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Umpqua Misses on Earnings, Shares Fall

Zacks Equity Research

Umpqua Holdings Corporation (UMPQ) reported first-quarter 2014 operating earnings of 21 cents per share, which missed the Zacks Consensus Estimate of 23 cents. The reported figure also compared unfavorably with 22 cents earned in the year-ago quarter.

Umpqua Holdings' stock price movement following the earnings release on Apr 21 reflected negative investor response. On Apr 22, the stock closed at $18.06, decreasing 2.3% from the previous day.

Earnings came in lower than expected mainly due to a fall in net income and higher non-interest expenses. Moreover, a decrease in non-interest income was a concern. However, improved credit quality was a positive.

Including certain non-recurring items, net income available to common shareholders came in at $18.7 million, down 20% year over year.

Umpqua Holdings’ revenues were $138.9 million, up 0.4% from the prior-year quarter. This rise was due to increased interest income, partly offset by a fall in non-interest income. Further, revenues surpassed the Zacks Consensus Estimate of $136.0 million.

Quarter in Detail

Umpqua Holdings’ net interest income was recorded at $107.8 million, up 14% year over year mainly due to a rise in interest income and lower interest expenses. Moreover, net interest margin (NIM) improved 51 basis points (bps) year over year to 4.28%.

Non-interest income was $23.0 million, down 32% year over year, mainly due to 56% fall in net mortgage banking revenues.

The bank’s non-interest expense increased 13% year over year to $96.5 million. The rise was primarily due to a significant increase in merger-related expenses.

Non-covered loans and leases climbed 11% from the end of the prior-year quarter to $7.4 billion. However, total deposits were $9.3 billion, up 2% year over year.

Credit Quality

Umpqua Holdings’ credit quality showed marked improvement in the quarter. The company’s total nonperforming assets were $63.9 million, down 27% from the year-ago quarter. The percentage of nonperforming assets to total assets was 0.54%, down from 0.76%.

Similarly, provision for non-covered loan and lease losses was $5.4 million, down 23% year over year. Net charge-offs were $4.0 million, down 48% year over year.

Capital Ratios

Umpqua Holdings’ capital position was not up to the mark. Total risk-based capital ratio was 14.69%, compared to 16.76 as on Mar 31, 2013.  Tier 1 common to risk weighted asset ratio was 11.01%, compared to 12.77% as on Mar 31, 2013. Additionally, tangible common equity ratio was 8.67%, down from 9.72% in the year-ago quarter.

Our Take

We expect improvement in Umpqua Holdings’ deposits and loan balances as well as credit quality to act as growth catalysts. Moreover, the company’s ability to reduce interest expenses is a positive. Nevertheless, lower non-interest income and rise in non-interest expenses are causes of concern.  

Additionally, the low interest rate environment and regulatory issues remain challenges going forward.

Currently, Umpqua Holdings carries a Zacks Rank #4 (Sell).

Performance of Other Regional-West Banks

First Republic Bank’s (FRC) first-quarter 2014 earnings of 67 cents per share beat the Zacks Consensus Estimate of 64 cents. Results benefited from revenue growth and capital strength, partially offset by higher expenses.

Westamerica Bancorp’s (WABC) first-quarter 2014 earnings of 58 cents per share were in line with Zacks Consensus Estimate.

SVB Financial Group (SIVB) is slated to announce results on Apr 24.

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

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