• Umpqua Holdings Corporation
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  • Umpqua Holdings Reports Third Quarter 2011 Results
    Company Release - 10/19/2011 16:15

    Third quarter 2011 operating earnings (1) of $0.19 per diluted share, an increase of 19% over prior quarter

    Non-covered loans and leases grew $92.6 million over prior quarter

    Net interest margin at 4.12%, core net interest margin (1) at 3.94%

    Non-covered, non-performing assets decreased 7% to 1.24% of total assets, the lowest quarterly level since 2008

    Non-covered provision for loan losses decreased 41% over prior quarter

    Non-interest bearing demand deposits increased 12% over prior quarter

    PORTLAND, Ore.--(BUSINESS WIRE)-- Umpqua Holdings Corporation (NASDAQ: UMPQ), parent company of Umpqua Bank and Umpqua Investments Inc. today announced third quarter 2011 net earnings available to common shareholders of $21.8 million, or $0.19 per diluted common share, compared to net earnings available to common shareholders of $17.7 million, or $0.15 per diluted common share for the second quarter of 2011, and $8.2 million, or $0.07 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, were $22.1 million, or $0.19 per diluted common share for the third quarter of 2011, compared to operating earnings of $18.1 million, or $0.16 per diluted common share for the second quarter of 2011, and $9.5 million, or $0.08 per diluted common share, for the same period in the prior year.

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

    • Non-covered loans and leases grew $93 million, primarily comprised of commercial & industrial loans, and total non-covered loan commitments increased $80 million;
    • Net interest margin decreased to 4.12% primarily due to reduced loan disposal gains within the covered loan portfolio, increased balances of interest bearing cash and interest bearing liabilities, partially offset by increased balances of non-covered loans;
    • Core net interest margin (1) decreased 14 basis points to 3.94% in the third quarter due to the items noted above;
    • Non-covered, non-performing assets declined to 1.24% of total assets;
    • Provision for non-covered loan losses of $9.1 million and total net charge-offs of $14.0 million, as specific loan loss reserves established in the prior quarter were charged-off in the current quarter;
    • The allowance for credit losses ended the quarter at 1.61% of total non-covered loans and leases;
    • Provision for covered loan losses of $4.4 million and loss on covered other real estate owned of $4.8 million were mostly offset by a corresponding gain in the FDIC indemnification asset;
    • The cost of interest bearing deposits for the third quarter of 2011 was 0.77%, a decrease of 2 basis points on a sequential quarter basis;
    • Tangible common equity ratio of 9.16%; and
    • Total risk-based capital of 17.35%, and tier 1 common to risk weighted asset ratio of 13.11%.

    “The past quarter the Company reported continued improvement in earnings, improved credit quality metrics, growth in non-covered loans, and an increase in our dividend to shareholders,” said Ray Davis, CEO of Umpqua Holdings Corporation. “Recognizing that economic and regulatory headwinds continue to create a difficult operating environment for financial institutions, Umpqua remains energized and convinced that because of our solid balance sheet, the Company will continue to advance on our strategic initiatives.”

    (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.

    Asset quality – Non-covered loan portfolio

    Non-performing assets were $146.4 million, or 1.24% of total assets, as of September 30, 2011, compared to $157.4 million, or 1.37% of total assets as of June 30, 2011, and $183.6 million, or 1.59% of total assets as of September 30, 2010. Of this amount, as of September 30, 2011, $99.9 million represented non-accrual loans, $11.7 million represented loans past due greater than 90 days and still accruing interest, and $34.8 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 September 30, 2011, the non-covered, non-performing assets of $146.4 million have been written down by 42%, or $105.4 million, from their current par balance of $251.8 million.

    The provision for loan losses for the third quarter of 2011 was $9.1 million, a 41% decrease from the prior quarter. This reflects continued improvement and stabilization of credit quality and the decline of non-performing loans. Total net charge-offs for the third quarter of 2011 were $14.0 million, the lowest level of net charge-offs since the first quarter of 2008, reducing the allowance for credit losses to 1.61% of non-covered loans and leases at September 30, 2011, as compared to 1.72% of total non-covered loans as of June 30, 2011 and 1.91% of total non-covered loans as of September 30, 2010. Charge-offs exceeded the provision for loan losses in the quarter as specific loan loss reserves established in the prior quarter were charged-off in the current quarter. The annualized net charge-off rate for the third quarter of 2011 was 0.96%.

    Non-covered loans past due 30 to 89 days were $49.2 million, or 0.84% of non-covered loans and leases as of September 30, 2011, as compared to $43.9 million, or 0.76% as of June 30, 2011, and $80.2 million, or 1.41% as of September 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)AllowanceNon-covered,
      Provision   for credit lossesnon-performing
    forNetto non-covered30-89 daysassets to
    loan losscharge-offsloans %past due %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%
    Q3 2011 9,089 13,952 1.61% 0.84% 1.24%
    Total$511,695$484,104

    Non-covered construction loan portfolio

    Total non-covered construction loans declined to $279 million as of September 30, 2011, representing a decrease of 6% since June 30, 2011, and a decrease of 40% from September 30, 2010. Within this portfolio, the residential development loan segment was $104 million, or 2% of the total non-covered loan portfolio. Of this amount, $23.9 million represented non-performing loans and $34.9 million were classified as performing restructured loans. The residential development loan segment has decreased $56 million, or 35%, since September 30, 2010.

    The remaining $175 million in non-covered construction loans as of September 30, 2011, primarily represent commercial construction projects. Of this amount, $4.6 million represented non-performing loans and $20.2 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 September 30, 2011. Of this total, $2.25 billion are non-owner occupied and $1.30 billion are owner occupied. Of the total term commercial real estate portfolio, $47.0 million were on non-accrual status, $5.1 million were past due 90 days or more and accruing interest, and $30.2 million were past due 30-89 days as of September 30, 2011. Of the total non-covered commercial real estate portfolio, 7% matures in 2011-2012, 16% in years 2013-2014, and 22% in years 2015-2016. The remaining 55% of the portfolio matures in or after the year 2017.

    Non-covered restructured loans

    Non-covered restructured loans on accrual status were $80.6 million as of September 30, 2011, as compared to $81.0 million as of June 30, 2011 and $75.6 million as of September 30, 2010.

    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 $23.0 million, or 0.20% of total assets, as of September 30, 2011, as compared to $30.2 million, or 0.26% of total assets, as of June 30, 2011, and $53.7 million, or 0.47% of total assets, as of September 30, 2010. The total non-performing assets balance at September 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 the 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 4.12% for the third quarter of 2011, as compared to 4.32% for the second quarter of 2011, and 4.42% for the third quarter of 2010. The decrease in net interest margin in the current quarter over the prior quarter resulted primarily from the increase in interest bearing cash, the decrease in investment securities, a decrease in covered loans, a decrease in loan disposal gains from the covered loan portfolio and an increase in interest bearing liabilities, partially offset by increased non-covered loans outstanding. The decrease in net interest margin in the current quarter over the same quarter of the prior year resulted primarily from a decrease in covered loans, a decrease in loan disposal gains from the covered loan portfolio and an increase in interest bearing liabilities, partially offset by the decrease in interest bearing cash, the increase in investment securities, increased non-covered loans outstanding and declining cost of interest bearing deposits.

    Loan disposal 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) exceed the allocated carrying value of the loan disposed of from the pool. Loan disposal activities contributed $4.8 million of interest income in the third quarter of 2011, as compared to $6.7 million in the second quarter of 2011 and $13.7 million in the third 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 3.94% for the current quarter, 4.06% for the prior quarter, and 3.87% in the same quarter of the prior year.

    Interest and fee reversals on non-accrual loans during the third quarter of 2011 were $0.1 million, negatively impacting the net interest margin by 1 basis point, as compared to $0.5 million for the second quarter of 2011 and $0.6 million in the third 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 3.94% for the third quarter of 2011, 4.08% for the second quarter of 2011 and 3.89% for the third 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 sixteenth consecutive quarter, the Company has reduced the cost of interest bearing deposits. As a result of these efforts, the cost of interest bearing deposits was 0.77%, 2 basis points lower than the second quarter of 2011 and 31 basis points lower than the third quarter of 2010. Management closely and continually monitors market deposit rates and develops our pricing strategy to ensure we are competitive in the market and in line with our liquidity position and funding needs. Given our liquidity position and the excessive liquidity in our industry, we reduced our deposit pricing of certain deposit products late in the third quarter. Additionally, a significant amount of time deposits will mature in the fourth quarter and will either reprice into new time deposits at significantly lower rates or move into other lower cost transaction deposit accounts. Given these two items we expect our cost of funds to decline significantly in the fourth quarter.

    Mortgage banking revenue

    The Company recorded $7.1 million in total mortgage banking revenue during the third quarter of 2011, on closed loan volume of $280 million. In the third quarter of 2011, the Company recognized a decrease in the fair value of the mortgage servicing right assets in the income statement of $1.4 million. The decline is primarily related to lower mortgage rates during the quarter that have led to elevated levels of refinancing activity. Income from the origination and sale of mortgage loans was $7.3 million in the third quarter, representing an 83% increase over the prior quarter, and stable as compared to the same quarter of the prior year. As of September 30, 2011, the Company serviced $1.85 billion of mortgage loans for others, and the related mortgage servicing right asset is valued at $16.6 million, or 0.90% of the total serviced portfolio principal balance.

    Gain on sale of investment securities

    Early in the third quarter of 2011, the Company sold approximately $59 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 $1.8 million. Consistent with the second quarter of 2011, the purpose of the sale was not to recognize gains, as the overall available for sale portfolio currently has a net unrealized gain of $72.5 million before tax. Rather, it was to reduce the overall price risk of the portfolio and to hedge the potential future adverse effects of rising interest rates on accumulated other comprehensive income.

    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 third quarter of 2011. 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 September 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.

    As these instruments are no longer being originated or actively traded in the primary or secondary markets, the quarterly fair value adjustments are difficult to estimate. We utilize an income approach valuation technique to determine the fair value of these liabilities using our estimation of market discount rate assumptions. The Company monitors activity in the trust preferred and related markets, to the extent available, changes related to the current and anticipated future interest rate environment, and considers our entity-specific creditworthiness, to validate the reasonableness of the credit risk adjusted spread and effective yield utilized in our discounted cash flow model. Absent changes to the significant inputs utilized in the discounted cash flow model used to measure the fair value of these instruments at each reporting period, the cumulative discount for each junior subordinated debenture will reverse over time, ultimately returning the carrying values of these instruments to their notional values at their expected redemption dates. As of September 30, 2011, the total par value of junior subordinated debentures carried at fair value was $134.0 million, and the fair value was $82.3 million.

    Non-interest expense

    Total non-interest expense for the third quarter of 2011 was $86.2 million, compared to $83.2 million for the second quarter of 2011 and $85.2 million for the third quarter of 2010. Included in non-interest expense are several categories that 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 $77.3 million for the third quarter of 2011, as compared to $76.4 million for the second quarter of 2011, and $79.9 million for the third quarter of 2010. The increase in non-interest expense in the current period over the prior quarter primarily relates to increased salaries and benefits expense related to mortgage and commercial banking loan production, partially offset by a decline in loan and OREO workout costs. The decrease over the prior year period primarily relates to increased efficiencies arising from completion of system conversions for the 2010 acquisitions.

    During the third quarter of 2011, the Company incurred external loan collection and OREO management expense of $3.7 million, compared to $4.2 million for the second quarter of 2011, and $4.2 million for the third quarter of 2010. Mortgage production related expense was $5.3 million in the third quarter of 2011, compared to $4.3 million in the second quarter of 2011, and $4.2 million for the third quarter of 2010.

    Total FDIC deposit insurance assessments during the third quarter of 2011 were $1.9 million, compared to $2.8 million in the prior quarter, and $3.9 million for the third quarter of 2010. The decrease in the deposit insurance expense in the current quarter as compared to the same period of the prior year 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 $10.7 million in the third 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 September 30, 2011 were $11.8 billion, compared to $11.5 billion on June 30, 2011 and $11.5 billion a year ago. Total gross loans and leases (covered and non-covered), and deposits, were $6.5 billion and $9.4 billion, respectively, as of September 30, 2011, as compared to $6.4 billion and $9.1 billion, respectively, as of June 30, 2011, and $6.5 billion and $9.3 billion, respectively, as of September 30, 2010.

    Total non-covered loans held for investment increased $92.6 million during the third quarter of 2011. This increase is principally due to new loan production in the current period, and primarily relates to growth in the commercial and industrial segment of our loan portfolio. Excluding non-covered charge-offs of $16.5 million, the non-covered loan portfolio increased $109.0 million in the current quarter. Covered loans declined $26.5 million during the third 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 increased $258.0 million, or 3%, on a sequential quarter basis, primarily as a result of the continued influx of liquidity in the industry from depositors. Of this amount, interest bearing deposits increased $50.7 million, or 1%, while non-interest bearing deposits increased $207.2 million, or 12%. Total deposits have increased $103.1 million, or 1%, since September 30, 2010. 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 September 30, 2011, the Company had $768 million of interest bearing cash earning 0.25%, the target Federal Funds Rate. Over the course of the last year (primarily in the first and second quarter of 2011), for interest bearing cash in excess of our internal target balance range, 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 $3.1 billion as of September 30, 2011, representing a 19% 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 $5.2 billion as of September 30, 2011, representing 44% of total assets and 54% of total deposits.

    Capital

    As of September 30, 2011, total shareholders’ equity was $1.7 billion, comprised entirely of common equity. Book value per common share was $14.80, tangible book value per common share was $8.88 and the ratio of tangible common equity to tangible assets was 9.16% (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 September 30, 2011 is 17.35%. This represents a slight decrease from June 30, 2011, as a result of increased risk weighted assets primarily due to 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 13.11% as of September 30, 2011. These capital ratios as of September 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 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 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 available to common shareholders (GAAP) to operating earnings (non-GAAP), and earnings per diluted common share (GAAP) to operating earnings per diluted share (non-GAAP) for the periods presented:

      Quarter ended:   Sequential Quarter   Year over Year
    (Dollars in thousands, except per share data)Sep 30, 2011   Jun 30, 2011   Sep 30, 2010% Change   % Change  
     
    Net earnings available to common

    shareholders

    $21,757$17,699$8,173 23 % 166 %
    Adjustments:
    Net loss on junior subordinated debentures

    carried at fair value, net of tax (1)

    332 328 332 1 % 0 %
    Merger related expenses, net of tax (1) 31 43   986   (28 )% (97 )%
    Operating earnings $22,120$18,070   $9,491   22 % 133 %
     
    Earnings per diluted share:
    Earnings available to common shareholders $0.19$0.15$0.07 27 % 171 %
    Operating earnings $0.19$0.16$0.08 19 % 138 %
               

     

    Nine Months Ended:

    Year over Year

    (Dollars in thousands, except per share data)

    Sep 30, 2011

     

      Sep 30, 2010     % Change  
     
    Net earnings available to common

    shareholders

    $   52,861 $   7,927 567 %
    Adjustments:
    Net loss (gain) on junior subordinated debentures

    carried at fair value, net of tax (1)

    986 (3,320 ) (130 )%
    Bargain purchase gain on acquisitions, net of tax (1) -- (3,862 ) (100 )%
    Merger related expenses, net of tax (1)     182     3,431   (95 )%
    Operating earnings $   54,029 $   4,176   1194 %
     
    Earnings per diluted share:

     

    Earnings available to common shareholders $ 0.46 $ 0.07 557 %
    Operating earnings $ 0.47 $ 0.04 1075 %

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

      Quarter ended:   Sequential Quarter   Year over Year
    (Dollars in thousands, except per share data)Sep 30, 2011   Jun 30, 2011   Sep 30, 2010% Change   % Change  
     
    Operating earnings $ 22,120 $ 18,070 $ 9,491 22 % 133 %
    Adjustments:
    Provision for non-covered loan and lease losses 9,089 15,459 24,228 (41 )% (62 )%
    Provision for covered loan and lease losses 4,420 3,755 667 18 % 563 %
    Net loss on non-covered other real estate owned 2,289 3,844 663 (40 )% 245 %
    Net loss (gain) on covered other real estate owned 4,755 73 (980 ) nm (585 )%
    Non-covered loan & OREO workout cost 1,725 2,546 1,639 (32 )% 5 %
    Covered loan & OREO workout cost 1,974 1,635 2,520 21 % (22 )%
    Covered losses impact on FDIC

    indemnification asset

    (8,919 ) (4,370 ) (2,095 ) 104 % 325 %
    Operating provision for income taxes 10,959 9,029 3,073 21 % 257 %
    Dividends and undistributed earnings allocated to

    participating securities

      105     86     18   22 % 483 %
    Pre-tax, pre-credit cost operating income $ 48,517   $ 50,127   $ 39,222   (3 )% 24 %

     

      Nine Months Ended:   Year over

    Year

    (Dollars in thousands, except per share data)Sep 30, 2011   Sep 30, 2010% Change
     
    Operating earnings $ 54,029 $ 4,176 1194 %
    Adjustments:
    Provision for non-covered loan and lease losses 39,578 96,101 (59 )%
    Provision for covered loan and lease losses 15,443 667 2215 %
    Net loss on non-covered other real estate owned 8,967 3,542 153 %
    Net loss (gain) on covered other real estate owned 5,778 (2,500 ) (331 )%
    Non-covered loan & OREO workout cost 6,760 5,836 16 %
    Covered loan & OREO workout cost 5,962 3,443 73 %
    Covered losses impact on FDIC

    indemnification asset

    (21,746 ) (1,530 ) 1321 %
    Operating provision for (benefit from) income taxes 26,798 (899 ) nm
    Dividends and undistributed earnings allocated to

    participating securities

    253 49 416 %
    Preferred stock dividends   --     12,192   (100 )%
    Pre-tax, pre-credit cost operating income $ 141,822   $ 121,077   17 %

    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)Sep 30, 2011   Jun 30, 2011   Sep 30, 2010% Change   % Change  
     
    Net interest income $ 107,534 $ 109,361 $ 108,317 (2 )% (1 )%
    Tax equivalent adjustment (1)   1,053     1,078     1,073   (2 )% (2 )%
    Net interest income – tax equivalent basis (1) 108,587 110,439 109,390 (2 )% (1 )%
     
    Adjustments:
    Interest and fee reversals on non-accrual loans 149 486 569 (69 )% (74 )%
    Covered loan disposal gains   (4,793 )   (6,644 )   (13,673 ) (28 )% (65 )%
    Core net interest income – tax equivalent basis (1) $ 103,943   $ 104,281   $ 96,286   0 % 8 %
     
    Average interest earning assets $ 10,455,398 $ 10,247,051 $ 9,820,800 2 % 6 %
     
    Net interest margin – consolidated (1) 4.12 % 4.32 % 4.42 %
    Core net interest margin – consolidated (1) 3.94 % 4.08 % 3.89 %

     

      Nine Months Ended:   Year over

    Year

    (Dollars in thousands, except per share data)Sep 30, 2011   Sep 30, 2010% Change  
     
    Net interest income $ 321,797 $ 287,669 12 %
    Tax equivalent adjustment (1)   3,205     3,204   0 %
    Net interest income – tax equivalent basis (1) 325,002 290,873 12 %
     
    Adjustments:
    Interest and fee reversals on non-accrual loans 1,918 2,321 (17 )%
    Covered loan disposal gains   (19,667 )   (13,673 ) 44 %
    Core net interest income – tax equivalent basis (1) $ 307,253   $ 279,521   10 %
     
    Average interest earning assets $ 10,326,854 $ 9,301,791 11 %
     
    Net interest margin – consolidated (1) 4.21 % 4.18 %
    Core net interest margin – consolidated (1) 3.98 % 4.02 %

    (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). 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)

      Sep 30, 2011   Jun 30, 2011   Sep 30, 2010
     
    Total shareholders' equity $ 1,695,120 $ 1,674,321 $ 1,650,503
    Subtract:
    Goodwill and other intangible assets, net   678,448     679,671     683,573  
    Tangible common shareholders' equity $ 1,016,672   $ 994,650   $ 966,930  
     
    Total assets $ 11,772,883 $ 11,459,692 $ 11,531,760
    Subtract:
    Goodwill and other intangible assets, net   678,448     679,671     683,573  
    Tangible assets $ 11,094,435   $ 10,780,021   $ 10,848,187  
     
    Common shares outstanding at period end 114,538,536 114,537,782 114,531,514
     
    Tangible common equity ratio 9.16 % 9.23 % 8.91 %
    Tangible book value per common share $ 8.88 $ 8.68 $ 8.44

    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 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, October 20, 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 888-296-4305 a few minutes before 10:00 a.m. The conference ID is “4788397.” A re-broadcast will be available approximately two hours after the conference call by dialing 888-203-1112 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 continuing to advance our strategic initiatives, our expectation that our cost of funds will decrease significantly in the fourth quarter,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,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 inability to effectively manage problem credits,certain loan assets becoming ineligible for loss sharing, unanticipated deterioration in the commercial real estate loan portfolio, unanticipated increases in the cost of deposits and continued negative pressure on interest income associated with our large cash position.

    Umpqua Holdings Corporation
    Consolidated Statements of Operations
    (Unaudited)
      Sequential   Year over
    Quarter Ended:QuarterYear
    (Dollars in thousands, except per share data)Sep 30, 2011   Jun 30, 2011   Sep 30, 2010% Change   % Change  
    Interest income
    Loans and leases $ 101,991 $ 101,547 $ 112,652 0 % (9 )%
    Interest and dividends on investments:
    Taxable 21,932 24,348 17,421 (10 )% 26 %
    Exempt from federal income tax 2,136 2,178 2,221 (2 )% (4 )%
    Dividends 2 4 6 (50 )% (67 )%
    Temporary investments & interest bearing deposits   466     340     646   37 % (28 )%
    Total interest income 126,527 128,417 132,946 (1 )% (5 )%
    Interest expense
    Deposits 14,579 14,698 19,913 (1 )% (27 )%
    Repurchase agreements and
    fed funds purchased 152 131 136 16 % 12 %
    Junior subordinated debentures 1,930 1,926 2,047 0 % (6 )%
    Term debt   2,332     2,301     2,533   1 % (8 )%
    Total interest expense 18,993 19,056 24,629 0 % (23 )%
    Net interest income 107,534 109,361 108,317 (2 )% (1 )%
    Provision for non-covered loan and lease losses 9,089 15,459 24,228 (41 )% (62 )%
    Provision for covered loan and lease losses 4,420 3,755 667 18 % 563 %
    Non-interest income
    Service charges 8,849 8,540 8,756 4 % 1 %
    Brokerage fees 3,115 3,276 2,609 (5 )% 19 %
    Mortgage banking revenue, net 7,084 4,807 7,138 47 % (1 )%
    Net gain on investment securities 1,813 5,631 2,287 (68 )% (21 )%
    Loss on junior subordinated debentures
    carried at fair value (554 ) (547 ) (554 ) 1 % 0 %
    Change in FDIC indemnification asset 1,611 (5,551 ) (11,948 ) (129 )% (113 )%
    Other income   2,860     3,471     3,845   (18 )% (26 )%
    Total non-interest income 24,778 19,627 12,133 26 % 104 %
    Non-interest expense
    Salaries and employee benefits 45,023 43,808 42,964 3 % 5 %
    Net occupancy and equipment 12,803 12,547 11,448 2 % 12 %
    Intangible amortization 1,222 1,251 1,356 (2 )% (10 )%
    FDIC assessments 1,867 2,821 3,910 (34 )% (52 )%
    Net loss on non-covered other real estate owned 2,289 3,844 663 (40 )% 245 %
    Net loss (gain) on covered other real estate owned 4,755 73 (980 ) nm (585 )%
    Merger related expenses 51 71 1,643 (28 )% (97 )%
    Other expense   18,214     18,792     24,166   (3 )% (25 )%
    Total non-interest expense 86,224 83,207 85,170 4 % 1 %
    Income before provision for income taxes 32,579 26,567 10,385 23 % 214 %
    Provision for income taxes   10,717     8,782     2,194   22 % 388 %
    Net income 21,862 17,785 8,191 23 % 167 %
    Dividends and undistributed earnings
    allocated to participating securities   105     86     18   22 % 483 %
    Net earnings available to common shareholders $ 21,757   $ 17,699   $ 8,173   23 % 166 %
     
    Weighted average basic shares outstanding 114,540,500 114,610,908 114,527,619 0 % 0 %
    Weighted average diluted shares outstanding 114,691,063 114,785,231 114,760,063 0 % 0 %
    Earnings per common share – basic $ 0.19 $ 0.15 $ 0.07 27 % 171 %
    Earnings per common share – diluted $ 0.19 $ 0.15 $ 0.07 27 % 171 %

    nm = not meaningful

    Umpqua Holdings Corporation

    Consolidated Statements of Operations
    (Unaudited)
           
    Nine Months Ended:
    (Dollars in thousands, except per share data)Sep 30, 2011   Sep 30, 2010% Change  
    Interest income
    Loans and leases $303,818$300,600 1 %
    Interest and dividends on investments:
    Taxable 68,323 49,065 39 %
    Exempt from federal income tax 6,479 6,655 (3 )%
    Dividends 9 9 0 %
    Temporary investments & interest bearing cash 1,207   1,590   (24 )%
    Total interest income 379,836 357,919 6 %
    Interest expense
    Deposits 44,943 57,165 (21 )%
    Repurchase agreements and
    fed funds purchased 405 382 6 %
    Junior subordinated debentures 5,769 5,871 (2 )%
    Term debt 6,922   6,832   1 %
    Total interest expense 58,039 70,250 (17 )%
    Net interest income 321,797 287,669 12 %
    Provision for non-covered loan and lease losses 39,578 96,101 (59 )%
    Provision for covered loan and lease losses 15,443 667 2215 %
    Non-interest income
    Service charges 25,210 26,706 (6 )%
    Brokerage fees 9,768 8,387 16 %
    Mortgage banking revenue, net 17,166 13,825 24 %
    Net gain on investment securities 7,419 1,999 271 %
    (Loss) gain on junior subordinated debentures
    carried at fair value (1,643 ) 5,534 (130 )%
    Bargain purchase gain on acquisitions -- 6,437 (100 )%
    Change in FDIC indemnification asset (1,035 ) (11,075 ) (91 )%
    Other income 9,105   8,930   2 %
    Total non-interest income 65,990 60,743 9 %
    Non-interest expense
    Salaries and employee benefits 133,441 118,808 12 %
    Net occupancy and equipment 37,867 33,596 13 %
    Intangible amortization 3,724 4,032 (8 )%
    FDIC assessments 8,561 10,909 (22 )%
    Net loss on non-covered other real estate owned 8,967 3,542 153 %
    Net loss (gain) on covered other real estate owned 5,778 (2,500 ) (331 )%
    Merger related expenses 303 5,718 (95 )%
    Other expense 54,991   55,769   (1 )%
    Total non-interest expense 253,632 229,874 10 %
    Income before provision for income taxes 79,134 21,770 264 %
    Provision for income taxes 26,020   1,602   1524 %
    Net income 53,114 20,168 163 %
    Dividends and undistributed earnings
    allocated to participating securities 253 49 416 %
    Preferred stock dividend --   12,192   (100 )%
    Net earnings available to common shareholders $52,861   $7,927   567 %
     
    Weighted average basic shares outstanding 114,575,526 105,694,696 8 %
    Weighted average diluted shares outstanding 114,768,784 105,923,776 8 %
    Earnings per common share – basic $0.46$0.07 557 %
    Earnings per common share – diluted $0.46$0.07 557 %

    Umpqua Holdings Corporation

    Consolidated Balance Sheets

           

    (Unaudited)

     
    SequentialYear over
    QuarterYear
    (Dollars in thousands, except per share data)Sep 30, 2011Jun 30, 2011Sep 30, 2010% Change   % Change  
    Assets:
    Cash and due from banks $ 151,548 $ 137,033 $ 124,633 11 % 22 %
    Interest bearing deposits 767,617 478,221 933,911 61 % (18 )%
    Temporary investments 552 628 5,496 (12 )% (90 )%
    Investment securities:
    Trading, at fair value 2,481 2,522 2,155 (2 )% 15 %
    Available for sale, at fair value 3,090,064 3,177,460 2,599,263 (3 )% 19 %
    Held to maturity, at amortized cost 4,877 5,553 5,108 (12 )% (5 )%
    Loans held for sale 94,295 60,416 57,407 56 % 64 %
    Non-covered loans and leases 5,828,114 5,735,553 5,698,267 2 % 2 %
    Allowance for non-covered loan and lease losses   (92,932 )   (97,795 )   (108,098 ) (5 )% (14 )%
    Loans and leases, net 5,735,182 5,637,758 5,590,169 2 % 3 %
    Covered loans and leases, net 672,130 698,676 844,524 (4 )% (20 )%
    Restricted equity securities 32,709 32,839 34,665 0 % (6 )%
    Premises and equipment, net 146,887 145,192 133,728 1 % 10 %
    Mortgage servicing rights, at fair value 16,612 16,350 13,454 2 % 23 %
    Goodwill and other intangibles, net 678,448 679,671 683,573 0 % (1 )%
    Non-covered other real estate owned 34,787 34,409 32,024 1 % 9 %
    Covered other real estate owned 23,039 30,153 30,348 (24 )% (24 )%
    FDIC indemnification asset 106,378 116,928 186,356 (9 )% (43 )%
    Other assets   215,277     205,883     254,946   5 % (16 )%
    Total assets $ 11,772,883   $ 11,459,692   $ 11,531,760   3 % 2 %
     
    Liabilities:
    Deposits $ 9,404,410 $ 9,146,412 $ 9,301,340 3 % 1 %
    Securities sold under agreements to repurchase 146,361 120,889 55,333 21 % 165 %
    Term debt 256,198 256,719 268,256 0 % (4 )%
    Junior subordinated debentures, at fair value 82,324 81,766 80,146 1 % 3 %
    Junior subordinated debentures, at amortized cost 102,624 102,705 102,946 0 % 0 %
    Other liabilities   85,846     76,880     73,236   12 % 17 %
    Total liabilities 10,077,763 9,785,371 9,881,257 3 % 2 %
     
    Shareholders' equity:
    Common stock 1,541,753 1,540,933 1,540,029 0 % 0 %
    Retained earnings 110,237 96,434 74,291 14 % 48 %
    Accumulated other comprehensive income   43,130     36,954     36,183   17 % 19 %
    Total shareholders' equity   1,695,120     1,674,321     1,650,503   1 % 3 %
    Total liabilities and shareholders' equity $ 11,772,883   $ 11,459,692   $ 11,531,760   3 % 2 %
     
    Common shares outstanding at period end 114,538,536 114,537,782 114,531,514 0 % 0 %
    Book value per common share $ 14.80 $ 14.62 $ 14.41 1 % 3 %
    Tangible book value per common share $ 8.88 $ 8.68 $ 8.44 2 % 5 %
    Tangible equity - common $ 1,016,672 $ 994,650 $ 966,930 2 % 5 %

    Tangible common equity to tangible assets

    9.16

    %

    9.23

    %

    8.91

    %

    Umpqua Holdings Corporation

    Non-covered Loan & Lease Portfolio
    (Unaudited)
            Sequential   Year over
    (Dollars in thousands)Sep 30, 2011Jun 30, 2011Sep 30, 2010QuarterYear
    Amount   MixAmount   MixAmount   Mix% Change   % Change  
    Non-covered loans & leases:
    Commercial real estate:
    Non-owner occupied $ 2,245,062 39 % $ 2,237,523 39 % $ 2,307,016 40 % 0 % (3 )%
    Owner occupied 1,297,912 22 % 1,294,611 23 % 1,184,803 21 % 0 % 10 %
    Residential real estate 556,490 10 % 522,813 9 % 462,515 8 % 6 % 20 %
    Construction   278,946   5 %   297,364   5 %   462,801   8 % (6 )% (40 )%
    Total real estate 4,378,410 75 % 4,352,311 76 % 4,417,135 78 % 1 % (1 )%
    Commercial 1,397,910 24 % 1,329,309 23 % 1,223,012 21 % 5 % 14 %
    Leases 30,028 1 % 30,288 1 % 32,428 1 % (1 )% (7 )%
    Installment and other 33,016 1 % 35,341 1 % 36,624 1 % (7 )% (10 )%
    Deferred loan fees, net   (11,250 ) 0 %   (11,696 ) 0 %   (10,932 ) 0 % (4 )% 3 %
    Total $ 5,828,114   100 % $ 5,735,553   100 % $ 5,698,267   100 % 2 % 2 %
    Umpqua Holdings Corporation
    Covered Loan & Lease Portfolio, Net
    (Unaudited)
    (Dollars in thousands)   Sep 30, 2011   Jun 30, 2011   Sep 30, 2010   Sequential Quarter   Year over Year
    Amount   MixAmount   MixAmount   Mix% Change   % Change  
    Covered loans & leases:
    Commercial real estate $ 500,476 74 % $ 515,977 74 % $ 592,391 70 % (3 )% (16 )%
    Residential real estate 69,079 10 % 72,522 10 % 81,601 10 % (5 )% (15 )%
    Construction   32,165 5 %   35,766 5 %   57,570 7 % (10 )% (44 )%
    Total real estate 601,720 90 % 624,265 89 % 731,562 87 % (4 )% (18 )%
    Commercial 62,279 9 % 65,731 9 % 100,750 12 % (5 )% (38 )%
    Installment and other   8,131 1 %   8,680 1 %   12,212 1 % (6 )% (33 )%
    Total $ 672,130 100 % $ 698,676 100 % $ 844,524 100 % (4 )% (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)
            Sequential   Year over
    (Dollars in thousands)Sep 30, 2011Jun 30, 2011Sep 30, 2010QuarterYear
    Amount   MixAmount   MixAmount   Mix% Change   % Change  
    Deposits:
    Demand, non-interest bearing $ 1,940,865 21 % $ 1,733,640 19 % $ 1,578,717 17 % 12 % 23 %
    Demand, interest bearing 889,643 9 % 873,246 10 % 936,625 10 % 2 % (5 )%
    Money market 3,676,265 39 % 3,317,923 36 % 3,241,707 35 % 11 % 13 %
    Savings 384,540 4 % 372,165 4 % 348,700 4 % 3 % 10 %
    Time   2,513,097 27 %   2,849,438 31 %   3,195,591 34 % (12 )% (21 )%
    Total $ 9,404,410 100 % $ 9,146,412 100 % $ 9,301,340 100 % 3 % 1 %
     
    Total core deposits-ending (1) $ 7,591,561 81 % $ 7,122,141 78 % $ 7,055,676 76 % 7 % 8 %
     
    Number of open accounts:
    Demand, non-interest bearing 182,207 180,494 174,861 1 % 4 %
    Demand, interest bearing 45,846 45,165 44,907 2 % 2 %
    Money market 41,524 40,527 39,968 2 % 4 %
    Savings 84,404 85,515 87,611 (1 )% (4 )%
    Time   34,336   39,270   44,020 (13 )% (22 )%
    Total   388,317   390,971   391,367 (1 )% (1 )%
     
    Average balance per account:
    Demand, non-interest bearing $ 10.7 $ 9.6 $ 9.0
    Demand, interest bearing 19.4 19.3 20.9
    Money market 88.5 81.9 81.1
    Savings 4.6 4.4 4.0
    Time 73.2 72.6 72.6
    Total $ 24.2 $ 23.4 23.8

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

    Umpqua Holdings Corporation
    Credit Quality – Non-performing Assets
    (Unaudited)
            Sequential   Year over
      Quarter Ended   QuarterYear
    (Dollars in thousands)Sep 30, 2011Jun 30, 2011Sep 30, 2010% Change   % Change  
     
    Non-covered, non-performing assets:
    Non-covered loans on non-accrual status $ 99,856 $ 109,889 $ 139,696 (9 )% (29 )%
    Non-covered loans past due 90+ days & accruing   11,716     13,137     11,882   (11 )% (1 )%
    Total non-performing loans 111,572 123,026 151,578 (9 )% (26 )%
    Non-covered other real estate owned   34,787     34,409     32,024   1 % 9 %
    Total $ 146,359   $ 157,435   $ 183,602   (7 )% (20 )%
     
    Performing restructured loans $ 80,590 $ 80,962 $ 75,577 0 % 7 %
     
    Past due 30-89 days $ 49,205 $ 43,851 $ 80,186 12 % (39 )%
    Past due 30-89 days to total loans and leases 0.84 % 0.76 % 1.41 %
     
    Non-covered, non-performing loans to
    non-covered loans and leases 1.91 % 2.14 % 2.66 %
    Non-covered, non-performing assets to total assets 1.24 % 1.37 % 1.59 %
     
    Covered non-performing assets:
    Covered loans on non-accrual status $ --   $ --   $ 23,391   nm (100 )%
    Total non-performing loans -- -- 23,391 nm (100 )%
    Covered other real estate owned   23,039     30,153     30,348   (24 )% (24 )%
    Total $ 23,039   $ 30,153   $ 53,739   (24 )% (57 )%
     
    Covered non-performing loans to
    covered loans and leases -- % -- % 2.77 %
    Covered non-performing assets to total assets 0.20 % 0.26 % 0.47 %
     
    Total non-performing assets:
    Loans on non-accrual status $ 99,856 $ 109,889 $ 163,087 (9 )% (39 )%
    Loans past due 90+ days & accruing   11,716     13,137     11,882   (11 )% (1 )%
    Total non-performing loans 111,572 123,026 174,969 (9 )% (36 )%
    Other real estate owned   57,826     64,562     62,372   (10 )% (7 )%
    Total $ 169,398   $ 187,588   $ 237,341   (10 )% (29 )%
     
    Non-performing loans to loans and leases 1.72 % 1.91 % 2.67 %
    Non-performing assets to total assets 1.44 % 1.64 % 2.06 %

    nm = not meaningful

    Umpqua Holdings Corporation

    Credit Quality – Allowance for Non-covered Credit Losses
    (Unaudited)
            Sequential   Year over
      Quarter Ended   QuarterYear
    (Dollars in thousands)Sep 30, 2011Jun 30, 2011Sep 30, 2010% Change   % Change  
    Allowance for non-covered credit losses:
    Balance beginning of period $ 97,795 $ 97,833 $ 113,914
    Provision for non-covered loan and

    lease losses

    9,089 15,459 24,228 (41 )% (62 )%
     
    Charge-offs (16,453 ) (18,611 ) (31,418 ) (12 )% (48 )%
    Recoveries   2,501     3,114     1,374   (20 )% 82 %
    Net charge-offs (13,952 ) (15,497 ) (30,044 ) (10 )% (54 )%
         
    Total allowance for non-covered loan and

    lease losses

    92,932 97,795 108,098 (5 )% (14 )%
     
    Reserve for unfunded commitments   971     988     797   (2 )% 22 %
    Total allowance for non-covered

    credit losses

    $ 93,903   $ 98,783   $ 108,895   (5 )% (14 )%
     
    Net charge-offs to average non-covered
    loans and leases (annualized) 0.96 % 1.10 % 2.08 %
    Recoveries to gross charge-offs 15.20 % 16.73 % 4.37 %
    Allowance for credit losses to non-covered
    loans and leases 1.61 % 1.72 % 1.91 %

     

     
    Nine Months Ended:
    (Dollars in thousands)Sep 30, 2011Sep 30, 2010   % Change  
    Allowance for credit losses:
    Balance beginning of period $ 101,921 $ 107,657
    Provision for loan and lease losses 39,578 96,101 (59 )%
     
    Charge-offs (55,939 ) (102,731 ) (46 )%
    Recoveries   7,372     7,071   4 %
    Net charge-offs (48,567 ) (95,660 ) (49 )%
       
    Total allowance for loan and lease losses 92,932 108,098 (14 )%
     
    Reserve for unfunded commitments   971     797   22 %
    Total allowance for credit losses $ 93,903   $ 108,895   (14 )%
     
    Net charge-offs to average non-covered
    loans and leases (annualized) 1.14 % 2.20 %
    Recoveries to gross charge-offs 13.18 % 6.88 %

    Umpqua Holdings Corporation

    Selected Ratios
    (Unaudited)
        Sequential   Year over
    Quarter Ended:QuarterYear
    Sep 30, 2011   Jun 30, 2011   Sep 30, 2010ChangeChange
    Net interest spread:
    Yield on non-covered loans and leases 5.51 % 5.59 % 5.77 % (0.08 ) (0.26 )
    Yield on covered loans and leases 12.04 % 12.38 % 13.49 % (0.34 ) (1.45 )
    Yield on taxable investments 2.96 % 3.18 % 3.51 % (0.22 ) (0.55 )
    Yield on tax-exempt investments (1) 5.77 % 5.83 % 5.71 % (0.06 ) 0.06
    Yield on temporary investments & interest bearing cash 0.25 % 0.25 % 0.26 % 0.00 (0.01 )
    Total yield on earning assets (1) 4.84 % 5.07 % 5.41 % (0.23 ) (0.57 )
     
    Cost of interest bearing deposits 0.77 % 0.79 % 1.08 % (0.02 ) (0.31 )
    Cost of securities sold under agreements
    to repurchase and fed funds purchased 0.49 % 0.51 % 1.01 % (0.02 ) (0.51 )
    Cost of term debt 3.61 % 3.59 % 3.57 % 0.02 0.04
    Cost of junior subordinated debentures 4.15 % 4.20 % 4.45 % (0.05 ) (0.30 )
    Total cost of interest bearing liabilities 0.93 % 0.95 % 1.24 % (0.02 ) (0.31 )
     
    Net interest spread (1) 3.91 % 4.12 % 4.17 % (0.21 ) (0.26 )
    Net interest margin – Consolidated (1) 4.12 % 4.32 % 4.42 % (0.20 ) (0.30 )
     
    Net interest margin – Bank (1) 4.19 % 4.39 % 4.49 % (0.20 ) (0.30 )
     
    As reported (GAAP):
    Return on average assets 0.74 % 0.62 % 0.29 % 0.12 0.45
    Return on average tangible assets 0.78 % 0.66 % 0.31 % 0.12 0.47
    Return on average common equity 5.11 % 4.25 % 1.95 % 0.86 3.16
    Return on average tangible common equity 8.55 % 7.17 % 3.32 % 1.38 5.23
    Efficiency ratio – Consolidated 64.65 % 63.97 % 70.09 % 0.68 (5.44 )
    Efficiency ratio – Bank 62.41 % 61.70 % 67.07 % 0.71 (4.66 )
     
    Operating basis (non-GAAP): (2)
    Return on average assets 0.75 % 0.63 % 0.34 % 0.12 0.41
    Return on average tangible assets 0.80 % 0.67 % 0.36 % 0.13 0.44
    Return on average common equity 5.20 % 4.34 % 2.26 % 0.86 2.94
    Return on average tangible common equity 8.70 % 7.32 % 3.86 % 1.38 4.84
    Efficiency ratio – Consolidated 64.35 % 63.65 % 68.42 % 0.70 (4.07 )
    Efficiency ratio – Bank 62.37 % 61.64 % 65.72 % 0.73 (3.35 )
     
    (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)
     
    Nine Months Ended:  
    Sep 30, 2011   Sep 30, 2010Change

    Net interest spread:

    Yield on non-covered loans and leases 5.57 % 5.78 % (0.21 )
    Yield on covered loans and leases 11.92 % 10.00 % 1.92
    Yield on taxable investments 3.04 % 3.76 % (0.72 )
    Yield on tax-exempt investments (1) 5.83 % 5.76 % 0.07
    Yield on temporary investments & interest bearing cash 0.25 % 0.25 % 0.00
    Total yield on earning assets (1) 4.96 % 5.19 % (0.23 )
     
    Cost of interest bearing deposits 0.79 % 1.12 % (0.33 )
    Cost of securities sold under agreements
    to repurchase and fed funds purchased 0.52 % 1.02 % (0.50 )
    Cost of term debt 3.59 % 3.52 % 0.07
    Cost of junior subordinated debentures 4.19 % 4.25 % (0.06 )
    Total cost of interest bearing liabilities 0.96 % 1.28 % (0.32 )
     
    Net interest spread (1) 4.00 % 3.91 % 0.09
    Net interest margin – Consolidated (1) 4.21 % 4.18 % 0.03
     
    Net interest margin – Bank (1) 4.28 % 4.26 % 0.02
     
    As reported (GAAP):
    Return on average assets 0.61 % 0.10 % 0.51
    Return on average tangible assets 0.65 % 0.11 % 0.54
    Return on average common equity 4.23 % 0.68 % 3.55
    Return on average tangible common equity 7.14 % 1.19 % 5.95
    Efficiency ratio – Consolidated 64.87 % 65.38 % (0.51 )
    Efficiency ratio – Bank 62.52 % 63.72 % (1.20 )
     
    Operating basis (non-GAAP): (2)
    Return on average assets 0.62 % 0.05 % 0.57
    Return on average tangible assets 0.66 % 0.06 % 0.60
    Return on average common equity 4.33 % 0.36 % 3.97
    Return on average tangible common equity 7.30 % 0.62 % 6.68
    Efficiency ratio – Consolidated 64.52 % 66.00 % (1.48 )
    Efficiency ratio – Bank 62.44 % 63.24 % (0.80 )
     
    (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)
        Sequential   Year over
    Quarter Ended:QuarterYear
    (Dollars in thousands)Sep 30, 2011   Jun 30, 2011   Sep 30, 2010% Change   % Change  
     
    Temporary investments & interest bearing cash $ 741,030 $ 548,740 $ 993,092 35 % (25 )%
    Investment securities, taxable 2,964,361 3,060,105 1,984,672 (3 )% 49 %
    Investment securities, tax-exempt 221,218 223,556 230,815 (1 )% (4 )%
    Loans held for sale 71,527 49,254 45,933 45 % 56 %
    Non-covered loans and leases 5,767,172 5,645,332 5,718,584 2 % 1 %
    Covered loans and leases   690,090   720,064   847,704   (4 )% (19 )%
    Total interest earning assets 10,455,398 10,247,051 9,820,800 2 % 6 %
    Goodwill & other intangible assets, net 678,967 680,202 684,488 0 % (1 )%
    Total assets 11,708,079 11,512,813 11,159,310 2 % 5 %
     
    Non-interest bearing demand deposits 1,829,245 1,731,575 1,565,525 6 % 17 %
    Interest bearing deposits   7,558,357   7,490,219   7,345,073   1 % 3 %
    Total deposits 9,387,602 9,221,794 8,810,598 2 % 5 %
    Interest bearing liabilities 8,121,323 8,034,850 7,863,059 1 % 3 %
     
    Shareholders’ equity - common 1,688,082 1,669,942 1,660,490 1 % 2 %
    Tangible common equity (1) 1,009,115 989,740 976,002 2 % 3 %
     
    Nine Months Ended:
    (Dollars in thousands)Sep 30, 2011Sep 30, 2010   % Change  
     
    Temporary investments & interest bearing cash $ 647,861 $ 841,529 (23 )%
    Investment securities, taxable 2,996,292 1,742,463 72 %
    Investment securities, tax-exempt 221,439 228,000 (3 )%
    Loans held for sale 56,230 37,166 51 %
    Non-covered loans and leases 5,679,295 5,814,340 (2 )%
    Covered loans and leases   725,737   638,293 14 %
    Total interest earning assets 10,326,854 9,301,791 11 %
    Goodwill & other intangible assets, net 680,212 672,114 1 %
    Total assets 11,598,377 10,538,818 10 %
     
    Non-interest bearing demand deposits 1,735,767 1,497,110 16 %
    Interest bearing deposits   7,576,868   6,826,779 11 %
    Total deposits 9,312,635 8,323,889 12 %
    Interest bearing liabilities 8,122,313 7,321,076 11 %
     
    Shareholders’ equity - common 1,669,373 1,565,884 7 %
    Tangible common equity (1) 989,161 893,770 11 %

    (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)
           
    SequentialYear over
    Quarter Ended:   QuarterYear
    (Dollars in thousands)Sep 30, 2011   Jun 30, 2011   Sep 30, 2010   % Change   % Change  
     
    Mortgage Servicing Rights (MSR):
    Mortgage loans serviced for others $ 1,848,220 $ 1,751,700 $ 1,471,759 6 % 26 %
    MSR Asset, at fair value 16,612 16,350 13,454 2 % 23 %
     
    MSR as % of serviced portfolio 0.90 % 0.93 % 0.91 %
     
    Mortgage Banking Revenue:
    Origination and sale $ 7,309 $ 3,998 $ 7,188 83 % 2 %
    Servicing 1,205 1,137 1,007 6 % 20 %
    Change in fair value of MSR asset   (1,430 )   (328 )   (1,057 )   336 % 35 %
    Total $ 7,084   $ 4,807   $ 7,138     47 % (1 )%
     
     
    Closed loan volume $ 279,578 $ 185,013 $ 231,952 51 % 21 %
     
    Nine Months Ended:
    (Dollars in thousands)Sep 30, 2011Sep 30, 2010   % Change  
     
    Mortgage Banking Revenue:
    Origination and sale $ 15,643 $ 13,839 13 %
    Servicing 3,464 2,844 22 %
    Change in fair value of MSR asset   (1,941 )   (2,858 ) (32 )%
    Total $ 17,166   $ 13,825   24 %
     
    Closed loan volume $ 631,328 $ 504,352 25 %

    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 September 30, 2011:

    Table 1 - Non-covered, non-performing asset detail by type and by region
    (Dollars in thousands)      
           
    NorthwestCentralSouthernGreaterNorthern
    OregonOregonOregonWashingtonSacramentoCaliforniaTotal
    Non-accrual loans:
    Residential development $10,578 $-- $100$5,531$4,162$3,483$23,854
    Commercial construction 921 -- 472 -- 3,211 -- 4,604
    Commercial real estate 28,907 518 482 1,161 11,548 4,374 46,990
    Commercial 6,090 2,290 355 6,768 2,929 5,976 24,408
    Other -- -- -- -- -- -- --
    Total $46,496$2,808$1,409$13,460$21,850$13,833$99,856
     
    Loans 90 days past due & accruing:
    Residential development $-- $-- $-- $-- $-- $-- $--
    Commercial construction -- -- -- -- -- -- --
    Commercial real estate 3,780 164 -- -- -- 1,174 5,118
    Commercial 345 -- -- -- 12 -- 357
    Other 5,185 -- -- 4 1,052 -- 6,241
    Total $9,310$164 $-- $4$1,064$1,174$11,716
                 
    Total non-performing loans $55,806$2,972$1,409$13,464$22,914$15,007$111,572
     
    Other real estate owned:
    Residential development $1,042$1,660$1,957 $-- $282$784$5,725
    Commercial construction 2,383 539 -- 88 6,515 -- 9,525
    Commercial real estate 5,101 140 817 -- 5,703 5,693 17,454
    Commercial 333 359 282 270 -- -- 1,244
    Other 750 -- -- -- 89 -- 839
    Total $9,609$2,698$3,056$358$12,589$6,477$34,787
                 
    Total non-performing assets $65,415$5,670$4,465$13,822$35,503$21,484$146,359
    % of total45%4%3%9%24%15%100%

    The Company has aggressively charged-down impaired assets to their disposition values. As of September 30, 2011, the non-covered, non-performing assets of $146.4 million have been written down by 42%, or $105.4 million, from their current par balance of $251.8 million.

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

    Table 2 – Non-covered loans past due 30-89 days by type and by region
    (Dollars in thousands)      
           
    NorthwestCentralSouthernGreaterNorthern
    OregonOregonOregonWashingtonSacramentoCaliforniaTotal
    Loans 30-89 days past due:
    Residential development $ 809 $ -- $ 510 $ -- $ -- $ -- $ 1,319
    Commercial construction -- -- -- -- 583 -- 583
    Commercial real estate 7,419 -- 5,548 -- 3,192 14,000 30,159
    Commercial 3,844 -- 479 26 1,083 3,487 8,919
    Other   7,026   --   --   5   1,189   5   8,225
    Total $ 19,098 $ -- $ 6,537 $ 31 $ 6,047 $ 17,492 $ 49,205

    The following is a distribution of non-covered loans past due 30 to 89 days by loan type as of September 30, 2011, June 30, 2011 and September 30, 2010:

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

    (Dollars in thousands)          
     
    SequentialYear
    QuarterOver Year
    Sep 30, 2011Jun 30, 2011Sep 30, 2010% Change   % Change  
    Loans 30-89 days past due:
    Residential development $ 1,319 $ 2,573 $ 13,494 (49 )% (90 )%
    Commercial construction 583 99 5,491 489 % (89 )%
    Commercial real estate 30,159 32,094 38,748 (6 )% (22 )%
    Commercial 8,919 3,476 16,465 157 % (46 )%
    Other   8,225   5,609   5,988 47 % 37 %
    Total $ 49,205 $ 43,851 $ 80,186 12 % (39 )%

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

    Table 4 – Non-covered restructured loans on accrual status by type and by region
    (Dollars in thousands)        
         
    NorthwestCentralSouthernGreaterNorthern
    OregonOregonOregonWashingtonSacramentoCaliforniaTotal
    Restructured loans, accrual basis:
    Residential development $ 14,677 $ 943 $ -- $ -- $ 19,275 $ -- $ 34,895
    Commercial construction 9,023 -- -- -- 8,182 2,994 20,199
    Commercial real estate 10,201 -- 3,870 -- 4,647 2,602 21,320
    Commercial -- -- -- -- 3,191 677 3,868
    Other   178   --   --   --   130   --   308
    Total $ 34,079 $ 943 $ 3,870 $ -- $ 35,425 $ 6,273 $ 80,590

    Umpqua Holdings Corporation
    Ray Davis, President/CEO
    503-727-4101
    raydavis@umpquabank.com
    or
    Umpqua Holdings Corporation
    Ron Farnsworth, EVP/Chief Financial Officer
    503-727-4108
    ronfarnsworth@umpquabank.com

    Source: Umpqua Holdings Corporation