentures carried at fair value resulting from changes in interest rates and the estimated market credit risk adjusted spread that do not directly correlate with the Company’s operating performance. Also, the Company incurs significant expenses related to the completion and integration of mergers and acquisitions. Additionally, it may recognize goodwill impairment losses that have no direct effect on the Company’s or the Bank’s cash balances, liquidity, or regulatory capital ratios. Lastly, the Company may recognize one-time bargain purchase gains on certain acquisitions that are not reflective of the Company’s on-going earnings power. Accordingly, management believes that our operating results are best measured on a comparative basis excluding the impact of gains or losses on junior subordinated debentures measured at fair value, net of tax, merger-related expenses, net of tax, and other charges related to business combinations such as goodwill impairment charges or bargain purchase gains, net of tax. The Company defines operating earnings as earnings available to common shareholders before gains or losses on junior subordinated debentures carried at fair value, net of tax, bargain purchase gains on acquisitions, net of tax, merger related expenses, net of tax, and goodwill impairment, and we calculate operating earnings per diluted share by dividing operating earnings by the same diluted share total used in determining diluted earnings per common share.

The following table provides the reconciliation of earnings available to common shareholders (GAAP) to operating earnings (non-GAAP), and earnings per diluted common share (GAAP) to operating earnings per diluted share (non-GAAP) for the periods presented:

   
Quarter Ended: % Change
(Dollars in thousands, except per share data)

Jun 30,
2014

 

Mar 31,
2014

 

Dec 31,
2013

 

Sep 30,
2013

 

Jun 30,
2013

Seq.
Quarter

 

Year over
Year

Net earnings available to common shareholders $ 17,138   $ 18,651   $ 25,058   $ 23,281   $ 26,056 (8 )%   (34 )%
Adjustments:
Net loss on junior subordinated debentures carried at fair value, net of tax (1) 821 325 332 332 328 153 % 150 %
Merger related expenses, net of tax (1) 35,926     5,073     2,502     2,914     486   608 % nm
Operating earnings $ 53,885     $ 24,049     $ 27,892     $ 26,527     $ 26,870   124 % 101 %
 

Earnings per diluted share:

Earnings available to common shareholders $ 0.09 $ 0.17 $ 0.22 $ 0.21 $ 0.23 (47 )% (61 )%
Operating earnings $ 0.27 $ 0.21 $ 0.25 $ 0.24 $ 0.24 29 % 13 %
 
 
Six Months Ended: % Change

Jun 30,
2014

 

Jun 30,
2013

Year over
Year

 
Net earnings available to common shareholders $ 35,789 $ 49,234 (27 )%
Adjustments:
Net loss on junior subordinated debentures carried at fair value, net of tax (1) 1,147 653 76 %
Merger related expenses, net of tax (1) 40,999     1,405   nm
Operating earnings $ 77,935     $ 51,292   52 %
 

Earnings per diluted share:

Earnings available to common shareholders $ 0.23 $ 0.44 (48 )%
Operating earnings $ 0.50 $ 0.46 9 %
 
(1) Income tax effect of pro forma operating earnings adjustments at 40% for tax-deductible items.
nm = not meaningful.
 

Management believes adjusted net interest income and adjusted net interest margin are useful financial measures because they enable investors to evaluate the underlying growth or compression in these values excluding interest income adjustments related to credit quality. Management uses these measures to evaluate adjusted net interest income operating results exclusive of credit costs, in order to monitor our effectiveness in growing higher interest yielding assets and managing our cost of interest bearing liabilities over time. Adjusted net interest income is calculated as net interest income, adjusting tax exempt interest income to its taxable equivalent, adding back interest and fee reversals related to new non-accrual loans during the period, and deducting the interest income gains recognized from loan disposition activities within covered loan pools. Adjusted net interest margin is calculated by dividing annualized adjusted net interest income by a period’s average interest earning assets.

The following table provides the reconciliation of net interest income (GAAP) to adjusted net interest income (non-GAAP), and net interest margin (GAAP) to adjusted net interest margin (non-GAAP) for the periods presented:

 
Quarter Ended: % Change
(Dollars in thousands) Jun 30, 2014   Mar 31, 2014   Dec 31, 2013   Sep 30, 2013   Jun 30, 2013

Seq.
Quarter

 

Year over
Year

Net interest income $ 212,259   $ 107,838   $ 110,074   $ 106,809   $ 93,893 97 %   126 %
Tax equivalent adjustment (1) 1,394     1,092     1,119     1,137     1,153   28 % 21 %
Net interest income (1) 213,653 108,930 111,193 107,946 95,046 96 % 125 %
Adjustments:
Interest and fee reversals (recoveries) on non-accrual loans 450 122 (399 ) 203 33 269 % nm
Covered loan disposal gains (7,128 )   (4,259 )   (3,908 )   (1,836 )   (4,237 ) 67 % 68 %
Adjusted net interest income (1) $ 206,975     $ 104,793     $ 106,886     $ 106,313     $ 90,842   98 % 128 %
Average interest earning assets $ 17,116,070 $ 10,310,116 $ 10,292,996 $ 10,136,677 $ 10,218,611 66 % 67 %
Net interest margin – consolidated (1) 5.01 % 4.28 % 4.29 % 4.22 % 3.73 %
Adjusted net interest margin – consolidated (1) 4.85 % 4.12 % 4.12 % 4.16 % 3.57 %
 
Six Months Ended: % Change
Jun 30, 2014   Jun 30, 2013 Year over Year
Net interest income $ 320,097 $ 188,082 70 %
Tax equivalent adjustment (1) 2,486     2,323   7 %
Net interest income (1) 322,583 190,405 69 %
Adjustments:
Interest and fee reversals on non-accrual loans 572 1,118 (49 )%
Covered loan disposal gains (11,387 )   (7,391 ) 54 %
Adjusted net interest income (1) $ 311,768     $ 184,132   69 %
Average interest earning assets $ 13,731,892 $ 10,234,539 34 %
Net interest margin – consolidated (1) 4.74 % 3.75 %
Adjusted net interest margin – consolidated (1) 4.58 % 3.63 %
 
(1) Tax equivalent basis. Tax exempt interest has been adjusted to a taxable equivalent basis using a 35% tax rate.
nm = not meaningful.
 

Management believes tangible common equity and the tangible common equity ratio are meaningful 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).

         
(Dollars in thousands, except per share data) Jun 30, 2014   Mar 31, 2014   Dec 31, 2013   Sep 30, 2013   Jun 30, 2013
Total shareholders' equity $ 3,729,060 $ 1,734,476 $ 1,727,426 $ 1,725,995 $ 1,715,352
Subtract:
Goodwill and other intangible assets, net 1,842,670     775,488     776,683     778,094     682,971  
Tangible common shareholders' equity $ 1,886,390     $ 958,988     $ 950,743     $ 947,901     $ 1,032,381  
Total assets $ 22,042,229 $ 11,838,726 $ 11,636,112 $ 11,569,297 $ 11,392,208
Subtract:
Goodwill and other intangible assets, net 1,842,670     775,488     776,683     778,094     682,971  
Tangible assets $ 20,199,559     $ 11,063,238     $ 10,859,429     $ 10,791,203     $ 10,709,237  
Common shares outstanding at period end 217,190,721 112,319,525 111,973,203 111,928,762 111,898,620
Tangible common equity ratio 9.34 % 8.67 % 8.75 % 8.78 % 9.64 %
Tangible book value per common share $ 8.69 $ 8.54 $ 8.49 $ 8.47 $ 9.23
 

About Umpqua Holdings Corporation

Umpqua Holdings Corporation (UMPQ) is the parent company of Umpqua Bank, an Oregon-based community bank recognized for its entrepreneurial approach, innovative use of technology, and distinctive banking solutions. Umpqua Bank has locations across Idaho, Washington, Oregon, California and Northern 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 Private Bank serves high net worth individuals and nonprofits, providing trust and investment services. Umpqua Holdings Corporation is headquartered in Portland, Oregon. For more information, visit www.umpquaholdingscorp.com.

Earnings Conference Call Information

The Company will host its second quarter 2014 earnings conference call on Thursday, July 24, 2014, at 10:00 a.m. PST (1:00 p.m. EST). During the call, the Company will provide an update on recent activities and discuss its second quarter 2014 financial results. There will be a live question-and-answer session following the presentation. To join the call, please dial (888) 349-9582 ten minutes prior to the start time and enter conference ID: 3191295. A re-broadcast will be available approximately two hours after the call by dialing (888) 203-1112 and entering conference ID 3191295. The earnings conference call will also be available as an audiocast, which can be accessed on the Company’s investor relations page at www.umpquaholdingscorp.com. A slide presentation to accompany the call will also be posted on the website before the call.

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 size and growth potential from the acquisition of Sterling Financial Corporation; the integration of the merger with Sterling Financial Corporation; merger-related synergies and systems conversions; and credit discount accretion related to the merger. Specific risks that could cause results to differ from the forward-looking statements are set forth in our filings with the SEC and include, without limitation, changes in the discounted cash flow model used to determine the fair value of subordinated debentures; prolonged low interest rate environment; unanticipated weakness in loan demand or loan pricing; deterioration in the economy; material reductions in revenue or material increases in expenses; lack of strategic growth opportunities or our failure to execute on those opportunities; our inability to effectively manage problem credits; certain loan assets becoming ineligible for loss sharing; unanticipated increases in the cost of deposits; the consequences of a phase-out of junior subordinated debentures from Tier 1 capital; Umpqua’s ability to achieve the synergies and earnings accretion contemplated by the Sterling merger; Umpqua’s ability to promptly and effectively integrate the businesses of Sterling and Umpqua and complete system conversions; the diversion of management time on issues related to merger integration; changes in laws or regulations; and changes in general economic conditions.

 
Umpqua Holdings Corporation
Consolidated Statements of Income
(Unaudited)
         
Quarter Ended: % Change
(In thousands, except per share data)

Jun 30,
2014

 

Mar 31,
2014

 

Dec 31,
2013

 

Sep 30,
2013

 

Jun 30,
2013

Seq.
Quarter

 

Year over
Year

Interest income:    
Non-covered loans and leases $ 193,061 $ 91,268 $ 93,032 $ 93,706 $ 78,434 112 % 146 %
Covered loans and leases 15,931 12,718 13,330 11,837 14,750 25 % 8 %
Interest and dividends on investments:
Taxable 12,712 9,291 9,517 7,882 8,103 37 % 57 %
Exempt from federal income tax 2,653 2,112 2,173 2,200 2,237 26 % 19 %
Dividends 128 50 87 51 90 156 % 42 %
Temporary investments & interest bearing deposits 482     441     399     284     401   9 % 20 %
Total interest income 224,967 115,880 118,538 115,960 104,015 94 % 116 %
Interest expense:
Deposits 6,075 3,848 4,168 4,845 5,864 58 % 4 %
Repurchase agreements and fed funds purchased 203 41 42 35 33 395 % 515 %
Term debt 3,364 2,273 2,332 2,338 2,305 48 % 46 %
Junior subordinated debentures 3,066     1,880     1,922     1,933     1,920   63 % 60 %
Total interest expense 12,708 8,042 8,464 9,151 10,122 58 % 26 %
Net interest income 212,259 107,838 110,074 106,809 93,893 97 % 126 %
Provision for non-covered loan and lease losses 15,399 5,400 3,840 3,008 2,993 185 % 415 %
(Recapture of) provision for covered loan and lease losses (703 ) 571 (1,369 ) (1,904 ) (3,072 ) (223 )% (77 )%
Non-interest income:
Service charges 15,371 7,767 8,108 8,374 7,478 98 % 106 %
Brokerage fees 4,566 3,725 3,584 3,854 3,662 23 % 25 %
Residential mortgage banking revenue, net 24,341 10,439 15,957 15,071 24,289 133 % 0 %
Net gain on investment securities 976 191 3 8 nm nm
Loss on junior subordinated debentures carried at fair value (1,369 ) (542 ) (554 ) (554 ) (547 ) 153 % 150 %
Change in FDIC indemnification asset (5,601 ) (4,840 ) (5,708 ) (6,474 ) (8,294 ) 16 % (32 )%
BOLI income 1,967 736 621 763 910 167 % 116 %
Other income 4,278     5,722     4,586     5,107     6,991   (25 )% (39 )%
Total non-interest income 44,529 23,007 26,785 26,144 34,497 94 % 29 %
Non-interest expense:
Salaries and employee benefits 95,560 53,218 52,720 53,699 52,067 80 % 84 %
Net occupancy and equipment 28,746 16,501 16,254 16,019 15,059 74 % 91 %
Intangible amortization 2,808 1,194 1,186 1,186 1,205 135 % 133 %
FDIC assessments 2,575 1,863 1,922 1,709 1,672 38 % 54 %
Net loss (gain) on non-covered other real estate owned 178 (18 ) 1,416 (27 ) (146 ) nm (222 )%
Net loss (gain) on covered other real estate owned 80 (46 ) (19 ) (68 ) (62 ) (274 )% (229 )%
Merger related expenses 57,531 5,983 1,639 4,856 810 862 % 7,003 %
Other expense 26,653     17,823     20,246     18,230     17,326   50 % 54 %
Total non-interest expense 214,131 96,518 95,364 95,604 87,931 122 % 144 %
Income before provision for income taxes 27,961 28,356 39,024 36,245 40,538 (1 )% (31 )%
Provision for income taxes 10,740     9,592     13,754     12,768     14,285   12 % (25 )%
Net income 17,221 18,764 25,270 23,477 26,253 (8 )% (34 )%
Dividends and undistributed earnings allocated to participating securities 83     113     212     196     197   (27 )% (58 )%
Net earnings available to common shareholders $ 17,138     $ 18,651     $ 25,058     $ 23,281     $ 26,056   (8 )% (34 )%
 
Weighted average basic shares outstanding 196,312 112,170 111,949 111,912 111,954 75 % 75 %
Weighted average diluted shares outstanding 197,638 112,367 112,214 112,195 112,145 76 % 76 %
Earnings per common share – basic $ 0.09 $ 0.17 $ 0.22 $ 0.21 $ 0.23 (47 )% (61 )%
Earnings per common share – diluted $ 0.09 $ 0.17 $ 0.22 $ 0.21 $ 0.23 (47 )% (61 )%
nm = not meaningful
 
 
Umpqua Holdings Corporation
Consolidated Statements of Income
(Unaudited)
   
Six Months Ended: % Change
(In thousands, except per share data) Jun 30, 2014   Jun 30, 2013

Year over
Year

Interest income  
Non-covered loans and leases $ 284,329 $ 156,979 81 %
Covered loans and leases 28,649 29,330 (2 )%
Interest and dividends on investments:
Taxable 21,990 16,747 31 %
Exempt from federal income tax 4,721 4,525 4 %
Dividends 178 114 56 %
Temporary investments & interest bearing deposits 980     653   50 %
Total interest income 340,847 208,348 64 %
Interest expense
Deposits 9,923 11,742 (15 )%
Repurchase agreements and fed funds purchased 244 64 281 %
Term debt 5,637 4,578 23 %
Junior subordinated debentures 4,946     3,882   27 %
Total interest expense 20,750 20,266 2 %
Net interest income 320,097 188,082 70 %
Provision for non-covered loan and lease losses 20,799 9,981 108 %
Recapture of provision for covered loan and lease losses (132 ) (2,840 ) (95 )%
Non-interest income
Service charges 23,138 14,470 60 %
Brokerage fees 8,291 7,298 14 %
Residential mortgage banking revenue, net 34,780 47,857 (27 )%
Net gain on investment securities 976 15 nm

Loss on junior subordinated debentures carried at fair value

(1,911 ) (1,089 ) 75 %
Change in FDIC indemnification asset (10,441 ) (13,367 ) (22 )%
BOLI Income 2,703 1,670 62 %
Other income 10,000     11,658   (14 )%
Total non-interest income 67,536 68,512 (1 )%
Non-interest expense
Salaries and employee benefits 148,776 103,572 44 %
Net occupancy and equipment 45,247 29,794 52 %
Intangible amortization 4,002 2,409 66 %
FDIC assessments 4,438 3,323 34 %

Net loss (gain) on non-covered other real estate owned

160 (276 ) nm
Net loss on covered other real estate owned 34 222 (85 )%
Merger related expenses 63,514 2,341 nm
Other expense 44,478     32,308   38 %
Total non-interest expense 310,649 173,693 79 %
Income before provision for income taxes 56,317 75,760 (26 )%
Provision for income taxes 20,332     26,146   (22 )%
Net income 35,985 49,614 (27 )%

Dividends and undistributed earnings allocated to participating securities

196     380   (48 )%
Net earnings available to common shareholders $ 35,789     $ 49,234   (27 )%
 
Weighted average basic shares outstanding 154,473 111,946 38 %
Weighted average diluted shares outstanding 155,276 112,133 38 %
Earnings per common share – basic $ 0.23 $ 0.44 (48 )%
Earnings per common share – diluted $ 0.23 $ 0.44 (48 )%
nm = not meaningful
 
 
Umpqua Holdings Corporation

Consolidated Balance Sheets

(Unaudited)
           
% Change
(In thousands, except per share data) Jun 30, 2014   Mar 31, 2014   Dec 31, 2013   Sep 30, 2013   Jun 30, 2013

Seq.
Quarter

 

Year over
Year

Assets:  
Cash and due from banks $ 347,152 $ 196,963 $ 178,685 $ 193,188 $ 143,409 76 % 142 %
Interest bearing deposits 492,739 887,620 611,224 503,369 659,817 (44 )% (25 )%
Temporary investments 529 525 514 534 1,768 1 % (70 )%
Investment securities:
Trading, at fair value 9,420 4,498 5,958 4,012 3,863 109 % 144 %
Available for sale, at fair value 2,588,969 1,701,730 1,790,978 1,910,082 2,083,755 52 % 24 %
Held to maturity, at amortized cost 5,519 5,465 5,563 5,766 3,741 1 % 48 %
Loans held for sale 322,912 73,106 104,664 113,993 173,994 342 % 86 %
Non-covered loans and leases 14,830,345 7,411,108 7,354,403 7,228,904 6,787,117 100 % 119 %
Allowance for non-covered loan and lease losses (97,995 )   (86,709 )   (85,314 )   (84,694 )   (85,836 ) 13 % 14 %
Non-covered loans and leases, net 14,732,350 7,324,399 7,269,089 7,144,210 6,701,281 101 % 120 %
Covered loans and leases, net 297,610 342,263 363,992 397,083 419,059 (13 )% (29 )%
Restricted equity securities 122,194 29,948 30,685 31,444 32,112 308 % 281 %
Premises and equipment, net 310,407 180,199 177,680 173,876 170,145 72 % 82 %
Goodwill 1,779,732 764,304 764,305 764,530 668,218 133 % 166 %
Other intangible assets, net 62,938 11,184 12,378 13,564 14,753 463 % 327 %
Residential mortgage servicing rights, at fair value 114,192 49,220 47,765 41,853 38,192 132 % 199 %
Non-covered other real estate owned 26,172 22,034 21,833 18,249 13,235 19 % 98 %
Covered other real estate owned 1,810 1,746 2,102 2,980 3,484 4 % (48 )%
FDIC indemnification asset 11,293 18,362 23,174 29,427 36,263 (38 )% (69 )%
Bank owned life insurance 292,714 97,589 96,938 96,276 95,459 200 % 207 %
Deferred tax assets, net 259,993 11,393 16,627 20,342 22,747 nm nm
Other assets 263,584     116,178     111,958     104,519     106,913   127 % 147 %
Total assets $ 22,042,229     $ 11,838,726     $ 11,636,112     $ 11,569,297     $ 11,392,208   86 % 93 %
Liabilities:
Deposits $ 16,323,000 $ 9,273,583 $ 9,117,660 $ 9,067,240 $ 8,956,325 76 % 82 %
Securities sold under agreements to repurchase 315,025 262,483 224,882 215,310 176,447 20 % 79 %
Term debt 1,057,915 250,964 251,494 252,017 252,543 322 % 319 %
Junior subordinated debentures, at fair value 246,077 87,800 87,274 86,718 86,159 180 % 186 %
Junior subordinated debentures, at amortized cost 101,737 101,818 101,899 101,979 102,060 0 % 0 %
Other liabilities 269,415     127,602     125,477     120,038     103,322   111 % 161 %
Total liabilities 18,313,169 10,104,250 9,908,686 9,843,302 9,676,856 81 % 89 %
Shareholders' equity:
Common stock 3,512,507 1,514,969 1,514,485 1,513,225 1,512,657 132 % 132 %
Retained earnings 204,109 219,686 217,917 209,597 203,058 (7 )% 1 %
Accumulated other comprehensive income (loss) 12,444     (179 )   (4,976 )   3,173     (363 ) nm nm
Total shareholders' equity 3,729,060     1,734,476     1,727,426     1,725,995     1,715,352   115 % 117 %
Total liabilities and shareholders' equity $ 22,042,229     $ 11,838,726     $ 11,636,112     $ 11,569,297     $ 11,392,208   86 % 93 %
 
Common shares outstanding at period end 217,190,721 112,319,525 111,973,203 111,928,762 111,898,620 93 % 94 %
Book value per common share $ 17.17 $ 15.44 $ 15.43 $ 15.42 $ 15.33 11 % (100 )%
Tangible book value per common share $ 8.69 $ 8.54 $ 8.49 $ 8.47 $ 9.23 2 % (100 )%
Tangible equity - common $ 1,886,390 $ 958,988 $ 950,743 $ 947,901 $ 1,032,381 97 % 83 %
Tangible common equity to tangible assets 9.34 % 8.67 % 8.75 % 8.78 % 9.64 % 8 % (3 )%

nm = not meaningful

 
 
Umpqua Holdings Corporation
Non-covered Loan & Lease Portfolio
(Unaudited)
             
(Dollars in thousands) Jun 30, 2014   Mar 31, 2014   Dec 31, 2013   Sep 30, 2013   Jun 30, 2013 % Change
Amount   Amount   Amount   Amount   Amount

Seq.
Quarter

 

Year over
Year

Non-covered loans & leases:

Commercial real estate:
Non-owner occupied term, net $ 3,348,029 $ 2,311,952 $ 2,328,260 $ 2,382,430 $ 2,341,657 45 % 43 %
Owner occupied term, net 2,666,128 1,282,482 1,259,583 1,230,417 1,221,853 108 % 118 %
Multifamily, net 2,482,995 400,927 403,537 379,395 353,852 519 % 602 %
Commercial construction, net 261,767 229,262 245,231 246,583 225,747 14 % 16 %
Residential development, net 91,690 89,510 88,413 78,756 66,607 2 % 38 %
Commercial:
Term, net 1,104,206 735,004 770,845 768,926 769,647 50 % 43 %
Lines of credit & other, net 1,322,167 1,005,800 987,360 950,954 941,673 31 % 40 %
Leases & equipment finance, net 463,784 388,418 361,591 335,580 51,924 19 % 793 %
Residential real estate:
Mortgage, net 1,958,597 651,042 597,201 553,285 511,446 201 % 283 %
Home equity lines & loans, net 799,171 268,497 264,269 258,610 260,382 198 % 207 %
Consumer & other, net 331,811     48,214     48,113     43,968     42,329   588 % 684 %
Total, net of deferred fees and costs $ 14,830,345     $ 7,411,108     $ 7,354,403     $ 7,228,904     $ 6,787,117   100 % 119 %
 

Non-covered loan & leases mix:

Commercial real estate:
Non-owner occupied term 23 % 31 % 33 % 32 % 34 %
Owner occupied term 18 % 17 % 17 % 17 % 18 %
Multifamily 17 % 5 % 5 % 5 % 5 %
Commercial construction 2 % 3 % 3 % 3 % 3 %
Residential development 1 % 1 % 1 % 1 % 1 %
Commercial:
Term 7 % 10 % 10 % 11 % 11 %
Lines of credit & other 9 % 14 % 13 % 13 % 14 %
Leases & equipment finance 3 % 5 % 5 % 5 % 1 %
Residential real estate:
Mortgage 13 % 9 % 8 % 8 % 8 %
Home equity lines & loans 5 % 4 % ... 4 % 4 % 4 %
Consumer & other 2 %   1 %   1 %   1 %   1 %
Total 100 %   100 %   100 %   100 %   100 %
 
Umpqua Holdings Corporation
Covered Loan & Lease Portfolio, Net
(Unaudited)
(Dollars in thousands)   Jun 30, 2014   Mar 31, 2014   Dec 31, 2013   Sep 30, 2013   Jun 30, 2013   % Change
Amount Amount Amount Amount Amount

Seq.
Quarter

 

Year over
Year

Covered loans & leases:

 
Commercial real estate:
Non-owner occupied term, net $ 166,969 $ 197,067 $ 204,052 $ 216,354 $ 229,874 (15 )% (27 )%
Owner occupied term, net 47,034 48,447 48,673 54,332 57,446 (3 )% (18 )%
Multifamily, net 23,409 27,079 37,185 40,052 40,891 (14 )% (43 )%
Commercial construction, net 1,972 2,779 2,803 6,654 6,783 (29 )% (71 )%
Residential development, net 2,562 6,083 6,311 7,468 7,025 (58 )% (64 )%
Commercial:
Term, net 7,516 7,861 13,280 13,864 17,394 (4 )% (57 )%
Lines of credit & other, net 8,357 8,929 6,302 10,583 9,503 (6 )% (12 )%
Residential real estate:
Mortgage, net 18,272 21,664 22,175 23,161 24,879 (16 )% (27 )%
Home equity lines & loans, net 17,736 18,501 19,119 20,037 20,769 (4 )% (15 )%
Consumer & other, net 3,783   3,853   4,092   4,578   4,495   (2 )% (16 )%
Total, net $ 297,610   $ 342,263   $ 363,992   $ 397,083   $ 419,059   (13 )% (29 )%
 
 

Covered loans & leases Mix:

Commercial real estate:
Non-owner occupied term 55 % 58 % 56 % 54 % 54 %
Owner occupied term 16 % 14 % 13 % 14 % 14 %
Multifamily 8 % 8 % 10 % 10 % 10 %
Commercial construction 1 % 1 % 1 % 2 % 2 %
Residential development 1 % 2 % 2 % 2 % 2 %
Commercial:
Term 3 % 2 % 4 % 3 % 4 %
Lines of credit & other 3 % 3 % 2 % 3 % 2 %
Residential real estate:
Mortgage 6 % 6 % 6 % 6 % 6 %
Home equity lines & loans 6 % 5 % 5 % 5 % 5 %
Consumer & other 1 %   1 %   1 %   1 %   1 %
Total 100 %   100 %   100 %   100 %   100 %

Covered loan & lease portfolio balances represent the loan portfolios acquired through the assumption of Evergreen Bank on January 22, 2010, Rainier Pacific Bank on February 26, 2010, and Nevada Security Bank on June 18, 2010, from the FDIC through whole bank purchase and assumption agreements with loss sharing.

 
Umpqua Holdings Corporation
Deposits by Type/Core Deposits
(Unaudited)
             
(Dollars in thousands) Jun 30, 2014   Mar 31, 2014   Dec 31, 2013   Sep 30, 2013   Jun 30, 2013 % Change
Amount   Amount   Amount   Amount   Amount

Seq.
Quarter

 

Year over
Year

Deposits:

Demand, non-interest bearing $ 4,363,710 $ 2,465,606 $ 2,436,477 $ 2,421,008 $ 2,218,536 77 % 97 %
Demand, interest bearing 1,869,626 1,182,634 1,233,070 1,179,351 1,128,361 58 % 66 %
Money market 5,973,197 3,526,368 3,349,946 3,283,085 3,254,117 69 % 84 %
Savings 912,073 578,238 560,699 551,327 513,317 58 % 78 %
Time 3,204,394     1,520,737     1,537,468     1,632,469     1,841,994   111 % 74 %
Total $ 16,323,000     $ 9,273,583     $ 9,117,660     $ 9,067,240     $ 8,956,325   76 % 82 %
 
Total core deposits (1) $ 14,171,946 $ 8,205,636 $ 8,052,280 $ 7,926,734 $ 7,655,237 73 % 85 %
 

Deposit mix:

Demand, non-interest bearing 26 % 27 % 26 % 27 % 24 %
Demand, interest bearing 11 % 13 % 14 % 13 % 13 %
Money market 37 % 38 % 37 % 36 % 36 %
Savings 6 % 6 % 6 % 6 % 6 %
Time 20 %   16 %   17 %   18 %   21 %
Total 100 %   100 %   100 %   100 %   100 %
 

Number of open accounts:

Demand, non-interest bearing 363,378 190,298 187,088 186,975 187,026
Demand, interest bearing 88,162 46,291 48,643 49,226 50,136
Money market 65,216 34,913 35,303 35,909 36,555
Savings 149,877 84,686 84,144 84,448 84,784
Time 56,285     22,755     23,688     24,618     26,653  
Total 722,918     378,943     378,866     381,176     385,154  

Average balance per account:

Demand, non-interest bearing $ 12.3 $ 13.0 $ 13.0 $ 12.9 $ 11.9
Demand, interest bearing 21.2 25.5 25.3 24.0 22.5
Money market 91.6 101.0 94.9 91.4 89.0
Savings 6.1 6.8 6.7 6.5 6.1
Time 56.9 66.8 64.9 66.3 69.1
Total $ 22.7 $ 24.5 $ 24.1 $ 23.8 $ 23.3
 

(1) Core deposits are defined as total deposits less time deposits greater than $100,000.

 
 

Umpqua Holdings Corporation

Credit Quality – Non-performing Assets
(Unaudited)
             
Quarter Ended: % Change
(Dollars in thousands) Jun 30, 2014 Mar 31, 2014 Dec 31, 2013   Sep 30, 2013 Jun 30, 2013

Seq.
Quarter

 

Year over
Year

Non-covered, non-performing assets:

Non-covered loans and leases on non-accrual status $ 48,358 $ 37,884 $ 31,891 $ 39,805 $ 48,855 28 % (1 )%
Non-covered loans and leases past due 90+ days & accruing 4,919     2,269     3,430     4,936     6,052   117 % (19 )%
Total non-performing loans and leases 53,277 40,153 35,321 44,741 54,907 33 % (3 )%
Non-covered other real estate owned 26,172     22,034     21,833     18,249     13,235   19 % 98 %
Total $ 79,449     $ 62,187     $ 57,154     $ 62,990     $ 68,142   28 % 17 %
 
Non-covered performing restructured loans and leases $ 67,464 $ 67,897 $ 68,791 $ 69,497 $ 73,884 (1 )% (9 )%
Non-covered loans and leases past due 31-89 days $ 28,913 $ 29,416 $ 15,290 $ 22,060 $ 21,964 (2 )% 32 %
Non-covered loans and leases past due 31-89 days to non-covered loans and leases 0.19 % 0.40 % 0.21 % 0.31 % 0.32 %
Non-covered, non-performing loans and leases to non-covered loans and leases 0.36 % 0.54 % 0.48 % 0.62 % 0.81 %
Non-covered, non-performing assets to total assets 0.36 % 0.53 % 0.49 % 0.54 % 0.60 %
 

Covered non-performing assets:

Covered loans and leases on non-accrual status $     $     $     $     $   nm nm
Total non-performing loans and leases nm nm
Covered other real estate owned 1,810     1,746     2,102     2,980     3,484   4 % (48 )%
Total $ 1,810     $ 1,746     $ 2,102     $ 2,980     $ 3,484   4 % (48 )%
 
Covered non-performing loans and leases to covered loans and leases % % % % %
Covered non-performing assets to total assets 0.01 % 0.01 % 0.02 % 0.03 % 0.03 %
 

Total non-performing assets:

Loans and leases on non-accrual status $ 48,358 $ 37,884 31,891 39,805 $ 48,855 28 % (1 )%
Loans and leases past due 90+ days & accruing 4,919     2,269     3,430     4,936     6,052   117 % (19 )%
Total non-performing loans and leases 53,277 40,153 35,321 44,741 54,907 33 % (3 )%
Other real estate owned 27,982     23,780     23,935     21,229     16,719   18 % 67 %
Total $ 81,259     $ 63,933     $ 59,256     $ 65,970     $ 71,626   27 % 13 %
 
Non-performing loans and leases to loans and leases 0.35 % 0.52 % 0.46 % 0.59 % 0.76 %
Non-performing assets to total assets 0.37 % 0.54 % 0.51 % 0.57 % 0.63 %
 
 
Umpqua Holdings Corporation
Credit Quality – Allowance for Non-covered Credit Losses
(Unaudited)
             
Quarter Ended: % Change
(Dollars in thousands) Jun 30, 2014   Mar 31, 2014   Dec 31, 2013   Sep 30, 2013   Jun 30, 2013

Seq.
Quarter

 

Year over
Year

Allowance for non-covered credit losses:

Balance beginning of period $ 86,709 $ 85,314 $ 84,694 $ 85,836 $ 84,692
Provision for non-covered loan and lease losses 15,399 5,400

3,840

3,008 2,993 185 % 415 %
Charge-offs (5,814 ) (5,565 ) (11,349 ) (6,317 ) (4,604 ) 4 % 26 %
Recoveries 1,701     1,560     8,129     2,167     2,755   9 % (38 )%
Net charge-offs (4,113 )   (4,005 )   (3,220 )   (4,150 )   (1,849 ) 3 % 122 %
Total allowance for non-covered loan and lease losses 97,995 86,709 85,314 84,694 85,836 13 % 14 %
Reserve for unfunded commitments 4,845     1,417     1,436     1,375     1,327   242 % 265 %
Total allowance for non-covered credit losses $ 102,840     $ 88,126     $ 86,750     $ 86,069     $ 87,163   17 % 18 %
 
Net charge-offs to average non-covered loans and leases (annualized) 0.12 % 0.22 % 0.18 % 0.23 % 0.11 %
Recoveries to gross charge-offs 29.26 % 28.03 % 71.63 % 34.30 % 59.84 %
Allowance for non-covered loan losses to non-covered loans and leases 0.66 % 1.17 % 1.16 % 1.17 % 1.26 %
Allowance for non-covered credit losses to non-covered loans and leases 0.69 % 1.19 % 1.18 % 1.19 % 1.28 %
 
Six Months Ended: % Change
(Dollars in thousands) Jun 30, 2014   Jun 30, 2013

Year over
Year

Allowance for non-covered credit losses:

Balance beginning of period $ 85,314 $ 85,391
Provision for non-covered loan and lease losses 20,799 9,981 108 %
Charge-offs (11,379 ) (13,329 ) (15 )%
Recoveries 3,261     3,793   (14 )%
Net charge-offs (8,118 )   (9,536 ) (15 )%
Total allowance for non-covered loan and lease losses 97,995 85,836 14 %
Reserve for unfunded commitments 4,845     1,327   265 %
Total allowance for non-covered credit losses $ 102,840     $ 87,163   18 %
 
Net charge-offs to average non-covered loans and leases (annualized) 0.16 % 0.29 %
Recoveries to gross charge-offs 28.66 % 28.46 %
 
 
Umpqua Holdings Corporation
Selected Ratios
(Unaudited)
         
Quarter Ended: % Change

Jun 30,
2014

 

Mar 31,
2014

 

Dec 31,
2013

 

Sep 30,
2013

 

Jun 30,
2013

Seq.
Quarter

 

Year over
Year

Average Rates:

   
Yield on non-covered loans and leases 5.71 % 4.96 % 5.00 % 5.12 % 4.59 % 0.75 1.12
Yield on covered loans and leases 20.07 % 14.82 % 13.99 % 11.67 % 13.82 % 5.25 6.25
Yield on taxable investments 2.29 % 2.39 % 2.31 % 1.77 % 1.59 % (0.10 ) 0.70
Yield on tax-exempt investments (1) 5.19 % 5.54 % 5.56 % 5.62 % 5.34 % (0.35 ) (0.15 )
Yield on temporary investments & interest bearing cash 0.25 % 0.25 % 0.25 % 0.25 % 0.26 % (0.01 )
Total yield on earning assets (1) 5.30 % 4.60 % 4.61 % 4.58 % 4.13 % 0.70 1.17
 
Cost of interest bearing deposits 0.22 % 0.23 % 0.25 % 0.29 % 0.35 % (0.01 ) (0.13 )

Cost of securities sold under agreements to repurchase and fed funds purchased

0.25 % 0.07 % 0.07 % 0.07 % 0.08 % 0.18 0.17
Cost of term debt 1.45 % 3.67 % 3.68 % 3.67 % 3.66 % (2.22 ) (2.21 )
Cost of junior subordinated debentures 3.87 % 4.03 % 4.04 % 4.08 % 4.10 % (0.16 ) (0.23 )
Total cost of interest bearing liabilities 0.41 % 0.44 % 0.46 % 0.50 % 0.55 % (0.03 ) (0.14 )
 
Net interest spread (1) 4.90 % 4.16 % 4.15 % 4.08 % 3.58 % 0.74 1.32
Net interest margin – Consolidated (1) 5.01 % 4.28 % 4.29 % 4.22 % 3.73 % 0.73 1.28
 
Net interest margin – Bank (1) 5.07 % 4.35 % 4.35 % 4.30 % 3.80 % 0.72 1.27
 

As reported (GAAP):

Return on average assets 0.34 % 0.65 % 0.86 % 0.81 % 0.91 % (0.31 ) (0.57 )
Return on average tangible assets 0.37 % 0.70 % 0.92 % 0.86 % 0.97 % (0.33 ) (0.60 )
Return on average common equity 2.05 % 4.35 % 5.73 % 5.36 % 6.04 % (2.30 ) (3.99 )
Return on average tangible common equity 4.06 % 7.86 % 10.38 % 9.79 % 10.00 % (3.80 ) (5.94 )
Efficiency ratio – Consolidated 82.94 % 73.15 % 69.12 % 71.30 % 67.88 % 9.79 15.06
Efficiency ratio – Bank 81.37 % 71.18 % 67.30 % 69.30 % 65.56 % 10.19 15.81
 

Operating basis (non-GAAP): (2)

Return on average assets 1.08 % 0.84 % 0.95 % 0.92 % 0.94 % 0.24 0.14
Return on average tangible assets 1.18 % 0.90 % 1.02 % 0.99 % 1.00 % 0.28 0.18
Return on average common equity 6.45 % 5.61 % 6.38 % 6.11 % 6.23 % 0.84 0.22
Return on average tangible common equity 12.76 % 10.13 % 11.56 % 11.15 % 10.31 % 2.63 2.45
Efficiency ratio – Consolidated 60.33 % 68.34 % 67.66 % 67.40 % 66.97 % (8.01 ) (6.64 )
Efficiency ratio – Bank 59.15 % 66.60 % 66.10 % 65.63 % 64.93 % (7.45 ) (5.78 )
 

(1) Tax exempt interest has been adjusted to a taxable equivalent basis using a 35% tax rate.

(2) Operating earnings is calculated as earnings available to common shareholders excluding gain (loss) on junior subordinated debentures carried at fair value, net of tax, bargain purchase gain on acquisitions, net of tax, goodwill impairment, and merger related expenses, net of tax.

 
 
Umpqua Holdings Corporation
Selected Ratios
(Unaudited)
   
Six Months Ended: % Change
Jun 30, 2014   Jun 30, 2013

Year over
Year

Average Rates:

 
Yield on non-covered loans and leases 5.44 % 4.62 % 0.82
Yield on covered loans and leases 17.34 % 13.32 % 4.02
Yield on taxable investments 2.33 % 1.55 % 0.78
Yield on tax-exempt investments (1) 5.33 % 5.33 %
Yield on temporary investments & interest bearing cash 0.25 % 0.26 % (0.01 )
Total yield on earning assets (1) 5.04 % 4.15 % 0.89
 
Cost of interest bearing deposits 0.23 % 0.34 % (0.11 )

Cost of securities sold under agreements to repurchase and fed funds purchased

0.18 % 0.09 % 0.09
Cost of term debt 1.91 % 3.65 % (1.74 )
Cost of junior subordinated debentures 3.93 % 4.12 % (0.19 )
Total cost of interest bearing liabilities 0.42 % 0.55 % (0.13 )
 
Net interest spread (1) 4.62 % 3.60 % 1.02
Net interest margin – Consolidated (1) 4.74 % 3.75 % 0.99
 
Net interest margin – Bank (1) 4.80 % 3.82 % 0.98
 

As reported (GAAP):

Return on average assets 0.46 % 0.87 % (0.41 )
Return on average tangible assets 0.49 % 0.92 % (0.43 )
Return on average common equity 2.83 % 5.74 % (2.91 )
Return on average tangible common equity 5.42 % 9.50 % (4.08 )
Efficiency ratio – Consolidated 79.63 % 67.08 % 12.55
Efficiency ratio – Bank 77.96 % 64.72 % 13.24
 

Operating basis (non-GAAP): (2)

Return on average assets 0.99 % 0.90 % 0.09
Return on average tangible assets 1.07 % 0.96 % 0.11
Return on average common equity 6.17 % 5.98 % 0.19
Return on average tangible common equity 11.81 % 9.89 % 1.92
Efficiency ratio – Consolidated 63.04 % 65.90 % (2.86 )
Efficiency ratio – Bank 61.64 % 63.80 % (2.16 )
 

(1) Tax exempt interest has been adjusted to a taxable equivalent basis using a 35% tax rate.

(2) Operating earnings is calculated as earnings available to common shareholders excluding gain (loss) on junior subordinated debentures carried at fair value, net of tax, bargain purchase gain on acquisitions, net of tax, goodwill impairment, and merger related expenses, net of tax.

 
 
Umpqua Holdings Corporation

Average Balances

(Unaudited)
     
Quarter Ended: % Change
(Dollars in thousands) Jun 30, 2014   Mar 31, 2014   Dec 31, 2013   Sep 30, 2013   Jun 30, 2013

Seq.
Quarter

 

Year over
Year

Temporary investments & interest bearing cash $ 672,587   $ 705,974   $ 625,405   $ 443,148   $ 622,209 (5 )% 8 %
Investment securities, taxable 2,242,414 1,562,849 1,664,716 1,788,567 2,062,819 43 % 9 %
Investment securities, tax-exempt 315,488 231,520 236,552 237,545 253,975 36 % 24 %
Loans held for sale 211,694 77,234 89,553 136,261 140,802 174 % 50 %
Non-covered loans and leases 13,355,455 7,384,555 7,298,622 7,128,753 6,710,803 81 % 99 %
Covered loans and leases 318,432     347,984     378,148   402,403     428,003   (8 )% (26 )%
Total interest earning assets 17,116,070 10,310,116 10,292,996 10,136,677 10,218,611 66 % 67 %
Goodwill & other intangible assets, net 1,656,687 776,006 777,188 779,294 683,446 113 % 142 %
Total assets 20,036,742 11,638,357 11,624,424 11,460,729 11,447,868 72 % 75 %
 
Non-interest bearing demand deposits 3,963,233 2,414,001 2,452,554 2,317,932 2,210,760 64 % 79 %
Interest bearing deposits 10,948,991     6,696,029     6,661,933   6,691,579     6,803,879   64 % 61 %
Total deposits 14,912,224 9,110,030 9,114,487 9,009,511 9,014,639 64 % 65 %
Interest bearing liabilities 12,521,219 7,376,780 7,326,763 7,320,460 7,409,284 70 % 69 %
 
Shareholders’ equity - common 3,350,836 1,738,680 1,734,583 1,722,881 1,728,354 93 % 94 %
Tangible common equity (1) 1,694,149 962,674 957,395 943,587 1,044,908 76 % 62 %
 
 
Umpqua Holdings Corporation

Average Balances

(Unaudited)
  Six Months Ended: % Change
(Dollars in thousands) Jun 30, 2014   Jun 30, 2013 Year over Year
Temporary investments & interest bearing cash $ 689,188 $ 503,470 37 %
Investment securities, taxable 1,904,508 2,182,326 (13 )%
Investment securities, tax-exempt 273,736 257,137 6 %
Loans held for sale 144,835 164,281 (12 )%
Non-covered loans and leases 10,386,511 6,683,436 55 %
Covered loans and leases 333,114   443,889   (25 )%
Total interest earning assets 13,731,892 10,234,539 34 %
Goodwill & other intangible assets, net 1,218,780 684,035 78 %
Total assets 15,860,749 11,472,221 38 %
 
Non-interest bearing demand deposits 3,192,896 2,183,089 46 %
Interest bearing deposits 8,834,259   6,870,186   29 %
Total deposits 12,027,155 9,053,275 33 %
Interest bearing liabilities 9,963,210 7,462,223 34 %
 
Shareholders’ equity - common 2,549,211 1,729,440 47 %
Tangible common equity (1) 1,330,432 1,045,405 27 %

(1) Average tangible common equity is a non-GAAP financial measure. Average tangible common equity is calculated as average common shareholders’ equity less average goodwill and other intangible assets, net (excluding MSRs).

 
Umpqua Holdings Corporation

Residential Mortgage Banking Activity

(unaudited)
     
Quarter Ended: % Change
(Dollars in thousands) Jun 30, 2014   Mar 31, 2014   Dec 31, 2013   Sep 30, 2013   Jun 30, 2013

Seq.
Quarter

 

Year over
Year

Residential mortgage servicing rights:

       
Residential mortgage loans serviced for others $ 10,838,313 $ 4,496,662 $ 4,362,499 $ 4,195,759 $ 3,911,273 141 % 177 %
MSR asset, at fair value 114,192 49,220 47,765 41,853 38,192 132 % 199 %
MSR as % of serviced portfolio 1.05 % 1.09 % 1.09 % 1.00 % 0.98 %

Residential mortgage banking revenue:

Origination and sale $ 22,142 $ 8,421 $ 9,915 $ 12,764 $ 20,381 163 % 9 %
Servicing 5,359 2,970 2,911 2,718 2,521 80 % 113 %
Change in fair value of MSR asset (3,160 )   (952 )   3,131     (411 )   1,387   232 % (328 )%
Total $ 24,341     $ 10,439     $ 15,957     $ 15,071     $ 24,289   133 % 0 %
 

Closed loan volume:

Closed loan volume - total $ 894,955 $ 293,175 $ 359,569 $ 463,036 $ 599,268 205 % 49 %
Closed loan volume - for sale $ 623,727 $ 204,356 $ 271,541 $ 357,371 $ 518,039 205 % 20 %
 

Gain on sale margin:

Based on total volume 2.47 % 2.87 % 2.76 % 2.76 % 3.40 % (0.40 ) (0.93 )
Based on for sale volume 3.55 % 4.12 % 3.65 % 3.57 % 3.93 % (0.57 ) (0.38 )
 
Six Months Ended: % Change
Jun 30, 2014   Jun 30, 2013

Year over
Year

Residential mortgage banking revenue:

Origination and sale $ 30,563 $ 43,438 (30 )%
Servicing 8,329 4,766 75 %
Change in fair value of MSR asset (4,112 )   (347 )   1,085 %
Total $ 34,780     $ 47,857     (27 )%
 

Closed loan volume:

Closed loan volume - total $ 1,188,129 $ 1,108,273 7 %
Closed loan volume - for sale 828,083 971,847 (15 )%
 

Gain on sale margin:

Based on total volume 2.57 % 3.92 % (1.35 )
Based on for sale volume 3.69 % 4.47 % (0.78 )

Contact:
Umpqua Holdings Corporation
Ron Farnsworth, 503-727-4108
EVP/Chief Financial Officer
ronfarnsworth@umpquabank.com
Bradley Howes, 503-727-4226
SVP/Director of Investor Relations
bradhowes@umpquabank.com

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