UMPQUA REPORTS THIRD QUARTER 2016 RESULTS

Net earnings of $61.8 million, or $0.28 per common share

Operating earnings1 of $69.6 million, or $0.32 per common share

Heightened focus on core deposit gathering; record quarterly deposit growth of $660 million, or 14% annualized

Continued progress in re-balancing loan portfolio and increasing asset sensitivity

Umpqua Holdings Corporation (NASDAQ: UMPQ) (the "Company") reported net earnings available to common shareholders of $61.8 million for the third quarter of 2016, compared to $54.3 million for the second quarter of 2016 and $57.5 million for the third quarter of 2015.  Earnings per diluted common share were $0.28 for the third quarter of 2016, compared to $0.25 for the second quarter of 2016 and $0.26 for the third quarter of 2015.

"Results for the third quarter of 2016 were driven by strong mortgage banking revenues, record deposit growth and continued disciplined expense management," said Ray Davis, president and CEO of Umpqua Holdings Corporation.  "We continue to take advantage of growth opportunities within our markets without sacrificing our credit culture and underwriting standards, enabling us to diversify the long-term portfolio mix and increase asset sensitivity, which we believe will best position Umpqua for any economic cycle or rate environment."

Reconciliation of Net Earnings (GAAP) to Operating Earnings (non-GAAP):

The Company's financial results include several significant items which have been excluded in the presentation of operating earnings, which is a non-GAAP financial measure.  A summary of these items, and a reconciliation of earnings available to common shareholders (GAAP) to operating earnings (non-GAAP), is presented below.  More information is provided in the non-GAAP financial measures section of this release, which we urge you to read.

Financial Highlights (compared to prior quarter):

  • Delivered solid financial performance:
    • Net interest income increased by $694,000, driven primarily by higher average interest-earning assets and one additional day in the quarter, partially offset by a decline in net interest margin and a lower level of interest income arising from the accretion of the credit discount recorded on loans acquired from Sterling;
    • Provision for loan and lease losses increased by $2.5 million, driven primarily by continued strong growth in the leasing and equipment finance portfolio and slightly higher net charge-offs;
    • Non-interest income increased by $6.1 million, driven primarily by a $10.4 million increase in mortgage banking revenue.  This was partially offset by $4.4 million in lower gains related to portfolio loan sales.  Excluding the impact of non-operating items1, total non-interest income decreased by $1.6 million;
    • Non-interest expense decreased by $7.3 million, driven primarily by a decline in merger-related expenses. Excluding the impact of non-operating items1, total noninterest expense decreased by $3.0 million, driven primarily by lower salaries and benefits expense;
  • Strong balance sheet and stable credit quality:
    • Net loan and lease growth of $36.8 million, or 1% annualized.  Lower net loan growth for the quarter was driven primarily by higher levels of refinance and early pay-offs, predominately within the non-owner occupied commercial real estate and multifamily loan portfolios.  The Company also sold $103.5 million of longer-term fixed rate portfolio residential mortgage loans. Gross loan and lease growth (prior to the impact of these sales) was $140.3 million, or 3% annualized;
    • Record deposit growth of $660.3 million, or 14% annualized, reflecting initiatives across the organization to focus on core deposit gathering;
    • Loan to deposit ratio decreased to 92% from 95%;
    • Non-performing assets decreased to $62.3 million, or 0.25% of total assets, from $64.6 million, or 0.27% of total assets;
  • Prudently managed capital:
    • Book value increased to $17.80 per share from $17.70 per share, and tangible book value1 increased to $9.51 from $9.41 per share;
    • Estimated total risk-based capital ratio of 14.4% and estimated Tier 1 common to risk weighted assets ratio of 11.1%;
    • Declared quarterly cash dividend of $0.16 per common share; and
    • Repurchased 325,000 shares of common stock for $5.0 million.

Balance Sheet

Total consolidated assets were $24.7 billion as of September 30, 2016, compared to $24.1 billion as of June 30, 2016 and $23.2 billion as of September 30, 2015.  Including secured off-balance sheet lines of credit at the Company, total available liquidity was $9.3 billion as of September 30, 2016, representing 38% of total assets and 49% of total deposits.

Gross loans and leases were $17.4 billion as of September 30, 2016, an increase of $36.8 million, or 1% annualized, from $17.4 billion as of June 30, 2016.  During the third quarter of 2016, the Company sold $103.5 million of portfolio residential mortgage loans.  Excluding the impact of the loan sales, gross loan growth was $140.3 million, or 3% annualized.  The Company experienced growth in both its commercial (including leasing & equipment finance) and consumer loan portfolios.  This growth was partially offset by declines in the non-owner occupied commercial real estate and multifamily loan portfolios, primarily due to heightened refinance and early pay-off activity during the quarter.

Total deposits were $18.9 billion as of September 30, 2016, an increase of $660.3 million, or 14% annualized, from $18.3 billion as of June 30, 2016.  This increase was primarily attributable to growth in non-interest bearing demand, money market and savings accounts.

Net Interest Income

Net interest income increased by $694,000 from the prior quarter, driven primarily by higher average interest earning assets and one additional day in the quarter.  This was partially offset by a lower average yield earned on interest-earning assets and a $1.0 million linked quarter decline in the level of interest income arising from the accretion of the credit discount recorded on loans acquired from Sterling.

The Company's net interest margin was 3.95% for the third quarter of 2016, down from 4.07% for the second quarter of 2016.  This decrease reflects higher average interest bearing cash, lower average yields on loans and leases resulting from the continued low interest-rate environment and the Company's ongoing efforts to manage the target long-term loan portfolio mix, as well as an increase in premium amortization on the mortgage-backed securities portfolio and a lower level of accretion of the credit discount.

Credit Quality

Under acquisition accounting, loans (including those considered non-performing) acquired from Sterling were recorded at their estimated fair value, and the related allowance for loan losses was eliminated.  As a result, the Company wrote down the value of the loan and lease portfolio acquired from Sterling as of the acquisition date.  The credit portion of the fair value mark is not reflected in the reported allowance for loan and lease losses, or its related allowance coverage ratios, but we believe should be considered when comparing the current quarter ratios to similar ratios in periods prior to the acquisition of Sterling.

Loans acquired with significant deteriorated credit quality are accounted for as purchased credit impaired pools.  Accordingly, loans included in the purchased credit impaired pools are not reported as non-performing loans based upon their individual performance status.

During the third quarter of 2016, the Company reported $9.1 million of accretion related to the Sterling credit discount in interest income, compared to $10.1 million in the prior quarter.  As of September 30, 2016, the purchased non-credit impaired loans had approximately $50.3 million of remaining credit discount that will accrete into interest income over the life of the loans, and the purchased credit impaired loan pools had approximately $34.5 million of remaining total discount.

The allowance for loan and lease losses was $133.7 million, or 0.77% of loans and leases, as of September 30, 2016.  To provide better comparability to prior periods, on a pro-forma basis this ratio would have been approximately 1.3% at both September 30, 2016 and June 30, 2016, after grossing up the allowance for loan and lease losses and total loans and leases by the amount of the credit discount remaining as of the respective quarter-end.

The provision for loan and lease losses was $13.1 million for the third quarter of 2016, a $2.5 million increase from the prior quarter level.  This increase was driven primarily by strong growth in the leasing and equipment finance portfolio, along with slightly higher net charge-offs.  Charge-offs, net of recoveries, increased to $10.4 million for the third quarter of 2016, compared to $9.8 million in the prior quarter.  Non-performing assets decreased to $62.3 million, or 0.25% of total assets, as of September 30, 2016, compared to $64.6 million, or 0.27% of total assets, as of June 30, 2016.  This decrease was driven primarily by an $8.1 million decline in other real estate owned, partially offset by a $5.8 million increase in non-performing loans.

Non-interest Income

Total reported non-interest income was $80.7 million for the third quarter of 2016, up $6.1 million from the prior quarter, driven primarily by a lower negative fair value adjustment on the MSR asset.  The current quarter non-interest income included a negative adjustment of $7.8 million, compared to a negative adjustment of $13.9 million in the prior quarter, attributable to the change in long-term interest rates during the quarter, and its impact on the prepayment speed assumption for the MSR asset. 

On an operating basis1, non-interest income decreased by $1.6 million from the prior quarter, reflecting a $4.4 million linked quarter decline in gains related to portfolio loan sales.  This was partially offset by higher revenue from the origination and sale of residential mortgages and servicing income.  Home lending gain on sale margin increased to 4.08%, compared to 4.02% in the prior quarter and for sale mortgage originations increased by 7% from the prior quarter level.  Of the current quarter's mortgage production, 68% related to purchase activity, as compared to 70% for the prior quarter and 70% for the same period in the prior year.

Revenue related to the servicing of residential mortgage loans was $9.4 million for the third quarter of 2016, an increase of 9% from the prior quarter, reflecting growth in the residential mortgage loans serviced for others portfolio.

Non-interest Expense

Non-interest expense was $181.2 million for the third quarter of 2016, which included $2.0 million of merger-related expenses and $1.7 million of exit or disposal costs.  This compares to $188.5 million, including $6.6 million of merger-related expenses and $1.4 million of exit or disposal costs for the second quarter of 2016.  On an operating basis1, non-interest expense decreased by $3.0 million from the prior quarter, driven primarily by lower compensation and other expense.

Capital

As of September 30, 2016, the Company's book value per share increased to $17.80, from $17.70 in the prior quarter, and its tangible book value per common share1 increased to $9.51, from $9.41 in the prior quarter.  During the third quarter of 2016, the Company repurchased 325,000 shares of common stock for $5.0 million.  For the nine months ended September 30, 2016, the Company had repurchased 560,000 shares for $8.4 million. 

The Company's estimated total risk-based capital ratio was 14.4% and its estimated Tier 1 common to risk weighted

assets ratio was 11.1% as of September 30, 2016.  The Company remains above current "well-capitalized" regulatory minimums.  The regulatory capital ratios as of September 30, 2016 are estimates, pending completion and filing of the Company's regulatory reports.

Click HERE to view the consolidated financial statements.

Click HERE to view the full release.

About Umpqua Holdings Corporation

Umpqua Holdings Corporation (NASDAQ: UMPQ) is the parent company of Umpqua Bank, an Oregon-based community 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 also owns a retail brokerage subsidiary, Umpqua Investments, Inc., which has locations in Umpqua Bank stores and in dedicated offices in Oregon, and Pivotus Ventures, an innovation studio headquartered in Silicon Valley focused on creating key technologies and business models that transform finance and commerce.  Umpqua Holdings Corporation is headquartered in Portland, Oregon. For more information, visit www.umpquaholdingscorp.com.

Earnings Conference Call Information

The Company will host its third quarter 2016 earnings conference call on Thursday, October 20, 2016, at 10:00 a.m. PST (1:00 p.m. EST).  During the call, the Company will provide an update on recent activities and discuss its third quarter 2016 financial results.  There will be a live question-and-answer session following the presentation.  To join the call, please dial (800) 732-8711 ten minutes prior to the start time and enter conference ID: 6636871.  A re-broadcast will be available approximately two hours after the call by dialing (888) 203-1112 and entering conference ID 6636871.  The earnings conference call will also be available as an audiocast, which can be accessed on the Company's investor relations page at www.umpquaholdingscorp.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. In this press release we make forward-looking statements about credit discount accretion related to loans acquired from Sterling Financial Corporation, loan and lease growth and loan sales, credit quality, asset sensitivity, and trends in the loan portfolio mix.  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, prolonged low interest rate environment; unanticipated weakness in loan demand or loan pricing; deterioration in the economy; lack of strategic growth opportunities or our failure to execute on those opportunities; our inability to effectively manage problem credits; our inability to successfully implement efficiency initiatives; our ability to successfully develop and market new products and technology; and changes in laws or regulations.