Umpqua Reports Third Quarter 2021 Results

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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…

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