Columbia Banking System, Inc. (COLB) Q1 2008 Earnings Report, Transcript and Summary

Good day everyone. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Umpqua Holdings First 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]. Thank you. I would now like to turn today’s conference over to Ron Farnsworth, Chief Financial Officer. Sir, you may begin your conference.

Thank you, Christie. Good morning and thank you for joining us today as we discuss the results of operations for the first 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 of our Northwest Region; Bill Fike, President of our California Region; and Mark Wardlow, our 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’ll now turn the call over to Ray Davis.

Thank you, Ron and good morning. As our press release indicated, for the first quarter of 2008 the company reported earnings of $24.7 million or $0.41 per diluted share compared to $20.7 million or $0.35 for the same quarter a year ago, and 9.6 million or $0.16 for the fourth quarter 2007. We are pleased with several aspects of the company’s performance this past quarter. Specifically, our mortgage banking division reported strong results in origination and sales revenue, our aggressive efforts in managing our net interest margin, which finished about flat this quarter with last and after five sequential quarters of increasing non-performing assets, we are pleased to report that during this past quarter the company realized a decrease in our level of non-performing assets. Also, the Umpqua [Olympics] store deposit promotion, which we kicked off in February is increasing customer relationships and demand deposits and has been very successful over the last two months. And finally, our cost control initiatives continue to be successful. The improvement in these areas are critical to the overall efforts to return the company to normalized earnings. Even though our organic growth in loans and deposits slowed this past quarter due to seasonal trends and the economy, we are confident that the company’s growth strategy remains as viable as ever. During this past quarter, the company also reported other significant actions that impacted our earnings that are outlined in our quarterly press release. For a more complete review of these transactions and their impact on the company, I am going to turn the call over to Ron for his remarks and explanation. Ron?

Thank you Ray. Our first quarter net interest margin was 3.98% and declined only 2 basis points from the fourth quarter. On an asset yields declined 40 basis points this quarter based primarily on the recent reductions in the prime rate. We were successful in reducing the cost of interest bearing deposits by 50 basis points this quarter, beginning the earning asset yield pressure. The interest reversals on new non-accrual loans in Q1 of $300,000 caused the decline of 2 basis points in our loan yield and margin. Excluding the interest reversal, our first quarter margin would have been flat with Q4. While we have $2 billion in loans tied to prime and 3.3 billion repricing within one year, we also have 3.2 billion in interest bearing non-time deposits available for repricing. In addition, we have 715 million in time deposits maturing within 90 days and $1.8 billion maturing within a year. These time deposits are expected to reprice up to 100 basis points lower based on current market rate. Given these sources of funds, we believe we have the continued ability to match future Fed cuts with downward repricing on deposits. The decline in earning asset yields and interest bearing deposit costs occurred steadily throughout the quarter. For the month of March, our loan yield was 6.69%, down 20 basis points from the overall Q1 total, while our cost of interest bearing deposits were 2.74%, down 29 basis points. The provision for loan losses for the first quarter was $15.1 million. This is down 15% from the 17.8 million provision taken during the fourth quarter of 2007 and down 26% from the third quarter of 2007. The unallocated portion of the allowance for credit losses remain unchanged during the first quarter at $4.1 million or 4.7% of the overall allowance. Our total allowance for credit loss now stands at $87.7 million or 1.45% of loans outstanding. This is up from 86.1 million or 1.42% a quarter ago. Within non-interest income, the largest changes this quarter were mortgage banking revenue, gain on sales investments and other income. Mortgage banking revenue was a negative $1.9 million in the first quarter, resulting from losses on the mortgage servicing right hedge and related assets. We began hedging the MSR asset in Q4 and in hindsight, Q1 turned out to be one of the worst times to hedge in MSR given the extraordinary volatility in the bond market. This volatility resulted in widening spread and significant price declines on mortgage TBAs used for hedging that were not offset by corresponding gains in the MSR asset, leading to a $2.4 million charge for the hedge. We unwound the hedge position in the middle of March given this continued volatility. Towards the end of March, mortgage rates being to decline, which led to the MSR valuation impairment of $1.6 million. All in, the negative MSR related hedge marks were $4 million for the first quarter. The MSR asset ended the quarter at 100 basis points for the service loan portfolio, down from 116 basis points at December 31, 2007. And at quarter end, there is no active hedge on this asset. Excluding the MSR-related losses, mortgage production revenue was up 21% on a sequential quarter basis. Total volume for the quarter was $81 million, about flat and the revenue gain in Q1 was based on improved prices. Within other non-interest income as a Visa member bank, we received $12.6 million for a mandatory partial redemption of our Visa ownership position based on their successful IPO in March. This redemption was for 295,000 shares leaving us with 469,000 shares of Class B stock. These remaining shares are restricted for up to three years, and are then expected to convert into 335,000 shares of Class A stock. This unrecognized asset was valued at $21 million at quarter end. We sold and reinvested a portion of the investment portfolio during the quarter, recognizing the gain of $3.9 million. These gains resulted from restructuring the portfolio early in Q1, shortening the average life to 5 years. Purchases over the past 12 to 18 months, we are targeting enhanced total returns in rates down scenario and we have rates down here in Q1. And after this restructuring, the average life of the portfolio was better balanced for rates unchanged and rates up scenario. At quarter end, the tax equivalent yield at the investment portfolio was 4.8%. Other income in the first quarter also included a $1.8 million fair value increase on trust preferred borrowings, related to spreads widening on new issues to the 375 to 400 basis point range. Our new trust preferred issues in 2007 carried a cash spread of 181 basis points over the three months LIBOR. This fair value mark will increase over the coming years if spreads continue to widen and it will decrease if spreads tighten. Turning to our expense now, total non-interest expense was $46.9 million for the first quarter. Included in other expense was the reversal of a $5.1 million charge we established in the fourth quarter of 2007 for our Visa membership related litigation. As you may recall from Q4, we were required to recognize an estimate of Visa’s pending litigation settlement based on our ownership position prior to their IPO. Now that their IPO is complete, they’ve established a litigation reserve and we were able to reverse that accrual. Excluding this item, total non-interest expense for Q1 was about $52 million, flat on a sequential quarter base when also excluding the charge in Q4. Our cost saving initiatives have resulted in salaries and benefits remaining flat when compared to the same quarter a year ago. But keep in mind, Q1, 2007 did not include our acquisition of North Bay Bancorp, which occurred in April last year. The $500,000 increase on a sequential quarter basis in this line item resulted primarily from higher payroll taxes typically associated with the first part of the new calendar year. The effect of income tax rate was 33% this quarter. We expect it to be in the 33 to 36% range for all of 2008. Our bank total risk based capital is 10.9% at March 31. This is up from 10.8% last quarter. This represents $110 million of excess pre-tax capital above the 10% well capitalized threshold. Our tangible equity to assets ratio increased to 6.50% this quarter and there are no stock repurchases planned in the near-term. And our liquidity remained strong with $1.6 billion in available borrowing lines. To summarize our Q1 income, we reported $0.41 of earnings per share. This included $0.18 of combined gains from Visa along with $0.02 of fair value gain on trust preferred borrowing. Offsetting this was $0.15 of provision for loan losses, arriving at pre-provision earnings of $0.36 per share. I will now turn the call over to Brad Copeland to cover credit.

Thanks Ron. As we have reported on our last several earnings call to slowdown the US housing industry and overall deterioration and general economic conditions continues to adversely impact our credit quality metrics. However, as we detailed in our comments today, we have made significant progress in identifying our problem loans, implementing strategies to address them and most importantly bringing them to resolution as quickly as possible. Since we are currently engaged in a variety of discussions with borrowers, we will be unable to address details on specific credits during today’s call. During our last conference call, we reported our expectation of further improvement in our key credit quality metrics during the first half of 2008. I am pleased to report we were able to show improvement in most key areas. Non-performing loans declined 18% to $75 million this quarter, while non-performing assets declined 10% to $88 million. Net charge-offs for the first quarter were $13.5 million compared to net charge-offs of $21.2 million for the fourth quarter, a reduction of 36%. We successfully resolved $30 million in non-performing assets during the past quarter. We ended the quarter with an other real estate owned balance of $13.3 million. 92% of this amount consists of residential development properties. At March 31, our total loan portfolio stood at $6 billion. Of this, commercial and residential real estate was $3.5 billion, commercial was $1.4 billion, and the balance of $1.1 billion was in construction. Of $1.1 billion construction portfolio, $530 million are commercial construction loans performing with no notable issues. The balance of $582 million are residential development loans, which includes land, acquisition and development, and single-family construction. This amount is split between California at $234 million, in Oregon-Washington at $348 million. The overall total is down $92 million or 14% from last quarter and down a $182 million or 24% over the last two quarters. The average residential development loan is $964,000. There are several additional positives on the credit front, I’d like to report to you as follows: The delinquency ratio in our C&I portfolio remains low at 0.63% and loans past due 90 days or more fell from $9.8 million at December 31, 2007 to $3.3 million at March 31, 2008. Our Oregon-Washington region grew loans by $62 million during the first quarter. The wine industry group we mentioned during our last earnings call is ramping up with $11.4 million in new loan bookings in Q1 and $26.5 million of transactions in the pipeline. Across all markets, our pipelines remain healthy with a total of over $1 billion split evenly across our footprint. It is important to mention that approximately 37% of the pipelines are C&I loans. In California, pipeline totals have grown by $80 million since December 31st. We continue to have success in changing the composition of our California loan portfolio with C&I increasing from 16 to 22% of the total year-over-year. And we also continue to have success in targeting tax entities for lending opportunities to $21 million currently in the pipeline. I would like to close with a few comments regarding our ongoing strategy for problem loans resolution. As we have said consistently, it has been our practice to be very aggressive and identifying potential problem loans, downgrading to more appropriate and ensuring that required level of management oversight is quite. Once problem has been identified, relationship is transferred to our special assets department where an experienced workout officer immediately begins to develop the appropriate action plan to either fix a problem or manage the account out of the bank as quickly as possible. We are fortunate to have a team of experienced workout professionals to assist us in managing through the current down cycle. The expertise of this group is demonstrated impart by the success we have achieved in reducing our level of non-performing loans and assets. While we still have some work ahead of us, we are confident our problems have been identified and are being managed effectively. I will now turn the call back to Ray for our summary comments.

Okay, just a few closing comments. During the first week of April I had the pleasure of traveling throughout Umpqua’s footprint and meet with many shareholders and receptions in 11 different cities. These gatherings were important for many reasons as they allowed for management to meet, discuss and answer questions from our shareholders. They were also important because we believe that when times are difficult shareholders should have access to management. Most of the questions we received really revolved around our dividend policy, which we have no plans to disrupt, the status of our capital, where we remain well capitalized and realized, as Ron mentioned, additional improvement this past quarter, and the economy and housing downturn and their effect on the financial industry and Umpqua Holdings stock performance specifically. I found these discussions to be lively and informative and want to extend my thanks to all of you who were able to attend. Once again, I want to express my appreciation to our lending professionals for the incredible hard work. The strength of our company culture and the depth of our management team will continue to be the major factors as we recover from the decimal economy. The many shareholders that are listening to this call, I want to thank you again for the support. As always, we appreciate your interest in Umpqua Holdings Corporation, and we’ll now take your questions.

(Operator Instructions). Your first question comes from the line of Brett Rabatin.

Good morning, Ray. How are you?

Hi, good, Brett.

Nice to see the NPAs down, I was wondering if you could go through -- you did in the press release go through what the inflows and outflows were to the all the real estate owned, and so I was curious if you could do the same for the NPAs and discuss the 13.5 million of net charge-offs, if you could walk through the major pieces of that?

Sure, Brett. I’ll let Mark Wardlow, our Senior Credit Officer give you a quick update.

Yes, this is Mark. Of the $13.3 million, that was really centered in three or four relationships, and the rest of it was very small charge-offs. And they were previously loans that we’ve identified as problems in the third and fourth quarter of last year.

Okay. So the charge-offs were mostly three or four relationships?

Yes.

Were they all construction or whether any of them C&I or…

No. There was no C&I. The vast majority of those were related to our residential development portfolio.

Okay. And then any color on inflows or outflows that you might have had, and then non-accrual bucket just for payoffs or new loans that came in relative to what you charged off?

Brett, this is Ray. You know, there really wasn’t anything significant that went in and out that really impacted it. It was a stream of mostly smaller loans that either re-entered or I shouldn’t say re-entered, entered the non-performing status or exited, either sold, resolved or moved into OREO. What is interesting now is one fact that I can’t pass on to is that our overall classified dropped 15%. So this was a very good quarter for us on the way that our management, our credit teams managed the overall troubled assets that we are looking through.

And you mentioned classifieds were down 13%, do you have a number for that?

I don’t have the number off the top of my head, but we haven’t. But it was a significant decrease.

And Brett, this is Ron, just a quick question; you had a question about the $13.3 million specific impairment reserve?

Correct.

That of course is side to the 75 million of non-performing loans at the end of the quarter.

Okay. Which you know is not, it’s to the total pool then?

It’s to the pool of that $75 million of non-performing loans.

Okay.

Yeah. And also just keep in mind too, we do have still this quarter $4.1 million where almost 5% of our overall reserve is in an unallocated status. That's unchanged over the last quarter.

Okay.

And Brett, Ray again, I think I appreciate your question. As you can imagine in this economy and the extension of the extended period of time to housing market has been so terribly depressed, it’s not only a dangerous, but it’s also very difficult for even to try to project what’s going on. I think Brad’s comment is very accurate where we can -- and in that -- we still have work to do. I mean, there is no question about it. But we are making progress and remain cautiously optimistic, maybe that’s the best way to describe how we are handling and where we are moving here.

Okay. Just one last one and I will get back in the queue. The special assets division, can you give us any estimate of the pool of loans that they are currently doing with or working through?

Yeah, it would be the all of our non performing assets. It would be the $88 million or even $86 million that we were talking about. That’s their lion share of loans they are working through right now.

So they don’t deal with any ones that might be caused by criticized with everyone?

It depends. It depends, if we see a loan that is likely to deteriorate further, then we might move it in there a little bit quicker. But I would tell you that 95% of all the loans they are doing with right now are in that pool of our non-performing assets.

Okay, great. Thank you.

Your next question comes from the line of Brent Christ.

Good morning.

Good morning Brent.

Just a couple more questions on credit, I guess first, several other banks in the kind of Pacific Northwest this quarter come out with some negative credit-related pre-announcements and I was just curious in terms of how your portfolio is tracking within Oregon and Washington particularly on the residential constructions side?

Right. Well, let me respond to that. The last thing we want to here is other banks suffering, that’s for sure, because as everybody knows it reflects on all of us. But the one thing that I think that Umpqua has done and I am pleased, have been pleased that the Street have given us credit for this is that we were one of the early announcers, if you will of what types of troubles we were dealing with and the size of the scope that we felt that we had to work through and we have remained very consistent. As I think I mentioned in our last call, our game plan is no surprises, we can do is to announce early, these are the problems we have, which we made very clear reside almost 100% on our residential development portfolio and to work through those which we continue to do. There is one thing in our company Brent that is not going to be on an annual report or on in a ratio or percentage or have a dollar sign on it, and it’s difficult I realize for the analysts to quantify this and much easier for us and that is the depth of the talent that we have here and experience working through the credit difficulties that Umpqua is dealing with. And, I will tell you as I said, it’s hard for you guys to put a dollar sign on it, but I will tell that it is a great comfort to us to know that we’ve got the best in the business working for this organization and I think this past quarter has proven how hard and how successful they have been so far.

Okay, and then a couple of follow-ups. One, you guys highlighted a large $25 million non-performer last quarter in the greater Sacramento area and I was just curious if there was any update on that specific project if that was within the bucket of loans that was resolved this quarter or not?

Brent, this is Brad. We are still in negotiation on that specific credit, but we do feel that our exposure is covered on it.

Okay. And then the last question was, you mentioned that you had resolved about $30 million or so of non-performers and that the bulk of $13.5 million they charges us this quarter related to some of the non-performers which would imply kind of assets being sold at somewhere around $0.35 on the dollar or so, is that a fair way to think about what the market is in general for some of these troubled construction types or properties in California right now.

Not really. We have not taken any discounts like that and its each -- we have taken each one, one at a time and that’s been certainly better performance from now.

Okay. Were there any bulk sales this quarter or it was done on one-off basis?

One by one, there is no bulk sales.

Okay, thanks a lot.

Thank you.

Your next question comes from the line of Todd Hagerman.

Just a couple of questions. First, just Ray or Brad, in terms of the reduction in classified the 13%, can you give a little bit more detail or look in terms of how that translated into the Northern California franchise?

Yes, this is Mark. I would say that, of that 13% the lion’s share of it probably 10% or higher of the California franchise.

Okay. So again, you are saying improvement in terms of the risk rating migration out of that franchise?

What we are seeing is, as Ray alluded to earlier as we identified the problems early on mid last year and it’s shown that we were able to resolve the credits basically, as we identified them in the third quarter, these are resolved credits from that timeframe.

Okay. And…

In other words the biggest improvement there is not coming from upgrades. The biggest improvement is coming from resolution.

Right. That’s helpful. And then Ray, any thoughts again just in terms of providing a little bit more clarity in terms of the reserves with respect to that portfolio, because the residential construction, the 500 million or so, again, kind of how well are reserved you are?

Todd, we think we are very adequately reserved and very good shape. And as Ron mentioned, and again, I don’t want to deliver this point, but as Ron mentioned, we still have about just shy of 5% of our reserve in unallocated status. So, we are in good shape.

Okay. And then just finally, in terms of the loan growth, again the pipeline has stayed fairly robust for a number of quarters now exceeding a billion at this point in time. Ray, give me a sense in terms of just what pay-off in terms of, you guys balancing kind of the monthly pay-off trend, as it relates to kind of the production that you are in -- whether or not you think you are going to get much traction this year. Again, very healthy pipeline, but it seems like the pay-off activities really yielding into the production that you are saying?

Yeah, I would say, just I think that we have actually seen the pipeline in past calls, it’s been healthy, and then it got weaker and now it’s coming backup a little bit stronger from our point of view. And, obviously we like what we see as it relates to that. But, as far as pay-offs in overall production for this past quarter, as you can tell very, very balanced unfortunately. But, we do see the number of pay-offs slowing somewhat in future quarters predominantly because of what’s being going off interest rates and the conduit pricing has -- its certainly not as attractive as it was just a few quarters ago.

Okay. Thanks very much.

Thank you.

Your next question comes from the line Joe Morford.

Thanks, good morning everyone.

Hi, Joe.

Most of my stuff has been asked. But, just a couple of follow-ups, in the $5.7 million of OREO sales this quarter, was there any kind of noticeable gain or loss on that or were they pretty much done as close to where you had written down to?

They were very close to where we had written them down to, no noticeable gains or losses, we feel we have them fairly valued, when they came into OREO.

Okay. And would have guess as to kind of how much of your residential land development portfolio has kind of current updated appraisals?

This is Mark. I would say that, certainly any of our troubled credits in that bucket have had appraisals done within the last 60 to 90 days. It’s our practice to immediately reappraise once the problem has been identified.

Okay. And then, is there any kind of -- is the rest of portfolio just kind of done on annual basis, some things are new or something or is there given the issues in markets are you proactively kind of going out and trying to get updated appraisals?

Yes. When in doubt, we are reappraising, the markets are moving very quickly as you know. And we are very careful to be aware of that and we want to make sure that we have proved evaluations on our loans. So, yes, we are being very proactive in getting new appraisals with.

And what are you seeing from some of the more recent appraisals that you get in terms of the kind of decline in land values or home values in some of your markets?

Again, it depends, there is a wide…

Sure. I understand.

In Oregon, Washington, and California and also the property type. And some of them are very little deterioration on some of the residential development area land, there are lands, properties in these greater Sacramento area, we are seeing anywhere from 40 and 50% declines in value in some cases.

Yeah. Okay, that’s it. Thanks very much.

Thank you.

Your next question comes from the line of Jim Bradshaw.

Good morning.

Yeah. Hi, Jim.

Just a couple of things. First Ron, in your P&L where is the mark on trust preferred what are that show up and what line item?

Other non-interest income.

Okay, thanks. And then the sort of more broad question. The production pipeline could you generally talk about where pricing is today to say 6 or 12 months ago, and in terms of loan, standards and covenants and things like that how its changed from maybe a year ago?

From a pricing standpoint, we definitely seen the spreads increased with the risk premiums, treasuries though of course were down. But…

All right.

All in I would say net were up from a reverse 6 to 9 months ago just again based on that risk premium.

And in terms of like prepayment penalties and things like that are and floors are you able to get those written into to loans today that maybe included in a year ago?

Yes.

Okay. And then just last things for me, I wonder if you could comment on what your builders are telling you in the real estate development portfolio is, we have been hearing that there is good activity in model homes, but not a lot of sales. I just wonder, if you are hearing something different or getting a better read from your clients?

This is Mark. Most of our clients at this point have severely curtailed operations and waiting for this down cycle to subside. So, and we are doing very little if any new loans in that area.

Okay. That’s all from me thanks.

Thanks Jim.

Your next question comes from the line of Dustin Brumbaugh.

Good morning.

Hi, Dustin. Good morning.

Just a few questions and I think my first one was pretty much answered, but I will throw it out anyway. One is just confirming the number of resolutions of NPA was that 34, 35 million? And then wondering if you could you kind of dig in a little bit there about -- if you could give numbers or percentages of how those resolutions came?

This is Mark. Yes, 30 million is the number. And there is whole loan list, having resolved that $30 million. It was a combination of pay-offs, a few upgrades, some more moved, some were sold out of OREO and then some were in the charge-off that we mentioned.

Okay. Thanks. And then, you made a comment on time deposits you are pricing a 100 basis points lower, just wondering I missed the number, how big that number is of those time deposits?

Yeah, definitely, within 90 days we have a little over $700 million of time deposits repricing, over the next year in total it’s 1.8 billion and we are seeing those CDs repricing at a 100 basis points or greater below their current book rates.

Okay, great. And then, my last question is just kind of a, you mentioned a pretty wide range on the expected tax rate for ’08, just wondering what’s driving that?

Really what’s driving that would be tax credit investments we have planned for the year, we are a pretty large investor in the Oregon business energy tax credit program and those tend to have spikes quarter-to-quarter based on investments.

Okay. So, the 33% to 36% range isn’t for the full year, that’s how the quarters could -- each individual quarters come in within that range?

Correct.

Okay, great. Thank you.

Thank you.

Your next question comes from the line of Norman Jaffe.

Hi, guys. A number of regional banks have recently had to write-down their goodwill because either the business outlook changed and or there had been a long-term length of time that the stock had been trading below book value. I was just getting an update as to what your prognosis is regarding the evaluation of your current goodwill on your book?

Yeah, we evaluate the goodwill on a quarterly basis, and we are in the same position where we were a quarter ago, we see no impairment with the level of goodwill on our books.

Thank you.

Thank you.

Your next question comes from the line of Bill Ken.

Just a quick question. You guys there?

Good morning.

Just a quick question, the other income spiked up quite a bit and I think you said earlier some of that is trust preferred markup. Moving forward, I mean is this quarter a little bit higher than what we should be expecting in future quarters?

Wouldn’t say so. The two significant moving parts in Q1 in that other non-interest income line, there is $12.6 million of gain from VISA mandatory partial redemption, there is also $1.6 million from the trust preferred fair value gain. You back those two out and you will get what we did (inaudible) this quarter.

So, it should be roughly about 2 to 3 or 4 million, in that ballpark?

Pretty good range. I am not going to give guidance on the exact number, but…

Yeah, but just…

We are going to be in the ballpark of Q1 excluding those special items.

Okay. Thank you.

Thank you.

Your next question comes from the line of Brett Rabatin.

Hey, guys, I just had a follow-up on construction credit and I know you don’t have too much [enrolled], I want to go through the portfolio in California particularly given that you’ve obviously reduced exposure there and just get any color around the 234 million you have in California how much of that is right in Sacramento and the immediate vicinity, how much is outside and how much is that by, how much is rolling, et cetera?

Okay. This is Mark. As we mentioned, we have $233 million in residential development total in California. Of that residential development a 130 million of that is in the Sacramento SMFA and the breakdown of the total is roughly and this is statewide in California roughly 84 million in land, about 90 million in acquisition development and about 60 million in construction and Sacramento is probably 50% to 75% of that total, of those totals I gave you.

I am sorry. 65%?

Yeah, somewhere in that range.

Okay. And then also, I just wanted to hear any commentary on Oregon in particular and if you are seeing areas like Bend, I notice that in March there were some better home sales not that you would require to wait for a couple of months before you can -- say if there is a trend, but I am just curious if some of the softer markets like Bend if you are more optimistic on those locations or if there is still a period where you are going to have to work to raise some credits there?

This is Ray. First of all there is definitely softness in the Greater Central Oregon or Bend area, there is not question about it. I will tell you though that and I will -- let me come back to that in a minute. But as far as Oregon is concerned and into Washington and our footprint in the Washington, we’ve been very pleased with our performance, our delinquencies and problem of loans have been very minimal. Our exposure in Bend and let me say that there is no question about it, of all markets in Oregon Bend is clearly the area that’s been hit the hardest and predominately due because it’s also been an area that has grown very, very rapidly and has enjoyed significant appreciation in rise of property.

Right.

Our overall exposure over there is very limited and we have somewhere around $140 million of total loans outstanding in the Greater Central Bend area, which is well under control. In our A&D lending over their total exposure, which is of course where we have seen a soft spot or has been a soft spot for Umpqua Bank is a little less than $36 million. So again, contained for us, but that market is certainly suffering the hardest in Oregon. The rest of the state in this region as you guys are probably followed up with other institutions has done very, very well.

Okay. And then moving back, was the 140 million of exposure to Central Bend or the district there, what does that consist of, I am sorry?

This is Mark. The rough breakdown of that is somewhere around total residential development this include all categories of residential development is about $50 million, commercial construction is about $20 million, commercial real estate which would be mini firm loans would be about $40 million and then about $25 million in commercial industrial.

Okay. So the A&D side is obviously very small piece of that. Okay.

Good.

Great. Thanks for the color.

Thank you.

Your next question comes from the line of Jim [Doyle].

Hello, guys. Looking at the balance sheet, how much interest preferred shares have you principle amount do you have on issue?

In the trust preferred?

Well, what’s the principle amount or the par amount of the trust preferred?

Preferreds, obviously, the total balance sheet amount combined is 135, par is going to be about 240.

Wait. I am sorry, 135, 240 or…?

No, I am sorry, I apologize. We have a $130 million of trust preferred borrowing to fair value and 104 million at amortize costs.

104 at amortize cost?

Yes.

And the 130 is basically the -- was basically the approximate amount received at issuance, right?

Actually no, it’s about $5 million higher.

Okay. And current amortize cost is 104?

Correct, and it’s…

And that 104 is the level you are carrying on your balance sheet?

Correct.

Will that, I mean, and I end up coming out with a total shareholders’ equity of 1.257 billion approximately.

Yes, that is our total shareholders’ equity at the end of March.

If I wanted to back out the pre-FAS 157 kind of book value, would it be fair for me to add back that 26 million to the liabilities and thus take it out of the book value?

I don’t believe so and I believe the number is $26 million on the fair value adjustment for the trust preferred. The total accumulated fair value adjustment on the trust preferred at quarter-end was $5 million.

Okay. But you say you are carrying at a 104 and the proceeds at issuance is approximately 130 plus?

We have trust preferred securities on our balance sheet that are both carried at cost and others are carried at fair value and this is on Page 6 and 10 of our earnings release. The…

Okay.

The securities that are issued at fair value are on the book at $130 million, the par amount is about $135 million.

Okay.

The trust preferred securities at our amortized costs are at $104 million and that’s pretty close to the notional of that.

Okay. So, the difference is just about 5 million or so?

Correct.

Okay. Thank you very much.

Thank you.

Your next question comes from the line of Matthew Clark.

Good morning.

Good morning.

Just a few questions, can you give us the total dollar of loans 30 to 89 days past due at quarter end, I guess what we will see in the call report, I think that was 39 million in last quarter?

I will answer Matt…

What’s your next question Matt, we will come back to that.

Sure. On the commercial construction I think there is about what 530 million of commercial construction. Does that number include any condo construction or multi-family type construction projects, and if so, I was wondering how much?

No.

No, it does not.

No, we are breaking out, now this is Mark. We are breaking out the Condo construction is in the residential development pockets that we gave you. .

Okay, great. And then finally, do you guys have any restructured loans at the end of the quarter?

We’ve had a…

Yes, yes we do, only centered in two or three credits.

In terms of dollars, is that…?

$40 million in round numbers.

Okay. And does restructured loans, I mean, the restructured term, will that include any construction loans that might possibly come up for maturity and you might extend the duration of those loans or you may seek additional collateral and hopefully get some, if not maybe you extend additional interest reserves, would we be able to see that restructured loans or not?

No, well, let me answer. The question is each one is done individually of course and no, to your point about additional interest reserve, no, each one is based upon our evaluation independently. And yes, in most cases, we are requiring additional collateral support and consideration of grant in restructure, based on new appraisals as well.

Yeah, Matt, this is Ray. We are not restructuring obviously any loans unless it’s in the best interest of us to go forward with that and that would require additional collateral and make -- and strengthen the overall position the bank has with properties.

Okay. I guess, what I am trying to get at those is the phenomenon in the construction world today not with just you guys, but with a lot of the banks. In terms of trying -- a lot of these builders and developers are depended on sales and if they don’t have sale they can’t close up the loan, so the problem that we are having is that from an externally reported basis, we are not seeing them as delinquencies in many cases, we are not seeing them as non-accruals and as we don’t, they may not technically be characterized as a TER. So, what I’m wondering is, I guess is there any way to quantify loans that have gone past maturity and that where you may have extended terms?

No.

No. What we are saying Matt is its a very small amount, it’s like two or three loans that we have. We don’t have a thoughtful of those that are going on. But I will say this, I think every bank that’s been -- well every bank, if you don’t have some TDR in the balance sheet then you got to question how well they are resolving the overall loan issue. What we are doing, to answer your question, your specific question is we are very few. I mean it’s, like I said it’s two or three loans representing a very small amount of money on the bank’s balance sheet. So, it’s not something that that would shine a light on our balance sheet, but we are shifting from one bucket to another bucket that's not happening here. We are an institution where we are not doing that.

Okay. And then, I guess to circle back on the delinquency numbers, if you have it?

Absolutely. We finished the last quarter about $40 million in the 30 to 89 and we are right around just under 68 or right around $68 million for this quarter.

Okay. Thank you.

Thank you.

Your next question comes from the line of Russell Gunter.

Questions have been answered.

Okay. Thank you.

Okay. Christie, are you there, it appears there is no more questions.

(Operator Instructions). No questions at this time.

Okay. Alright, we will wrap up the call. Thank you for your interest in Umpqua Holdings and your attendance today.

This does conclude today's conference call. You may now disconnect.