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UMPQUA REPORTS SECOND QUARTER 2022 RESULTS

Second quarter 2022 Results

  • Net income of $78.6 million, or $0.36 per common share

  • Operating net income of $80.3 million, or $0.37 per common share1

  • Loan balances increased $1.5 billion or 6.3%

  • Deposit balances decreased $567.2 million or 2.1%

  • Provision for credit losses of $18.7 million

PORTLAND, Ore., July 20, 2022 /PRNewswire/ --

(PRNewsfoto/Umpqua Holdings Corporation)
(PRNewsfoto/Umpqua Holdings Corporation)

UMPQUA REPORTS SECOND QUARTER 2022 RESULTS

$0.36


$79


12.23 %


13.5 %

Net earnings per diluted
common share


Net income ($ in millions)


Return on average tangible
common equity ("ROATCE")1


Total risk-based capital ratio
(estimated)

 

CEO Commentary

"Strong loan growth, exceptional credit quality, interest bearing deposit outflow, and net interest margin expansion characterize Umpqua's second quarter results," said Cort O'Haver, President and CEO. "Healthy demand within our footprint, growing momentum from new teams and geographies, and continued dedication from our associates contributed to record net loan growth of $1.5 billion in the quarter, with new generation reflective of existing, conservative portfolio trends. While customer tax payments contributed to deposit contraction, we are seeing expanded balances in the third quarter to date, in line with a more normalized pattern of deposit flows than we experienced over the past two years."

–            Cort O'Haver, President and CEO of Umpqua Holdings Corporation

 

2Q22 HIGHLIGHTS (COMPARED TO 1Q22)



Net Interest
Income and
NIM

•   Net interest income increased by $19.4 million on a quarter-to-quarter basis due to the favorable impact of rising interest rates and the deployment of cash into loans.

•   Net interest margin was 3.41%, up 27 basis points from the prior quarter. Total deposit costs were 6 basis points for both the quarterly average and the quarter-end spot rate at June 30, 2022, unchanged from the first quarter.



Non-Interest
Income and
Expense

•   Non-interest income decreased by $24.7 million due almost entirely to a smaller write-up of the mortgage servicing asset compared to the first quarter. Fair value adjustments continued to impact mortgage banking revenue and other income given interest rate changes.

•   Non-interest expense decreased by $2.9 million due to lower salaries and employee benefits expense and lower exit and disposal costs, partially offset by higher consulting fees.



Credit
Quality

•   Net charge-offs remained low at 0.11% of average loans and leases (annualized).

•   Provision expense of $18.7 million compares to $4.8 million for the prior quarter. Net portfolio growth and economic forecast changes are the primary drivers of the increase.

•   Non-performing assets to total assets was 0.15%, up 1 basis point from March 31, 2022.



Capital

•   Estimated total risk-based capital ratio of 13.5% and estimated tier 1 risk-based capital ratio of 10.9%.

•   Declared a quarterly cash dividend of $0.21 per common share on July 20, 2022, payable August 15, 2022, to holders of record as of August 1, 2022.



Notable
items

•   Continued due diligence related to previously discussed MSR hedges.

•   $2.7 million in merger-related expenses and $0.4 million in exit and disposal costs.

 

2Q22 KEY FINANCIAL DATA







PERFORMANCE METRICS

2Q22


1Q22


2Q21

Return on average assets

1.04 %


1.21 %


1.54 %

Return on average tangible common equity1

12.23 %


13.66 %


17.33 %

Operating return on average assets1

1.06 %


1.03 %


1.63 %

Operating return on average tangible common equity1

12.49 %


11.62 %


18.24 %

Net interest margin

3.41 %


3.14 %


3.20 %

Efficiency ratio - consolidated

59.12 %


59.02 %


58.96 %

Loan to deposit ratio

93.50 %


86.05 %


84.67 %







INCOME STATEMENT

($ in 000s, excl. per share data)

2Q22


1Q22


2Q21

Net interest income

$248,170


$228,763


$229,763

Provision (recapture) for credit losses

$18,692


$4,804


($22,996)

Non-interest income

$55,235


$79,969


$91,075

Non-interest expense

$179,574


$182,430


$189,400

Pre-provision net revenue1

$123,831


$126,302


$131,438

Operating pre-provision net revenue1

$125,994


$108,125


$139,539

Earnings per common share - diluted

$0.36


$0.42


$0.53

Operating earnings per common share - diluted1

$0.37


$0.36


$0.55

Dividends paid per share

$0.21


$0.21


$0.21







BALANCE SHEET

2Q22


1Q22


2Q21

Total assets

      $30.1B


      $30.6B


      $30.3B

Loans and leases

      $24.4B


      $23.0B


      $22.1B

Total deposits

      $26.1B


      $26.7B


      $26.2B

Book value per common share

$11.60


$12.02


$12.54

Tangible book value per share[1]

$11.57


$11.98


$12.49

Tangible book value per share, ex AOCI1

$12.99


$12.83


$12.26

Balance Sheet
Total consolidated assets were $30.1 billion as of June 30, 2022, compared to $30.6 billion as of March 31, 2022 and $30.3 billion as of June 30, 2021.  Including secured off-balance sheet lines of credit, total available liquidity was $14.3 billion as of June 30, 2022, representing 48% of total assets and 55% of total deposits.

Gross loans and leases were $24.4 billion as of June 30, 2022, an increase of $1.5 billion relative to March 31, 2022. Significant activity across business lines, portfolio classes, and geographies contributed to the quarter's substantial growth. Commercial and home equity lines of credit were also additive to portfolio balances as associated utilization rates were up slightly from the prior quarter's levels despite higher commitment balances. New loans added to the portfolio during the second quarter have similar underwriting characteristics to existing loan categories, as our Q2 2022 Earnings Presentation details.

Total deposits were $26.1 billion as of June 30, 2022, a decrease of $567.2 million or 2.1% from $26.7 billion as of March 31, 2022. A continued decline in time deposits and customer tax payments contributed to balance contraction during the quarter.

Net Interest Income
Net interest income was $248.2 million for the second quarter of 2022, up $19.4 million from the prior quarter.  The increase reflects the deployment of cash into loans and the favorable impact of higher interest rates on our asset sensitive balance sheet. Excluding PPP-related income, which contributed only $2.8 million to interest income in the second quarter, net interest income was up $23.4 million from the prior quarter.

The Company's net interest margin was 3.41% for the second quarter of 2022, up 27 basis points from 3.14% for the first quarter of 2022. The increase is attributable to the higher mix of loans as a percentage of earning assets as well as an increase in individual category earning asset yields given upward interest rate movements. The cost of interest-bearing deposits increased one basis point to 0.11% for the second quarter of 2022 compared to the first quarter of 2022, and it was 0.10% on June 30, 2022, as portfolio mix changes during the quarter caused a quarter-end spot rate that was below the second quarter's average rate. Please refer to the Q2 2022 Earnings Presentation available on our website for additional net interest margin change details and interest rate sensitivity information.

Credit Quality
The allowance for credit losses was $273.9 million, or 1.12% of loans and leases, as of June 30, 2022, compared to $261.5 million, or 1.14% of loans and leases, as of March 31, 2022.  The provision for credit losses of $18.7 million for the second quarter of 2022 compares to a provision of $4.8 million for the first quarter of 2022. The current quarter's provision reflects allowance requirements for new loan generation, changes between the March 2022 and May 2022 economic forecasts used in credit models, and loan mix changes. Please refer to the Q2 2022 Earnings Presentation available on our website for additional details related to the allowance for credit losses.

Net charge-offs were 0.11% of average loans and leases (annualized) for the second quarter of 2022, compared to 0.10% for the first quarter of 2022. Net charge-off activity within the FinPac portfolio continued to remain below its historical average. As of June 30, 2022, non-performing assets were 0.15% of total assets, compared to 0.14% as of March 31, 2022 and 0.17% as of June 30, 2021.

Non-interest Income
Non-interest income was $55.2 million for the second quarter of 2022, down $24.7 million from the prior quarter. The decline was primarily driven by a net fair value gain of $23.5 million in the first quarter related to cumulative fair value adjustments, which compares to a net fair value gain of $1.0 million in the second quarter.  Higher revenue from service charges and card-based fee income offset lower swap and mortgage gain-on-sale revenue.

As detailed in our segment and non-GAAP disclosures, non-interest income for the Core Banking segment includes a fair value loss of $9.9 million for the second quarter of 2022, driven by an increase in long-term interest rates and their effect on fair value adjustments related to investment securities, swap derivatives, and loans carried at fair value. This compares to a fair value loss of $16.7 million in the first quarter of 2022, and the $6.8 million favorable movement in fair value change between periods is primarily captured in other income. Please refer to the Q2 2022 Earnings presentation available on our website for additional details related to other non-interest income.

Revenue from the origination and sale of residential mortgages was $15.1 million for the second quarter of 2022, a decrease of $1.7 million from the prior quarter. This decline reflects a sequential quarter decrease of $72.6 million or 11% in for-sale mortgage origination volume given the impact of rising long-term interest rates.  Of the current quarter's mortgage production, 83% related to purchase activity, compared to 58% for the prior quarter and 56% for the same period of the prior year. While the mortgage banking gain on sale margin increased three basis points from the prior quarter to 2.62% for the second quarter of 2022, it continued to reflect the negative impact from rising rates on the pipeline. Interest rate movements favorably impacted valuation of the MSR asset, resulting in a net write-up during the quarter of $5.9 million, which includes a $10.9 million fair value gain related to model inputs. We continue to work toward putting hedges in place to reduce the volatility of MSR fair value impacts on a net basis in future quarters.

Non-interest Expense
Non-interest expense was $179.6 million for the second quarter of 2022, down $2.9 million from the prior quarter level. The decrease is primarily due to a $2.2 million decline in salaries and employee benefits. The second quarter of 2022 included $2.7 million in merger-related expenses. Please refer to the Q2 2022 Earnings Presentation available on our website for additional quarterly expense change details.

Capital
As of June 30, 2022, the Company's tangible book value per common share2 decreased to $11.57, compared to $11.98 in the prior quarter and $12.49 in the same period of the prior year. Rising interest rates drove a decline in the fair value of available-for-sale investment securities and an increase in junior subordinated debt accounted for at fair value during the quarter. The impact of these items is reflected by a decline in accumulated other comprehensive (loss) income ("AOCI") to $(308.1) million, compared to $(183.8) million at the prior quarter-end and $50.6 million at June 30, 2021. Excluding AOCI, tangible book2 increased to $12.99 at June 30, 2022, compared to $12.83 and $12.26 for the linked-quarter and year-ago periods, respectively.

AOCI has no effect on our regulatory capital ratios as the company opted to exclude it from our common equity tier 1 capital calculations. The Company's estimated total risk-based capital ratio was 13.5% and its estimated tier 1 risk-based capital ratio was 10.9% as of June 30, 2022. The Company remains above current "well-capitalized" regulatory minimums.  The regulatory capital ratios as of June 30, 2022 are estimates, pending completion and filing of the Company's regulatory reports.

Segment Disclosures
Segment disclosures on pages 18-20 of this press release provide additional detail on the Company's two operating segments: Core Banking and Mortgage Banking.

The Core Banking segment includes all lines of business, except Mortgage Banking, including commercial, retail, wealth management, as well as the operations, technology, and administrative functions of the Bank and Holding Company.  The Mortgage Banking segment includes the revenue earned from the production and sale of residential real estate loans, the servicing income from our serviced loan portfolio, the quarterly changes to the mortgage servicing rights (MSR) asset, and the specific expenses that are related to mortgage banking activities including variable commission expenses.  Revenue and related expenses for residential real estate loans held for investment are included in the Core Banking segment as portfolio loans are an anchor product for our consumer and wealth channels and are originated through a variety of channels throughout the Company.

Earnings Conference Call Information
The Company will host its second quarter 2022 earnings conference call on July 21, 2022, 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 2022 financial results. Participants may register for the call using the below link to receive dial-in details and their own unique PINs or join the audiocast. It is recommended you join 10 minutes prior to the start time.

Register for the call: https://register.vevent.com/register/BI6f2cea3381f84083b34527ba1a684e6b
Join the audiocast: https://edge.media-server.com/mmc/p/udwqefhe
Access the replay through the Company's investor relations page: https://www.umpquabank.com/investor-relations/

About Umpqua Holdings Corporation
Umpqua Holdings Corporation (NASDAQ: UMPQ), headquartered in Portland, Oregon, is the parent company of Umpqua Bank, an Oregon-based regional bank that operates in Oregon, Washington, California, Idaho, Nevada, Arizona, and Colorado. Umpqua Bank has been recognized for its innovative customer experience and banking strategy by national publications including The Wall Street Journal, The New York Times, BusinessWeek, Fast Company and CNBC. The company was named #1 in Customer Satisfaction for the Northwest Region in the J.D. Power 2021 U.S. Retail Banking Satisfaction StudySM, and Forbes consistently ranks Umpqua as one of America's Best Banks. The Portland Business Journal has also recognized Umpqua as the Most Admired Financial Services Company in Oregon for seventeen consecutive years. In addition to its retail and commercial banking presence, Umpqua Bank owns Financial Pacific Leasing, Inc., a nationally recognized commercial finance company that provides equipment leases to businesses. For more information, visit 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. Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects," "target," "projects," "outlook," "forecast," "will," "may," "could," "should," "can" and similar references to future periods. In this press release we make forward-looking statements about strategic and growth initiatives and potential MSR hedging activity and the result of such activity. 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: current and future economic and market conditions, including the effects of declines in housing and commercial real estate prices, high unemployment rates, inflation and any slowdown in economic growth particularly in the western United States; the effect of the COVID-19 pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions; economic forecast variables that are either materially worse or better than end of quarter projections and deterioration in the economy that exceeds current consensus estimates; our ability to effectively manage problem credits; our ability to successfully implement efficiency and operational excellence initiatives; our ability to successfully develop and market new products and technology; changes in laws or regulations; the ability to complete, or any delays in completing, the proposed transaction between us and Columbia Banking System, Inc.; any failure to realize the anticipated benefits of the transaction when expected or at all; certain restrictions during the pendency of the proposed transaction that may impact our ability to pursue certain business opportunities or strategic transactions; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events, diversion of management's attention from ongoing business operations and opportunities; and potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the transaction and integration of the companies. We also caution that the amount and timing of any future common stock dividends or repurchases will depend on the earnings, cash requirements and financial condition of the Company, market conditions, capital requirements, applicable law and regulations (including federal securities laws and federal banking regulations), and other factors deemed relevant by the Company's Board of Directors, and may be subject to regulatory approval or conditions.







1 "Non-GAAP" financial measure.  See GAAP to Non-GAAP Reconciliation for the comparable GAAP measurement.

2 "Non-GAAP" financial measure. See GAAP to Non-GAAP Reconciliation for the comparable GAAP measurement.

 

TABLE INDEX


Page

Consolidated Statements of Operations

7

Consolidated Balance Sheets

9

Financial Highlights

10

Loan & Lease Portfolio Balances and Mix

12

Deposit Balances, Mix, and Select Account Details

13

Credit Quality - Non-performing Assets

14

Credit Quality - Allowance for Credit Losses

14

Consolidated Average Balance Sheets, Net Interest Income, and Yields/Rates

17

Segments

19

GAAP to Non-GAAP Reconciliation

22

 

Umpqua Holdings Corporation

Consolidated Statements of Operations

(Unaudited)


Quarter Ended


% Change

(In thousands, except per share data)

Jun 30,
2022


Mar 31,
2022


Dec 31,
2021


Sep 30,
2021


Jun 30,
2021


Seq.

Quarter


Year
over
Year

Interest income:














Loans and leases

$     234,674


$     214,404


$     221,501


$     224,403


$     223,470


9 %


5 %

Interest and dividends on investments:














  Taxable

17,256


18,725


16,566


16,102


14,619


(8) %


18 %

  Exempt from federal income tax

1,369


1,372


1,456


1,470


1,487


0 %


(8) %

  Dividends

84


86


102


213


405


(2) %


(79) %

Temporary investments and interest bearing deposits

2,919


1,353


1,229


1,237


774


116 %


277 %

  Total interest income

256,302


235,940


240,854


243,425


240,755


9 %


6 %

Interest expense:














Deposits

4,015


3,916


4,357


5,100


7,016


3 %


(43) %

Securities sold under agreement to repurchase and federal funds purchased

66


63


48


88


68


5 %


(3) %

Borrowings

50


49


51


149


866


2 %


(94) %

Junior subordinated debentures

4,001


3,149


3,019


3,014


3,042


27 %


32 %

  Total interest expense

8,132


7,177


7,475


8,351


10,992


13 %


(26) %

Net interest income

248,170


228,763


233,379


235,074


229,763


8 %


8 %

Provision (recapture) for credit losses

18,692


4,804


(736)


(18,919)


(22,996)


289 %


(181) %

Non-interest income:














Service charges on deposits

12,011


11,583


11,188


10,941


10,310


4 %


16 %

Card-based fees

10,530


8,708


9,355


9,111


10,274


21 %


2 %

Brokerage revenue

27


11


31


31


1,135


145 %


(98) %

Residential mortgage banking revenue, net

30,544


60,786


43,185


34,150


44,443


(50) %


(31) %

Gain on sale of debt securities, net


2


4




(100) %


nm

(Loss) gain on equity securities, net

(2,075)


(2,661)


(466)


(343)


4


(22) %


nm

Gain on loan and lease sales, net

1,303


2,337


4,816


4,208


5,318


(44) %


(75) %

BOLI income

2,110


2,087