Umpqua Holdings Corporation (UMPQ)

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Umpqua Holdings Corporation

Q2 2008 Earnings Call

July 17, 2008 1:00 pm ET


Ron Farnsworth - Chief Financial Officer

Raymond P. Davis - President and Chief Executive Officer

Brad F. Copeland - Senior Executive Vice President and Chief Credit Officer

Dave Edson - President

Mark Wardlow - Senior Credit Officer


Brett Rabatin – Midwest Securities Corp.

Brent Christ – Fox-Pitt Kelton

Todd Hagerman – Credit Suisse

Dustin Brumbaugh - Ragen MacKenzie Group

Matthew Clark – Keefe, Bruyette & Woods

Allan Smith

Jeff Bright – [Bright Security Group]

Kipling Peterson – [Columbia Ventures Corporation]



Welcome everyone to the Umpqua Holdings second quarter earnings release conference call. (Operator Instruction) Mr. Farnsworth, you may begin your conference.

Ron Farnsworth

Thank you for joining us today as we discuss the results of operations for the second quarter of 2008, 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; Dave Edson, President and Mark Wardlow, Senior Credit Officer will also be 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 will now turn the call over to Ray Davis.

Raymond P. Davis

This morning Umpqua Holdings reported earnings for the second quarter of $10.2 million or $0.17 per diluted share. On a year-to-date basis, the company reports earnings of $34.8 million or $0.58 per diluted share.

Here are a few highlights for the quarter. The company’s capital position remains strong with the total risk based capital at 11.06%. Our capital forecast for the rest of this year do not anticipate our capital following below our second quarter 2007 level of 10.8%. Our non-performing loans, end of the quarter at 1.61% of total loans and non-performing assets end of the quarter at 1.25% of total assets, marginally up from last quarter.

The management team at Umpqua continues to take an aggressive posture with non-performing loans which includes impairments tied to quick sale estimates, prompt downgrades of weaker credits and timely charge-offs. Ron will explain the actions we took this past quarter to eliminate any confusion with the difference in regulatory and SEC reporting of specific impairment reserves and charge-offs in past quarters.

In summary, we have charged off all recorded, specific impairments on collateral dependent loans. I am pleased to report that our 30 to 89 days past due loans have significantly decreased from totals reported for the first quarter. As of quarter end, this group of loans totals $18.9 million down 72% from the $68.2 million reported for the first quarter. This is a welcome and noticeable improvement.

Twitching the growth for this past quarter, our loan pipelines remain healthy and our net loan growth for this past quarter was a controlled $67 million while deposits roll back $153 million. We believe this downturn in deposits was temporary and in fact has started to rebound here in the third quarter.

It is important to note that virtually all of our deposit reduction is attributable to title and 1031 exchange companies as well as government agencies simply carrying lower balances. Our net interest margin ended the quarter at 4.5% for the company and 4.33% for the bank, as we forecasted last quarter. Both of these numbers reflect expansion in our margin.

As we have mentioned in past calls, our credit issues remained within our residential development portfolio which has been reduced over the last couple of quarters by more than 34%. Our problems have primarily been limited to the greater Sacramento area and then Oregon.

It is encouraging to note that recent statistics on the Sacramento housing market reflects signs of improvement, evidenced by the following: Since September of 2007, the inventory of homes for sale has dropped from 17.8 months to 5.2 months at the end of June. Home sales, which averaged about 800 units a month during 2007, have grown steadily over the last six months and have now more than doubled to over 1,800 for June.

Medium home prices have been reduced dramatically over the same period which has significantly contributed to the improvements noted. Even though it is premature to state that Sacramento has recovered, it is showing signs of improvement. That said Central Oregon is still slow while the rest of our footprint is holding steady.

I will now turn the call back over to Ron for some financial comments.

Ron Farnsworth

As mentioned, our second quarter net interest margin was 4.15% an increased 17 basis points from the first quarter. Earning asset yields declined 30 basis points this quarter, based primarily on the reductions from the prime rate. We were successful in reducing the costs of interest bearing deposits by 58 basis points this quarter, more than offsetting any earning asset yield pressure.

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