UMPQUA HOLDINGS CORP [UMPQ] Filings

10-Q 1 umpq-20220331.htm 10-Q umpq-20220331

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q


☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	for the quarterly period ended:	March 31, 2022
	or


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
			for the transition period from to .

Commission File Number: 001-34624

Umpqua Holdings Corporation

(Exact Name of Registrant as Specified in Its Charter)


Oregon			93-1261319
(State or Other Jurisdiction			(I.R.S. Employer Identification Number)
of Incorporation or Organization)

One SW Columbia Street, Suite 1400

Portland, Oregon 97204

(Address of Principal Executive Offices)(Zip Code)

(503) 727-4100

(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


TITLE OF EACH CLASS	TRADING SYMBOL	NAME OF EXCHANGE
Common Stock	UMPQ	The NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

☒ Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer

☐ Smaller reporting company ☐ Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding for each of the issuer's classes of common stock, as of the latest practical date:

Common stock, no par value: 217,046,408 shares outstanding as of May 2, 2022.

Table of Contents

UMPQUA HOLDINGS CORPORATION

FORM 10-Q

Table of Contents


GLOSSARY		3
PART I. FINANCIAL INFORMATION		4
Item 1.	Financial Statements (unaudited)	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	57
Item 4.	Controls and Procedures	58
Part II. OTHER INFORMATION		58
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60

SIGNATURES		61

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GLOSSARY OF DEFINED TERMS
ACL						Allowance for credit losses
ASU						Accounting Standards Update

Bank						Umpqua Bank
Bank Merger						The proposed merger of Columbia State Bank, a Washington state-chartered bank and a wholly owned subsidiary of Columbia, with the Bank, with the Bank as the surviving bank
Basel III						Basel capital framework (third accord)


CECL						Current Expected Credit Losses
Columbia						Columbia Banking System, Inc.
Company						Umpqua Holdings Corporation and its subsidiaries
COVID-19						Coronavirus Disease 2019
CVA						Credit valuation adjustments
DCF						Discounted cash flow
FASB						Financial Accounting Standards Board
FDIC						Federal Deposit Insurance Corporation
Federal Reserve						Board of Governors of the Federal Reserve System
FHLB						Federal Home Loan Bank
FinPac						Financial Pacific Leasing, Inc.


GAAP						Generally accepted accounting principles
GDP						Gross Domestic Product
GNMA						Government National Mortgage Association
HELOC						Home equity line of credit
LGD						Loss given default
LIBOR						London Inter-Bank Offered Rate
Mergers						Merger Sub will merge with and into Umpqua, with Umpqua as the surviving entity, and immediately following such merger, Umpqua will merge with and into Columbia, with Columbia as the surviving corporation.
Merger Agreement						Agreement dated as of October 11, 2021, by and among Umpqua, Columbia, and Cascade Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Columbia
Merger Sub						Cascade Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Columbia
MSR						Mortgage servicing rights


PD						Probability of default
PPP						Paycheck Protection Program

SBA						Small Business Administration
SEC						Securities and Exchange Commission
SOFR						Secured Overnight Financing Rate

TDR						Troubled debt restructuring
Umpqua						Umpqua Holdings Corporation and its subsidiaries

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(in thousands, except shares)	March 31, 2022		December 31, 2021
ASSETS
Cash and due from banks (restricted cash of $9,072 and $3,593)	$	307,144	$	222,015
Interest bearing cash and temporary investments (restricted cash of $0 and $400)	2,358,292		2,539,606
Total cash and cash equivalents	2,665,436		2,761,621
Investment securities
Equity and other, at fair value	78,966		81,214
Available for sale, at fair value	3,638,080		3,870,435
Held to maturity, at amortized cost	2,700		2,744
Loans held for sale, at fair value	309,946		353,105
Loans and leases (at fair value: $319,630 and $345,634)	22,975,761		22,553,180
Allowance for credit losses on loans and leases	(248,564)		(248,412)
Net loans and leases	22,727,197		22,304,768
Restricted equity securities	10,889		10,916
Premises and equipment, net	167,369		171,125
Operating lease right-of-use assets	87,333		82,366

Other intangible assets, net	7,815		8,840
Residential mortgage servicing rights, at fair value	165,807		123,615
Bank owned life insurance	328,040		327,745
Deferred tax asset, net	39,051		—
Other assets	408,497		542,442
Total assets	$	30,637,126	$	30,640,936
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest bearing	$	11,058,251	$	11,023,724
Interest bearing	15,641,336		15,570,961
Total deposits	26,699,587		26,594,685
Securities sold under agreements to repurchase	499,539		492,247
Borrowings	6,290		6,329
Junior subordinated debentures, at fair value	305,719		293,081
Junior subordinated debentures, at amortized cost	87,984		88,041
Operating lease liabilities	101,732		95,427
Deferred tax liability, net	—		4,353
Other liabilities	328,677		317,503
Total liabilities	28,029,528		27,891,666
COMMITMENTS AND CONTINGENCIES (NOTE 6)
SHAREHOLDERS' EQUITY
Common stock, no par value, shares authorized: 400,000,000 in 2022 and 2021; issued and outstanding: 216,966,871 in 2022 and 216,625,506 in 2021	3,443,266		3,444,849
Accumulated deficit	(651,912)		(697,338)
Accumulated other comprehensive (loss) income	(183,756)		1,759
Total shareholders' equity	2,607,598		2,749,270
Total liabilities and shareholders' equity	$	30,637,126	$	30,640,936

See notes to condensed consolidated financial statements

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended
(in thousands, except per share amounts)		March 31, 2022		March 31, 2021
INTEREST INCOME
Interest and fees on loans and leases		$	214,404	$	221,141
Interest and dividends on investment securities:
Taxable		18,725		13,112
Exempt from federal income tax		1,372		1,534
Dividends		86		598
Interest on temporary investments and interest bearing deposits		1,353		624
Total interest income		235,940		237,009
INTEREST EXPENSE
Interest on deposits		3,916		10,678
Interest on securities sold under agreement to repurchase and federal funds purchased		63		76
Interest on borrowings		49		1,772
Interest on junior subordinated debentures		3,149		3,052
Total interest expense		7,177		15,578
Net interest income		228,763		221,431
PROVISION FOR CREDIT LOSSES		4,804		—
Net interest income after provision for credit losses		223,959		221,431
NON-INTEREST INCOME
Service charges on deposits		11,583		9,647
Card-based fees		8,708		7,374
Brokerage revenue		11		3,915
Residential mortgage banking revenue, net		60,786		65,033
Gain on sale of debt securities, net		2		4
Loss on equity securities, net		(2,661)		(706)
Gain on loan and lease sales, net		2,337		1,373
Bank owned life insurance income		2,087		2,071
Other (losses) income		(2,884)		20,089
Total non-interest income		79,969		108,800
NON-INTEREST EXPENSE
Salaries and employee benefits		113,138		124,134
Occupancy and equipment, net		34,829		34,635
Communications		2,754		2,763
Marketing		2,398		1,372
Services		11,337		10,750
FDIC assessments		4,516		2,599
Intangible amortization		1,025		1,130
Merger related expenses		2,278		—

Other expenses		10,155		10,209
Total non-interest expense		182,430		187,592
Income before provision for income taxes		121,498		142,639
Provision for income taxes		30,341		34,902
Net income		$	91,157	$	107,737
Earnings per common share:
Basic		$0.42		$0.49
Diluted		$0.42		$0.49
Weighted average number of common shares outstanding:
Basic		216,782		220,367
Diluted		217,392		220,891

See notes to condensed consolidated financial statements

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended
(in thousands)		March 31, 2022		March 31, 2021
Net income		$	91,157	$	107,737
Available for sale securities:
Unrealized losses arising during the period		(237,046)		(87,345)
Income tax benefit related to unrealized losses		60,968		22,465

Reclassification adjustment for net realized gains in earnings		(2)		(4)
Income tax expense related to realized gains		1		1
Net change in unrealized losses for available for sale securities		(176,079)		(64,883)

Junior subordinated debentures, at fair value:
Unrealized losses arising during the period		(12,703)		(26,562)
Income tax benefit related to unrealized losses		3,267		6,832
Net change in unrealized losses for junior subordinated debentures, at fair value		(9,436)		(19,730)
Other comprehensive loss, net of tax		(185,515)		(84,613)
Comprehensive (loss) income		$	(94,358)	$	23,124

See notes to condensed consolidated financial statements

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(UNAUDITED)


	Common Stock			Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)
(in thousands, except shares)	Shares	Amount						Total
Balance at January 1, 2021	220,226,335	$	3,514,599	$	(932,767)	$	122,745	$	2,704,577
Net income				107,737				107,737
Other comprehensive loss, net of tax						(84,613)		(84,613)
Stock-based compensation		2,964						2,964
Stock repurchased and retired	(143,832)	(2,315)						(2,315)
Issuances of common stock under stock plans	408,700	—						—
Cash dividends on common stock ($0.21 per share)				(46,481)				(46,481)

Balance at March 31, 2021	220,491,203	$	3,515,248	$	(871,511)	$	38,132	$	2,681,869
Net income				116,143				116,143
Other comprehensive income, net of tax						12,497		12,497
Stock-based compensation		2,377						2,377
Stock repurchased and retired	(957)	(18)						(18)
Issuances of common stock under stock plans	136,206	34						34
Cash dividends on common stock ($0.21 per share)				(46,586)				(46,586)
Balance at June 30, 2021	220,626,452	$	3,517,641	$	(801,954)	$	50,629	$	2,766,316
Net income				108,066				108,066
Other comprehensive loss, net of tax						(30,420)		(30,420)
Stock-based compensation		2,765						2,765
Stock repurchased and retired	(4,011,808)	(78,321)						(78,321)
Issuances of common stock under stock plans	7,159	—						—
Cash dividends on common stock ($0.21 per share)				(46,027)				(46,027)
Balance at September 30, 2021	216,621,803	$	3,442,085	$	(739,915)	$	20,209	$	2,722,379
Net income				88,354				88,354
Other comprehensive loss, net of tax						(18,450)		(18,450)
Stock-based compensation		2,800						2,800
Stock repurchased and retired	(1,790)	(36)						(36)
Issuances of common stock under stock plans	5,493	—						—
Cash dividends on common stock ($0.21 per share)				(45,777)				(45,777)




Balance at December 31, 2021	216,625,506	$	3,444,849	$	(697,338)	$	1,759	$	2,749,270
Net income				91,157				91,157
Other comprehensive loss, net of tax						(185,515)		(185,515)
Stock-based compensation		2,454						2,454
Stock repurchased and retired	(194,792)	(4,037)						(4,037)
Issuances of common stock under stock plans	536,157	—						—
Cash dividends on common stock ($0.21 per share)				(45,731)				(45,731)
Balance at March 31, 2022	216,966,871	$	3,443,266	$	(651,912)	$	(183,756)	$	2,607,598

See notes to condensed consolidated financial statements

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended
(in thousands)	March 31, 2022		March 31, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	91,157	$	107,737
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premiums, net	1,106		4,455
Gain on sale of investment securities, net	(2)		(4)



Provision for credit losses	4,804		—
Change in cash surrender value of bank owned life insurance	(2,122)		(2,105)
Depreciation, amortization and accretion	7,613		7,759
Gain on sale of premises and equipment	(571)		(149)

Additions to residential mortgage servicing rights carried at fair value	(7,390)		(14,065)
Change in fair value of residential mortgage servicing rights carried at fair value	(34,802)		6,559


Stock-based compensation	2,454		2,964
Net increase in equity and other investments	(413)		(400)
Loss on equity securities, net	2,661		706
Gain on sale of loans and leases, net	(4,458)		(50,194)
Change in fair value of loans held for sale	11,055		24,118
Origination of loans held for sale	(649,122)		(1,635,532)
Proceeds from sales of loans held for sale	683,347		1,837,626
Change in other assets and liabilities:
Net decrease in other assets	167,911		128,221
Net increase (decrease) in other liabilities	2,097		(25,683)
Net cash provided by operating activities	275,325		392,013
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale	(131,869)		(555,269)

Proceeds from investment securities available for sale	126,011		227,122



Redemption of restricted equity securities	28		19,615
Net change in loans and leases	(470,337)		(267,940)
Proceeds from sales of loans and leases	44,549		82,529
Change in premises and equipment	(3,736)		(4,007)
Proceeds from bank owned life insurance death benefits	1,111		2,708




Other	104		129
Net cash used in investing activities	$	(434,139)	$	(495,113)

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (UNAUDITED)
	Three Months Ended
(in thousands)	March 31, 2022		March 31, 2021
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit liabilities	$	104,906	$	1,264,645
Net increase in securities sold under agreements to repurchase	7,292		45,018

Repayment of borrowings	—		(490,000)


Dividends paid on common stock	(45,532)		(46,248)

Repurchase and retirement of common stock	(4,037)		(2,315)
Net cash provided by financing activities	62,629		771,100
Net (decrease) increase in cash and cash equivalents	(96,185)		668,000
Cash and cash equivalents, beginning of period	2,761,621		2,573,181
Cash and cash equivalents, end of period	$	2,665,436	$	3,241,181

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	7,667	$	15,434
Income taxes	$	6,051	$	36,404
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Changes in unrealized gains and losses on investment securities available for sale, net of taxes	$	(176,079)	$	(64,883)

Changes in unrealized gains and losses on junior subordinated debentures carried at fair value, net of taxes	$	(9,436)	$	(19,730)



Transfer of loans held for sale to loans	$	—	$	212,353

See notes to condensed consolidated financial statements

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Summary of Significant Accounting Policies

The accounting and financial reporting policies of Umpqua Holdings Corporation conform to accounting principles generally accepted in the United States of America. All references in this report to "Umpqua," "we," "our," or "us" or similar references mean the Company and include our consolidated subsidiaries where the context so requires. References to "Bank" refer to our subsidiary Umpqua Bank, an Oregon state-chartered commercial bank. FinPac is the Bank's wholly-owned subsidiary, a commercial equipment leasing company. The accompanying interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and the Bank's wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated. The condensed consolidated financial statements have not been audited. A more detailed description of the Company's accounting policies is included in the 2021 Annual Report filed on Form 10-K. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the 2021 Annual Report filed on Form 10-K.

In preparing these condensed consolidated financial statements, the Company has evaluated events and transactions subsequent to March 31, 2022, for potential recognition or disclosure. In management's opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments include normal and recurring accruals considered necessary for a fair and accurate presentation. The results for interim periods are not necessarily indicative of results for the full year or any other interim period.

Application of new accounting guidance

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU was issued to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Inter-Bank Offered Rate or another reference rate expected to be discontinued. The last expedient is a one-time election to sell or transfer debt securities classified as held to maturity. The expedients are in effect from March 12, 2020, through December 31, 2022.

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this Update are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments clarify certain optional expedients and exceptions in Topic 848 for contract modifications. The amendments are in effect from March 12, 2020, through December 31, 2022. This ASU does not have a material impact on the Company's consolidated financial statements.

The Company has an enterprise-wide LIBOR transition program which includes business strategy, product design and pricing strategy, instrument contract remediation, and systems and processes. The Company continues to use the expedients in this guidance to manage through the LIBOR transition, specifically for our loan portfolio. Umpqua has stopped originating new instruments using LIBOR, and consistent with regulatory guidance, Umpqua has stopped extensions of, or any increase in exposure in, current LIBOR instruments.

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Recent accounting pronouncements

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this Update improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The amendments improve comparability by specifying for all acquired revenue contracts regardless of their timing of payment (1) the circumstances in which the acquirer should recognize contract assets and contract liabilities that are acquired in a business combination and (2) how to measure those contract assets and contract liabilities. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The amendment will be applied prospectively to business combinations occurring on or after the effective date. The Company is currently evaluating the impact of this ASU on the Company's consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted CECL and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. As the Company has adopted CECL, ASU No. 2022-02 will be effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this ASU on the Company's consolidated financial statements.

Note 2 – Investment Securities

The following tables present the amortized cost, unrealized gains, unrealized losses and approximate fair values of debt securities at March 31, 2022 and December 31, 2021:


	March 31, 2022
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Available for sale:
U.S. Treasury and agencies	$	893,811	$	330	$	(31,999)	$	862,142
Obligations of states and political subdivisions	317,743		2,463		(13,342)		306,864
Mortgage-backed securities and collateralized mortgage obligations	2,657,494		1,225		(189,645)		2,469,074

Total available for sale securities	$	3,869,048	$	4,018	$	(234,986)	$	3,638,080
Held to maturity:

Mortgage-backed securities and collateralized mortgage obligations	$	2,700	$	759	$	—	$	3,459

Total held to maturity securities	$	2,700	$	759	$	—	$	3,459

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	December 31, 2021
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Available for sale:
U.S. Treasury and agencies	$	894,969	$	27,279	$	(4,195)	$	918,053
Obligations of states and political subdivisions	320,338		11,734		(1,288)		330,784
Mortgage-backed securities and collateralized mortgage obligations	2,649,048