• Umpqua Holdings Corporation
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  • Umpqua Holdings Reports Second Quarter 2011 Results
    Company Release - 07/20/2011 17:00

    Second quarter 2011 operating earnings (1) of $0.16 per diluted share, net income of $0.15 per diluted share

    Non-covered loans and leases grew $103 million, or 2%, over prior quarter

    Core net interest margin (1) increased 17 basis points over prior quarter to 4.08%

    Net interest margin increased 14 basis points over prior quarter to 4.32%

    Non-covered, non-performing assets decreased to 1.37% of total assets, the lowest quarterly level since 2008

    Non-interest bearing demand deposits increased 4% on a sequential quarter basis

    PORTLAND, Ore.--(BUSINESS WIRE)-- Umpqua Holdings Corporation (NASDAQ:UMPQ), parent company of Umpqua Bank and Umpqua Investments Inc. today announced second quarter 2011 net earnings available to common shareholders of $17.7 million, or $0.15 per diluted common share, compared to net earnings available to common shareholders of $3.4 million, or $0.03 per diluted common share, for the same period in the prior year.

    Operating earnings (1), defined as earnings available to common shareholders before gains or losses on junior subordinated debentures carried at fair value, net of tax, bargain purchase gains on acquisitions, net of tax, merger related expenses, net of tax, and goodwill impairment, was $18.1 million, or $0.16 per diluted common share for the second quarter of 2011, compared to operating earnings of $4.7 million, or $0.04 per diluted common share, for the same period in the prior year.

    Significant financial statement items for the second quarter of 2011 include:

    • Non-covered loans and leases grew $103 million, primarily comprised of commercial & industrial loans, and total non-covered loan commitments increased $178 million;
    • Net interest margin increased to 4.32% due to larger investment portfolio balances, increased balances on the non-covered loan portfolio, increased yields on the covered portfolio, and decreased cost of interest bearing liabilities;
    • Core net interest margin (1) increased 17 basis points to 4.08%;
    • Non-covered, non-performing assets declined to 1.37% of total assets;
    • Provision for non-covered loan losses and total net charge-offs each totaled $15.5 million;
    • The allowance for credit losses ended the quarter at 1.72% of total non-covered loans and leases;
    • Provision for covered loan losses of $3.8 million was mostly offset by a corresponding gain in the FDIC indemnification asset;
    • The cost of interest bearing deposits for the second quarter of 2011 was 0.79%, a decrease of 4 basis points on a sequential quarter basis;
    • Tangible common equity ratio of 9.23%; and
    • Total risk-based capital of 17.33%, and tier 1 common to risk weighted asset ratio of 13.04%.

    (1) Operating earnings and Core net interest margin are considered “non-GAAP” financial measures. More information regarding these measurements and a reconciliation to the comparable GAAP measurements are provided under the heading Non-GAAP Financial Measures below.

    “This quarter the Company experienced good loan growth, stronger earnings, a higher net interest margin and improved credit quality metrics,” said Ray Davis, CEO of Umpqua Holdings Corporation. “The results are due to hard work by a quality staff and through strategic actions taken over the past eighteen months that have positioned the Company well for future growth.”

    Asset quality – Non-covered loan portfolio

    Non-performing assets were $157.4 million, or 1.37% of total assets, as of June 30, 2011, compared to $177.0 million, or 1.53% of total assets as of March 31, 2011, and $205.5 million, or 1.90% of total assets as of June 30, 2010. Of this amount, as of June 30, 2011, $109.9 million represented non-accrual loans, $13.1 million represented loans past due greater than 90 days and still accruing interest, and $34.4 million was other real estate owned (“OREO”).

    The Company has aggressively charged-down impaired assets to their disposition values, and the assets are expected to be resolved at those levels, absent further declines in market prices. As of June 30, 2011, the non-covered, non-performing assets of $157.4 million have been written down by 43%, or $120.7 million, from their current par balance of $278.1 million.

    The provision for loan losses for the second quarter of 2011 was $15.5 million, stable relative to the prior quarter, reflecting the stabilization of credit quality of the loan portfolio and the decline of non-performing loans. Total net charge-offs for the second quarter of 2011 were $15.5 million, the lowest level of net charge-offs since the third quarter of 2008, reducing the allowance for credit losses to 1.72% of non-covered loans and leases at June 30, 2011, as compared to 1.75% of total non-covered loans as of March 31, 2011 and 2.00% of total non-covered loans as of June 30, 2010. The annualized net charge-off rate for the second quarter of 2011 was 1.10%.

    Non-covered loans past due 30 to 89 days were $43.9 million, or 0.76% of non-covered loans and leases as of June 30, 2011, as compared to $70.7 million, or 1.25% as of March 31, 2011, and $40.1 million, or 0.70% as of June 30, 2010.

    Since 2007, the Company has been aggressively resolving problems arising from the current economic downturn. The following table recaps the Company’s credit quality trends since the second quarter of 2007 as it relates to the non-covered loan portfolio:

     

    Credit quality trends – Non-covered loans

    (Dollars in thousands)

     

    Provision
    for
    loan loss

     

    Net
    charge-offs

     

    Allowance
    for credit losses
    to non-covered
    loans %

     

    30-89 days
    past due %

     

    Non-covered,
    non-performing
    assets to
    total assets %

    Q2 2007 $ 3,413   $ 31   1.17%   0.56%   0.59%
    Q3 2007 20,420 865 1.47% 0.99% 0.96%
    Q4 2007 17,814 21,188 1.42% 0.64% 1.18%
    Q1 2008 15,132 13,476 1.45% 1.13% 1.06%
    Q2 2008 25,137 37,976 1.22% 0.31% 1.25%
    Q3 2008 35,454 15,193 1.54% 1.16% 1.66%
    Q4 2008 31,955 30,072 1.58% 0.96% 1.88%
    Q1 2009 59,092 59,871 1.58% 1.47% 1.82%
    Q2 2009 29,331 26,047 1.63% 0.80% 1.73%
    Q3 2009 52,108 47,342 1.71% 0.76% 1.70%
    Q4 2009 68,593 64,072 1.81% 0.69% 2.38%
    Q1 2010 42,106 38,979 1.91% 0.93% 1.99%
    Q2 2010 29,767 26,637 2.00% 0.70% 1.90%
    Q3 2010 24,228 30,044 1.91% 1.41% 1.59%
    Q4 2010 17,567 23,744 1.82% 0.85% 1.53%
    Q1 2011 15,030 19,118 1.75% 1.25% 1.53%
    Q2 2011 15,459   15,497 1.72% 0.76% 1.37%
    Total $502,606   $470,152
     

    Non-covered construction loan portfolio

    Total non-covered construction loans declined again in the quarter to $297 million as of June 30, 2011, representing a decrease of 19% since March 31, 2011, and a decrease of 40% from June 30, 2010. Within this portfolio, the residential development loan segment was $113 million, or 2% of the total non-covered loan portfolio. Of this amount, $25.9 million represented non-performing loans and $40.3 million were classified as performing restructured loans. The residential development loan segment has decreased $63 million, or 36%, since June 30, 2010.

    The remaining $184 million in non-covered construction loans as of June 30, 2011 primarily represent commercial construction projects. Of this amount, $8.1 million represented non-performing loans and $26.9 million were classified as performing restructured loans.

    Non-covered commercial real estate loan portfolio

    The total non-covered term commercial real estate loan portfolio was $3.5 billion as of June 30, 2011. Of this total, $2.24 billion are non-owner occupied and $1.29 billion are owner occupied. Of the total term commercial real estate portfolio, $53.1 million were on non-accrual status, and $32.1 million, or 0.91%, were past due 30-89 days as of June 30, 2011. Of the total non-covered commercial real estate portfolio, 7% matures in 2011-2012, 16% in years 2013-2014, and 23% in years 2015-2016. The remaining 54% of the portfolio matures in or after the year 2017.

    The portfolio was conservatively underwritten at origination to a minimum debt service coverage ratio of 1.20, and as a result, in many cases, the loan-to-value was substantially less than our in-house maximum of 75%. This underwriting serves to protect against the low capitalization rate environment of the past several years.

    During the past two years, the Company has completed several rounds of stress testing on the commercial real estate portfolio, focusing on items such as capitalization rates, interest rates and vacancy factors. The results of the stress testing showed no significant unidentified risks, unlike our experience in the residential development construction portfolio. As we remain in a difficult economic environment, we anticipate that some borrowers will struggle, but that potential issues within the commercial real estate portfolio will result from individual loans within distinct geographic areas and not represent a systemic weakness in the portfolio. We believe we are well positioned to manage the exposure and work with our customers until the economic climate improves.

    Non-covered restructured loans

    Restructured loans on accrual status were $81.0 million as of June 30, 2011, up from $67.5 million as of March 31, 2011, and from $80.5 million as of June 30, 2010. The increase in the second quarter related to three commercial construction relationships. The Company does not enter into restructurings on loans in non-performing status, and generally requires the customer to pledge additional collateral, maintain a minimum debt service coverage ratio of 1.0, and show substantial external sources of repayment prior to the Company agreeing to restructure.

    Additional information related to asset quality

    Additional tables can be found at the end of this earnings release covering the following aspects of the Company's non-covered loan portfolio: non-performing asset detail by type and by region, loans past due 30 to 89 days by type and by region, loans past due 30 to 89 days trends, and restructured loans on accrual status by type and by region.

    Asset quality – Covered loan portfolio

    Covered non-performing assets were $30.2 million, or 0.26% of total assets, as of June 30, 2011, as compared to $27.7 million, or 0.24% of total assets, as of March 31, 2011, and $87.1 million, or 0.80% of total assets, as of June 30, 2010. The total non-performing assets balance at June 30, 2011 represents covered OREO.

    In accordance with the guidance governing the accounting for purchased loan portfolios with evidence of credit deterioration subsequent to origination, the covered loans acquired have been assembled into pools of loans. As a result, individual loans underlying the loan pools are not reported as non-performing. Rather, accretable yield of the pool is recognized to the extent pool level expected future cash flows discounted at the effective rate exceed the carrying value of the pool. To the extent discounted expected future cash flows are less than the carrying value of the pool, provisions for covered credit losses are recognized as a charge to earnings, but the adjusted carrying value of loan pool continues to accrete income at the effective rate.

    As of acquisition date, covered non-performing assets were written-down to their estimated fair value, incorporating our estimate of future expected cash flows until the ultimate resolution of these credits. The estimated credit losses embedded in these acquired non-performing loan portfolios were based on management’s and third-party consultants’ credit reviews of the portfolios performed during due diligence. To the extent actual or projected cash flows are less than originally estimated, additional provisions for loan losses on the covered loan portfolio will be recognized; however, these provisions would be mostly offset by a corresponding increase in the FDIC indemnification (loss sharing) asset recognized within non-interest income. To the extent actual or projected cash flows are more than originally estimated, the increase in cash flows is prospectively recognized in interest income; however, the increase in interest income would be offset by a corresponding decrease in the FDIC indemnification (loss sharing) asset recognized within non-interest income.

    Net interest margin

    The Company reported a tax equivalent net interest margin of 4.32% for the second quarter of 2011, as compared to 4.18% for the first quarter of 2011, and 4.05% for the second quarter of 2010. The increase in net interest margin in the current quarter over the prior quarter resulted primarily from investing excess interest bearing cash into the investment portfolio in the prior quarter, increased non-covered loans outstanding, increased yields on the covered loan portfolio and declining costs of interest bearing deposits, partially offset by a decrease in covered loans. The increase in net interest margin in the current quarter over the same quarter of the prior year resulted from investing excess interest bearing cash into the investment portfolio, increased covered loans outstanding, increased yields on the covered loan portfolio and declining costs of interest bearing deposits, partially offset by a decrease in non-covered loans and an increase in interest bearing deposits.

    Loan disposal related activities within the covered loan portfolio, either through loans being paid off in full or transferred to OREO, result in gains within covered loan interest income to the extent assets received in satisfaction of debt (such as cash or the net realizable value of OREO received) exceeds the allocated carrying value of the loan disposed of from the pool. Loan disposal activities contributed $6.7 million of interest income in the second quarter of 2011, as compared to $8.2 million in the first quarter of 2011 and none in the second quarter of 2010. While dispositions of covered loans positively impact net interest margin, we recognize a corresponding decrease to the change in FDIC indemnification asset at the incremental loss-sharing rate within other non-interest income. Excluding the impact of covered loan disposal gains, consolidated net interest margin would have been 4.06% for the current quarter, 3.86% for the prior quarter, and 4.05% in the same quarter of the prior year.

    Interest and fee reversals on non-accrual loans during the first quarter of 2011 were $0.5 million, negatively impacting the net interest margin by 2 basis points, as compared to $1.3 million for the first quarter of 2011 and $0.7 million in the second quarter of 2010. Excluding the impact of loan disposal gains and interest and fee reversals on non-accrual loans, our core net interest margin was 4.08% for the second quarter of 2011, 3.91% for the first quarter of 2011 and 4.08% for the second quarter of 2010. Core net interest margin is considered a “non-GAAP” financial measure. More information regarding this measurement and reconciliation to the comparable GAAP measurement is provided under the heading Non-GAAP Financial Measures below.

    For the fifteenth consecutive quarter, the Company has continued to reduce the cost of interest bearing deposits. As a result of these efforts, the cost of interest bearing deposits was 0.79%, 4 basis points lower than the first quarter of 2011 and 31 basis points lower than the second quarter of 2010.

    Mortgage banking revenue

    The Company recorded $4.8 million in total mortgage banking revenue during the second quarter of 2011, on closed loan volume of $185 million. In the second quarter of 2011, the Company recognized a decrease in the fair value of the mortgage servicing right assets in the income statement of $0.3 million. The decline is primarily related to the passage of time as the market for mortgage interest rates has remained stable throughout the quarter. Income from the origination and sale of mortgage loans was $4.0 million in the second quarter, representing an 8% decrease over the prior quarter, and stable as compared to the same quarter of the prior year. The decrease in mortgage banking revenue as compared to the prior quarter primarily relates to the retention of adjustable rate mortgages in the Company’s loan portfolio. As of June 30, 2011, the Company serviced $1.75 billion of mortgage loans for others, and the related mortgage servicing right asset is valued at $16.4 million, or 0.93% of the total serviced portfolio principal balance.

    Gain on sale of investment securities

    During the second quarter of 2011, the Company sold approximately $169 million of longer duration investment securities in order to reduce the price risk of the securities portfolio if interest rates were to significantly increase in future periods. In connection with this sale, the Company recognized a gain on sale of investment securities of $5.6 million. The purpose of the sale was not to recognize gains, as the overall available for sale portfolio has a net unrealized gain of $62 million before tax. Rather it was to hedge the potential future adverse effects of rising interest rates on accumulated other comprehensive income in equity.

    Fair value of junior subordinated debentures

    The Company recognized a $0.5 million loss from the change in fair value of junior subordinated debentures during the second quarter of 2011. The Company utilizes an external firm to determine the valuation of this liability. The majority of the fair value difference over par value relates to the $61.8 million of junior subordinated debentures issued in the third quarter of 2007, which carry interest rate spreads of 135 and 275 basis points over the 3 month LIBOR. As of June 30, 2011, the credit risk adjusted interest spread for potential new issuances was estimated to be significantly higher than the contractual spread. The difference between these spreads has created a cumulative gain in fair value of the Company’s junior subordinated debentures, which results from their carrying amount compared to the estimated amount that would be paid to transfer the liability in an orderly transaction among market participants. Because these instruments are no longer being originated in the market, the quarterly fair value adjustments are difficult to estimate, but are not likely to be volatile in the future, and the cumulative fair value adjustment will continue to reverse over time and be recognized as a reduction in non-interest income over the remaining period to maturity of each related instrument. As of June 30, 2011, the total par value of junior subordinated debentures carried at fair value was $134.0 million, and the fair value was $81.8 million.

    Non-interest expense

    Total non-interest expense for the second quarter of 2011 was $83.2 million, compared to $84.2 million for the first quarter of 2011 and $74.8 million for the second quarter of 2010. Included in non-interest expense are several categories which are outside of the operational control of the Company or depend on changes in market values, including FDIC deposit insurance assessments and gain or loss on other real estate owned, as well as infrequently occurring expenses such as merger related costs. Excluding these non-controllable, valuation related or infrequently occurring items, the remaining non-interest expense items totaled $76.4 million for the second quarter of 2011, flat as compared first quarter of 2011, and $70.1 million for the second quarter of 2010. The increase in non-interest expense over the same period in the prior year relates to the assumption of Evergreen’s, Rainier’s and Nevada Security’s banking operations, increases in variable expenses related to the mortgage banking division’s production, higher loan collection and OREO management expenses, and investment in various infrastructure and growth initiatives.

    During the second quarter of 2011, the Company incurred external loan collection and OREO management expense of $4.2 million, compared to $4.8 million for the first quarter of 2011, and $1.7 million for the second quarter of 2010. Excluding net losses on OREO and core credit administration expenses, our total loan and OREO operating workout cost, including staff costs, was $12.4 million through June 2011, or $24.8 million annualized for the year. Mortgage production related expense was $4.3 million in the second quarter of 2011, compared to $4.3 million in the first quarter of 2011, and $3.4 million for the second quarter of 2010. Total FDIC deposit insurance assessments during the second quarter of 2011 were $2.8 million, compared to $3.9 million in the prior quarter, and $3.6 million for the second quarter of 2010. The decrease in the deposit insurance expense in the current quarter resulted from a structural change in the deposit assessment calculation and rate schedule effective in the second quarter of 2011.

    Income taxes

    The Company recorded a provision for income taxes of $8.8 million in the second quarter of 2011, representing an effective tax rate of 32.9% on an annualized basis. The change in the effective income tax rate in the quarter reflects the effects of permanent differences on our taxable income year to date.

    Balance sheet

    Total consolidated assets as of June 30, 2011 were $11.5 billion, compared to $11.6 billion on March 31, 2011 and $10.8 billion a year ago. Total gross loans and leases (covered and non-covered), and deposits, were $6.4 billion and $9.1 billion, respectively, as of June 30, 2011, as compared to $6.4 billion and $9.3 billion, respectively, as of March 31, 2011, and $6.6 billion and $8.6 billion, respectively, as of June 30, 2010.

    Total non-covered loans held for investment increased $103.2 million during the second quarter of 2011. This increase is principally due to new loan production in the current year, and primarily relates to growth in commercial and industrial segment of our loan portfolio. Excluding non-covered charge-offs of $18.6 million, the non-covered loan portfolio increased $121.8 million in the current quarter. Covered loans declined $43.0 million during the second quarter of 2011. The covered loan portfolio will continue to run-off over time as borrower payments are received and as we work out and resolve troubled credits.

    Total deposits decreased $146.3 million, or 2%, on a sequential quarter basis, primarily as a result of the deposit outflows relating to the Company reducing interest rates paid on various deposit products with the overall decline in market interest rates. Of this amount, interest bearing deposits decreased $208.1 million while non-interest bearing deposits increased $61.8 million, or 4%. Total deposits have increased $587.7 million, or 7%, since June 30, 2010. Approximately $27 million of the decline in deposits during the second quarter of 2011 was transferred to the securities sold under agreements to repurchase liability, which represent collateralized customer deposits reflected as borrowings. The increase in securities sold under agreements to repurchase over the past year results from the FDIC discontinuing the allowance of collateralization for uninsured non-public funds deposits, while various customers still require some form of collateralization based on their business requirements.

    Due to the significant amount of liquidity in the banking system and generally unattractive bond market conditions since the second half of 2009, the Company has been holding larger levels of interest bearing cash rather than investing all excess liquidity into the bond market. At June 30, 2011, the Company had $478 million of interest bearing cash earning 0.25%, the target Federal Funds Rate. Over the course of the last year we have purchased short duration government-sponsored investment securities to match and offset the interest expense associated with the growth in our deposits. The Company’s available for sale investment portfolio was $3.2 billion as of June 30, 2011, representing a 64% increase over the prior year. The Company plans to hold an increased interest bearing cash position relative to historical levels until the investment alternatives in the market improve from both a return and duration standpoint and to fund anticipated future loan production. Including secured off-balance sheet lines of credit, total available liquidity to the Company was $4.6 billion as of June 30, 2011, representing 40% of total assets and 50% of total deposits.

    Capital

    As of June 30, 2011, total shareholders’ equity was $1.67 billion, comprised entirely of common equity. Book value per common share was $14.62, tangible book value per common share was $8.68 and the ratio of tangible common equity to tangible assets was 9.23% (see explanation and reconciliation of these items in the Non-GAAP Financial Measures section below).

    The Company’s estimated total risk-based capital ratio as of June 30, 2011 is 17.33%. This represents a slight decrease from March 31, 2011, as a result of increased risk weighted assets with non-covered loan growth during the quarter. Our total risk-based capital level is substantially in excess of the regulatory definition of “well-capitalized” of 10.00%. The Company’s estimated Tier 1 common to risk weighted assets ratio is 13.04% as of June 30, 2011. These capital ratios as of June 30, 2011 are estimates pending completion and filing of the Company’s regulatory reports.

    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. Umpqua believes that certain non-GAAP financial measures provide investors with information useful in understanding Umpqua’s financial performance; however, readers of this report are urged to review these non-GAAP financial measures in conjunction with the GAAP results as reported.

    Umpqua recognizes gains or losses on our junior subordinated debentures carried at fair value resulting from changes in interest rates and the estimated market credit risk adjusted spread that do not directly correlate with the Company’s operating performance. Also, Umpqua incurs significant expenses related to the completion and integration of mergers and acquisitions. Additionally, we may recognize goodwill impairment losses that have no direct effect on the Company’s or the Bank’s cash balances, liquidity, or regulatory capital ratios. Lastly, Umpqua may recognize one-time bargain purchase gains on certain FDIC-assisted acquisitions that are not reflective of Umpqua’s on-going earnings power. Accordingly, management believes that our operating results are best measured on a comparative basis excluding the impact of gains or losses on junior subordinated debentures measured at fair value, net of tax, merger-related expenses, net of tax, and other charges related to business combinations such as goodwill impairment charges or bargain purchase gains, net of tax. We define operating earnings (loss) as earnings available to common shareholders before gains or losses on junior subordinated debentures carried at fair value, net of tax, bargain purchase gains on acquisitions, net of tax, merger related expenses, net of tax, and goodwill impairment, and we calculate operating earnings (loss) per diluted share by dividing operating earnings by the same diluted share total used in determining diluted earnings per common share.

    The following table provides the reconciliation of earnings (loss) available to common shareholders (GAAP) to operating earnings (loss) (non-GAAP), and earnings (loss) per diluted common share (GAAP) to operating earnings (loss) per diluted share (non-GAAP) for the periods presented:

     
     

    Quarter ended:

     

    Sequential
    Quarter

     

    Year over
    Year

    (Dollars in thousands, except per share data)Jun 30, 2011   Mar 31, 2011   Jun 30, 2010   % Change   % Change
       
    Net earnings available to common

    shareholders

    $17,699 $13,405 $3,447 32% 413%
    Adjustments:

    Net loss on junior subordinated debentures carried at fair value, net of tax (1)

     

    328 325 -- 1% nm

    Merger related expenses, net of tax (1)

    43   109   1,301 (61)% (97)%
    Operating earnings $18,070   $13,839   $4,748 31% 281%
     

    Earnings (per diluted share):

    Earnings available to common shareholders $0.15 $0.12 $0.03 25% 400%
    Operating earnings $0.16 $0.12 $0.04 33% 300%
     

     

    Six Months Ended:

    Year over
    Year

    (Dollars in thousands, except per share data)Jun 30, 2011   Jun 30, 2010   % Change
     
    Net earnings (loss) available to common

    shareholders

    $31,104 $(246) nm
    Adjustments:

    Net loss (gain) on junior subordinated debentures carried at fair value, net of tax (1)

     

    653 (3,653) (118)%
    Bargain purchase gain on acquisitions, net of tax (1) -- (3,862) (100)%
    Merger related expenses, net of tax (1) 151   2,444 (94)%
    Operating earnings (loss) $31,908   $(5,317) (700)%
     
    Earnings (loss) per diluted share:
    Earnings available to common shareholders $0.27 $-- nm
    Operating earnings (loss) $0.28 $(0.05) (660)%
     

    (1) Income tax effect of pro forma operating earnings adjustments at 40%.

     

    Management believes pre-tax, pre-credit cost operating income is a useful financial measure because it enables investors to assess the Company’s ability to generate income and capital to cover credit losses through a credit cycle. Management uses this measure to evaluate core operating results exclusive of credit costs, which are often market driven or outside of the Company’s control, to monitor how we are growing core pre-tax income of the Company over time, through organic growth and acquisitions. Pre-tax, pre-credit cost operating income is calculated starting with operating earnings (as defined above) and adding back operating provision for income taxes, preferred stock dividends, earnings allocated to participating securities, provision for loan and lease losses, net gains or losses on other real estate owned and credit related external workout costs. For covered losses and expenses that are subject to loss-share, we have also deducted the associated gain recognized on the FDIC indemnification asset.

    The following table provides the reconciliation of operating earnings (loss) (non-GAAP) to pre-tax, pre-credit cost operating income (non-GAAP) for the periods presented (the reconciliation of earnings (loss) available to common shareholders (GAAP) to operating earnings (loss) (non-GAAP) is provided in the preceding tables):

     
      Quarter ended:  

    Sequential
    Quarter

     

    Year over
    Year

    (Dollars in thousands, except per share data)Jun 30, 2011   Mar 31, 2011   Jun 30, 2010   % Change   % Change
       
    Operating earnings $18,070 $13,839 $4,748 31% 281%
    Adjustments:
    Provision for non-covered loan and lease losses 15,459 15,030 29,767 3% (48)%
    Provision for covered loan and lease losses 3,755 7,268 -- (48)% nm
    Non-covered net loss on other real estate owned 3,844 2,833 566 36% 579%
    Covered net loss (gain) on other real estate owned 73 951 (1,518) (92)% (105)%
    Non-covered loan & OREO workout cost 2,546 2,488 2,559 2% (1)%
    Covered loan & OREO workout cost 1,635 2,354 832 (31)% 97%
    Covered losses (gains) impact on FDIC

    indemnification asset

    (4,370) (8,458) 652 (48)% (771)%
    Operating provision for (benefit from) income taxes 9,029 6,810 3,668 33% 146%
    Dividends and undistributed earnings allocated to

    participating securities

    86   62   16 39% 438%
    Pre-tax, pre-credit cost operating income $50,127   $43,177   $41,290 16% 21%
     
     

     

      Six Months Ended:  

    Year over
    Year

    (Dollars in thousands, except per share data)

    Jun 30, 2011

      Jun 30, 2010   % Change
     
    Operating earnings (loss) $31,908 $(5,317) (700)%
    Adjustments:
    Provision for non-covered loan and lease losses 30,489 71,873 (58)%
    Provision for covered loan and lease losses 11,023 -- nm
    Non-covered net loss on other real estate owned 6,677 2,877 132%
    Covered net loss (gain) on other real estate owned 1,024 (1,518) (167)%
    Non-covered loan & OREO workout cost 5,035 4,197 20%
    Covered loan & OREO workout cost 3,988 923 332%
    Covered losses (gains) impact on FDIC

    indemnification asset

    (12,828) 565 nm
    Operating provision for (benefit from) income taxes 15,839 (3,971) (499)%
    Dividends and undistributed earnings allocated to

    participating securities

    148 31 377%
    Preferred stock dividends --   12,192 (100)%
    Pre-tax, pre-credit cost operating income $93,303   $81,852 14%
     

    Management believes core net interest income and core net interest margin are useful financial measures because they enable investors to evaluate the underlying growth or compression in these values excluding interest income adjustments related to credit quality. Management uses these measures to evaluate core net interest income operating results exclusive of credit costs, in order to monitor our effectiveness in growing higher interest yielding assets and managing our cost of interest bearing liabilities over time. Core net interest income is calculated as net interest income, adjusting tax exempt interest income to its taxable equivalent, adding back interest and fee reversals related to new non-accrual loans during the period, and deducting the interest income gains recognized from loan disposition activities within covered loan pools. Core net interest margin is calculated by dividing annualized core net interest income by a period’s average interest earning assets.

    The following table provides the reconciliation of net interest income (GAAP) to core net interest income (non-GAAP), and net interest margin (GAAP) to core net interest margin (non-GAAP) for the periods presented:

     
      Quarter ended:  

    Sequential
    Quarter

     

    Year over
    Year

    (Dollars in thousands, except per share data)Jun 30, 2011   Mar 31, 2011   Jun 30, 2010   % Change   % Change
       
    Net interest income $109,361 $104,902 $92,300 4% 18%
    Tax equivalent adjustment (1) 1,078   1,073   1,083 0% 0%
    Net interest income – tax equivalent basis (1) 110,439 105,975 93,383 4% 18%
     
    Adjustments:
    Interest and fee reversals on non-accrual loans 486 1,283 685 (62)% (29)%
    Covered loan disposal gains (6,644)   (8,230)   -- (19)% nm
    Core net interest income – tax equivalent basis (1) $104,281   $99,028   $94,068 5% 11%
     
    Average interest earning assets $10,247,051 $10,276,145 $9,240,714 0% 11%
     
    Net interest margin – consolidated (1) 4.32% 4.18% 4.05%
    Core net interest margin – consolidated (1) 4.08% 3.91% 4.08%
     
     

     

      Six Months Ended:  

    Year over
    Year

    (Dollars in thousands, except per share data)Jun 30, 2011   Jun 30, 2010   % Change
     
    Net interest income $214,263 $179,352 19%
    Tax equivalent adjustment (1) 2,151   2,131 1%
    Net interest income – tax equivalent basis (1) 216,414 181,483 19%
     
    Adjustments:
    Interest and fee reversals on non-accrual loans 1,769 1,752 1%
    Covered loan disposal gains (14,874)   -- nm
    Core net interest income – tax equivalent basis (1) $203,309   $183,235 11%
     
    Average interest earning assets $10,261,517 $9,037,985 14%
     
    Net interest margin – consolidated (1) 4.25% 4.05%
    Core net interest margin – consolidated (1) 4.00% 4.09%
     

    (1) Tax exempt interest has been adjusted to a taxable equivalent basis using a 35% tax rate.

     

    Management believes tangible common equity and the tangible common equity ratio are meaningful measures of capital adequacy. Tangible common equity is calculated as total shareholders' equity less preferred stock and less goodwill and other intangible assets, net (excluding MSRs). In addition, 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).

     

    (Dollars in thousands, except per share data)

      Jun 30, 2011   Mar 31, 2011   Jun 30, 2010
       
    Total shareholders' equity $1,674,321 $1,651,427 $1,652,841
    Subtract:
    Goodwill and other intangible assets, net 679,671   680,922   684,647
    Tangible common shareholders' equity $994,650   $970,505   $968,194
     
    Total assets $11,459,692 $11,550,728 $10,826,056
    Subtract:
    Goodwill and other intangible assets, net 679,671   680,922   684,647
    Tangible assets $10,780,021   $10,869,806   $10,141,409
     
    Common shares outstanding at period end 114,537,782 114,642,471 114,524,973
     
    Tangible common equity ratio 9.23% 8.93% 9.55%
    Tangible book value per common share $8.68 $8.47 $8.45
     

    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 use of technology, and distinctive banking solutions. Umpqua Bank has 186 locations between San Francisco, California, and Seattle, Washington, along the Oregon and Northern California Coast, Central Oregon and Northern 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. Umpqua Private Bank serves high net worth individuals and non-profits, providing trust and investment services. Umpqua Holdings Corporation is headquartered in Portland, Ore. For more information, visit www.umpquaholdingscorp.com.

    Umpqua Holdings Corporation will conduct a quarterly earnings conference call Thursday, July 21, 2011, at 10:00 a.m. PDT (1:00 p.m. EDT) during which the company will discuss second quarter results and provide an update on recent activities. There will be a question-and-answer session following the presentation. Shareholders, analysts and other interested parties are invited to join the call by dialing 800-752-8363 a few minutes before 10:00 a.m. The conference ID is “78267894.” A re-broadcast will be available approximately two hours after the conference call by dialing 800-642-1687 or by visiting www.umpquaholdingscorp.com. Information to be discussed in the teleconference will be available on the company’s website in the morning prior to the call.

    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 improved loan production, earnings momentum, being positioned for future growth, our success in resolving remaining credits at the estimated disposition value of related collateral, the mitigating effect of FDIC loss sharing agreements on the covered loan portfolio, our expectation that any weakness in our CRE portfolio will arise from local market weakness and not a systemic weakness, valuations of junior subordinated debentures and our plans to hold a large interest bearing cash position, relative to historical levels.Specific risks that could cause results to differ from the forward-looking statements are set forth in our filings with the SEC and include, without limitation, unanticipated weakness in loan demand, deterioration in the economy, material reductions in revenue or material increases in expenses, lack of strategic growth opportunities or our failure to execute on those opportunities, our stock trades at historically low earnings multiples, our inability to effectively manage problem credits, unanticipated further declines in real estate values, certain loan assets becoming ineligible for loss sharing, unanticipated deterioration in the commercial real estate loan portfolio, and continued negative pressure on interest income associated with our large cash position.

     
    Umpqua Holdings Corporation
    Consolidated Statements of Operations
    (Unaudited)
      Quarter Ended:  

    Sequential
    Quarter

     

    Year over
    Year

    (Dollars in thousands, except per share data)Jun 30, 2011   Mar 31, 2011   Jun 30, 2010   % Change   % Change
    Interest income    
    Loans and leases $101,547 $100,280 $97,240 1% 4%
    Interest and dividends on investments:
    Taxable 24,348 22,043 15,569 10% 56%
    Exempt from federal income tax 2,178 2,165 2,247 1% (3)%
    Dividends 4 3 3 33% 33%
    Temporary investments & interest bearing deposits 340   401   545 (15)% (38)%
    Total interest income 128,417 124,892 115,604 3% 11%

    Interest expense

    Deposits 14,698 15,666 18,463 (6)% (20)%

    Repurchase agreements and fed funds purchased

    131 122 123 7% 7%
    Junior subordinated debentures 1,926 1,913 1,939 1% (1)%
    Term debt 2,301   2,289   2,779 1% (17)%
    Total interest expense 19,056 19,990 23,304 (5)% (18)%
    Net interest income 109,361 104,902 92,300 4% 18%
    Provision for non-covered loan and lease losses 15,459 15,030 29,767 3% (48)%
    Provision for covered loan and lease losses 3,755 7,268 -- (48)% nm
    Non-interest income
    Service charges 8,540 7,821 9,585 9% (11)%
    Brokerage fees 3,276 3,377 3,139 (3)% 4%
    Mortgage banking revenue, net 4,807 5,275 3,209 (9)% 50%
    Net gain (loss) on investment securities 5,631 (25) -- nm nm

    Loss on junior subordinated debentures carried at fair value

    (547) (542) -- 1% nm
    Change in FDIC indemnification asset (5,551) 2,905 263 (291)% nm
    Other income 3,471   2,774   2,367 25% 47%
    Total non-interest income 19,627 21,585 18,563 (9)% 6%
    Non-interest expense
    Salaries and employee benefits 43,808 44,610 39,604 (2)% 11%
    Net occupancy and equipment 12,547 12,517 11,472 0% 9%
    Intangible amortization 1,251 1,251 1,368 0% (9)%
    FDIC assessments 2,821 3,873 3,555 (27)% (21)%
    Net loss (gain) on other real estate owned 3,917 3,784 (952) 4% (511)%
    Merger related expenses 71 181 -- (61)% (97)%
    Other 18,792   17,985   2,169 4% 7%
    Total non-interest expense 83,207 84,201 74,833 (1)% 11%
    Income before provision for

    income taxes

    26,567 19,988 6,263 33% 324%
    Provision for income taxes 8,782   6,521   2,800 35% 214%
    Net income 17,785 13,467 3,463 32% 414%

    Dividends and undistributed earnings allocated to participating securities

    86   62   16 39% 438%
    Net earnings available to common

    shareholders

    $17,699   $13,405   $3,447 32% 413%
     
    Weighted average shares outstanding 114,610,908 114,575,556 110,134,674 0% 4%
    Weighted average diluted shares outstanding 114,785,231 114,746,218 114,733,357 0% 0%
    Earnings per common share – basic $0.15 $0.12 $0.03 25% 400%
    Earnings per common share – diluted $0.15 $0.12 $0.03 25% 400%
     

    nm = not meaningful

     
     

    Umpqua Holdings Corporation
    Consolidated Statements of Operations
    (Unaudited)

      Six Months Ended:  
    (Dollars in thousands, except per share data)Jun 30, 2011   Jun 30, 2010   % Change
    Interest income  
    Loans and leases $201,827 $187,948 7%
    Interest and dividends on investments:
    Taxable 46,391 31,644 47%
    Exempt from federal income tax 4,343 4,434 (2)%
    Dividends 7 3 nm
    Temporary investments & interest bearing cash 741   944 (22)%
    Total interest income 253,309 224,973 13%

    Interest expense

    Deposits 30,364 37,252 (18)%

    Repurchase agreements and fed funds purchased

    253 246 3%
    Junior subordinated debentures 3,839 3,824 0%
    Term debt 4,590   4,299 7%
    Total interest expense 39,046 45,621 (14)%
    Net interest income 214,263 179,352 19%
    Provision for non-covered loan and lease losses 30,489 71,873 (58)%
    Provision for covered loan and lease losses 11,023 -- nm
    Non-interest income
    Service charges 16,361 17,950 (9)%
    Brokerage fees 6,653 5,778 15%
    Mortgage banking revenue, net 10,082 6,687 51%
    Net gain (loss) on investment securities 5,606 (288) nm

    (Loss) gain on junior subordinated debentures carried at fair value

    (1,089) 6,088 (118)%
    Bargain purchase gain on acquisitions -- 6,437 nm
    Change in FDIC indemnification asset (2,646) 873 (403)%
    Other income 6,245   5,085 23%
    Total non-interest income 41,212 48,610 (15)%
    Non-interest expense
    Salaries and employee benefits 88,418 75,844 17%
    Net occupancy and equipment 25,064 22,148 13%
    Intangible amortization 2,502 2,676 (7)%
    FDIC assessments 6,694 6,999 (4)%
    Net loss on other real estate owned 7,701 1,359 467%
    Merger related expenses 252 4,075 (94)%
    Other 36,777   31,603 16%
    Total non-interest expense 167,408 144,704 16%

    Income before provision for (benefit from) income taxes

     

    46,555 11,385 309%
    Provision for (benefit from) income taxes 15,303   (592) nm
    Net income 31,252 11,977 161%
     

    Dividends and undistributed earnings allocated to participating securities

    148 31 377%
    Preferred stock dividend --   12,192 (100)%
    Net earnings (loss) available to common shareholders $31,104   $(246) nm
     
    Weighted average shares outstanding 114,593,329 101,205,033 13%
    Weighted average diluted shares outstanding 114,795,832 101,434,758 13%
    Earnings (loss) per common share – basic $0.27 $0.00 nm
    Earnings (loss) per common share – diluted $0.27 $0.00 nm
     

    nm = not meaningful

     
     

    Umpqua Holdings Corporation
    Consolidated Balance Sheets
    (Unaudited)

            Sequential
    Quarter
      Year over
    Year
    (Dollars in thousands, except per share data)Jun 30, 2011   Mar 31, 2011   Jun 30, 2010   % Change   % Change
    Assets:
    Cash and due from banks $137,033 $123,975 $143,098 11% (4)%
    Interest bearing deposits 478,221 515,429 818,186 (7)% (42)%
    Temporary investments 628 559 9,296 12% (93)%
    Investment securities:
    Trading, at fair value 2,522 2,572 1,743 (2)% 45%
    Available for sale, at fair value 3,177,460 3,285,219 1,933,647 (3)% 64%
    Held to maturity, at amortized cost 5,553 4,634 5,493 20% 1%
    Loans held for sale 60,416 52,655 40,114 15% 51%
    Non-covered loans and leases 5,735,553 5,632,363 5,726,673 2% 0%
    Allowance for non-covered loan and lease losses (97,795)   (97,833)   (113,914) 0% (14)%
    Loans and leases, net 5,637,758 5,534,530 5,612,759 2% 0%
    Covered loans and leases, net 698,676 741,630 874,293 (6)% (20)%
    Restricted equity securities 32,839 34,295 34,855 (4)% (6)%
    Premises and equipment, net 145,192 139,539 128,586 4% 13%
    Mortgage servicing rights, at fair value 16,350 15,605 12,895 5% 27%
    Goodwill and other intangibles, net 679,671 680,922 684,647 0% (1)%
    Non-covered other real estate owned 34,409 34,512 25,653 0% 34%
    Covered other real estate owned 30,153 27,689 28,290 9% 7%
    FDIC indemnification asset 116,928 131,873 224,218 (11)% (48)%
    Other assets 205,883   225,090   248,283 (9)% (17)%
    Total assets $11,459,692   $11,550,728   $10,826,056 (1)% 6%
     
    Liabilities:
    Deposits $9,146,412 $9,292,672 $8,558,744 (2)% 7%
    Securities sold under agreements to repurchase 120,889 93,425 44,715 29% 170%
    Term debt 256,719 257,240 291,505 0% (12)%
    Junior subordinated debentures, at fair value 81,766 81,220 79,590 1% 3%
    Junior subordinated debentures, at amortized cost 102,705 102,785 103,027 0% 0%
    Other liabilities 76,880   71,959   95,634 7% (20)%
    Total liabilities 9,785,371 9,899,301 9,173,215 (1)% 7%
     
    Shareholders' equity:
    Common stock 1,540,933 1,541,539 1,538,793 0% 0%
    Retained earnings 96,434 84,405 71,850 14% 34%
    Accumulated other comprehensive income 36,954   25,483   42,198 45% (12)%
    Total shareholders' equity 1,674,321   1,651,427   1,652,841 1% 1%
    Total liabilities and shareholders' equity $11,459,693   $11,550,728   $10,826,056 (1)% 6%
     
    Common shares outstanding at period end 114,537,782 114,642,471 114,524,973 0% 0%
    Book value per common share $14.62 $14.41 $14.43 1% 1%
    Tangible book value per common share $8.68 $8.47 $8.45 3% 3%
    Tangible equity - common $994,650 $970,505 $968,194 2% 3%
    Tangible common equity to tangible assets 9.23% 8.93% 9.55%
     
     

    Umpqua Holdings Corporation
    Non-covered Loan & Lease Portfolio
    (Unaudited)

    (Dollars in thousands)   Jun 30, 2011   Mar 31, 2011   Jun 30, 2010   Sequential
    Quarter
      Year over
    Year
    Amount   MixAmount   MixAmount   Mix% Change   % Change

    Non-covered loans & leases:

         
    Commercial real estate:
    Non-owner occupied $2,237,523 39% $2,239,817 40% $2,306,927 40% 0% (3)%
    Owner occupied 1,294,611 23% 1,248,263 22% 1,189,447 21% 4% 9%
    Residential real estate 522,813 9% 485,917 9% 456,357 8% 8% 15%
    Construction 297,364 5% 366,738 7% 495,456 9% (19)% (40)%
    Total real estate 4,352,311 76% 4,340,735 77% 4,448,187 78% 0% (2)%
    Commercial 1,329,309 23% 1,238,541 22% 1,223,927 21% 7% 9%
    Leases 30,288 1% 31,855 1% 32,375 1% (5)% (6)%
    Installment and other 35,341 1% 32,516 1% 33,188 1% 9% 6%
    Deferred loan fees, net (11,696) 0% (11,284) 0% (11,004) 0% 4% 6%
    Total $5,735,553 100% $5,632,363 100% $5,726,673 100% 2% 0%
     
     
    Umpqua Holdings Corporation
    Covered Loan & Lease Portfolio, Net
    (Unaudited)
    (Dollars in thousands)   Jun 30, 2011   Mar 31, 2011   Jun 30, 2010  

    Sequential
    Quarter

     

    Year over
    Year

    Amount   MixAmount   MixAmount   Mix% Change   % Change

    Covered loans & leases:

         
    Commercial real estate $515,977 74% $544,575 73% $594,665 68% (5)% (13)%
    Residential real estate 72,522 10% 76,205 10% 84,551 10% (5)% (14)%
    Construction 35,766 5% 39,930 5% 74,283 8% (10)% (52)%
    Total real estate 624,265 89% 660,710 89% 753,499 86% (6)% (17)%
    Commercial 65,731 9% 71,019 10% 108,326 12% (7)% (39)%
    Installment and other 8,680 1% 9,901 1% 12,468 1% (12)% (30)%
    Total $698,676 100% $741,630 100% $874,293 100% (6)% (20)%
     

    Covered loan & lease portfolio balances represent the loan portfolios acquired through the assumption of EvergreenBank on January 22, 2010, Rainier Pacific Bank on February 26, 2010, and Nevada Security Bank on June 18, 2010, from the FDIC through whole bank purchase and assumption agreements with loss sharing.

     
    Umpqua Holdings Corporation
    Deposits by Type/Core Deposits
    (Unaudited)
    (Dollars in thousands)   Jun 30, 2011   Mar 31, 2011   Jun 30, 2010   Sequential
    Quarter
      Year over
    Year
    Amount   MixAmount   MixAmount   Mix% Change% Change

    Deposits:

    Demand, non-interest bearing $1,733,640 19% $1,671,797 18% $1,509,222 18% 4% 15%
    Demand, interest bearing 4,191,169 46% 4,341,994 47% 3,789,122 44% (3)% 11%
    Savings 372,165 4% 370,294 4% 355,428 4% 1% 5%
    Time 2,849,438 31% 2,908,587 31% 2,904,972 34% (2)% (2)%
    Total $9,146,412 100% $9,292,672 100% $8,558,744 100% (2)% 7%
     
    Total core deposits-ending (1) $7,122,141 78% $7,227,087 78% $6,647,780 78% (1)% 7%
     

    Number of open accounts:

    Demand, non-interest bearing 189,220 185,929 180,499 2% 5%
    Demand, interest bearing 77,043 77,664 71,537 (1)% 8%
    Savings 85,515 86,933 96,019 (2)% (11)%
    Time 39,270 40,155 41,882 (2)% (6)%
    Total 391,048 390,681 389,937 0% 0%
     

    Average balance per account:

    Demand, non-interest bearing $9.2 $9.0 $8.4
    Demand, interest bearing 54.4 55.9 53.0
    Savings 4.4 4.3 3.7
    Time 72.6 72.4 69.4
    Total $23.4 $23.8 $21.9
     

    (1) Core deposits are defined as total deposits less time deposits greater than $100,000.

     
     
    Umpqua Holdings Corporation
    Credit Quality – Non-performing Assets
    (Unaudited)
      Quarter Ended   Sequential
    Quarter
      Year over
    Year
    (Dollars in thousands)Jun 30, 2011   Mar 31, 2011   Jun 30, 2010   % Change   % Change
       

    Non-covered, non-performing assets:

    Non-covered loans on non-accrual status $109,889 $136,125 $170,636 (19)% (36)%
    Non-covered loans past due 90+ days & accruing 13,137   6,327   9,213 108% 43%
    Total non-performing loans 123,026 142,452 179,849 (14)% (32)%
    Non-covered other real estate owned 34,409   34,512   25,653 0% 34%
    Total $157,435   $176,964   $205,502 (11)% (23)%
     
    Performing restructured loans $80,962 $67,499 $80,534 20% 1%
     
    Past due 30-89 days $43,851 $70,665 $40,135 (38)% 9%
    Past due 30-89 days to total loans and leases 0.76% 1.25% 0.70%
     

    Non-covered, non-performing loans to non-covered loans and leases

    2.14% 2.53% 3.14%
    Non-covered, non-performing assets to total assets 1.37% 1.53% 1.90%
     

    Covered non-performing assets:

    Covered loans on non-accrual status $--   $--   $58,814 nm (100)%
    Total non-performing loans -- -- 58,814 nm (100)%
    Covered other real estate owned 30,153   27,689   28,290 9% 7%
    Total $30,153   $27,689   $87,104 9% (65)%
     

     

    Covered non-performing loans to covered loans and leases

    --% --% 6.73%
    Covered non-performing assets to total assets 0.26% 0.24% 0.80%
     

    Total non-performing assets:

    Loans on non-accrual status $109,889 $136,125 $229,450 (19)% (52)%
    Loans past due 90+ days & accruing 13,137   6,327   9,213 (108)% 43%
    Total non-performing loans 123,026 142,452 238,663 (14)% (48)%
    Other real estate owned 64,562   62,201   53,943 4% 20%
    Total $187,588   $204,653   $292,606 (8)% (36)%
     
    Non-performing loans to loans and leases 1.91% 2.23% 3.62%
    Non-performing assets to total assets 1.64% 1.77% 2.70%
     
     

    Umpqua Holdings Corporation
    Credit Quality – Allowance for Non-covered Credit Losses
    (Unaudited)

      Quarter Ended   Sequential
    Quarter
      Year over
    Year
    (Dollars in thousands)Jun 30, 2011   Mar 31, 2011   Jun 30, 2010   % Change   % Change

    Allowance for non-covered credit losses:

       
    Balance beginning of period $97,833 $101,921 $110,784

    Provision for non-covered loan and lease losses

     

    15,459 15,030 29,767 3% (48)%
     
    Charge-offs (18,611) (20,875) (31,554) (11)% (41)%
    Recoveries 3,114   1,757   4,917 77% (37)%
    Net charge-offs (15,497) (19,118) (26,637) (19)% (42)%
             

    Total allowance for non-covered loan and lease losses

     

    97,795 97,833 113,914 0% (14)%
     
    Reserve for unfunded commitments 988   911   735

    Total allowance for non-covered credit losses

     

    $98,783   $98,744   $114,649 0% (14)%
     

    Net charge-offs to average non-covered loans and leases (annualized)

    1.10% 1.38% 1.84%
    Recoveries to gross charge-offs 16.73% 8.42% 15.58%

    Allowance for credit losses to non-covered loans and leases

    1.72% 1.75% 2.00%

     

     
    Six Months Ended:
    (Dollars in thousands)Jun 30, 2011   Jun 30, 2010   % Change

    Allowance for credit losses:

    Balance beginning of period $101,921 $107,657
    Provision for loan and lease losses 30,489 71,873 (58)%
     
    Charge-offs (39,486) (71,313) (45)%
    Recoveries 4,871   5,697 (14)%
    Net charge-offs (34,615) (65,616) (47)%
         
    Total allowance for loan and lease losses 97,795 113,914 (14)%
     
    Reserve for unfunded commitments 988   735
    Total allowance for credit losses $98,783   $114,649 (14)%
     

    Net charge-offs to average non-covered loans and leases (annualized)

    1.24% 2.26%
    Recoveries to gross charge-offs 12.34% 7.99%
     
     

    Umpqua Holdings Corporation
    Selected Ratios
    (Unaudited)

      Quarter Ended:   Sequential
    Quarter
      Year over
    Year
    Jun 30, 2011   Mar 31, 2011   Jun 30, 2010   Change   Change

    Net interest spread:

       
    Yield on non-covered loans and leases 5.59% 5.63% 5.82% (0.04) (0.23)
    Yield on covered loans and leases 12.38% 11.38% 7.27% 1.00 5.11
    Yield on taxable investments 3.18% 2.97% 3.83% 0.21 (0.65)
    Yield on tax-exempt investments (1) 5.83% 5.90% 5.75% (0.07) 0.08
    Yield on temporary investments & interest bearing cash 0.25% 0.25% 0.26% 0.00 (0.01)
    Total yield on earning assets (1) 5.07% 4.97% 5.07% 0.10 0.00
     
    Cost of interest bearing deposits 0.79% 0.83% 1.10% (0.04) (0.31)

    Cost of securities sold under agreements to repurchase and fed funds purchased

    0.51% 0.59% 1.02% (0.08) (0.51)
    Cost of term debt 3.59% 3.56% 3.54% 0.03 0.05
    Cost of junior subordinated debentures 4.20% 4.23% 4.26% (0.03) (0.06)
    Total cost of interest bearing liabilities 0.95% 0.99% 1.28% (0.04) (0.33)
     
    Net interest spread (1) 4.12% 3.98% 3.79% 0.14 0.33
    Net interest margin – Consolidated (1) 4.32% 4.18% 4.05% 0.14 0.27
     
    Net interest margin – Bank (1) 4.39% 4.25% 4.13% 0.14 0.26
     

    As reported (GAAP):

    Return on average assets 0.62% 0.47% 0.13% 0.15 0.49
    Return on average tangible assets 0.66% 0.50% 0.14% 0.16 0.52
    Return on average common equity 4.25% 3.30% 0.86% 0.95 3.39
    Return on average tangible common equity 7.17% 5.62% 1.49% 1.55 5.68
    Efficiency ratio – Consolidated 63.97% 66.01% 66.85% (2.04) (2.88)
    Efficiency ratio – Bank 61.70% 63.47% 64.18% (1.77) (2.48)
     

    Operating basis (non-GAAP): (2)

    Return on average assets 0.63% 0.48% 0.18% 0.15 0.45
    Return on average tangible assets 0.67% 0.52% 0.19% 0.15 0.48
    Return on average common equity 4.34% 3.40% 1.18% 0.94 3.16
    Return on average tangible common equity 7.32% 5.80% 2.05% 1.52 5.27
    Efficiency ratio – Consolidated 63.65% 65.59% 64.91% (1.94) (1.26)
    Efficiency ratio – Bank 61.64% 63.33% 62.22% (1.69) (0.58)
     
    (1) Tax exempt interest has been adjusted to a taxable equivalent basis using a 35% tax rate.
    (2) Operating earnings is calculated as earnings available to common shareholders excluding gain (loss) on junior subordinated debentures carried at fair value, net of tax, bargain purchase gain on acquisitions, net of tax, goodwill impairment, and merger related expenses, net of tax.
     
    Umpqua Holdings Corporation
    Selected Ratios
    (Unaudited)
     
    Six months Ended:  
    Jun 30, 2011   Jun 30, 2010   Change

    Net interest spread:

     
    Yield on non-covered loans and leases 5.61% 5.78% (0.17)
    Yield on covered loans and leases 11.87% 7.17% 4.70
    Yield on taxable investments 3.08% 3.91% (0.83)
    Yield on tax-exempt investments (1) 5.86% 5.80% 0.06
    Yield on temporary investments & interest bearing cash 0.25% 0.25% 0.00
    Total yield on earning assets (1) 5.02% 5.07% (0.05)
     
    Cost of interest bearing deposits 0.81% 1.14% (0.33)

    Cost of securities sold under agreements to repurchase and fed funds purchased

    0.54% 1.02% (0.48)
    Cost of term debt 3.58% 3.49% 0.09
    Cost of junior subordinated debentures 4.22% 4.15% 0.07
    Total cost of interest bearing liabilities 0.97% 1.31% (0.34)
     
    Net interest spread (1) 4.05% 3.76% 0.29
    Net interest margin – Consolidated (1) 4.25% 4.05% 0.20
     
    Net interest margin – Bank (1) 4.32% 4.13% 0.19
     

    As reported (GAAP):

    Return on average assets 0.54% 0.00% 0.54
    Return on average tangible assets 0.58% (0.01)% 0.59
    Return on average common equity 3.78% (0.03)% 3.81
    Return on average tangible common equity 6.41% (0.06)% 6.47
    Efficiency ratio – Consolidated 64.98% 62.89% 2.09
    Efficiency ratio – Bank 62.58% 61.88% 0.70
     

    Operating basis (non-GAAP): (2)

    Return on average assets 0.56% (0.10)% 0.66
    Return on average tangible assets 0.59% (0.11)% 0.70
    Return on average common equity 3.88% (0.71)% 4.59
    Return on average tangible common equity 6.57% (1.26)% 7.83
    Efficiency ratio – Consolidated 64.61% 64.64% (0.03)
    Efficiency ratio – Bank 62.48% 61.84% 0.64
     
    (1) Tax exempt interest has been adjusted to a taxable equivalent basis using a 35% tax rate.
    (2) Operating earnings is calculated as earnings available to common shareholders excluding gain (loss) on junior subordinated debentures carried at fair value, net of tax, bargain purchase gain on acquisitions, net of tax, goodwill impairment, and merger related expenses, net of tax.
     
     

    Umpqua Holdings Corporation
    Average Balances
    (Unaudited)

    Quarter Ended:   Sequential
    Quarter
      Year over
    Year
    (Dollars in thousands)Jun 30, 2011   Mar 31, 2011   Jun 30, 2010   % Change   % Change
       
    Temporary investments & interest bearing cash $548,740 $652,844 $849,112 (16)% (35)%
    Investment securities, taxable 3,060,105 2,964,410 1,628,195 3% 88%
    Investment securities, tax-exempt 223,556 219,523 231,675 2% (4)%
    Loans held for sale 49,254 47,646 41,183 3% 20%
    Non-covered loans and leases 5,645,332 5,623,811 5,792,010 0% (3)%
    Covered loans and leases 720,064   767,911   698,539 (6)% 3%
    Total interest earning assets 10,247,051 10,276,145 9,240,714 0% 11%
    Goodwill & other intangible assets, net 680,202 681,494 677,739 0% 0%
    Total assets 11,512,813 11,572,751 10,466,756 (1)% 10%
     
    Non-interest bearing demand deposits 1,731,575 1,644,452 1,475,852 5% 17%
    Interest bearing deposits 7,490,219   7,683,403   6,735,665 (3)% 11%
    Total deposits 9,221,794 9,327,855 8,211,517 (1)% 12%
    Interest bearing liabilities 8,034,850 8,211,760 7,281,191 (2)% 10%
     
    Shareholders’ equity - common 1,669,942 1,649,674 1,607,661 1% 4%
    Tangible common equity (1) 989,740 968,180 929,922 2% 6%
     
     
      Six Months Ended:
    (Dollars in thousands)Jun 30, 2011   Jun 30, 2010   % Change
       
    Temporary investments & interest bearing cash $600,505 $764,491 (21)%
    Investment securities, taxable 3,012,521 1,619,351 86%
    Investment securities, tax-exempt 221,551 226,569 (2)%
    Loans held for sale 48,454 32,709 48%
    Non-covered loans and leases 5,634,631 5,863,012 (4)%
    Covered loans and leases 743,855   531,853 40%
    Total interest earning assets 10,261,517 9,037,985 14%
    Goodwill & other intangible assets, net 680,845 665,825 2%
    Total assets 11,542,616 10,223,430 13%
     
    Non-interest bearing demand deposits 1,688,254 1,462,335 15%
    Interest bearing deposits 7,586,277   6,563,336 16%
    Total deposits 9,274,531 8,025,671 16%
    Interest bearing liabilities 8,122,817 7,045,592 15%
     
    Shareholders’ equity - common 1,659,864 1,517,797 9%
    Tangible common equity (1) 979,019 851,972 15%
     

    (1) Average tangible common equity is a non-GAAP financial measure. Average tangible common equity is calculated as average common shareholders’ equity less average goodwill and other intangible assets, net (excluding MSRs).

     

    Umpqua Holdings Corporation
    Mortgage Banking Activity
    (unaudited)

      Quarter Ended:   Sequential
    Quarter
      Year over
    Year
    (Dollars in thousands)Jun 30, 2011   Mar 31, 2011   Jun 30, 2010   % Change   % Change
       

    Mortgage Servicing Rights (MSR):

    Mortgage loans serviced for others $1,751,700 $1,691,112 $1,400,120 4% 25%
    MSR Asset, at fair value 16,350 15,605 12,895 5% 27%
     
    MSR as % of serviced portfolio 0.93% 0.92% 0.92%
     

    Mortgage Banking Revenue:

    Origination and sale $3,998 $4,336 $3,947 (8)% 1%
    Servicing 1,137 1,121 934 1% 22%
    Change in fair value of MSR asset (328)   (182)   (1,672) 80% (80)%
    Total $4,807   $5,275   $3,209 (9)% 50%
     
     
    Closed loan volume $185,013 $166,737 $145,085 11% 28%
     
     
      Six Months Ended:  
    (Dollars in thousands)Jun 30, 2011   Jun 30, 2010   % Change
     

    Mortgage Banking Revenue:

    Origination and sale $8,334 $6,651 25%
    Servicing 2,259 1,837 23%
    Change in fair value of MSR asset (511)   (1,801) (72)%
    Total $10,082   $6,687 51%
     
    Closed loan volume $351,751 $272,400 29%
     

    Additional tables

    The following tables present additional detail covering the following aspects of the Company's non-covered loan portfolio.

    • Table 1 – Non-covered, non-performing asset detail by type and by region
    • Table 2 – Non-covered loans past due 30-89 days by type and by region
    • Table 3 – Non-covered loans past due 30-89 days trends
    • Table 4 – Non-covered restructured loans on accrual status by type and by region

    The following is a distribution of non-covered, non-performing assets by type and by region as of June 30, 2011:

     
    Table 1 - Non-covered, non-performing asset detail by type and by region
    (Dollars in thousands)  
    Northwest
    Oregon
      Central
    Oregon
      Southern
    Oregon
      Washington   Greater
    Sacramento
      Northern
    California
      Total

    Non-accrual loans:

               
    Residential development $14,707 $-- $100 $2,400 $4,234 $4,417 $25,858
    Commercial construction 921 -- 637 -- 6,452 83 8,093
    Commercial real estate 29,216 1,002 258 2,066 12,325 8,193 53,060
    Commercial 7,290 2,390 369 4,094 1,930 6,805 22,878
    Other --   --   --   --   --   --   --
    Total $52,134 $3,392 $1,364 $8,560 $24,941 $19,498 $109,889
     

    Loans 90 days past due & accruing:

    Residential development $-- $-- $-- $-- $-- $-- $--
    Commercial construction -- -- -- -- -- -- --
    Commercial real estate 555 -- -- -- -- -- 555
    Commercial 393 -- -- 5,713 358 -- 6,464
    Other 5,577   --   --   --   541   --   6,118
    Total $6,525 $-- $-- $5,713 $899 $-- $13,137
                             
    Total non-performing loans $58,659   $3,392   $1,364   $14,273   $25,840   $19,498   $123,026
     

    Other real estate owned:

    Residential development $642 $1,660 $2,371 $49 $343 $2,910 $7,975
    Commercial construction 2,609 539 -- 88 3,524 -- 6,760
    Commercial real estate 3,525 500 1,291 -- 7,651 3,952 16,919
    Commercial 283 359 282 270 -- 44 1,238
    Other 1,517   --   --   --   --   --   1,517
    Total $8,576 $3,058 $3,944 $407 $11,518 $6,906 $34,409
                             
    Total non-performing assets $67,235   $6,450   $5,308   $14,680   $37,358   $26,404   $157,435
    % of total43%4%3%9%24%17%100%
     

    The Company has aggressively charged-down impaired assets to their disposition values. As of June 30, 2011, the non-covered, non-performing assets of $157.4 million have been written down by 43%, or $120.7 million, from their current par balance of $278.1 million.

    The following is a distribution of non-covered loans past due 30 to 89 days by loan type by region as of June 30, 2011:

     
    Table 2 – Non-covered loans past due 30-89 days by type and by region
    (Dollars in thousands)  
    Northwest
    Oregon
      Central
    Oregon
      Southern
    Oregon
      Washington   Greater
    Sacramento
      Northern
    California
      Total
    Loans 30-89 days past due:            
    Residential development $-- $-- $652 $-- $1,759 $162 $2,573
    Commercial construction 99 -- -- -- -- -- 99
    Commercial real estate 8,047 696 6,137 1,535 5,853 9,826 32,094
    Commercial 875 -- 249 3 723 1,626 3,476
    Other 3,607   --   --   3   1,999   --   5,609
    Total $12,628   $696   $7,038   $1,541   $10,334   $11,614   $43,851
     
     

    Table 3 –Non-covered loans past due 30-89 days trends

    (Dollars in thousands)          
    Jun 30, 2011   Mar 31, 2011   Jun 30, 2010   Sequential
    Quarter
    % Change
      Year
    Over Year
    % Change

    Loans 30-89 days past due:

    Residential development $2,573 $10,177 $763 (75)% 237%
    Commercial construction 99 5,534 903 (98)% (89)%
    Commercial real estate 32,094 32,764 22,923 (2)% 40%
    Commercial 3,476 16,443 9,173 (79)% (62)%
    Other 5,609   5,747   6,373 (2)% (12)%
    Total $43,851   $70,665   $40,135 (38)% 9%
     

    The following is a distribution of non-covered restructured loans by loan type by region as of June 30, 2011:

     
    Table 4 – Non-covered restructured loans on accrual status by type and by region
    (Dollars in thousands)        
    Northwest
    Oregon
      Central
    Oregon
      Southern
    Oregon
      Washington   Greater
    Sacramento
      Northern
    California
      Total

    Restructured loans, accrual basis:

         
    Residential development $15,174 $-- $-- $5,284 $19,874 $-- $40,332
    Commercial construction 18,679 -- -- -- 8,183 -- 26,862
    Commercial real estate 649 -- 3,870 -- 4,673 3,513 12,705
    Commercial -- -- -- -- -- 885 885
    Other 178   --   --   --   --   --   178
    Total $34,680   $--   $3,870   $5,284   $32,730   $4,398   $80,962
     

    Source: Umpqua Holdings Corporation


    Contact:

    Umpqua Holdings Corporation

    President/CEO

    Ray Davis, 503-727-4101

    raydavis@umpquabank.com

    or

    EVP/Chief Financial Officer

    Ron Farnsworth, 503-727-4108

    ronfarnsworth@umpquabank.com