• Umpqua Holdings Corporation
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  • Umpqua Holdings Reports Fourth Quarter & Full Year 2008 Results
    Total 2008 net earnings to common shareholders of $49.4 million, or $0.82 per diluted share  Q4 2008 net earnings to common shareholders of $2.2 million, or $0.04 per diluted share  Non-performing assets ended quarter at 1.88% of total assets  Total regulatory risk based capital of 14.61%, up from 10.89% a year ago  Tangible common equity ratio of 6.72%, up from 6.27% a year ago 
    Company Release - 01/29/2009 08:00

    PORTLAND, Ore.--(BUSINESS WIRE)-- Umpqua Holdings Corporation (NASDAQ: UMPQ), parent company of Umpqua Bank and Strand, Atkinson, Williams & York, Inc., today announced fourth quarter 2008 net earnings applicable to common shareholders of $2.2 million, or $0.04 per diluted share, compared to $9.5 million, or $0.16 per diluted share, for the fourth quarter of 2007. For the full year 2008, the Company reported net earnings applicable to common shareholders of $49.4 million, or $0.82 per diluted share, compared to $63.3 million, or $1.05 per diluted share a year ago.

    Significant financial statement items for the fourth quarter of 2008 include:

        --  Provision for loan losses of $32.0 million, a reduction of 10% from the
            third quarter of 2008;
        --  Total net charge-offs of $30.0 million, or 1.94% of average loans on an
            annualized basis;
        --  The allowance for credit losses ended the year at 1.58% of total loans,
            up from 1.42% a year ago;
        --  Non-performing assets ended the quarter at 1.88% of total assets.
            Non-performing loans ended the quarter at 2.18% of total loans;
        --  Loans past due 30-89 days ended the year at $59.1 million, a decrease of
            18% from September 30, 2008;
        --  Deposits increased $95.3 million during the quarter, an increase of 1%;
        --  Mortgage banking revenue includes a $3.0 million decline in the value of
            the mortgage servicing rights (MSR) asset;
        --  A gain on the fair value of junior subordinated debentures of $8.8
            million was recognized;
        --  A loss on other real estate owned of $2.7 million was recognized;
        --  The VISA litigation accrual of $2.1 million from the third quarter was
            reversed;
        --  Net interest margin, on a tax equivalent basis, decreased 10 basis
            points during the quarter to 4.02%. Excluding reversals of interest on
            loans of $2.1 million, or 11 basis points, the net interest margin would
            have increased 1 basis point during the quarter;
        --  The cost of interest bearing deposits for the fourth quarter was 2.15%,
            a decrease of 17 basis points from the third quarter; and
        --  Issued $214.2 million in preferred stock to the U.S. Treasury,
            developing several new loan programs to stimulate economic activity in
            our markets.
    
    

    "Although we've been immersed in this recession for the last year and a half, I am pleased to report that Umpqua's capital position and total liquidity remain strong, and our credit quality numbers, considering the state of the economy are very good," said Ray Davis, president and CEO of Umpqua Holdings Corporation. "With a total risk based capital ratio in excess of 14.6%, tangible common equity above 6.7%, liquidity in excess of $1.6 billion, and our non-performing assets still under 1.9% at year end, we remain confident that Umpqua will bounce back strong once economic conditions stabilize."

    Operating earnings exclude merger related expense, net of tax, and goodwill impairment. The Company had no merger related expense in 2008. The following is a comparison of net earnings applicable to common shareholders to operating earnings for all periods presented:

    
                                                              Sequential  Year over
    
                                 Quarter ended:               Quarter     Year
    
    (Dollars in thousands,       12/31/08  9/30/08  12/31/07  % Change    % Change
    except per share data)
    
    Net earnings applicable to   $2,210    $12,387  $9,516    (82)%       (77)%
    common shareholders
    
    Add back: Merger expense
    (net of tax) & goodwill      982       --       71        nm          1,283%
    impairment
    
    Operating Earnings           $3,192    $12,387  $9,587    (74)%       (67)%
    
    Earnings per diluted share:
    
    Net earnings applicable to   $0.04     $0.20    $0.16     (80)%       (75)%
    common shareholders
    
    Operating Earnings           $0.05     $0.20    $0.16     (75)%       (69)%
    
    
    
    
    
                                                                          Year over
    
                                                      Year ended:         Year
    
    (Dollars in thousands, except per share data)     12/31/08  12/31/07  % Change
    
    Net earnings applicable to common shareholders    $49,424   $63,268   (22)%
    
    Add back: Merger expense (net of tax) & goodwill  982       1,991     (51)%
    impairment
    
    Operating Earnings                                $50,406   $65,259   (23)%
    
    Earnings per diluted share:
    
    Net earnings applicable to common shareholders    $0.82     $1.05     (22)%
    
    Operating Earnings                                $0.83     $1.08     (23)%
    
    nm = not meaningful
    
    
    
    

    Credit Quality

    Non-performing assets were $161.3 million, or 1.88% of total assets, as of December 31, 2008, compared to $138.1 million, or 1.66% of total assets as of September 30, 2008. Of this amount, $5.5 million represented loans past due greater than 90 days and still accruing interest, $127.9 million represented non-accrual loans, and $27.9 million was other real estate owned. Approximately 70% of non-performing assets are from the residential development loan segment of the portfolio.

    Total net charge-offs were $30.0 million in the fourth quarter of 2008, which represented 1.94% of average loans on an annualized basis. Prior to the second quarter of 2008, the Company recognized the charge-off of an impairment reserve when the loan was resolved, sold, or foreclosed/transferred to other real estate owned. Starting in the second quarter of 2008, the Company accelerated the charge-off of the impairment reserve to the period when it arises for collateral dependent loans. Therefore, the non-accrual loans of $127.9 million as of December 31, 2008 have already been written-down to their estimated net realizable value, based on disposition value, and are expected to be resolved over the coming quarters with no additional material loss.

    The provision for loan losses for the fourth quarter of 2008 was $32.0 million, which was $2.0 million above the net charge-off level for the quarter. This difference represents a reserve build, increasing the allowance for credit losses from 1.54% of total loans as of September 30, 2008 to 1.58% of total loans as of December 31, 2008. Approximately $8.6 million, or 9%, of the allowance for credit losses was not allocated to specific loans, and represents an increase in the reserve during uncertain economic times.

    For the past seven quarters, the Company has been aggressively resolving problems arising from the current economic downturn. The following is a recap of the Company's credit quality trends since the start of 2007, noting the accelerated charge off of impairment reserves discussed above was implemented in the second quarter of 2008:

    
    Credit quality trends
    
    (Dollars in thousands)            Ending                        Change in
                                                                    ratio of
    
             Provision  Net           specific    Allowance         non-performing
    
                                                  for        30-89
             for        charge-offs   impairment  credit     days   assets to
                                                  loss
    
             loan loss  (recoveries)  reserve     to loans   past   total assets
                                                  %          due %
    
    Q1 2007  $83        $(90)         $857        1.14%      0.17%  0.06%
    
    Q2 2007  3,413      31            5,088       1.17%      0.56%  0.41%
    
    Q3 2007  20,420     865           16,244      1.47%      0.99%  0.37%
    
    Q4 2007  17,814     21,188        9,893       1.42%      0.64%  0.22%
    
    Q1 2008  15,132     13,476        13,281      1.45%      1.13%  (0.12)%
    
    Q2 2008  25,137     37,976        --          1.22%      0.31%  0.19%
    
    Q3 2008  35,454     15,193        --          1.54%      1.16%  0.41%
    
    Q4 2008  31,955     30,072        --          1.58%      0.96%  0.22%
    
    Total    $149,408   $118,711
    
    
    
    
    
    As presented in the table above, the cumulative loss rate since the
    beginning of 2007 was $118.7 million, or 2.21%, of beginning loans as
    calculated in the table below:
    
    Cumulative loss rate
    
    (Dollars in thousands)
    
      Cumulative net charge-offs - 2007 & 2008      $118,711
    
      Gross loan balance, December 31, 2006$5,361,862
    
        Cumulative charge-off rate - 2007 & 2008    2.21%
    
    
    
    

    Total construction loans decreased 23% from December 31, 2007. Within the construction loan portfolio, the residential development loan segment is $384 million, or 6% of the total loan portfolio. This segment has decreased $290 million, or 43%, from December 31, 2007. Oregon/Washington residential development loans total $227 million, a decrease of 42% from a year ago. California residential development loans total $157 million, a decrease of 44% from a year ago.

    
    The following is a geographic distribution of the residential development
    portfolio as of December 31, 2008:
    
    Residential development loans
    
    (Dollars in thousands)                                       Non-      Accruing
    
                                                       % change  accrual   loans
    
                      Balance    Balance    Balance    from      loans     balance
    
                      12/31/07   9/30/08    12/31/08   12/31/07  12/31/08  12/31/08
    
    Northwest Oregon  $237,780   $152,686   $134,506   (43)%     $18,720   $115,786
    
    Central Oregon    57,933     37,213     31,186     (46)%     15,846    15,340
    
    Southern Oregon   50,437     38,048     33,850     (33)%     4,583     29,267
    
    Washington        45,206     34,327     27,531     (39)%     648       26,883
    
    Greater           167,245    126,629    109,181    (35)%     33,374    75,807
    Sacramento
    
    Northern          115,604    66,414     47,905     (59)%     14,041    33,864
    California
    
    Total             $674,205   $455,317   $384,159   (43)%     $87,212   $296,947
    
    % of total loan   11%        7%         6%                             5%
    portfolio
    
    Quarter change $  $(90,167)$(46,348)$(71,158)
    
    Quarter change %  (12)%      (9)%       (16)%
    
    
    
    

    The remaining $525 million in construction loans are commercial construction projects. These commercial construction loans are uniquely different from the residential development loans and are performing with only $0.6 million in loans past due 30-89 days. Total non-performing assets related to commercial construction loans were $17.8 million at December 31, 2008. All non-accrual loans were written down to their net realizable values at year end.

    Net Interest Margin

    The Company reported a tax equivalent net interest margin of 4.02% for the fourth quarter of 2008, compared to 4.12% for the third quarter of 2008, and 4.00% for the third quarter of 2007. The decrease in net interest margin from the third quarter of 2008 resulted primarily from interest reversals on loans of $2.1 million, or 11 basis points. The cost of interest bearing deposits was 17 basis points lower than the third quarter of 2008.

    Mortgage Servicing Rights

    Mortgage interest rates decreased significantly late in the fourth quarter of 2008, resulting in the Company recognizing a $3.0 million decline in value of the MSR asset based on higher go-forward refinancing expectations. On December 31, 2008, the MSR asset was valued at 0.86% of the total serviced loan portfolio.

    Loss on Investment Securities

    During the fourth quarter of 2008, the Company recognized a net loss of $0.1 million on investment securities. This represented an other than temporary impairment charge related to non-agency mortgage-backed securities in the held to maturity classification of $1.6 million, offset by gains on sale of investments of $1.5 million. During the third quarter of 2008, the Company reclassified the non-agency mortgage-backed security portfolio from investment securities available for sale to investment securities held to maturity. At December 31, 2008, the non-agency mortgage backed security portfolio totaled $11.3 million, or 0.9% of the total investment portfolio.

    Fair Value of Junior Subordinated Debentures

    The Company recognized a gain on the fair value of junior subordinated debentures of $8.8 million during the fourth quarter of 2008. This fair value gain was based upon reductions in market interest rates, which will result in lower forecasted cash outflows in the future. The Company utilizes a pricing service along with internal models to determine the valuation of this liability. The majority of the gain 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 December 31, 2008, the credit adjusted interest spread for potential new issuances was forecasted to be significantly higher. The difference between spreads represents the gain in fair value of the Company's junior subordinated debentures compared to potential new instruments in the market. This fair value adjustment will reverse and be recognized as a reduction in non-interest income over the remaining period to maturity of the related instrument. As of December 31, 2008, the total par value of junior subordinated debentures carried at fair value was $134.0 million, and the fair value was $92.5 million.

    Non-Interest Expense

    Total non-interest expense for the fourth quarter of 2008 was $53.6 million, compared to $56.3 million for the third quarter of 2008, a decrease of $2.7 million, or 5%. The decrease on a sequential quarter basis related primarily to a VISA litigation accrual reversal as discussed later in this report.

    Balance Sheet

    Total consolidated assets as of December 31, 2008 were $8.6 billion, compared to $8.3 billion a year ago. Total gross loans and leases, and deposits, were $6.1 billion and $6.6 billion, respectively, as of December 31, 2007 and 2008.

    Total loans declined $30 million during the fourth quarter. Total gross loan fundings during the fourth quarter of 2008 were $350 million, which were offset by payoffs of previously funded loans of $350 million, and net charge-offs of $30 million, resulting in the overall decline of $30 million in loans during the fourth quarter.

    Total deposits increased $95 million, or 1%, during the fourth quarter. The growth during the quarter occurred in time deposits, coming from money market and savings accounts, based on customer preference for higher rate deposits given the significant decline in market interest rates.

    Based on the increase in deposits during the quarter, short-term borrowings were reduced by $40 million.

    Goodwill

    During the fourth quarter of 2008, the Company recognized goodwill impairment of $1.0 million related to its retail brokerage subsidiary. Remaining goodwill associated with this segment was $2.7 million as of December 31, 2008.

    Based on continued market volatility and the drop in price of the Company's common stock subsequent to year-end, the Company is currently analyzing the value of goodwill within its community banking segment related to its prior acquisitions, to determine whether the value of goodwill has been impaired. Any potential goodwill impairment could be material to reported earnings, but would be a non-cash charge and have no effect on the Company's cash balances, liquidity or tangible equity. In addition, because goodwill and other intangible assets are not included in the calculation of regulatory capital, the Company's well-capitalized regulatory capital ratios would not be affected by this potential non-cash expense. The Company anticipates the analysis will be completed prior to filing the Annual Report on Form 10-K with the Securities and Exchange Commission by early March 2009.

    Capital

    As of December 31, 2008, total shareholders' equity was $1.5 billion, comprised of $202 million in preferred stock (par value of $214.2 million issued to the U.S. Treasury on November 14, 2008 and described below), and common stock of $1.3 billion. Book value per common share was $21.36, tangible book value per share was $8.76 and tangible equity to assets was 6.72%. These measures increased during the fourth quarter of 2008 related primarily to a $23.8 million increase in unrealized gains on the investment security portfolio, net of tax, along with the sale of 2.2 million warrants in connection with the sale of preferred stock.

    The Company's estimated total risk-based capital ratio as of December 31, 2008 is 14.61%, and has increased from 11.30% as of September 30, 2008, and 10.89% as of December 31, 2007. Our total risk-based capital level is in excess of the regulatory definition of "well capitalized" of 10.0%. The increase during the quarter related to the recognition of net income, continued management of risk-weighted assets, and the sale of preferred stock. This capital ratio as of December 31, 2008 is an estimate pending completion and filing of the Company's regulatory reports.

    Excluding the sale of preferred stock during the fourth quarter of 2008, the Company's total risk-based capital ratio as of December 31, 2008 would have been 11.68%, increased from 11.30% as of September 30, 2008, and 10.89% as of December 31, 2007.

    On November 14, 2008, in exchange for an aggregate purchase price of $214.2 million, Umpqua Holdings Corporation issued and sold to the United States Department of the Treasury (U.S. Treasury) pursuant to the TARP Capital Purchase Program the following: (i) 214,181 shares of the Company's newly designated Fixed Rate Cumulative Perpetual Preferred Stock, Series A, no par value per share, with a liquidation preference of $1,000 per share ($214,181,000 liquidation preference in the aggregate) and (ii) a warrant to purchase up to 2,221,795 shares of the Company's common stock, no par value per share, at an exercise price of $14.46 per share, subject to certain anti-dilution and other adjustments. The warrant may be exercised for up to ten years after it was issued.

    In connection with the issuance and sale of the Company's securities, the Company entered into a Letter Agreement including the Securities Purchase Agreement - Standard Terms, dated November 14, 2008, with the U.S. Treasury (the "Agreement"). The Agreement contains limitations on the payment of quarterly cash dividends on the Company's common stock in excess of $0.19 per share, and on the Company's ability to repurchase its common stock. The Agreement also grants registration rights to the holders of the Series A Preferred Stock, the Warrant and the common stock to be issued under the Warrant and subjects the Company to executive compensation limitations included in the Emergency Economic Stabilization Act of 2008.

    The Series A Preferred Stock will bear cumulative dividends at a rate of 5% per annum for the first five years and 9% per annum thereafter, in each case, applied to the $1,000 per share liquidation preference, but will only be paid when, as and if declared by the Company's board of directors out of funds legally available therefor. The Series A Preferred Stock has no maturity date and ranks senior to our common stock (and on an equivalent basis with the Company's other authorized series of preferred stock, of which no shares are currently outstanding) with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of the Company.

    There were no repurchases of common stock during 2008. The total remaining available common shares authorized for repurchase is approximately 1.5 million as of December 31, 2008.

    Subsequent Event - Assumption of Deposits

    On January 16, 2009, the Federal Deposit Insurance Corporation (FDIC) placed the Bank of Clark County, Vancouver, Washington, into receivership. Umpqua Bank assumed the insured non-brokered deposit balances from the FDIC, which totaled $183.9 million, at no premium. In connection with the assumption, Umpqua Bank acquired certain assets totaling $23.2 million, primarily cash and marketable securities, with the difference of $160.9 million representing funds received directly from the FDIC. Through this agreement, Umpqua Bank now operates two additional store locations in Vancouver, Wash. The agreement includes the ability to purchase optional loan pools for up to 30 days following closing. In addition, the FDIC is reimbursing Umpqua Bank for all overhead costs related to the acquired Bank of Clark County operations for 90 days following closing, while Umpqua Bank will pay the FDIC a minimal servicing fee per assumed deposit account.

    Visa Related Activity

    In March 2008, Visa completed its initial public offering. Umpqua Bank and certain other Visa member banks are shareholders in Visa. Following the initial public offering, the Company received $12.6 million in proceeds from the offering, as a mandatory partial redemption of 295,377 shares, reducing the Company's holdings from 764,036 shares to 468,659 shares of Class B common stock. Using proceeds from this offering, Visa established a $3.0 billion escrow account to cover the resolution of pending litigation and related claims. The partial redemption proceeds are reflected in non-interest income in the first quarter of 2008.

    In connection with Visa's establishment of the litigation escrow account, the Company reversed a $5.2 million reserve in the first quarter of 2008, reflected as a reduction of non-interest expense. This reserve was created in the fourth quarter of 2007, pending completion of the Visa initial public offering, as a charge to non-interest expense.

    In October 2008, Visa announced that it had reached a settlement with Discover Card related to an antitrust lawsuit, and that it had established an additional reserve related to the settlement with Discover Card that has not already been funded into the escrow account. In connection with this settlement, the Company recorded, in the third quarter of 2008, a liability and corresponding expense of $2.1 million pre-tax, for its proportionate share of that liability. In December, this liability and expense was reversed when VISA deposited sufficient funds into the escrow account to cover the remaining amount of the settlement. The Company is not a party to the Visa litigation and its liability arises solely from the Bank's membership interest in Visa.

    The deposit of funds into the escrow account in December has the effect of a repurchase of Class A common share equivalents from the Class B shareholders and further reduces the conversion ratio applicable to Class B common stock outstanding from 0.7143 per Class A share to 0.6296 per Class A share.

    The remaining unredeemed shares of Visa Class B common stock are restricted and may not be transferred until the later of (i) three years from the date of the initial public offering, or (ii) the period of time necessary to resolve the covered litigation. If the funds in the escrow account are insufficient to settle all the covered litigation, Visa may sell additional Class A shares, use the proceeds to settle litigation, and further reduce the conversion ratio. If funds remain in the escrow account after all litigation is settled, the Class B conversion ratio will be increased to reflect that surplus.

    As of December 31, 2008, the value of the Class A shares was $52.45 per share. The value of unredeemed Class A equivalent shares owned by the Company was $15.5 million as of December 31, 2008, and has not been reflected in the accompanying financial statements.

    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 150 locations between Napa, Calif., and Bellevue, Wash., along the Oregon and Northern California Coast and in Central Oregon. Umpqua Holdings also owns a retail brokerage subsidiary, Strand, Atkinson, Williams & York Inc., which has locations in Umpqua Bank stores and in dedicated offices throughout Oregon and Southwest Washington. Umpqua Bank's Private Client Services Division provides tailored financial services and products to individual customers. 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, January 29, 2009, at 10:00 a.m. PT (1:00 p.m. ET) during which the
    Company will discuss fourth quarter 2008 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 "59372588." Information to be discussed in the teleconference
    will be available on the Company's Website prior to the call at
    www.umpquaholdingscorp.com. A rebroadcast can be found approximately two hours
    after the conference call by dialing 800-642-1687 with the conference ID noted
    above, or by visiting the Company's Website.
    
    
    
    

    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 our ability to improve financial performance when the economy stabilizes; expecting no additional material loss from existing non-accrual loans; a higher level of refinancing in the mortgage servicing portfolio; potential goodwill impairment and lower LIBOR rates. 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, economic conditions that continue to deteriorate beyond our ability to respond; our ability to realize expected recoveries of non-accrual loans; an increase in mortgage interest rates that would impact the MSR valuation; the results of an impairment analysis, which could result in a material decrease in reported earnings; management's ability to successfully operate in this economic environment; and no decrease in LIBOR rates, which could cause future recognition of loss in the fair value of our junior subordinated debentures.

    Umpqua Holdings Corporation
    
    Consolidated Statements of Income
    
    (Unaudited)
    
                     Quarter Ended:
    
                                                               Sequential  Year over
    
                                                               Quarter     Year
    
    Dollars in
    thousands,       Dec 31, 2008  Sep 30, 2008  Dec 31, 2007  % Change    % Change
    except per
    share data
    
    Interest income
    
    Loans and        $93,632       $98,180       $112,050      (5)%        (16)%
    leases
    
    Interest and
    dividends on
    investments:
    
    Taxable          11,253        9,725         9,515         16%         18%
    
    Exempt from
    federal income   1,653         1,644         1,671         1%          (1)%
    tax
    
    Dividends        36            104           76            (65)%       (53)%
    
    Temporary        84            69            976           22%         (91)%
    investments
    
    Total interest   106,658       109,722       124,288       (3)%        (14)%
    income
    
    Interest
    expense
    
    Deposits         28,252        30,025        47,090        (6)%        (40)%
    
    Repurchase
    agreements and   262           714           378           (63)%       (31)%
    fed funds
    purchased
    
    Junior
    subordinated     3,306         3,211         4,492         3%          (26)%
    debentures
    
    Term debt        1,794         2,064         875           (13)%       105%
    
    Total interest   33,614        36,014        52,835        (7)%        (36)%
    expense
    
    Net interest     73,044        73,708        71,453        (1)%        2%
    income
    
    Provision for
    loan and lease   31,955        35,454        17,814        (10)%       79%
    losses
    
    Non-interest
    income
    
    Service charges  8,668         8,911         8,478         (3)%        2%
    
    Brokerage fees   2,384         2,319         2,444         3%          (2)%
    
    Mortgage         (408)         1,027         2,019         (140)%      (120)%
    banking revenue
    
    Net loss on
    investment       (73)          (2,477)       (3)           (97)%       nm
    securities
    
    Gain on junior
    subordinated
    debentures       8,751         25,311        182           (65)%       nm
    carried at fair
    value
    
    Net loss on
    other real       (2,658)       (2,193)       (4)           21%         nm
    estate owned
    
    Other income     1,559         1,573         3,271         (1)%        (52)%
    
    Total
    non-interest     18,223        34,471        16,387        (47)%       11%
    income
    
    Non-interest
    expense
    
    Salaries and     29,557        29,131        27,692        1%          7%
    benefits
    
    Occupancy and    9,442         9,340         9,011         1%          5%
    equipment
    
    Intangible       1,438         1,437         1,694         0%          (15)%
    amortization
    
    FDIC             1,368         1,318         696           4%          97%
    assessments
    
    Other            12,944        12,986        12,874        0%          1%
    
    Visa litigation  (2,085)       2,085         5,183         (200)%      (140)%
    
    Goodwill         982           --            --            nm          nm
    impairment
    
    Merger related   --            --            118           0%          (100)%
    expenses
    
    Total
    non-interest     53,646        56,297        57,268        (5)%        (6)%
    expense
    
    Income before
    provision for    5,666         16,428        12,758        (66)%       (56)%
    income taxes
    
    Provision for    1,836         4,041         3,242         (55)%       (43)%
    income tax
    
    Net income       $3,830        $12,387       $9,516        (69)%       (60)%
    
    Preferred stock
    dividend -       1,620         --            --            nm          nm
    undeclared
    
    Net earnings
    applicable to    $2,210        $12,387       $9,516        (82)%       (77)%
    common
    shareholders
    
    Weighted
    average shares   60,134,062    60,096,637    59,939,649    0%          0%
    outstanding
    
    Weighted
    average diluted  60,503,643    60,443,949    60,343,710    0%          0%
    shares
    outstanding
    
    Earnings per     $0.04         $0.21         $0.16         (81)%       (75)%
    share - Basic
    
    Earnings per     $0.04         $0.20         $0.16         (80)%       (75)%
    share - Diluted
    
    nm = not
    meaningful
    
    
    
    
    Umpqua Holdings Corporation
    
    Consolidated Statements of Income
    
    (Unaudited)
    
                                              Year ended:
    
    Dollars in thousands, except per share    Dec 31, 2008  Dec 31, 2007  % Change
    data
    
    Interest income
    
    Loans and leases                          $393,927      $443,939      (11)%
    
    Interest and dividends on investments:
    
    Taxable                                   41,189        34,891        18%
    
    Exempt from federal income tax            6,653         5,822         14%
    
    Dividends                                 334           325           3%
    
    Temporary investments                     443           3,415         (87)%
    
    Total interest income                     442,546       488,392       (9)%
    
    Interest expense
    
    Deposits                                  129,370       180,840       (28)%
    
    Repurchase agreements and fed funds       2,220         2,135         4%
    purchased
    
    Trust preferred securities                13,655        16,821        (19)%
    
    Other borrowings                          6,994         2,642         165%
    
    Total interest expense                    152,239       202,438       (25)%
    
    Net interest income                       290,307       285,954       2%
    
    Provision for loan and lease losses       107,678       41,730        158%
    
    Non-interest income
    
    Service charges                           34,775        32,126        8%
    
    Brokerage fees                            8,948         10,038        (11)%
    
    Mortgage banking revenue                  2,436         7,791         (69)%
    
    Net gain (loss) on investment securities  1,349         (13)          nm
    
    Gain on junior subordinated debentures    38,903        4,928         689%
    carried at fair value
    
    Net loss on other real estate owned       (8,313)       (4)           nm
    
    Proceeds from Visa mandatory partial      12,633        --            nm
    redemption
    
    Other income                              8,074         9,959         (19)%
    
    Total non-interest income                 98,805        64,825        52%
    
    Non-interest expense
    
    Salaries and benefits                     114,600       112,864       2%
    
    Occupancy and equipment                   37,047        35,785        4%
    
    Intangible amortization                   5,857         6,094         (4)%
    
    FDIC assessments                          5,182         1,223         324%
    
    Other                                     49,772        49,651        0%
    
    Visa litigation                           (5,183)       5,183         (200)%
    
    Goodwill impairment                       982           --            nm
    
    Merger related expenses                   --            3,318         (100)%
    
    Total non-interest expense                208,257       214,118       (3)%
    
    Income before income taxes                73,177        94,931        (23)%
    
    Provision for income tax                  22,133        31,663        (30)%
    
    Net income                                $51,044       $63,268       (19)%
    
    Preferred stock dividend - undeclared     1,620         --            nm
    
    Net earnings applicable to common         $49,424       $63,268       (22)%
    shareholders
    
    Weighted average shares outstanding       60,083,788    59,827,942    0%
    
    Weighted average diluted shares           60,432,994    60,427,571    0%
    outstanding
    
    Earnings per share - Basic                $0.82         $1.06         (23)%
    
    Earnings per share - Diluted              $0.82         $1.05         (22)%
    
    nm = not meaningful
    
    
    
    
    Umpqua Holdings Corporation
    
    Consolidated Balance Sheets
    
    (Unaudited)
    
                                                               Sequential  Year over
    
                                                               Quarter     Year
    
    Dollars in
    thousands,       Dec 31, 2008  Sep 30, 2008  Dec 31, 2007  % Change    % Change
    except per
    share data
    
    Assets:
    
    Cash and due     $148,064      $161,282      $188,782      (8)%        (22)%
    from banks
    
    Temporary        56,612        5,556         3,288         919%        1,622%
    investments
    
    Investment
    securities:
    
    Trading          1,987         1,531         2,837         30%         (30)%
    
    Available for    1,238,712     963,714       1,050,756     29%         18%
    sale
    
    Held to          15,812        16,609        6,005         (5)%        163%
    maturity
    
    Loans held for   22,355        14,061        13,047        59%         71%
    sale
    
    Loans and        6,131,374     6,161,541     6,055,635     0%          1%
    leases
    
    Less: Allowance
    for loan and     (95,865)      (93,982)      (84,904)      2%          13%
    lease losses
    
    Loans and        6,035,509     6,067,559     5,970,731     (1)%        1%
    leases, net
    
    Restricted
    equity           16,491        19,573        15,273        (16)%       8%
    securities
    
    Premises and     104,694       105,341       106,267       (1)%        (1)%
    equipment, net
    
    Mortgage
    servicing        8,205         10,738        10,088        (24)%       (19)%
    rights, net
    
    Goodwill and
    other            757,833       760,252       764,906       0%          (1)%
    intangibles
    
    Other real       27,898        19,753        6,943         41%         302%
    estate owned
    
    Other assets     163,378       181,664       201,130       (10)%       (19)%
    
    Total assets     $8,597,550    $8,327,633    $8,340,053    3%          3%
    
    Liabilities:
    
    Deposits         $6,588,935    $6,493,671    $6,589,326    1%          0%
    
    Securities sold
    under            47,588        52,174        36,294        (9)%        31%
    agreements to
    repurchase
    
    Fed funds        --            40,000        69,500        (100)%      (100)%
    purchased
    
    Term debt        206,531       206,694       73,927        0%          179%
    
    Junior
    subordinated     92,520        101,247       131,686       (9)%        (30)%
    debentures, at
    fair value
    
    Junior
    subordinated     103,655       103,879       104,680       0%          (1)%
    debentures, at
    amortized cost
    
    Other            71,313        82,900        94,702        (14)%       (25)%
    liabilities
    
    Total            7,110,542     7,080,565     7,100,115     0%          0%
    liabilities
    
    Shareholders'
    equity:
    
    Preferred stock  202,178       --            --            nm          nm
    
    Common stock     1,005,820     992,402       988,780       1%          2%
    
    Retained         264,938       264,379       251,545       0%          5%
    earnings
    
    Accumulated
    other            14,072        (9,713)       (387)         245%        nm
    comprehensive
    income (loss)
    
    Total
    shareholders'    1,487,008     1,247,068     1,239,938     19%         20%
    equity
    
    Total
    liabilities and  $8,597,550    $8,327,633    $8,340,053    3%          3%
    shareholders'
    equity
    
    Common shares
    outstanding at   60,146,400    60,124,192    59,980,161    0%          0%
    period end
    
    Book value per   $21.36        $20.74        $20.67        3%          3%
    common share
    
    Tangible book
    value per        $8.76         $8.10         $7.92         8%          11%
    common share
    
    Tangible equity  $526,997      $486,816      $475,032      8%          11%
    - common
    
    Tangible common
    equity to        6.72%         6.43%         6.27%
    tangible assets
    
    nm = not
    meaningful
    
    
    
    
    Umpqua Holdings Corporation
    
    Deposits by Type/Core Deposits
    
    (Unaudited)
    
                                                                            Sequential  Year
                                                                                        over
    
    Dollars in        Dec 31, 2008      Sep 30, 2008      Dec 31, 2007      Quarter     Year
    thousands
    
                      Amount      Mix   Amount      Mix   Amount      Mix   % Change    %
                                                                                        Change
    
    Demand, non       $1,254,079  19%   $1,263,520  19%   $1,272,872  19%   (1)%        (1)%
    interest-bearing
    
    Demand,           2,810,935   43%   2,872,953   44%   2,948,035   45%   (2)%        (5)%
    interest-bearing
    
    Savings           277,154     4%    305,352     5%    410,339     6%    (9)%        (32)%
    
    Time              2,246,767   34%   2,051,846   32%   1,958,080   30%   9%          15%
    
    Total Deposits    $6,588,935  100%  $6,493,671  100%  $6,589,326  100%  1%          0%
    
    Total Core
    deposits-ending   $5,356,670  81%   $5,375,170  83%   $5,450,788  83%   0%          (2)%
    (1)
    
    Total Core
    deposits-average  $5,356,987        $5,305,680        $5,500,913        1%          (3)%
    (1)
    
    Number of open
    accounts:
    
    Demand, non       147,395           147,231           139,425           0%          6%
    interest-bearing
    
    Demand,           59,938            60,678            63,086            (1)%        (5)%
    interest-bearing
    
    Savings           69,661            70,272            70,856            (1)%        (2)%
    
    Time              33,023            33,085            37,216            0%          (11)%
    
    Total             310,017           311,266           310,583           0%          0%
    
    Average balance
    per account:
    
    Demand, non       $8.5              $8.6              $9.1
    interest-bearing
    
    Demand,           46.9              47.3              46.7
    interest-bearing
    
    Savings           4.0               4.3               5.8
    
    Time              68.0              62.0              52.6
    
    Total             21.3              20.9              21.2
    
    (1) Core deposits are defined as total deposits less time deposits greater than $100,000.
    
    
    
    
    Umpqua Holdings Corporation
    
    Loan Portfolio
    
    (Unaudited)
    
                                                                        Sequential  Year
                                                                                    over
    
    Dollars in    Dec 31, 2008      Sep 30, 2008      Dec 31, 2007      Quarter     Year
    thousands
    
    Loans and                                                                       %
    leases by     Amount      Mix   Amount      Mix   Amount      Mix   % Change    Change
    class:
    
    Commercial    $3,257,796  53%   $3,234,180  52%   $3,020,573  50%   1%          8%
    real estate
    
    Residential   435,287     7%    421,062     7%    379,804     6%    3%          15%
    real estate
    
    Construction  909,532     15%   988,452     16%   1,187,984   20%   (8)%        (23)%
    
    Total real    4,602,615   75%   4,653,694   75%   4,588,361   76%   (1)%        0%
    estate
    
    Commercial    1,460,909   25%   1,446,024   23%   1,394,985   23%   1%          5%
    
    Leases        40,155      1%    40,927      1%    40,207      1%    (2)%        0%
    
    Installment   39,145      1%    42,757      1%    43,371      1%    (8)%        (10)%
    and other
    
    Deferred
    loan fees,    (11,450)    0%    (11,861)    0%    (11,289)    0%    (3)%        1%
    net
    
    Total loans   $6,131,374  100%  $6,161,541  100%  $6,055,635  100%  0%          1%
    and leases
    
    
    
    
    Umpqua Holdings Corporation
    
    Credit Quality
    
    (Unaudited)
    
                                                               Sequential  Year over
    
                     Quarter Ended                             Quarter     Year
    
    Dollars in       Dec 31, 2008  Sep 30, 2008  Dec 31, 2007  % Change    % Change
    thousands
    
    Allowance for
    credit losses
    
    Balance
    beginning of     $93,982       $73,721       $88,278
    period
    
    Provision for
    loan and lease   31,955        35,454        17,814        (10)%       79%
    losses
    
    Charge-offs      (31,222)      (17,108)      (21,733)      82%         44%
    
    Less:            1,150         1,915         545           (40)%       111%
    Recoveries
    
    Net charge-offs  (30,072)      (15,193)      (21,188)      98%         42%
    
    Total Allowance
    for loan and     95,865        93,982        84,904        2%          13%
    lease losses
    
    Reserve for
    unfunded         983           1,059         1,182
    commitments
    
    Total Allowance
    for credit       $96,848       $95,041       $86,086       2%          13%
    losses
    
    Net charge-offs
    to average
    loans and        1.94%         0.98%         1.38%
    leases
    (annualized)
    
    Recoveries to
    gross            4%            11%           3%
    charge-offs
    
    Allowance for
    credit losses    1.58%         1.54%         1.42%
    to loans and
    leases
    
    Nonperforming
    assets:
    
    Loans on
    non-accrual      $127,914      $111,895      $81,317       14%         57%
    status
    
    Loans past due
    90+ days &       5,452         6,406         9,782         (15)%       (44)%
    accruing
    
    Total
    nonperforming    133,366       118,301       91,099        13%         46%
    loans
    
    Other real
    estate owned     27,898        19,753        6,943         41%         302%
    (1)
    
    Total
    nonperforming    $161,264      $138,054      $98,042       17%         64%
    assets
    
    Nonperforming
    loans to total   2.18%         1.92%         1.50%
    loans and
    leases
    
    Nonperforming
    assets to total  1.88%         1.66%         1.18%
    assets
    
    Past due 30-89   $59,138       $71,684       $38,963       (18)%       52%
    days
    
    Past due 30-89
    days to total    0.96%         1.16%         0.64%
    loans and
    leases
    
    (1) Other real estate owned includes $10 million of real estate legally sold,
    but for lack of initial investment of the purchaser, not accounted for as a
    sale, and therefore continues to be reported as other real estate owned.
    
    
    
    
    Umpqua Holdings Corporation
    
    Credit Quality (continued)
    
    (Unaudited)
    
                                               Year ended:
    
    Dollars in thousands                       Dec 31, 2008  Dec 31, 2007  % Change
    
    Allowance for credit losses
    
    Balance beginning of period                $84,904       $60,090
    
    Provision for loan and lease losses        107,678       41,730        158%
    
    Acquisitions                               --            5,078
    
    Charge-offs                                (101,052)     (24,730)      309%
    
    Less: Recoveries                           4,335         2,736         58%
    
    Net (charge-offs) recoveries               (96,717)      (21,994)      340%
    
    Total Allowance for loan and lease losses  95,865        84,904        13%
    
    Reserve for unfunded commitments           983           1,182
    
    Total Allowance for credit losses          $96,848       $86,086       13%
    
    Net charge-offs to average
    
    loans and leases                           1.58%         0.38%
    
    Recoveries to gross charge-offs            4%            11%
    
    
    
    
    Umpqua Holdings Corporation
    
    Selected Ratios
    
    (Unaudited)
    
                                                               Sequential  Year over
    
                     Quarter Ended:                            Quarter     Year
    
                     Dec 31, 2008  Sep 30, 2008  Dec 31, 2007  Change      Change
    
    Net Interest
    Spread:
    
    Yield on loans   6.03%         6.33%         7.28%         (0.30)      (1.25)
    and leases
    
    Yield on
    taxable          4.88%         4.67%         4.79%         0.21        0.09
    investments
    
    Yield on
    tax-exempt       5.81%         5.73%         5.58%         0.08        0.23
    investments (1)
    
    Yield on
    temporary        0.82%         2.08%         4.56%         (1.26)      (3.74)
    investments
    
    Total yield on
    earning assets   5.85%         6.11%         6.93%         (0.26)      (1.08)
    (1)
    
    Cost of
    interest         2.15%         2.32%         3.53%         (0.17)      (1.38)
    bearing
    deposits
    
    Cost of
    securities sold
    under
    agreements to    1.36%         2.22%         2.70%         (0.86)      (1.34)
    repurchase and
    fed funds
    purchased
    
    Cost of term     3.45%         3.60%         4.63%         (0.15)      (1.18)
    debt
    
    Cost of junior
    subordinated     6.42%         5.54%         7.53%         0.88        (1.11)
    debentures
    
    Total cost of
    interest         2.34%         2.50%         3.71%         (0.16)      (1.37)
    bearing
    liabilities
    
    Net interest     3.51%         3.61%         3.22%         (0.10)      0.29
    spread (1)
    
    Net interest
    margin -         4.02%         4.12%         4.00%         (0.10)      0.02
    Consolidated
    (1)
    
    Net interest
    margin - Bank    4.20%         4.29%         4.24%         (0.09)      (0.04)
    (1)
    
    Return on        0.10%         0.59%         0.46%         (0.49)      (0.36)
    average assets
    
    Return on
    average          0.11%         0.65%         0.50%         (0.54)      (0.39)
    tangible assets
    
    Return on
    average common   0.70%         3.95%         3.04%         (3.25)      (2.34)
    equity
    
    Return on
    average          1.75%         10.11%        7.92%         (8.36)      (6.17)
    tangible common
    equity
    
    Efficiency
    ratio -          58.28%        51.68%        64.68%        6.60        (6.40)
    Consolidated
    
    Efficiency       59.62%        63.75%        60.76%        (4.13)      (1.14)
    ratio - Bank
    
    (1) Tax exempt interest has been adjusted to a taxable equivalent basis using a
    35% tax rate.
    
    
    
    
    Umpqua Holdings Corporation
    
    Selected Ratios
    
    (Unaudited)
    
                                                 Year Ended:
    
                                                 Dec 31, 2008  Dec 31, 2007  Change
    
    Net Interest Spread:
    
    Yield on loans and leases                    6.42%         7.61%         (1.19)
    
    Yield on taxable investments                 4.70%         4.74%         (0.04)
    
    Yield on tax-exempt investments (1)          5.68%         5.52%         0.16
    
    Yield on temporary investments               1.82%         5.00%         (3.18)
    
    Total yield on earning assets (1)            6.18%         7.22%         (1.04)
    
    Cost of interest bearing deposits            2.49%         3.63%         (1.14)
    
    Cost of securities sold under agreements to  2.23%         3.25%         (1.02)
    repurchase and fed funds purchased
    
    Cost of term debt                            3.60%         4.60%         (1.00)
    
    Cost of junior subordinated debentures       6.03%         7.58%         (1.55)
    
    Total cost of interest bearing liabilities   2.66%         3.80%         (1.14)
    
    Net interest spread (1)                      3.52%         3.42%         0.10
    
    Net interest margin - Consolidated (1)       4.07%         4.24%         (0.17)
    
    Net interest margin - Bank (1)               4.25%         4.49%         (0.24)
    
    Return on average assets                     0.59%         0.80%         (0.21)
    
    Return on average tangible assets            0.65%         0.88%         (0.23)
    
    Return on average equity                     3.94%         5.17%         (1.23)
    
    Return on average tangible equity            10.02%        13.08%        (3.06)
    
    Efficiency ratio - Consolidated              53.11%        60.62%        (7.51)
    
    Efficiency ratio - Bank                      55.32%        57.47%        (2.15)
    
    (1) Tax exempt interest has been adjusted to a taxable equivalent basis using a
    35% tax rate.
    
    
    
    
    Umpqua Holdings Corporation
    
    Average Balances
    
    (Unaudited)
    
                                                               Sequential  Year over
    
                     Quarter Ended:                            Quarter     Year
    
    Dollars in       Dec 31, 2008  Sep 30, 2008  Dec 31, 2007  % Change    % Change
    thousands
    
    Temporary        $40,961       $13,182       $84,964       211%        (52)%
    investments
    
    Investment
    securities,      924,722       841,810       800,501       10%         16%
    taxable
    
    Investment
    securities,      167,127       167,132       169,609       0%          (1)%
    tax-exempt
    
    Loans held for   14,900        13,966        15,123        7%          (1)%
    sale
    
    Loans and        6,158,620     6,159,644     6,087,801     0%          1%
    leases
    
    Total earning    7,306,330     7,195,734     7,157,998     2%          2%
    assets
    
    Goodwill &
    other            759,424       760,911       766,109       0%          (1)%
    intangibles
    
    Total assets     8,425,353     8,333,242     8,288,478     1%          2%
    
    Non interest
    bearing demand   1,254,846     1,267,356     1,304,484     (1)%        (4)%
    deposits
    
    Interest
    bearing          5,235,651     5,154,922     5,288,940     2%          (1)%
    deposits
    
    Total deposits   6,490,497     6,422,278     6,593,424     1%          (2)%
    
    Interest
    bearing          5,723,779     5,741,816     5,656,152     0%          1%
    liabilities
    
    Shareholders'    1,262,566     1,248,357     1,243,095     1%          2%
    equity - common
    
    Tangible common  503,142       487,446       476,986       3%          5%
    equity
    
    
    
    
    Umpqua Holdings Corporation
    
    Average Balances
    
    (Unaudited)
    
                                          Year Ended:
    
    Dollars in thousands                  Dec 31, 2008  Dec 31, 2007  % Change
    
    Temporary investments                 $24,357       $68,297       (64)%
    
    Investment securities, taxable        883,987       743,266       19%
    
    Investment securities, tax-exempt     170,277       149,291       14%
    
    Loans held for sale                   17,840        14,073        27%
    
    Loans and leases                      6,118,540     5,822,907     5%
    
    Total earning assets                  7,215,001     6,797,834     6%
    
    Goodwill & other intangibles          761,672       739,086       3%
    
    Total assets                          8,342,005     7,897,568     6%
    
    Non interest bearing demand deposits  1,255,263     1,263,873     (1)%
    
    Interest bearing deposits             5,204,313     4,986,647     4%
    
    Total deposits                        6,459,576     6,250,520     3%
    
    Interest bearing liabilities          5,724,340     5,331,620     7%
    
    Shareholders' equity - common         1,254,730     1,222,628     3%
    
    Tangible common equity                493,058       483,542       2%
    
    
    
    
    Umpqua Holdings Corporation
    
    Mortgage Banking Activity
    
    (unaudited)
    
                                                               Sequential  Year over
    
                     Quarter Ended:                            Quarter     Year
    
    Dollars in       Dec 31, 2008  Sep 30, 2008  Dec 31, 2007  % Change    % Change
    thousands
    
    Mortgage
    Servicing
    Rights (MSR):
    
    Mortgage loans
    serviced for     $955,494      $939,876      $870,680      2%          10%
    others
    
    MSR Asset, at    $8,205        $10,738       $10,088       (24)%       (19)%
    fair value
    
    MSR as % of
    serviced         0.86%         1.14%         1.16%
    portfolio
    
    Mortgage
    Banking
    Revenue:
    
    Origination and  $1,987        $1,817        $1,530        9%          30%
    sale
    
    Servicing        633           636           601           0%          5%
    
    Change in fair
    value of MSR     (3,028)       (1,426)       222           112%        nm
    asset
    
    Change in fair
    value of MSR     --            --            (334)         0%          (100)%
    hedge
    
    Total Mortgage   $(408)        $1,027        $2,019        (140)%      (120)%
    Banking Revenue
    
                     Year Ended:
    
    Dollars in       Dec 31, 2008  Dec 31, 2007  % Change
    thousands
    
    Mortgage
    Banking
    Revenue:
    
    Origination and  $6,940        $6,426        8%
    sale
    
    Servicing        2,472         2,455         1%
    
    Change in fair
    value of MSR     (4,578)       (756)         506%
    asset
    
    Change in fair
    value of MSR     (2,398)       (334)         618%
    hedge
    
    Total Mortgage   $2,436        $7,791        (69)%
    Banking Revenue
    
    nm = not meaningful
    
    
    
    

    
        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