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Umpqua Reports Third Quarter 2021 Results

·17 min read

Third quarter 2021 Results

-- Net income of $108.1 million, or $0.49 per common share

-- Non-PPP loan balances increased $479.7 million or 2.3%

-- Deposit balances increased $754.8 million or 2.9%

-- Provision for credit losses recapture of $18.9 million as modeled economic conditions improve|

PORTLAND, Ore., Oct. 20, 2021 /PRNewswire/ --

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

$0.49


$108


15.88%


14.9%

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

"Umpqua's third quarter results are highlighted by the robust non-PPP (Paycheck Protection Program) loan growth of $480 million and continued reduction of our total cost of deposits, now down to just eight basis points" said Cort O'Haver, President and CEO. "Our growth initiatives will continue as we work to execute our previously announced combination with Columbia Banking System. Combined, we will be the leading regional bank focused on the West Coast. We are creating a company with enhanced scale to fuel organic growth as we continue to create value to our shareholders."

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


THIRD QUARTER HIGHLIGHTS



Net Interest Income and NIM

• Net interest income increased by $5.3 million on a quarter to quarter basis primarily due to higher interest income and lower interest expense in the current period.

• Net interest margin was 3.21%, up one basis point from the prior period due to higher average non-PPP loan balances and lower interest expense.



Non-Interest Income and Expense

• Non-interest income decreased by $17.4 million primarily due to lower net mortgage banking revenue of $10.3 million and the $4.4 million gain related to the sale of Umpqua Investments in the prior period.

• Non-interest expense decreased by $5.6 million due to lower salaries and benefit expenses of $3.9 million.



Credit Quality

• Net charge-offs decreased by 14 basis points to 0.11% of average loans and leases (annualized).

• A recapture of the provision for credit losses of $18.9 million was recorded in the period as modeled economic conditions improve.

• Non-performing assets to total assets remained at 0.17%, consistent with the prior period.



Capital

• Estimated total risk-based capital ratio of 14.9% and estimated Tier 1 Risk Based Capital ratio of 12.1%.

• Paid a quarterly cash dividend of $0.21 per common share on August 31, 2021 to shareholders of record as of August 20, 2021.



Notable items

• Repurchased 4 million shares for a total of $78.2 million during the third quarter.

• $3.8 million in exit disposal costs related to store consolidations and back-office lease exits.

3Q21 KEY FINANCIAL DATA







PERFORMANCE METRICS

3Q21


2Q21


3Q20

Return on average assets

1.40%


1.54%


1.68%

Return on average tangible common equity

15.88%


17.33%


19.62%

Net interest margin

3.21%


3.20%


3.08%

Efficiency ratio - consolidated

59.44%


58.96%


54.52%

Loan to deposit ratio

81.65%


84.67%


90.91%







INCOME STATEMENT

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

3Q21


2Q21


3Q20

Net interest income

$235,074


$229,763


$216,574

(Recapture) of provision for credit losses

($18,919)


($22,996)


($338)

Non-interest income

$73,705


$91,075


$131,924

Non-interest expense

$183,753


$189,400


$190,207

Earnings per common share - diluted

$0.49


$0.53


$0.57

Dividends paid per share

$0.21


$0.21


$0.21







BALANCE SHEET

3Q21


2Q21


3Q20

Total assets

$30.9

B


$30.3

B


$29.4

B

Loans and leases

$22.0

B


$22.1

B


$22.4

B

Total deposits

$26.9

B


$26.2

B


$24.7

B

Tangible book value per share1

$12.52


$12.49


$11.77

Book value per common share

$12.57


$12.54


$11.85


Balance Sheet

Total consolidated assets were $30.9 billion as of September 30, 2021, compared to $30.3 billion as of June 30, 2021 and $29.4 billion as of September 30, 2020. Including secured off-balance sheet lines of credit, total available liquidity was $16.2 billion as of September 30, 2021, representing 52% of total assets and 60% of total deposits.

Gross loans and leases were $22.0 billion as of September 30, 2021, a decrease of $173.8 million relative to June 30, 2021. The net decrease in gross loans and leases is primarily due to an increase of non-PPP loans of $479.7 million or 2.3% offset by the expected decrease in PPP loan balances of $653.5 million due to processed forgiveness and payoffs. Multifamily balances increased $259.3 million and residential mortgage balances increased $185.4 million during the quarter. The decrease in commercial term loan balances of $588.8 million includes the aforementioned decrease of PPP loan balances of $653.5 million. Please refer to the additional loan tables in the Q3 2021 Earnings Presentation for select underwriting characteristics of the loan portfolio.

Total deposits were $26.9 billion as of September 30, 2021, an increase of $754.8 million or 2.9% from $26.2 billion as of June 30, 2021. This increase was primarily attributable to growth in non-interest bearing demand deposits of $402.2 million, growth in interest bearing demand deposits of $291.8 million and growth in money market balances of $220.8 million, partially offset by a decline in time deposits of $264.4 million.

Net Interest Income

Net interest income was $235.1 million for the third quarter of 2021, up $5.3 million from the prior quarter. The increase was primarily driven by an increase of $2.7 million in interest income, as a result of higher non-PPP average loan balances, and a decrease of $2.6 million in interest expense due to the decline in time deposits and term debt in the quarter compared to the prior period.

The Company's net interest margin was 3.21% for the third quarter of 2021, up one basis point from 3.20% for the second quarter of 2021 as a result of the increase in net interest income.

Credit Quality

The allowance for credit losses was $269.3 million, or 1.23% of loans and leases, as of September 30, 2021, which was down from $294.4 million, or 1.33% of loans and leases, as of June 30, 2021. There was a recapture of provision for credit losses of $18.9 million as a result of improvement in economic forecasts used in the credit models.

Net charge-offs as a percentage of average loans and leases decreased by 14 basis points to 0.11% of average loans and leases (annualized) for the third quarter of 2021. The decrease in net charge-offs for the quarter was primarily due to continued stable credit performance of the loan and lease portfolio. As of September 30, 2021, non-performing assets were 0.17% of total assets, compared to 0.17% as of June 30, 2021 and 0.27% as of September 30, 2020.

Current Expected Credit Loss (CECL)

On January 1, 2020, we adopted Accounting Standards Update No. 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL"). In applying CECL, we use credit models that factor in economic forecasts to project life of loan performance. At the beginning of the COVID-19 pandemic, economic forecasts projected significant, negative COVID-19 related impacts to the economy; therefore we recorded significant provisions for credit losses in the first and second quarters of 2020. As those future economic forecasts stabilized as well as incorporating loan mix changes, we recorded a recapture of $18.9 million of the allowance for credit losses in the current period.

Non-interest Income

Non-interest income was $73.7 million for the third quarter of 2021, down $17.4 million from the prior quarter driven primarily by a decrease in net mortgage banking revenue of $10.3 million and the $4.4 million gain on the sale of Umpqua Investments in the prior period.

Revenue from the origination and sale of residential mortgages was $30.3 million for the third quarter of 2021, a decrease of $11.1 million from the prior quarter. This decrease reflects a sequential quarter decrease of $265.7 million or 21.2% in for-sale mortgage origination volume and a decrease of 23 basis points in the mortgage banking gain on sale margin to 3.07% for the third quarter of 2021. Of the current quarter's mortgage production, 61% related to purchase activity, compared to 56% for the prior quarter and 46% for the same period of the prior year.

Non-interest Expense

Non-interest expense was $183.8 million for the third quarter of 2021, down $5.6 million from the prior quarter level. This decrease was primarily due to decreases in salaries and employee benefit expenses of $3.9 million from the prior period due to lower mortgage banking production, a decrease in consulting and professional fees of $1.0 million, a decrease in occupancy and equipment expenses of $0.7 million, offset by an increase in FDIC assessment costs of $0.5 million.

Capital

As of September 30, 2021, the Company's tangible book value per common share2 increased to $12.52, compared to $12.49 in the prior quarter and $11.77 in the same period of the prior year.

The Company's estimated total risk-based capital ratio was 14.9% and its estimated Tier 1 common to risk weighted

assets ratio was 12.1% as of September 30, 2021. The Company remains above current "well-capitalized" regulatory minimums. The regulatory capital ratios as of September 30, 2021 are estimates, pending completion and filing of the Company's regulatory reports.

Segment Disclosures

Segment disclosures on pages 19, 20 and 21 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 wholesale, 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 channels and are originated through a variety of channels throughout the Company.

Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. The Company believes that these non-GAAP financial measures provide investors with information useful in understanding the Company's financial performance; however, readers of this document are urged to review these non-GAAP financial measures in conjunction with the GAAP results as reported.

Management believes tangible common equity and the tangible common equity ratio are useful measures of capital adequacy because they provide a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in assessing the capital of the Company and the ability to absorb potential losses. Tangible common equity is calculated as total shareholders' equity less goodwill and other intangible assets, net (excluding MSRs). Tangible assets are total assets less goodwill and other intangible assets, net (excluding MSRs). The tangible common equity ratio is calculated as tangible common shareholders' equity divided by tangible assets.

The following table provides reconciliations of ending shareholders' equity (GAAP) to ending tangible common equity (non-GAAP), and ending assets (GAAP) to ending tangible assets (non-GAAP).

(In thousands, except per share data)


Sep 30, 2021


Jun 30, 2021


Mar 31, 2021


Dec 31, 2020


Sep 30, 2020

Total shareholders' equity


$

2,722,379



$

2,766,316



$

2,681,869



$

2,704,577



$

2,610,244


Subtract:











Goodwill






2,715



2,715



2,715


Other intangible assets, net


9,970



11,100



12,230



13,360



14,606


Tangible common shareholders' equity


$

2,712,409



$

2,755,216



$

2,666,924



$

2,688,502



$

2,592,923


Total assets


$

30,891,479



$

30,284,965



$

30,036,680



$

29,235,175



$

29,437,441


Subtract:











Goodwill






2,715



2,715



2,715


Other intangible assets, net


9,970



11,100



12,230



13,360



14,606


Tangible assets


$

30,881,509



$

30,273,865



$

30,021,735



$

29,219,100



$

29,420,120


Common shares outstanding at period end


216,622



220,626



220,491



220,226



220,222













Total shareholders' equity to total assets ratio


8.81

%


9.13

%


8.93

%


9.25

%


8.87

%

Tangible common equity ratio


8.78

%


9.10

%


8.88

%


9.20

%


8.81

%

Book value per common share


$

12.57



$

12.54



$

12.16



$

12.28



$

11.85


Tangible book value per common share


$

12.52



$

12.49



$

12.10



$

12.21



$

11.77


About Umpqua Holdings Corporation

Umpqua Holdings Corporation (NASDAQ: UMPQ) is the parent company of Umpqua Bank, an Oregon-based bank recognized for its entrepreneurial approach, innovative customer experience, and distinctive banking solutions. Umpqua Bank has locations across Oregon, Washington, California, Idaho and Nevada. Umpqua Holdings Corporation is headquartered in Portland, Oregon. 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 has been recognized for eight years in a row on FORTUNE magazine's list of the country's "100 Best Companies to Work For," and was recently named by The Portland Business Journal the Most Admired Financial Services Company in Oregon for the sixteenth consecutive year. In addition to its retail banking presence, Umpqua Bank also owns Financial Pacific Leasing, Inc., a nationally recognized commercial finance company that provides equipment leases to businesses.

Earnings Conference Call Information

The Company will host its third quarter 2021 earnings conference call on October 21, 2021, 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 third quarter 2021 financial results. There will be a live question-and-answer session following the presentation. To join the call, please dial (866) 440-7407 ten minutes prior to the start time and enter conference ID: 4277385. A re-broadcast will be available approximately two hours after the call by dialing (855) 859-2056 and entering conference ID 4277385. The earnings conference call will also be available as an audio cast, which can be accessed on the Company's investor relations page at https://www.umpquabank.com/investor-relations/.

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. 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, and any slowdown in economic growth particularly in the western United States; the effect of the COVID-19 pandemic, including on our credit quality, deferral programs, 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 announcement or completion of the transaction. 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.




Umpqua Holdings Corporation

Consolidated Statements of Operations

(Unaudited)


Quarter Ended


% Change

(In thousands, except per share data)

Sep 30,
2021


Jun 30,
2021


Mar 31,
2021


Dec 31,
2020


Sep 30,
2020


Seq.

Quarter


Year
over
Year

Interest income:














Loans and leases

$

224,403



$

223,470



$

221,141



$

240,815



$

229,457



0

%


(2)

%

Interest and dividends on investments:














Taxable

16,102



14,619



13,112



11,951



10,168



10

%


58

%

Exempt from federal income tax

1,470



1,487



1,534



1,523



1,490



(1)

%


(1)

%

Dividends

213



405



598



659



710



(47)

%


(70)

%

Temporary investments and interest bearing deposits

1,237



774



624



531



474



60

%


161

%

Total interest income

243,425



240,755



237,009



255,479



242,299



1

%


0

%

Interest expense:














Deposits

5,100



7,016



10,678



14,567



19,121



(27)

%


(73)

%

Securities sold under agreement to repurchase and federal funds purchased

88



68



76



93



84



29

%


5

%

Borrowings

149



866



1,772



2,765



3,271



(83)

%


(95)

%

Junior subordinated debentures

3,014



3,042



3,052



3,147



3,249



(1)

%


(7)

%

Total interest expense

8,351



10,992



15,578



20,572



25,725



(24)

%


(68)

%

Net interest income

235,074



229,763



221,431



234,907



216,574



2

%


9

%

(Recapture) provision for credit losses

(18,919)



(22,996)





29



(338)



(18)

%


nm

Non-interest income:














Service charges on deposits

10,941



10,310



9,647



10,202



10,405



6

%


5

%

Card-based fees

9,111



10,274



7,374



7,754



7,118



(11)

%


28

%

Brokerage revenue

31



1,135



3,915



4,093



3,686



(97)

%


(99)

%

Residential mortgage banking revenue, net

34,150



44,443



65,033



79,028



90,377



(23)

%


(62)

%

Gain on sale of debt securities, net





4







nm


nm

(Loss) gain on equity securities, net

(343)



4



(706)



(173)



(112)



nm


206

%

Gain on loan and lease sales, net

4,208



5,318



1,373



3,374



1,092



(21)

%


285

%

BOLI income

2,038



2,092



2,071



2,067



2,087



(3)

%


(2)

%

Other income

13,569



17,499



20,089



17,615



17,271



(22)

%


(21)

%

Total non-interest income

73,705



91,075



108,800



123,960



131,924



(19)

%


(44)

%

Non-interest expense:














Salaries and employee benefits

117,636



121,573



124,134



132,460



120,337



(3)

%


(2)

%

Occupancy and equipment, net

33,944



34,657



34,635



41,758



36,720



(2)

%


(8)

%

Intangible amortization

1,130



1,130



1,130



1,246



1,247



0

%


(9)

%

FDIC assessments

2,136



1,607



2,599



3,014



2,989



33

%


(29)

%

Other expenses

28,907



30,433



25,094



...