Umpqua Holdings Corporation (UMPQ)

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Umpqua Holdings Corporation (UMPQ)

Q3 2007 Earnings Call

October 18, 2007 1:00 pm ET


Ronald Farnsworth - Senior Vice President of Finance

Ray Davis - President & Chief Executive Officer

Brad Copeland - Chief Credit Officer

Bill Fike - President of Umpqua Bank California

Mark Wardlow - Senior Credit Officer


Matthew Clark - KBW

Brett Rabatin - FTN Midwest

Brent Christ - Fox-Pitt

Joe Morford - RBC Capital Markets

Jim Bradshaw - D.A. Davidson

Todd Hagerman - Credit Suisse

K.C. Ambrecht - Millennium



Good afternoon. My name is Laticia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Umpqua Holdings Third Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a Question and Answer session (Operator Instructions). I would now like to turn the call over to Mr. Farnsworth, Senior Vice President of Finance. Sir, you may begin.

Ronald Farnsworth

Excellent. Thank you. Good morning. And thank you for joining us today as we discuss the results of operations for the Third Quarter of 2007 for Umpqua Holdings Corporation. In reviewing the Company's prospects today, we will make forward-looking statements, which are provided under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements are subject to certain risks and uncertainties, and our actual results may differ materially from those that we anticipate and predict today. We encourage you to review the risk factors stated in the Company's 10-K, 10-Qs, and other reports filed with the SEC. And we caution you not to place undue reliance on forward-looking statements. The Company does not intend to correct or update any of the forward-looking statements that we make today.

With us this morning are Ray Davis, President and CEO of Umpqua Holdings Corporation, and Brad Copeland, our Chief Credit Officer. David Edson, President of Northwest region, Bill Fike, President of our California region, and Mark Wardlow, our EVP and Senior Credit Officer are here for the question and answer session. A two-week rebroadcast of this call will be available two hours after the call by dialing 800-642-1687. This number is also noted in the earnings release we issued this morning.

I'll now turn the call over to Ray Davis.

Ray Davis

Good morning. Earlier today, the Company announced Third Quarter Earnings well below expectations. This shortfall is related to increased provision for losses in the Residential Development segment of our loan portfolio. This segment deteriorated during the Third Quarter based on a housing market downturn. The majority of issues are in our northern California markets where the housing downturn has been the most significant.

In a minute, I will ask Brad Copeland to provide specifics on our loan portfolio, but you may be assured that management has taken an aggressive stance in risk rating these problem credits and has taken the necessary valuation impairments to protect the income prospects of the Company for the future.

Before Brad comments in more detail, let me share other significant achievements for the quarter. Our loans grew $97 million, split evenly by region. For the quarter, the Oregon/Washington region grew at a 6% annualized rate, while California grew at an 8% annualized rate. Our deposits increased $104 million, or 6% annualized with $96 million or 11% in Oregon/Washington. California deposits grew only modestly due to the current environment.

Overall, Non-interest Checking Accounts still remain above 20%. The recent FDIC deposit market share report for Oregon shows Umpqua increased total market share from 6.8% to 7.2% taking us up one spot to the number five position in the State. Our California market share also increased, moving us up four positions.

The Company's Debit Card Interchange income is also up 38% year-over-year, and net charge-offs were minimal at only $800,000 year-to-date. Ron Farnsworth will provide more information on our net interest margin, capital, and other financial matters shortly.

Now, I'm going to turn the call over to Brad Copeland, our Chief Credit Officer.

Brad Copeland

Thanks, Ray. The housing industry slowdown persists throughout the country and has been amplified in our northern California region, leading to a decline in our key credit quality indicators. Our total loan portfolio is $6.1 billion; of this, $764 million are residential development loans, which include land, acquisition and development and single-family construction. Of this total, $424 million are in our Oregon/Washington region, while $340 million are in California. To break this down further, the two largest components consist of Land Loans of $246 million and Acquisition and Development Loans of $315 million. Total Non-performing loans increased $21 million to $69 million or 1.13% of total loans, up from $48 million or 0.80% for Second Quarter. The total Non-performing Loan increase is centered in five relationships.

Of the total Non-performing Loans, 83% are within the Residential Development segment, and 82% of these loans are in California. It is obvious that the deterioration of this segment is being driven by economic conditions.

Like others in our industry, the current housing market downturn is primarily responsible for our current credit issues. To report to you on the actions our credit teams have taken over the last several months, we have completed the review of every loan in this segment of the portfolio. We have conservatively valued each problem loan based on updated appraisals, leading to an Impairment Reserve increase of $11.2 million for the quarter.

Downgrades this quarter, combined with the Impairment increase, led to the $20.4 million provision for loan loss - and we are actively working with each borrower to resolve problem credits. For example, we have already sold $10 million of our Oreo this past week at no loss.

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