Umpqua's Earnings Beat on Lower Costs


Umpqua Holdings Corp.’s (UMPQ) shares rose 0.8% after the company reported fourth-quarter 2013 operating earnings of 25 cents per share, which came ahead of the Zacks Consensus Estimate of 23 cents. However, it was below the prior-year quarter figure by a penny.

For 2013, earnings were 94 cents per share, lagging the Zacks Consensus Estimate of  $1.08 per share. However, earnings were higher than the prior-year figure by a penny.

Better-than-expected results were primarily driven by increased net interest income and lower expenses. Further, improved credit quality was an added positive. However, reduction in the non-interest income was a concern.

Including certain non-recurring items, net income available to common shareholders in the quarter was $25.1 million, down 10% year over year. For 2013, net income available to common shareholders was $97.6 million, down 4% year over year.

Umpqua Holding’s revenues were $145.3 million, down 9% from the prior-year quarter, primarily due to decline in non-interest income. Further, revenues surpassed the Zacks Consensus Estimate of $136.0 million.

For 2013, revenues were $564.3, down 5% year over year.

Quarter in Detail

Umpqua Holdings’ net interest income was recorded at $110.1 million, up 8% year over year mainly due to rise in interest income and lower interest expenses. Moreover, net interest margin (NIM) improved 34 basis points (bps) year over year to 4.29%.

Non-interest income was $26.8 million, down 43% year over year, mainly due a decline in mortgage banking revenues.

The bank’s non-interest expense fell 3% $95.4 million from the prior-year quarter. The decline was primarily driven by lower salaries and employee benefits, fall in merger related expenses and reduced losses on non-covered other real estate owned expenses.

Non-covered loans and leases balance climbed 10% from the end of the prior-year quarter to $7.3 billion. However, total deposits were $9.1 billion, down 3% year over year due to reduction in public deposits.

Credit Quality

Umpqua Holding’s credit quality showed marked improvement in the quarter. The company’s total non-performing assets were $ 59.3 million, down 40% from the year-ago quarter. The percentage of nonperforming assets to total assets was 0.51%, down from 0.83%.

Similarly, provision for non-covered loan and lease losses was $3.8 million, down 22% year over year. Net-charge-offs was $3.2 million, down 25% year over year.

Capital Ratios

Umpqua Holdings’ capital position reflected strength. Total risk-based capital was 14.61%, and Tier 1 common to risk weighted asset ratio of 10.95%. Additionally, tangible common equity ratio was 8.75%

Our Take

We expect improvement in loan balances and the enhanced credit quality of Umpqua Holding to serve as catalysts. Well-controlled risk management efforts are also expected to improve the company’s bottom line. Additionally, the bank’s capital deployment activities will likely raise investors’ confidence in the stock.

However, the low interest rate environment remains a concern. Net interest margin is expected to be under pressure in the coming quarters.

Umpqua Holdings currently carries a Zacks Rank #3 (Hold). However, some better-ranked West banks include Bank of Hawaii Corp. (BOH), First Republic Bank (FRC) and SVB Financial Group (SIVB). All these have a Zacks Rank #2 (Buy).

Read the Full Research Report on BOH
Read the Full Research Report on SIVB
Read the Full Research Report on UMPQ
Read the Full Research Report on FRC

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