Edgar Filing: UMPQUA HOLDINGS CORP

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended: September 30, 2010

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from to .

Commission File Number: 000-25597

Umpqua Holdings Corporation

(Exact Name of Registrant as Specified in Its Charter)

OREGON

93-1261319

(State or Other Jurisdiction

of Incorporation or Organization)

(I.R.S. Employer
Identification Number)

One SW Columbia Street, Suite 1200

Portland, Oregon 97258

(Address of Principal Executive Offices)(Zip Code)

(503) 727-4100

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

¨ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company. See definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

¨ Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨ Yes x No

Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practical date:

Common stock, no par value: 114,532,543 shares outstanding as of October 31, 2010

UMPQUA HOLDINGS CORPORATION

FORM 10-Q

Table of Contents


PART I. FINANCIAL INFORMATION		3

Item 1.	Financial Statements (unaudited)	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	74

Item 4.	Controls and Procedures	74

PART II. OTHER INFORMATION		75

Item 1.	Legal Proceedings	75

Item 1A.	Risk Factors	75

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77

Item 3.	Defaults Upon Senior Securities	77

Item 4.	(Removed and Reserved)	77

Item 5.	Other Information	77

Item 6.	Exhibits	77

SIGNATURES		78

EXHIBIT INDEX		79

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except shares)


	September 30, 2010		December 31, 2009
ASSETS
Cash and due from banks	$	124,633	$	113,353
Interest bearing deposits		933,911		491,462
Temporary investments		5,496		598

Total cash and cash equivalents		1,064,040		605,413
Investment securities
Trading, at fair value		2,155		2,273
Available for sale, at fair value		2,599,263		1,795,616
Held to maturity, at amortized cost		5,108		6,061
Loans held for sale		57,407		33,715
Non-covered loans and leases		5,698,267		5,999,267
Allowance for loan and lease losses		(108,098)		(107,657)

Net non-covered loans and leases		5,590,169		5,891,610
Covered loans and leases		840,469		-
Restricted equity securities		34,665		15,211
Premises and equipment, net		133,728		103,266
Goodwill and other intangible assets, net		680,893		639,634
Mortgage servicing rights, at fair value		13,454		12,625
Non-covered other real estate owned		32,024		24,566
Covered other real estate owned		30,348		-
FDIC indemnification asset		217,696		-
Other assets		231,552		251,382

Total assets	$	11,532,971	$	9,381,372

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest bearing	$	1,578,717	$	1,398,332
Interest bearing		7,722,623		6,042,102

Total deposits		9,301,340		7,440,434
Securities sold under agreements to repurchase		55,333		45,180
Term debt		268,256		76,274
Junior subordinated debentures, at fair value		80,146		85,666
Junior subordinated debentures, at amortized cost		102,946		103,188
Other liabilities		73,236		64,113

Total liabilities		9,881,257		7,814,855

COMMITMENTS AND CONTINGENCIES (NOTE 9)

SHAREHOLDERS’ EQUITY
Preferred stock, no par value, 2,000,000 shares authorized; Series A (liquidation preference $1,000 per share) issued and outstanding: none in 2010 and 214,181 in 2009		-		204,335
Common stock, no par value, 200,000,000 shares authorized; issued and outstanding: 114,531,514 in 2010 and 86,785,588 in 2009		1,540,029		1,253,288
Retained earnings		75,502		83,939
Accumulated other comprehensive income		36,183		24,955

Total shareholders’ equity		1,651,714		1,566,517

Total liabilities and shareholders’ equity	$	11,532,971	$	9,381,372

See notes to condensed consolidated financial statements

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share amounts)


	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
INTEREST INCOME
Interest and fees on loans	$	112,652	$	89,474	$	300,600	$	266,587
Interest and dividends on investment securities
Taxable		17,421		15,365		49,065		43,625
Exempt from federal income tax		2,221		2,020		6,655		5,755
Dividends		6		22		9		22
Interest on temporary investments and interest bearing deposits		646		207		1,590		258

Total interest income		132,946		107,088		357,919		316,247

INTEREST EXPENSE
Interest on deposits		19,913		22,132		57,165		68,552
Interest on securities sold under agreement to repurchase and federal funds purchased		136		163		382		527
Interest on term debt		2,533		917		6,832		3,935
Interest on junior subordinated debentures		2,047		2,114		5,871		7,069

Total interest expense		24,629		25,326		70,250		80,083

Net interest income		108,317		81,762		287,669		236,164
PROVISION FOR NON-COVERED LOAN AND LEASE LOSSES		24,228		52,108		96,101		140,531
PROVISION FOR COVERED LOAN AND LEASE LOSSES		667		-		667		-

Net interest income after provision for loan and lease losses		83,422		29,654		190,901		95,633

NON-INTEREST INCOME
Service charges on deposit accounts		8,756		8,542		26,706		24,565
Brokerage commissions and fees		2,609		1,993		8,387		5,117
Mortgage banking revenue, net		7,138		4,288		13,825		14,617
Gain (loss) on investment securities, net
Gain on sale of investment securities, net		2,331		162		2,331		8,682
Total other-than-temporary impairment losses		(37)		-		(42)		(12,492)
Portion of other-than-temporary impairment losses (transferred from) recognized in other comprehensive income		(7)		(4)		(290)		2,733

Total gain (loss) on investment securities, net		2,287		158		1,999		(1,077)
(Loss) gain on junior subordinated debentures carried at fair value		(554)		982		5,534		10,173
Bargain purchase gain on acquisition		-		-		8,456		-
Change in FDIC indemnification asset		(11,948)		-		(11,075)		-
Other income		3,845		1,962		8,930		7,097

Total non-interest income		12,133		17,925		62,762		60,492

NON-INTEREST EXPENSE
Salaries and employee benefits		42,964		31,583		118,808		94,697
Net occupancy and equipment		11,448		9,937		33,596		29,266
Communications		2,480		1,806		7,300		5,398
Marketing		2,468		1,157		5,191		3,596
Services		5,507		5,210		16,253		15,942
Supplies		1,177		920		2,906		2,559
FDIC assessments		3,910		3,321		10,909		12,645
Net (gain) loss on other real estate owned		(317)		8,641		1,042		14,110
Intangible amortization		1,356		1,319		4,032		4,043
Goodwill impairment		-		-		-		111,952
Merger related expenses		1,643		-		5,718		273
Other expenses		12,534		4,455		24,119		12,422

Total non-interest expense		85,170		68,349		229,874		306,903
Income (loss) before provision for (benefit from) income taxes		10,385		(20,770)		23,789		(150,778)
Provision for (benefit from) income taxes		2,194		(13,626)		2,410		(24,094)

Net income (loss)	$	8,191	$	(7,144)	$	21,379	$	(126,684)

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(UNAUDITED)

(in thousands, except per share amounts)


	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
Net income (loss)	$	8,191	$	(7,144)		21,379		(126,684)
Preferred stock dividends		-		3,225		12,192		9,632
Dividends and undistributed earnings allocated to participating securities		18		7		49		22

Net earnings (loss) available to common shareholders	$	8,173	$	(10,376)	$	9,138	$	(136,338)

Earnings (loss) per common share:
Basic	$	0.07	$	(0.14)	$	0.09	$	(2.10)
Diluted	$	0.07	$	(0.14)	$	0.09	$	(2.10)

Weighted average number of common shares outstanding:
Basic		114,528		74,085		105,695		64,878
Diluted		114,760		74,085		105,924		64,878

See notes to condensed consolidated financial statements

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands, except shares)


	Preferred Stock		Common Stock				Retained Earnings		Accumulated Other Comprehensive Income		Total
	Preferred Stock		Shares		Amount		Retained Earnings		Accumulated Other Comprehensive Income		Total
BALANCE AT JANUARY 1, 2009	$	202,178		60,146,400	$	1,005,820	$	264,938	$	14,072	$	1,487,008
Net loss								(153,366)				(153,366)
Other comprehensive income, net of tax										10,883		10,883

Comprehensive loss											$	(142,483)

Issuance of common stock				26,538,461		245,697						245,697
Stock-based compensation						2,188						2,188
Stock repurchased and retired				(19,516)		(174)						(174)
Issuances of common stock under stock plans and related net tax deficiencies				120,243		(243)						(243)
Amortization of discount on preferred stock		2,157						(2,157)				-
Dividends declared on preferred stock								(10,739)				(10,739)
Cash dividends on common stock ($0.20 per share)								(14,737)				(14,737)

Balance at December 31, 2009	$	204,335		86,785,588	$	1,253,288	$	83,939	$	24,955	$	1,566,517


BALANCE AT JANUARY 1, 2010	$	204,335		86,785,588	$	1,253,288	$	83,939	$	24,955	$	1,566,517
Net income								21,379				21,379
Other comprehensive income, net of tax										11,228		11,228

Comprehensive income											$	32,607

Issuance of common stock				8,625,000		89,786						89,786
Stock-based compensation						2,627						2,627
Stock repurchased and retired				(22,310)		(282)						(282)
Issuances of common stock under stock plans and related net tax benefits				168,236		821						821
Amortization of discount on preferred stock		9,846						(9,846)				-
Redemption of preferred stock issued to U.S. Treasury		(214,181)										(214,181)
Issuance of preferred stock		198,289										198,289
Conversion of preferred stock to common stock		(198,289)		18,975,000		198,289						-
Dividends declared on preferred stock								(3,686)				(3,686)
Repurchase of warrants issued to U.S. Treasury						(4,500)						(4,500)
Cash dividends on common stock ($0.15 per share)								(16,284)				(16,284)

Balance at September 30, 2010	$	-		114,531,514	$	1,540,029	$	75,502	$	36,183	$	1,651,714

See notes to condensed consolidated financial statements

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(in thousands)


	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
Net income (loss)	$	8,191	$	(7,144)	$	21,379	$	(126,684)


Available for sale securities:

Unrealized (losses) gains arising during the period		(7,976)		29,579		20,117		35,365

Reclassification adjustment for net gains realized in earnings (net of tax expense of $932 and $65 for the three months and net of tax expense of $932 and $3,337 for the nine months ended September 30, 2010 and 2009, respectively)		(1,399)		(97)		(1,399)		(5,066)

Income tax benefit (expense) related to unrealized (losses) gains		3,190		(11,831)		(8,047)		(14,146)


Net change in unrealized (losses) or gains		(6,185)		17,651		10,671		16,153


Held to maturity securities:

Reclassification adjustment for impairments realized in net income (net of tax benefit of $1,716 for the nine months ended September 30, 2009)		-		-		-		2,574

Amortization of unrealized losses on investment securities transferred to held to maturity (net of tax benefit of $70 for the nine months ended September 30, 2009)		-		-		-		103


Net change in unrealized losses on investment securities transferred to held to maturity		-		-		-		2,677


Unrealized gains (losses) related to factors other than credit (net of tax expense of $70 and $1 for the three months and net of tax expense of $139 and net of tax benefit of $1,094 for the nine months ended September 30, 2010 and 2009, respectively)		105		1		208		(1,641)

Reclassification adjustment for impairments realized in net income (net of tax benefit of $18 and $2 for the three months and $133 and $2 for the nine months ended September 30, 2010 and 2009, respectively)		26		2		199		2

Accretion of unrealized losses related to factors other than credit to investment securities held to maturity (net of tax benefit of $26 and $78 for the three months and $100 and $78 for the nine months ended September 30, 2010 and 2009, respectively)		39		118		150		118


Net change in unrealized losses related to factors other than credit		170		121		557		(1,521)


Other comprehensive (loss) income, net of tax		(6,015)		17,772		11,228		17,309


Comprehensive income (loss)	$	2,176	$	10,628	$	32,607	$	(109,375)

See notes to condensed consolidated financial statements

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Nine months ended September 30,
	2010		2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	21,379	$	(126,684)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of investment premiums, net		12,230		5,721
Gain on sale of investment securities, net		(2,331)		(8,682)
Other-than-temporary impairment on investment securities available for sale		-		239
Other-than-temporary impairment on investment securities held to maturity		332		9,520
Loss on sale of non-covered other real estate owned		1,379		6,939
Gain on sale of covered other real estate owned		(3,425)		-
Valuation adjustment on non-covered other real estate owned		2,163		7,171
Valuation adjustment on covered other real estate owned		925		-
Provision for non-covered loan and lease losses		96,101		140,531
Provision for covered loan and lease losses		667		-
Bargain purchase gain on acquisition		(8,456)		-
Change in FDIC indemnification asset		11,075		-
Depreciation, amortization and accretion		9,121		7,915
Goodwill impairment		-		111,952
Increase in mortgage servicing rights		(3,624)		(5,958)
Change in mortgage servicing rights carried at fair value		2,857		2,611
Change in junior subordinated debentures carried at fair value		(5,520)		(10,528)
Stock-based compensation		2,627		1,695
Net decrease in trading account assets		118		75
Gain on sale of loans		(9,282)		(4,943)
Origination of loans held for sale		(454,662)		(520,302)
Proceeds from sales of loans held for sale		439,663		523,760
Excess tax benefits from the exercise of stock options		(56)		-
Change in other assets and liabilities:
Net decrease (increase) in other assets		21,531		(30,673)
Net increase (decrease) in other liabilities		4,030		(5,889)

Net cash provided by operating activities		138,842		104,470


CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale		(1,004,194)		(980,168)
Proceeds from investment securities available for sale		262,067		404,166
Proceeds from investment securities held to maturity		1,080		2,045
Redemption of restricted equity securities		282		1,280
Net non-covered loan and lease paydowns (originations)		144,292		(109,348)
Net covered loan and lease paydowns		70,697		-
Proceeds from sales of loans		35,464		7,848
Proceeds from disposals of furniture and equipment		1,100		181
Purchases of premises and equipment		(40,978)		(7,824)
Net proceeds from FDIC indemnification asset		24,103		-
Proceeds from sales of non-covered other real estate owned		18,867		20,759
Proceeds from sales of covered other real estate owned		9,544		-
Proceeds from sale of acquired insurance portfolio		5,150		-
Cash acquired in merger, net of cash consideration paid		179,046		178,905

Net cash used by investing activities		(293,480)		(482,156)

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(UNAUDITED)

(in thousands)


	Nine months ended September 30,
	2010		2009
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit liabilities		713,503		443,003
Net increase in securities sold under agreements to repurchase		10,153		2,443
Repayment of term debt		(161,968)		(130,140)
Redemption of preferred stock		(214,181)		-
Proceeds from issuance of preferred stock		198,289		-
Net proceeds from issuance of common stock		89,786		245,697
Redemption of warrants		(4,500)		-
Dividends paid on preferred stock		(3,686)		(8,062)
Dividends paid on common stock		(14,882)		(9,051)
Excess tax benefits from stock based compensation		56		-
Proceeds from stock options exercised		977		275
Retirement of common stock		(282)		(170)

Net cash provided by financing activities		613,265		543,995

Net increase in cash and cash equivalents		458,627		166,309
Cash and cash equivalents, beginning of period		605,413		204,676

Cash and cash equivalents, end of period	$	1,064,040	$	370,985


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	71,887	$	82,840
Income taxes	$	175	$	44

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Change in unrealized gains on investment securities available for sale, net of taxes	$	10,671	$	16,153
Change in unrealized losses on investment securities transferred to held to maturity, net of taxes	$	-	$	2,677
Change in unrealized losses on investment securities held to maturity related to factors other than credit, net of taxes	$	557	$	(1,521)
Cash dividend declared on common and preferred stock and payable after period-end	$	5,743	$	4,346
Transfer of non-covered loans to non-covered other real estate owned	$	29,867	$	34,408
Transfer of covered loans to covered other real estate owned	$	10,453	$	-
Conversion of preferred stock to common stock	$	198,289	$	-
Acquisitions:
Assets acquired	$	1,514,067	$	4,978
Liabilities assumed	$	1,505,611	$	183,883

See notes to condensed consolidated financial statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Summary of Significant Accounting Policies

The accounting and financial reporting policies of Umpqua Holdings Corporation (referred to in this report as “we”, “our” or “the Company”) conform to accounting principles generally accepted in the United States of America. The accompanying interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Umpqua Bank (“Bank”), and Umpqua Investments, Inc. (“Umpqua Investments”). Prior to July 2009, Umpqua Investments was known as Strand, Atkinson, Williams & York, Inc. All material inter-company balances and transactions have been eliminated. The consolidated financial statements have not been audited. A more detailed description of our accounting policies is included in the 2009 Annual Report filed on Form 10-K. These interim condensed consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the 2009 Annual Report filed on Form 10-K.

In preparing these financial statements, the Company has evaluated events and transactions subsequent to September 30, 2010 for potential recognition or disclosure. In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments include normal and recurring accruals considered necessary for a fair and accurate presentation. The results for interim periods are not necessarily indicative of results for the full year or any other interim period. Certain reclassifications of prior period amounts have been made to conform to current classifications.

Note 2 – Business Combinations

On January 22, 2010, the Washington Department of Financial Institutions closed EvergreenBank (“Evergreen”), Seattle, Washington and appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. That same date, Umpqua Bank assumed the banking operations of Evergreen from the FDIC under a whole bank purchase and assumption agreement with loss-sharing. Under the terms of the loss-sharing agreement, the FDIC will cover a substantial portion of any future losses on loans, related unfunded loan commitments, other real estate owned (“OREO”) and accrued interest on loans for up to 90 days. The FDIC will absorb 80% of losses and share in 80% of loss recoveries on the first $90.0 million on covered assets for Evergreen and absorb 95% of losses and share in 95% of loss recoveries exceeding $90.0 million, except for the Bank will incur losses up to $30.2 million before the loss-sharing will commence. The loss-sharing arrangements for non-single family residential and single family residential loans are in effect for 5 years and 10 years, respectively, and the loss recovery provisions are in effect for 8 years and 10 years, respectively, from the acquisition date. With this agreement, Umpqua Bank now operates five additional store locations in the greater Seattle, Washington market. This acquisition is consistent with our community banking expansion strategy and provides further opportunity to fill in our market presence in the greater Seattle, Washington market.

On February 26, 2010, the Washington Department of Financial Institutions closed Rainier Pacific Bank (“Rainier”), Tacoma, Washington and appointed the FDIC as receiver. That same date, Umpqua Bank assumed the banking operations of Rainier from the FDIC under a whole bank purchase and assumption agreement with loss-sharing. Under the terms of the loss-sharing agreement, the FDIC will cover a substantial portion of any future losses on loans, related unfunded loan commitments, OREO and accrued interest on loans for up to 90 days. The FDIC will absorb 80% of losses and share in 80% of loss recoveries on the first $95.0 million of losses on covered assets and absorb 95% of losses and share in 95% of loss recoveries exceeding $95.0 million. The loss-sharing arrangements for non-single family residential and single family residential loans are in effect for 5 years and 10 years, respectively, and the loss recovery provisions are in effect for 8 years and 10 years, respectively, from the acquisition dates. With this agreement, Umpqua Bank now operates 14 additional store locations in Pierce County and surrounding areas. This acquisition expands our presence in the south Puget Sound region of Washington State.

The operations of Evergreen and Rainier are included in our operating results from January 23, 2010 and February 27, 2010, respectively, and added combined revenue of $9.3 million and $34.1 million, non-interest expense of $6.6 million and $17.9 million, and earnings of $1.3 million and $10.1 million, net of tax, for the three and nine months ended September 30, 2010. For the nine months ended September 30, 2010, these operating results include a bargain purchase gain of $8.5 million, which is not indicative of future operating results. Evergreen’s and Rainiers’s results of operations prior to the acquisition are not included in our operating results. Merger-related expenses of $748,000 and $4.1 million for the three and nine months ended September 30, 2010 have been incurred in connection with these acquisitions and recognized in a separate line item on the Condensed Consolidated Statements of Operations.

On June 18, 2010, the Nevada State Financial Institutions Division closed Nevada Security Bank (“Nevada Security”), Reno, Nevada and appointed the FDIC as receiver. That same date, Umpqua Bank assumed the banking operations of Nevada Security from the FDIC under a whole bank purchase and assumption agreement with loss-sharing. Under the terms of the loss-sharing agreement, the FDIC will cover a substantial portion of any future losses on loans, related unfunded loan commitments, OREO, and accrued interest on loans for up to 90 days. The FDIC will absorb 80% of losses and share in 80% of loss recoveries on all covered assets. The loss-sharing arrangements for non-single family residential and single family residential loans are in effect for 5 years and 10 years,

respectively, and the loss recovery provisions are in effect for 8 years and 10 years, respectively, from the acquisition dates. With this agreement, Umpqua Bank now operates five additional store locations, including three in Reno, Nevada, one in Incline Village, Nevada, and one in Roseville, California. This acquisition expands our presence into the State of Nevada.

The operations of Nevada Security are included in our operating results from June 19, 2010, and added revenue of $3.9 million and $4.4 million, non-interest expense of $3.0 million and $3.6 million, and earnings of $578,000 and $544,000, net of tax, for the three and nine months ended September 30, 2010. Nevada Security’s results of operations prior to the acquisition are not included in our operating results. Merger-related expenses of $741,000 and $1.1 million for the three and nine months ended September 30, 2010 have been incurred in connection with the acquisition of Nevada Security and recognized as a separate line item on the Condensed Consolidated Statements of Operations.

We refer to the acquired loan portfolios and other real estate owned as “covered loans” and “covered other real estate owned”, respectively, and these are presented as separate line items in our consolidated balance sheet. Collectively these balances are referred to as “covered assets”.

The assets acquired and liabilities assumed from the Evergreen, Rainier, and Nevada Security acquisitions have been accounted for under the acquisition method of accounting (formerly the purchase method). The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition dates. The fair values of the assets acquired and liabilities assumed were determined based on the requirements of the Fair Value Measurements and Disclosures topic of the Financial Accounting Standards Board Accounting Standards Codification (the “FASB ASC”). The fair values of assets and liabilities acquired, including the calculation of the undiscounted contractual cash flows and beginning accretable yield relating to the acquired loan portfolios, and the indemnification asset are still pending finalization and are subject to change for up to one year after the closing date of each acquisition, as additional information relating to closing data becomes available. The amounts are also subject to adjustments based upon final settlement with the FDIC. In addition, the tax treatment of FDIC-assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date. The terms of the agreements provide for the FDIC to indemnify the Bank against claims with respect to liabilities of Evergreen, Rainier, and Nevada Security not assumed by the Bank and certain other types of claims identified in the agreement. The application of the acquisition method of accounting resulted in the recognition of a bargain purchase gain of $8.5 million in the Evergreen acquisition, $34.7 million of goodwill in the Rainier acquisition and $8.8 million of goodwill in the Nevada Security acquisition.

A summary of the net assets (liabilities) received from the FDIC and the estimated fair value adjustments are presented below:

(in thousands)


	Evergreen		Rainier		Nevada Security
	January 22, 2010		February 26, 2010		June 18, 2010
Cost basis net assets (liabilities)	$	58,811	$	(50,295)	$	53,629
Cash payment received from (paid to) the FDIC		-		59,351		(29,950)
Fair value adjustments:
Loans		(118,414)		(105,224)		(113,977)
Other real estate owned		(2,422)		(6,581)		(17,939)
Other intangible assets		440		6,253		322
FDIC indemnification asset		73,774		78,055		101,045
Deposits		(1,023)		(1,828)		(1,950)
Term debt		(2,496)		(13,035)		-
Other		(214)		(1,445)		48

Bargain purchase gain (goodwill)	$	8,456	$	(34,749)	$	(8,772)

In FDIC-assisted transactions, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirer’s bid, the FDIC may be required to make a cash payment to the acquirer or the acquirer may be required to make payment to the FDIC. In the Evergreen acquisition, cost basis net assets of $58.8 million were transferred to the Company. The bargain purchase gain represents the excess of the estimated fair value of the assets acquired over the estimated fair value of the liabilities assumed.

In the Rainier acquisition, cost basis net liabilities of $50.3 million and a cash payment received from the FDIC of $59.4 million were transferred to the Company. The goodwill represents the excess of the estimated fair value of the liabilities assumed over the estimated fair value of the assets acquired.

In the Nevada Security acquisition, cost basis net assets of $53.6 million were transferred to the Company and a cash payment of $30.0 million was made to the FDIC. The goodwill represents the excess of the estimated fair value of the liabilities assumed over the estimated fair value of the assets acquired.

The Bank did not immediately acquire all the real estate, banking facilities, furniture or equipment of Evergreen, Rainier, or Nevada Security as part of the purchase and assumption agreements. However, the Bank was granted the option to purchase or lease the real estate and furniture and equipment from the FDIC. The term of this option expires 90 days from the acquisition dates. Acquisition costs of the real estate and furniture and equipment are based on current mutually agreed upon appraisals. Prior to the expiration of option term, Umpqua exercised the right to purchase approximately $300,000 of furniture and equipment for Evergreen, $26.3 million of real estate and furniture and equipment for Rainier, and $161,000 of furniture and equipment for Nevada Security. The Bank has the option to purchase additional furniture and equipment and one store location as part of the Nevada Security acquisition, and expects resolution in the fourth quarter of 2010.

The statement of assets acquired and liabilities assumed at their estimated fair values of Evergreen, Rainier, and Nevada Security are presented below:

(in thousands)


	Evergreen		Rainier		Nevada Security
	January 22, 2010		February 26, 2010		June 18, 2010
Assets Acquired:
Cash and equivalents	$	18,919	$	94,067	$	66,060
Investment securities		3,850		26,478		22,626
Covered loans		251,528		456,253		214,505
Premises and equipment		-		17		50
Restricted equity securities		3,073		13,712		2,951
Goodwill		-		34,749		8,772
Other intangible assets		440		6,253		322
Mortgage servicing rights		-		62		-
Covered other real estate owned		2,421		6,580		17,938
FDIC indemnification asset		73,774		78,055		101,045
Other assets		1,293		4,948		3,326

Total assets acquired	$	355,298	$	721,174	$	437,595


Liabilities Assumed:
Deposits	$	285,775	$	425,771	$	437,299
Term debt		60,813		293,191		-
Other liabilities		254		2,212		296

Total liabilities assumed		346,842		721,174		437,595

Net assets acquired/bargain purchase gain	$	8,456	$	-	$	-

Rainier’s assets and liabilities were significant at a level to require disclosure of one year of historical financial statements and related pro forma financial disclosure. However, given the pervasive nature of the loss-sharing agreement entered into with the FDIC, the historical information of Rainier is much less relevant for purposes of assessing the future operations of the combined entity. In addition, prior to closure Rainier had not completed an audit of their financial statements, and we determined that audited financial statements are not and will not be reasonably available for the year ended December 31, 2009. Given these considerations, the Company requested, and received, relief from the Securities and Exchange Commission from submitting certain financial information of Rainier. The assets and liabilities of Evergreen and Nevada Security were not at a level that requires disclosure of historical or pro forma financial information.

On January 16, 2009, the Washington Department of Financial Institutions closed the Bank of Clark County, Vancouver, Washington, and appointed the FDIC as its receiver. The FDIC entered into a purchase and assumption agreement with Umpqua Bank to assume the insured non-brokered deposit balances, which totaled $183.9 million, at no premium. The Company recorded the deposit related liabilities at book value. In connection with the assumption, Umpqua Bank acquired certain assets totaling $23.0 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, Washington. In addition, the FDIC reimbursed Umpqua Bank for all overhead costs related to the acquired Bank of Clark County operations for 90 days following closing, while Umpqua Bank paid the FDIC a servicing fee on assumed deposit accounts for that same period.

The results of the Bank of Clark County’s operations have been included in the consolidated financial statements beginning January 17, 2009 and added net earnings of approximately $644,000 and $2.0 million for the three and nine months ended September 30, 2010, net of tax, and approximately $507,000 and $1.0 million for the three and nine months ended September 30, 2009, net of tax, which primarily represents interest income earned from the proceeds of the assumption which were invested in investment securities available for sale and service income on deposits. This was partially offset by interest expense on deposits, salaries and employee benefits expense, and the accrued servicing fee paid to the FDIC. Umpqua did not incur the FDIC servicing fee expense during the

second or third quarter of 2009, but began incurring overhead expenses such as salaries and employee benefits expense and rent expense. The Company does not expect to incur any significant additional acquisition-related expenses in connection with the assumption of certain deposits and assets of the Bank of Clark County.

Note 3 – Investment Securities

The following table presents the amortized costs, unrealized gains, unrealized losses and approximate fair values of investment securities at September 30, 2010 and December 31, 2009:

September 30, 2010

(in thousands)


	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
AVAILABLE FOR SALE:
U.S. Treasury and agencies	$	117,631	$	1,762	$	(1)	$	119,392
Obligations of states and political subdivisions		217,995		12,284		(28)		230,251
Residential mortgage-backed securities and collateralized mortgage obligations		2,200,313		54,140		(7,048)		2,247,405
Other debt securities		145		14		-		159
Investments in mutual funds and other equity securities		1,959		97		-		2,056

	$	2,538,043	$	68,297	$	(7,077)	$	2,599,263


HELD TO MATURITY:
Obligations of states and political subdivisions	$	2,595	$	13	$	-	$	2,608
Residential mortgage-backed securities and collateralized mortgage obligations		2,513		322		(260)		2,575

	$	5,108	$	335	$	(260)	$	5,183

December 31, 2009

(in thousands)


	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
AVAILABLE FOR SALE:
U.S. Treasury and agencies	$	11,588	$	208	$	(2)	$	11,794
Obligations of states and political subdivisions		205,549		6,480		(204)		211,825
Residential mortgage-backed securities and collateralized mortgage obligations		1,533,149		40,272		(3,572)		1,569,849
Other debt securities		145		14		-		159
Investments in mutual funds and other equity securities		1,959		30		-		1,989

	$	1,752,390	$	47,004	$	(3,778)	$	1,795,616


HELD TO MATURITY:
Obligations of states and political subdivisions	$	3,216	$	11	$	-	$	3,227
Residential mortgage-backed securities and collateralized mortgage obligations		2,845		251		(187)		2,909

	$	6,061	$	262	$	(187)	$	6,136

Investment securities that were in an unrealized loss position as of September 30, 2010 and December 31, 2009 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position. In the opinion of management, these securities are considered only temporarily impaired due to changes in market interest rates or the widening of market spreads subsequent to the initial purchase of the securities, and not due to concerns regarding the underlying credit of the issuers or the underlying collateral.

September 30, 2010

(in thousands)


	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
AVAILABLE FOR SALE:
U.S. Treasury and agencies	$	-	$	-	$	116	$	1	$	116	$	1
Obligations of states and political subdivisions		2,125		25		1,024		3		3,149		28
Residential mortgage-backed securities and collateralized mortgage obligations		701,326		7,040		1,547		8		702,873		7,048

Total temporarily impaired securities	$	703,451	$	7,065	$	2,687	$	12	$	706,138	$	7,077


HELD TO MATURITY:
Residential mortgage-backed securities and collateralized mortgage obligations	$	-	$	-	$	801	$	260	$	801	$	260

Total temporarily impaired securities	$	-	$	-	$	801	$	260	$	801	$	260

December 31, 2009

(in thousands)


	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
AVAILABLE FOR SALE:
U.S. Treasury and agencies	$	-	$	-	$	133	$	2	$	133	$	2
Obligations of states and political subdivisions		13,209		123		1,937		81		15,146		204
Residential mortgage-backed securities and collateralized mortgage obligations		293,035		3,529		958		43		293,993		3,572

Total temporarily impaired securities	$	306,244	$	3,652	$	3,028	$	126	$	309,272	$	3,778


HELD TO MATURITY:
Residential mortgage-backed securities and collateralized mortgage obligations	$	-	$	-	$	620	$	187	$	620	$	187

Total temporarily impaired securities	$	-	$	-	$	620	$	187	$	620	$	187

The unrealized losses on investments in U.S. Treasury and agencies securities were caused by interest rate increases subsequent to the purchase of these securities. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than par. Because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

The unrealized losses on obligations of political subdivisions were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities. Management monitors published credit ratings of these securities and no adverse ratings changes have occurred since the date of purchase of obligations of political subdivisions which are in an unrealized loss position as of September 30, 2010. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities in this class and it is not likely that Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

Of the residential mortgage-backed securities and collateralized mortgage obligations portfolio in an unrealized loss position at September 30, 2010, 99.9% are issued or guaranteed by governmental agencies. The unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities, and not concerns regarding the underlying credit of the issuers or the underlying collateral. It is expected that these securities will not be settled at a price less than the amortized cost of each investment. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

We review investment securities on an ongoing basis for the presence of other-than-temporary impairment (“OTTI”) or permanent impairment, taking into consideration current market conditions, fair value in relationship to cost, extent and nature of the change in fair value, issuer rating changes and trends, whether we intend to sell a security or if it is likely that we will be required to sell the security before recovery of our amortized cost basis of the investment, which may be maturity, and other factors. For debt securities, if we intend to sell the security or it is likely that we will be required to sell the security before recovering its cost basis, the entire

impairment loss would be recognized in earnings as an OTTI. If we do not intend to sell the security and it is not likely that we will be required to sell the security but we do not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings. The credit loss on a security is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to other comprehensive income (“OCI”). Impairment losses related to all other factors are presented as separate categories within OCI. For investment securities held to maturity, this amount is accreted over the remaining life of the debt security prospectively based on the amount and timing of future estimated cash flows. The accretion of the OTTI amount recorded in OCI will increase the carrying value of the investment, and would not affect earnings. If there is an indication of additional credit losses the security is re-evaluated accordingly to the procedures described above.

The following tables present the OTTI losses for the three and nine months ended September 30, 2010 and 2009, respectively:

(in thousands)


	Three months ended September 30, 2010				Three months ended September 30, 2009
	Held To Maturity		Available For Sale		Held To Maturity		Available For Sale
Total other-than-temporary impairment losses	$	37	$	-	$	-	$	-
Portion of other-than-temporary impairment losses transferred from (recognized in) other comprehensive income ⁽¹⁾		7		-		4		-

Net impairment losses recognized in earnings ⁽²⁾	$	44	$	-	$	4	$	-


	Nine months ended September 30, 2010				Nine months ended September 30, 2009
	Held To Maturity		Available For Sale		Held To Maturity		Available For Sale
Total other-than-temporary impairment losses	$	42	$	-	$	12,253	$	239
Portion of other-than-temporary impairment losses transferred from (recognized in) other comprehensive income ⁽¹⁾		290		-		(2,733)		-

Net impairment losses recognized in earnings ⁽²⁾	$	332	$	-	$	9,520	$	239

(1)	Represents other-than-temporary impairment losses related to all other factors.

(2)	Represents other-than-temporary impairment losses related to credit losses.

The OTTI recognized on investment securities held to maturity relate to non-agency collateralized mortgage obligations for all periods presented. Each of these securities holds various levels of credit subordination. The underlying mortgage loans of these securities were originated from 2003 through 2007. At origination, the weighted average loan-to-value of the underlying mortgages was 69%; the underlying borrowers had weighted average FICO scores of 731, and 59% were limited documentation loans. These securities are valued by third-party pricing services using matrix or model pricing methodologies and were corroborated by broker indicative bids. We estimate cash flows of the underlying collateral for each security considering credit, interest and prepayment risk models that incorporate management’s estimate of projected key assumptions including prepayment rates, collateral default rates and loss severity. Assumptions utilized vary from security to security, and are influenced by factors such as loan interest rates, geographic location, borrower characteristics and vintage, and historical experience. We then used a third party to obtain information about the structure of each security, including subordination and other credit enhancements, in order to determine how the underlying collateral cash flows will be distributed to each security issued in the structure. These cash flows are then discounted at the interest rate used to recognize interest income on each security. We review the actual collateral performance of these securities on a quarterly basis and update the inputs as appropriate to determine the projected cash flows. The following table presents a summary of the significant inputs utilized to measure management’s estimate of the credit loss component on these non-agency collateralized mortgage obligations as of September 30, 2010:


	Range		Weighted Average
	Minimum	Maximum	Weighted Average
Constant prepayment rate	4.0%	25.0%	14.9%
Collateral default rate	8.0%	45.0%	16.8%
Loss severity	20.0%	50.0%	34.5%

The following table presents a roll forward of the credit loss component of held to maturity debt securities that have been written down for OTTI with the credit loss component recognized in earnings and the remaining impairment loss related to all other factors recognized in OCI for the three and nine months ended September 30, 2010 and 2009, respectively:

(in thousands)


	Three months ended September 30, 2010		Three months ended September 30, 2009
Balance, beginning of period	$	12,652	$	11,546
Additions:
Initial OTTI credit losses		-		-
Subsequent OTTI credit losses		44		4
Reductions:
Securities sold, matured or paid-off		-		-

Balance, end of period	$	12,696	$	11,550

(in thousands)


	Nine months ended September 30, 2010		Nine months ended September 30, 2009
Balance, beginning of period	$	12,364	$	-
Cumulative OTTI credit losses upon adoption of new OTTI guidance		-		5,952
Additions:
Initial OTTI credit losses		-		7,211
Subsequent OTTI credit losses		332		172
Reductions:
Securities sold, matured or paid-off		-		(1,785)

Balance, end of period	$	12,696	$	11,550

The following table presents the maturities of investment securities at September 30, 2010:

September 30, 2010

(in thousands)


	Available For Sale				Held To Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
AMOUNTS MATURING IN:
Three months or less	$	9,031	$	9,005	$	125	$	125
Over three months through twelve months		163,689		166,304		1,711		1,753
After one year through five years		1,724,245		1,774,158		2,434		2,419
After five years through ten years		612,176		620,119		591		637
After ten years		26,943		27,621		247		249
Other investment securities		1,959		2,056		-		-

	$	2,538,043	$	2,599,263	$	5,108	$	5,183

The amortized cost and fair value of collateralized mortgage obligations and mortgage-backed securities are presented by expected average life, rather than contractual maturity, in the preceding table. Expected maturities may differ from contractual maturities because borrowers have the right to prepay underlying loans without prepayment penalties.

The following table presents the gross realized gains and gross realized losses on the sale of securities available for sale for the three and nine months ended September 30, 2010 and 2009:

(in thousands)


	Three months ended September 30, 2010				Three months ended September 30, 2009
	Gains		Losses		Gains		Losses
Obligations of states and political subdivisions	$	—	$	—	$	—	$	1
Residential mortgage-backed securities and collateralized mortgage obligations		2,331		—		700		537

	$	2,331	$	—	$	700	$	538


	Nine months ended September 30, 2010				Nine months ended September 30, 2009
	Gains		Losses		Gains		Losses
U.S. Treasury and agencies	$	—	$	1	$	—	$	—
Obligations of states and political subdivisions		2		1		—		1
Residential mortgage-backed securities and collateralized mortgage obligations		2,331		—		9,195		591

	$	2,333	$	2	$	9,195	$	592

The following table presents, as of September 30, 2010, investment securities which were pledged to secure borrowings and public deposits as permitted or required by law:

(in thousands)


	Amortized Cost		Fair Value
To Federal Home Loan Bank to secure borrowings	$	299,387	$	314,283
To state and local governments to secure public deposits		831,757		859,357
To U.S. Treasury and Federal Reserve to secure customer tax payments		5,420		5,838
Other securities pledged, principally to secure deposits		278,797		289,748

Total pledged securities	$	1,415,361	$	1,469,226

Note 4 – Non-covered Loans, Leases and Allowance for Loan and Lease Losses

Non-covered loans refer to loans not covered by the FDIC loss-sharing agreements. Covered loans are discussed in Note 5.

The following table presents the major types of non-covered loans recorded in the balance sheets as of September 30, 2010 and December 31, 2009. The classification of non-covered loan balances presented is reported in accordance with the regulatory reporting requirements.

(in thousands)


	September 30, 2010			December 31, 2009
Real estate - construction and land development	$	453,248		$	618,476
Real estate - commercial and agricultural		3,425,384			3,482,687
Real estate - single and multi-family residential		753,483			726,658
Commercial, industrial and agricultural		991,440			1,090,275
Leases		32,428			34,528
Installment and other		53,216			58,044

		5,709,199			6,010,668
Deferred loan fees, net		(10,932	)		(11,401	)

Total loans and leases	$	5,698,267		$	5,999,267

The following table summarizes activity relate to the allowance for loan and lease losses (“ALLL”) on non-covered loans for the three and nine months ended September 30, 2010 and 2009:

Allowance for Loan and Lease Losses

(in thousands)


	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
Balance, beginning of period	$	113,914		$	98,370		$	107,657		$	95,865
Provision for loan and lease losses		24,228			52,108			96,101			140,531
Charge-offs		(31,418	)		(48,443	)		(102,731	)		(135,365	)
Recoveries		1,374			1,101			7,071			2,105

Balance, end of period	$	108,098		$	103,136		$	108,098		$	103,136

At September 30, 2010, the recorded investment in non-covered loans classified as impaired totaled $215.3 million, with a corresponding valuation allowance (included in the allowance for loan and lease losses on non-covered loans) of $1.8 million. Due to declining real estate values in our markets, it is increasingly likely that an impairment reserve on collateral dependent real estate non-covered loans represents a confirmed loss. As a result, the Company recognizes the charge-off of impairment reserves on non-covered impaired loans in the period it arises for collateral dependent loans. Therefore, the non-covered non-accrual loans as of September 30, 2010 have already been written-down to their estimated net realizable value, based on disposition value, and are expected to be resolved with no additional material loss, absent further decline in market prices. The valuation allowance on non-covered impaired loans represents the impairment reserves on performing restructured loans, and is measured by comparing the present value of expected future cash flows on the restructured loans discounted at the interest rate of the original loan agreement to the loan’s carrying value. At December 31, 2009, the total recorded investment in non-covered impaired loans totaled $328.0 million, with a corresponding valuation allowance of $2.7 million. The average recorded investment in non-covered impaired loans was approximately $269.0 million during the nine months ended September 30, 2010 and $234.5 million for the year ended December 31, 2009.

At September 30, 2010 and December 31, 2009, non-covered impaired loans of $75.6 million and $134.9 million were classified as accruing restructured loans, respectively. The restructurings were granted in response to borrower financial difficulty, and generally provide for a temporary modification of loan repayment terms. The non-covered restructured loans on accrual status represent the only impaired loans accruing interest at each respective date. In order for a restructured loan to be considered performing and on accrual status, the loan’s collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow. The Company has no obligations to lend additional funds on the non-covered restructured loans as of September 30, 2010. Non-covered non-accrual loans totaled $139.7 million at September 30, 2010, and $193.1 million at December 31, 2009.

Note 5 – Covered Assets and FDIC Indemnification Asset

Covered Loans – Loans acquired in a FDIC-assisted acquisition that are subject to a loss-share agreement are referred to as “covered loans” and reported separately in our statements of financial condition. Covered loans are reported exclusive of the expected cash flow reimbursements expected from the FDIC.

Acquired loans are valued as of acquisition date in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 805, Business Combinations. Loans purchased with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are accounted for under FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Because of the significant fair value discounts associated with the acquired portfolios, the concentration of real estate related loans (to finance or secured by real estate collateral) and the decline in real estate values in the regions serviced, and after considering the underwriting standards of the acquired originating bank, the Company elected to account for all acquired loans under ASC 310-30. Under FASB ASC 805 and ASC 310-30, loans are recorded at fair value at acquisition date, factoring in credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for loan losses is not carried over or recorded as of the acquisition date.

The covered loans acquired are and will continue to be subject to the Company’s internal and external credit review and monitoring. If credit deterioration is experienced subsequent to the initial acquisition fair value amount, such deterioration will be measured, and a provision for credit losses will be charged to earnings. These provisions will be mostly offset by an increase to the FDIC indemnification asset, and will be recognized in non-interest income.

The following table reflects the estimated fair value of the acquired loans at the acquisition dates:

(in thousands)


	Evergreen			Rainier			Nevada Security
	January 22, 2010			February 26, 2010			June 18, 2010
Gross loans acquired	$	369,942		$	561,477		$	328,482
Fair value discount		(118,414	)		(105,224	)		(113,977	)

Covered loans, net	$	251,528		$	456,253		$	214,505

The outstanding contractual unpaid principal balance, excluding purchase accounting adjustments, at September 30, 2010 was $278.7 million, $496.7 million and $309.5 million, for Evergreen, Rainier, and Nevada Security, respectively, as compared to $305.1 million, $517.2 million and $325.6 million, for Evergreen, Rainier, and Nevada Security, respectively, at June 30, 2010.

The following table presents the major types of covered loans as of September 30, 2010. The classification of covered loan balances presented is reported in accordance with the regulatory reporting requirements.

(in thousands)


	September 30, 2010
	Evergreen		Rainier		Nevada Security
Real estate - construction and land development	$	27,118	$	10,798	$	21,526
Real estate - commercial and agricultural		108,288		210,811		132,321
Real estate - single and multi-family residential		54,979		166,149		23,100
Commercial, industrial and agricultural		20,924		24,541		28,628
Installment and other		2,001		8,765		520

	$	213,310	$	421,064	$	206,095

At June 30, 2010, the covered loan balances were $220.9 million, $437.0 million, and $207.2 million for Evergreen, Rainier, and Nevada Security, respectively.

In estimating the fair value of the covered loans at the acquisition date, we (a) calculated the contractual amount and timing of undiscounted principal and interest payments and (b) estimated the amount and timing of undiscounted expected principal and interest payments. The difference between these two amounts represents the nonaccretable difference.

On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the acquired loans is the “accretable yield”. The accretable yield is then measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans.

The following table presents a reconciliation of the undiscounted contractual cash flows, nonaccretable difference, accretable yield, and fair value of covered loans for each respective acquired loan portfolio at the acquisition dates:.

(in thousands)


	Evergreen			Rainier			Nevada Security
	January 22, 2010			February 26, 2010			June 18, 2010
Undiscounted contractual cash flows	$	412,638		$	785,018		$	368,975
Undiscounted cash flows not expected to be collected (nonaccretable difference)		(105,908	)		(106,082	)		(114,756	)

Undiscounted cash flows expected to be collected		306,730			678,936			254,219
Accretable yield at acquisition		(55,202	)		(222,683	)		(39,714	)

Estimated fair value of loans acquired at acquisition	$	251,528		$	456,253		$	214,505

The following table presents the changes in the accretable yield for the three and nine months ended September 30, 2010 for each respective acquired loan portfolio:


	Three months ended
	Evergreen September 30, 2010			Rainier September 30, 2010			Nevada Security September 30, 2010
Balance, beginning of period	$	52,980		$	207,404		$	39,161
Additions resulting from acquisitions		—			—			—
Accretion to interest income		(14,677	)		(9,138	)		(5,062	)
Disposals		—			—			—
Reclassifications (to)/from nonaccretable difference		12,284			(384	)		1,491

Balance, end of period	$	50,587		$	197,882		$	35,590


	Nine months ended
	Evergreen September 30, 2010			Rainier September 30, 2010			Nevada Security September 30, 2010
Balance, beginning of period	$	—		$	—		$	—
Additions resulting from acquisitions		55,202			222,684			39,714
Accretion to interest income		(21,432	)		(20,739	)		(5,615	)
Disposals		(257	)		—			—
Reclassifications (to)/from nonaccretable difference		17,074			(4,063	)		1,491

Balance, end of period	$	50,587		$	197,882		$	35,590

Covered Other Real Estate Owned – All OREO acquired in FDIC-assisted acquisitions that are subject to a FDIC loss-share agreement are referred to as “covered OREO” and reported separately in our statements of financial position. Covered OREO is reported exclusive of expected reimbursement cash flows from the FDIC. Foreclosed covered loan collateral is transferred into covered OREO at the collateral’s net realizable value, less selling costs.

Covered OREO was initially recorded at its estimated fair value on the acquisition date based on similar market comparable valuations less estimated selling costs. Any subsequent valuation adjustments due to declines in fair value will be charged to non-interest expense, and will be mostly offset by non-interest income representing the corresponding increase to the FDIC indemnification asset for the offsetting loss reimbursement amount. Any recoveries of previous valuation adjustments will be credited to non-interest expense with a corresponding charge to non-interest income for the portion of the recovery that is due to the FDIC.

The following table summarizes the activity related to the covered OREO for the three and nine months ended September 30, 2010:

(in thousands)


	Three months ended September 30, 2010			Nine months ended September 30, 2010
Balance, beginning of period	$	28,290		$	—
Acquisition		—			26,939
Additions to covered OREO		7,784			10,453
Dispositions of covered OREO		(4,806	)		(6,119	)
Valuation adjustments in the period		(920	)		(925	)

Balance, end of period	$	30,348		$	30,348

FDIC Indemnification Asset – The Company has elected to account for amounts receivable under the loss-share agreement as an indemnification asset in accordance with FASB ASC 805, Business Combinations. The FDIC indemnification asset is initially recorded at fair value, based on the discounted value of expected future cash flows under the loss-share agreement. The difference between the present value and the undiscounted cash flows the Company expects to collect from the FDIC will be accreted into non-interest income over the life of the FDIC indemnification asset.

Subsequent to initial recognition, the FDIC indemnification asset is reviewed quarterly and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the covered portfolio. These adjustments are measured on the same basis as the related covered loans and covered other real estate owned. Any increases in cash flow of the covered assets over those expected will reduce the FDIC indemnification asset and any decreases in cash flow of the covered assets under those expected will increase the FDIC indemnification asset. Increases and decreases to the FDIC indemnification asset are recorded as adjustments to non-interest income. The resulting carrying value of the indemnification represents the amounts recoverable from the FDIC for future expected losses, and the amounts due from the FDIC for claims related to covered losses the Company have incurred less amounts due back to the FDIC relating to share recoveries.

The following table summarizes the activity related to the FDIC indemnification asset for the three and nine months ended September 30, 2010:

(in thousands)


	Three months ended September 30, 2010			Nine months ended September 30, 2010
Balance, beginning of period	$	246,982		$	—
Acquisitions		—			252,874
Change in FDIC indemnification asset		(11,948	)		(11,075	)
Payments from FDIC		(15,716	)		(22,481	)
Due to FDIC		(1,622	)		(1,622	)

Balance, end of period	$	217,696		$	217,696

Note 6 – Mortgage Servicing Rights

The following table presents the changes in the Company’s mortgage servicing rights (“MSR”) for the three and nine months ended September 30, 2010 and 2009:

(in thousands)


	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
Balance, beginning of period	$	12,895		$	10,631		$	12,625		$	8,205
Additions for new mortgage servicing rights capitalized		1,616			1,723			3,624			5,958
Acquired mortgage servicing rights		—			—			62			—
Changes in fair value:
Due to changes in model inputs or assumptions⁽¹⁾		(890	)		(2,580	)		(761	)		(3,155	)
Other⁽²⁾		(167	)		1,778			(2,096	)		544

Balance, end of period	$	13,454		$	11,552		$	13,454		$	11,552

(1)	Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates.

(2)	Represents changes due to collection/realization of expected cash flows over time.

Information related to our serviced loan portfolio as of September 30, 2010 and December 31, 2009 was as follows:

(dollars in thousands)


	September 30, 2010		December 31, 2009
Balance of loans serviced for others	$	1,471,759	$	1,277,832
MSR as a percentage of serviced loans		0.91%		0.99%

The amount of contractually specified servicing fees, late fees and ancillary fees earned, recorded in mortgage banking revenue on the Condensed Consolidated Statements of Operations, was $1.0 million and $2.8 million for the three and nine months ended September 30, 2010, as compared to $796,000 and $2.2 million for the three and nine months ended September 30, 2009.

Key assumptions used in measuring the fair value of MSR as of September 30, 2010 and December 31, 2009 were as follows:


	September 30, 2010		December 31, 2009
Constant prepayment rate		16.70%		18.35%
Discount rate		8.65%		8.70%
Weighted average life (years)		4.9		4.5

Note 7 – Other Real Estate Owned

The following table presents the changes in non-covered other real estate owned (“OREO”) for the three and nine months ended September 30, 2010 and 2009:

(in thousands)


	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
Balance, beginning of period	$	25,653	$	36,030	$	24,566	$	27,898
Additions to OREO		11,972		9,049		29,867		34,408
Dispositions of OREO		(5,159)		(13,779)		(20,246)		(28,430)
Valuation adjustments in the period		(442)		(4,595)		(2,163)		(7,171)

Balance, end of period	$	32,024	$	26,705	$	32,024	$	26,705

Note 8 – Junior Subordinated Debentures

As of September 30, 2010, the Company had 14 wholly-owned trusts (“Trusts”), including a Master Trust formed in 2007 to issue two separate series of trust preferred securities, that were formed to issue trust preferred securities and related common securities of the Trusts and are not consolidated. Nine Trusts, representing aggregate total obligations of approximately $96.0 million (fair value of approximately $107.3 million as of the merger dates), were assumed in connection with previous mergers.

Following is information about the Trusts as of September 30, 2010:

Junior Subordinated Debentures

(dollars in thousands)


Trust Name	Issue Date		Issued Amount		Carrying Value (1)		Rate (2)			Effective Rate (3)		Maturity Date		Redemption Date
AT FAIR VALUE:
Umpqua Statutory Trust II		October 2002	$	20,619	$	13,772		Floating	(4)		11.62%		October 2032		October 2007
Umpqua Statutory Trust III		October 2002		30,928		20,895		Floating	(5)		11.62%		November 2032		November 2007
Umpqua Statutory Trust IV		December 2003		10,310		6,430		Floating	(6)		11.64%		January 2034		January 2009
Umpqua Statutory Trust V		December 2003		10,310		6,416		Floating	(6)		11.64%		March 2034		March 2009
Umpqua Master Trust I		August 2007		41,238		20,149		Floating	(7)		11.69%		September 2037		September 2012
Umpqua Master Trust IB		September 2007		20,619		12,484		Floating	(8)		11.65%		December 2037		December 2012

				134,024		80,146

AT AMORTIZED COST:
HB Capital Trust I		March 2000		5,310		6,398		10.875%			8.15%		March 2030		March 2010
Humboldt Bancorp Statutory Trust I		February 2001		5,155		5,945		10.200%			8.19%		February 2031		February 2011
Humboldt Bancorp Statutory Trust II		December 2001		10,310		11,445		Floating	(9)		3.03%		December 2031		December 2006
Humboldt Bancorp Statutory Trust III		September 2003		27,836		30,768		Floating	(10)		2.51%		September 2033		September 2008
CIB Capital Trust		November 2002		10,310		11,274		Floating	(5)		3.11%		November 2032		November 2007
Western Sierra Statutory Trust I		July 2001		6,186		6,186		Floating	(11)		4.05%		July 2031		July 2006
Western Sierra Statutory Trust II		December 2001		10,310		10,310		Floating	(9)		3.89%		December 2031		December 2006
Western Sierra Statutory Trust III		September 2003		10,310		10,310		Floating	(12)		3.43%		September 2033		September 2008
Western Sierra Statutory Trust IV		September 2003		10,310		10,310		Floating	(12)		3.43%		September 2033		September 2008

				96,037		102,946

		Total	$	230,061	$	183,092

(1)	Includes purchase accounting adjustments, net of accumulated amortization, for junior subordinated debentures assumed in connection with previous mergers as well as fair value adjustments related to trusts recorded at fair value.

(2)	Contractual interest rate of junior subordinated debentures.

(3)	Effective interest rate based upon the carrying value as of September 2010.

(4)	Rate based on LIBOR plus 3.35%, adjusted quarterly.

(5)	Rate based on LIBOR plus 3.45%, adjusted quarterly.

(6)	Rate based on LIBOR plus 2.85%, adjusted quarterly.

(7)	Rate based on LIBOR plus 1.35%, adjusted quarterly.

(8)	Rate based on LIBOR plus 2.75%, adjusted quarterly.

(9)	Rate based on LIBOR plus 3.60%, adjusted quarterly.

(10)	Rate based on LIBOR plus 2.95%, adjusted quarterly.

(11)	Rate based on LIBOR plus 3.58%, adjusted quarterly.

(12)	Rate based on LIBOR plus 2.90%, adjusted quarterly.

The $230.1 million of trust preferred securities issued to the Trusts as of September 30, 2010 and December 31, 2009, with carrying values of $183.1 million and $188.9 million, respectively, are reflected as junior subordinated debentures in the Condensed Consolidated Balance Sheets. The common stock issued by the Trusts is recorded in other assets in the Condensed Consolidated Balance Sheets, and totaled $6.9 million at September 30, 2010 and December 31, 2009.

All of the debentures issued to the Trusts, less the common stock of the Trusts, qualified as Tier 1 capital as of September 30, 2010, under guidance issued by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”). Effective April 11, 2005, the Federal Reserve Board adopted a rule that permits the inclusion of trust preferred securities in Tier 1 capital, but with stricter quantitative limits. The Federal Reserve Board rule, with a five-year transition period set to end on March 31, 2009, would have limited the aggregate amount of trust preferred securities and certain other restricted core capital elements to 25% of Tier 1 capital, net of goodwill and any associated deferred tax liability. The rule allowed the amount of trust preferred securities and certain other elements in excess of the limit to be included in Tier 2 capital, subject to restrictions. In response to the stressed conditions in the financial markets and in order to promote stability in the financial markets and the banking industry, on March 17, 2009, the Federal Reserved adopted a new rule that delayed the effective date of the new limits on the inclusion of trust preferred securities and other restricted core capital elements in Tier 1 capital until March 31, 2011. At September 30, 2010, the Company’s restricted core capital elements were 19% of total core capital, net of goodwill and any associated deferred tax liability. There can be no assurance that the Federal Reserve Board will not further limit the amount of trust preferred securities permitted to be included in Tier 1 capital for regulatory capital purposes.

On January 1, 2007 the Company selected the fair value measurement option for certain pre-existing junior subordinated debentures of $97.9 million (the Umpqua Statutory Trusts). The remaining junior subordinated debentures as of the adoption date were acquired through business combinations and were measured at fair value at the time of acquisition. In 2007, the Company issued two series of trust preferred securities and elected to measure each instrument at fair value. Accounting for the junior subordinated debentures originally issued by the Company at fair value enables us to more closely align our financial performance with the economic value of those liabilities. Additionally, we believe it improves our ability to manage the market and interest rate risks associated with the junior subordinated debentures. The junior subordinated debentures measured at fair value and amortized cost have been presented as separate line items on the balance sheet. The ending carrying (fair) value of the junior subordinated debentures measured at fair value represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction amongst market participants under current market conditions as of the measurement date.

Due to inactivity in the junior subordinated debenture market and the inability to obtain observable quotes of our, or similar, junior subordinated debenture liabilities or the related trust preferred securities when traded as assets, we utilize an income approach valuation technique to determine the fair value of these liabilities using our estimation of market discount rate assumptions. The significant inputs utilized in the estimation of fair value of these instruments are the credit risk adjusted spread and three month LIBOR. The credit risk adjusted spread represents the nonperformance risk of the liability, contemplating the inherent risk of the obligation. Generally, an increase in the credit risk adjusted spread and/or a decrease in the three month LIBOR will result in positive fair value adjustments. Conversely, a decrease in the credit risk adjusted spread and/or an increase in the three month LIBOR will result in negative fair value adjustments. Prior to the second quarter of 2009, we estimated the fair value of junior subordinated debentures using an internal discounted cash flow model. The future cash flows of these instruments were extended to the next available redemption date or maturity date as appropriate based upon the estimated credit risk adjusted spreads of recent issuances or quotes from brokers for comparable bank holding companies, as available, compared to the contractual spread of each junior subordinated debenture measured at fair value. For additional assurance, we obtain a valuation from a third-party pricing service to validate the results of our model.

In the second quarter of 2009, due to continued inactivity in the junior subordinated debenture and related markets and clarified guidance relating to the determination of fair value when the volume and level of activity for an asset or liability have significantly decreased or where transactions are not orderly, management evaluated and determined to rely on a third-party pricing service to estimate the fair value of these liabilities. The pricing service utilized an income approach valuation technique, specifically an option-adjusted spread (“OAS”) valuation model. This OAS model values the cash flows over multiple interest rate scenarios and discounts these cash flows using a credit risk adjustment spread over the three month LIBOR swap curve. The OAS model utilized is more sophisticated and computationally intensive than the model previously used; however, the models react similarly to changes in the underlying inputs, and the results are considered comparable. With the assistance of a third-party pricing service, we determined that a credit risk adjusted spread of 725 basis points (an effective yield of approximately 11.6%) was representative of the nonperformance risk premium a market participant would require under current market conditions as of March 31, 2010. Generally, an increase in the credit risk adjusted spread and/or a decrease in the swap curve will result in positive fair value adjustments. Conversely, a decrease in the credit risk adjusted spread and/or an increase in the swap curve will result in negative fair value adjustments.

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was signed into law which, among other things, limits the ability of certain bank holding companies to treat trust preferred security debt issuances as Tier 1 capital. This law may require many banks to raise new Tier 1 capital and will effectively close the trust-preferred securities markets from offering new issuances in the future. As a result of this legislation, our third-party pricing service noted that they are no longer to able to provide reliable fair value estimates related to these liabilities given the absence of observable or comparable transactions in

the market place in recent history or as anticipated into the future. As a result, for the third quarter of 2010, management evaluated current market conditions and determined that the 11.6% effective yield utilized to discount the junior subordinated debentures, and the related prices, to determine fair value as of March 31, 2010 continued to represent appropriate estimates of the fair value of these liabilities as of September 30, 2010. Since the Company had less than $15 billion in assets at December 31, 2009, under the Dodd-Frank Act, the Company will be able to continue to include its existing trust preferred securities in Tier 1 capital.

In the third quarter of 2010, the Company began utilizing a discounted cash flow model to measure these instruments at fair value each reporting period, which will have the long-term effect of amortizing the cumulative fair value discount of $53.9 million as of September 30, 2010, over each junior subordinated debenture’s expected term, to eventually return the carrying value of these instruments to their notional values at their expected redemption dates. This will result in recognizing losses on junior subordinated debentures carried at fair value on quarterly basis within non-interest income. The Company will continue to monitor activity in the trust preferred markets to validate the 11.6% effective yield utilized. Observable activity in the junior subordinated debenture and related markets in future periods may change the effective rate used to discount these liabilities, and could result in additional fair value adjustments (gains or losses on junior subordinated debentures measured at fair value) above the periodic change in fair value under the effective yield method.

For the three and nine months ended September 30, 2010, we recorded a loss of $554,000 and a gain of $5.5 million, respectively, as compared to gains of $982,000 and $10.2 million, for the three and nine months ended September 30, 2009, respectively, resulting from the change in fair value of the junior subordinated debentures recorded at fair value. The change in fair value of the junior subordinated debentures carried at fair value in the current year primarily results from the widening of the credit risk adjusted spread over the contractual rate of each junior subordinated debenture measured at fair value. Management believes that the credit risk adjusted spread being utilized is indicative of the nonperformance risk premium a willing market participant would require under current market conditions, that is, the inactive market. In management’s estimation, a change in fair value of the junior subordinated debentures during the period represents changes in the market’s nonperformance risk expectations and pricing of this type of debt, and not as a result of changes to our entity-specific credit risk. Any gains recognized are recorded in gain on junior subordinated debentures carried at fair value within non-interest income. The contractual interest expense on junior subordinated debentures continues to be recorded on an accrual basis and is reported in interest expense. The junior subordinated debentures recorded at fair value of $80.1 million had contractual unpaid principal amounts of $134.0 million outstanding as of September 30, 2010. The junior subordinated debentures recorded at fair value of $85.7 million had contractual unpaid principal amounts of $134.0 million outstanding as of December 31, 2009.

Note 9 – Commitments and Contingencies

Lease Commitments — The Company leases 127 sites under non-cancelable operating leases. The leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule. Substantially all of the leases provide the Company with the option to extend the lease term one or more times following expiration of the initial term. In addition, in connection with the Nevada Security acquisition, the Company operated in four additional leased facilities at September 30, 2010. The Company has the option to purchase one of these leased facilities.

Rent expense for the three and nine months ended September 30, 2010 was $4.0 million and $11.3 million, respectively, compared to $3.2 million and $9.5 million, respectively, in the comparable periods in 2009. Rent expense was offset by rent income for the three and nine months ended September 30, 2010 of $275,000 and $750,000 respectively, compared to $146,000 and $426,000, respectively, in the comparable periods in 2009.

Financial Instruments with Off-Balance-Sheet Risk — The Company’s financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of the Bank’s business and involve elements of credit, liquidity, and interest rate risk.

The following table presents a summary of the Bank’s commitments and contingent liabilities:

(in thousands)


	As of September 30, 2010
Commitments to extend credit	$	1,014,699
Commitments to extend overdrafts	$	213,192
Commitments to originate loans held for sale	$	184,220
Forward sales commitments	$	142,139
Standby letters of credit	$	42,941

The Bank is a party to financial instruments with off-balance-sheet credit risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those instruments involve elements of credit and interest-rate risk similar to the amounts recognized in the Condensed Consolidated Balance Sheets. The contract or notional amounts of those instruments reflect the extent of the Bank’s involvement in particular classes of financial instruments.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, and financial guarantees written, is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any covenant or condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. While most standby letters of credit are not utilized, a significant portion of such utilization is on an immediate payment basis. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral varies but may include cash, accounts receivable, inventory, premises and equipment and income-producing commercial properties.

Standby letters of credit and financial guarantees written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including international trade finance, commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds cash, marketable securities, or real estate as collateral supporting those commitments for which collateral is deemed necessary. The Bank has not been required to perform on any financial guarantees and did not incur any losses in connection with standby letters of credit during the three and nine months ended September 30, 2010 and 2009. At September 30, 2010, approximately $19.7 million of standby letters of credit expire within one year, and $23.2 million expire thereafter. Upon issuance, the Company recognizes a liability equivalent to the amount of fees received from the customer for these standby letter of credit commitments. Fees are recognized ratably over the term of the standby letter of credit. The estimated fair value of guarantees associated with standby letters of credit was $212,000 as of September 30, 2010.

At September 30, 2010 and December 31, 2009, the reserve for unfunded commitments, which is included in other liabilities on the Condensed Consolidated Balance Sheets, was $797,000 and $731,000, respectively. The adequacy of the reserve for unfunded commitments is reviewed on a quarterly basis, based upon changes in the amount of commitments, loss experience, and economic conditions.

Mortgage loans sold to investors may be sold with servicing rights retained, with only the standard legal representations and warranties regarding recourse to the Bank. Management believes that any liabilities that may result from such recourse provisions are not significant.

Legal Proceedings—During 2007, Visa Inc. (“Visa”) announced that it completed restructuring transactions in preparation for an initial public offering of its Class A stock, and, as part of those transactions, Umpqua Bank’s membership interest was exchanged for 764,036 shares of Class B common stock in Visa. In March 2008, Visa completed its initial public offering. Following the initial public offering, the Company received $12.6 million proceeds 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. A conversion ratio of 0.71429 was established for the conversion rate of Class B shares into Class A shares. Using the proceeds from this offering, Visa also established a $3.0 billion escrow account to cover settlements, resolution of pending litigation and related claims (“covered litigation”).

In October 2008, Visa announced that it had reached a settlement with Discover Card related to an antitrust lawsuit. Umpqua Bank and other Visa member banks were obligated to fund the settlement and share in losses resulting from this litigation that were not already provided for in the escrow account. In December 2008, Visa deposited additional funds into the escrow account to cover the remaining amount of the settlement. The deposit of funds into the escrow account further reduced the conversion ratio applicable to Class B common stock outstanding from 0.71429 per Class A share to 0.6296 per Class A share.

In July 2009, Visa deposited an additional $700 million into the litigation escrow account. While the outcome of the remaining litigation cases remains unknown, this addition to the escrow account provides additional reserves to cover potential losses. As a result of the deposit, the conversion ratio applicable to Class B common stock outstanding decreased further from 0.6296 per Class A share to 0.5824 per Class A share.

In May 2010, Visa deposited an additional $500 million into the litigation escrow account. As a result of the deposit, the conversion ratio applicable to Class B common stock outstanding decreased further from 0.5824 per Class A share to 0.5550 per Class A share.

In October 2010, Visa deposited an additional $800 million into the litigation escrow account. As a result of the deposit, the conversion ratio applicable to Class B common stock outstanding decreased further from 0.5550 per Class A share to 0.5102 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 (1) three years from the date of the initial public offering or (2) 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 September 30, 2010, the value of the Class A shares was $74.26 per share. Utilizing the new conversion ratio effective in October 2010, the value of unredeemed Class A equivalent shares owned by the Company was $17.8 million as of September 30, 2010, and has not been reflected in the accompanying financial statements.

In the ordinary course of business, various claims and lawsuits are brought by and against the Company, the Bank and Umpqua Investments. In the opinion of management, there is no pending or threatened proceeding in which an adverse decision could result in a material adverse change in the Company’s consolidated financial condition or results of operations.

Concentrations of Credit Risk - The Company grants real estate mortgage, real estate construction, commercial, agricultural and installment loans and leases to customers throughout Oregon, Washington and California. In management’s judgment, a concentration exists in real estate-related loans, which represented approximately 81% of the Company’s non-covered loan and lease portfolio at both September 30, 2010, and December 31, 2009. Commercial real estate concentrations are managed to assure wide geographic and business diversity. Although management believes such concentrations have no more than the normal risk of collectability, a substantial decline in the economy in general, material increases in interest rates, changes in tax policies, tightening credit or refinancing markets, or a decline in real estate values in the Company’s primary market areas in particular, such as was seen with the deterioration in the residential development market since 2007, could have an adverse impact on the repayment of these loans. Personal and business incomes, proceeds from the sale of real property, or proceeds from refinancing, represent the primary sources of repayment for a majority of these loans.

The Bank recognizes the credit risks inherent in dealing with other depository institutions. Accordingly, to prevent excessive exposure to any single correspondent, the Bank has established general standards for selecting correspondent banks as well as internal limits for allowable exposure to any single correspondent. In addition, the Bank has an investment policy that sets forth limitations that apply to all investments with respect to credit rating and concentrations with an issuer.

Note 10 – Derivatives

The Company may use derivatives to hedge the risk of changes in the fair values of interest rate lock commitments, residential mortgage loans held for sale, and mortgage servicing rights. None of the Company’s derivatives are designated as hedging instruments. Rather, they are accounted for as free-standing derivatives, or economic hedges, with changes in the fair value of the derivatives reported in income. The Company primarily utilizes forward interest rate contracts in its derivative risk management strategy.

The Bank enters into forward delivery contracts to sell residential mortgage loans or mortgage-backed securities to broker/dealers at specific prices and dates (“MBS TBAs”) in order to hedge the interest rate risk in its portfolio of mortgage loans held for sale and its residential mortgage loan commitments. Credit risk associated with forward contracts is limited to the replacement cost of those forward contracts in a gain position. There were no counterparty default losses on forward contracts in the three and nine months ended September 30, 2010 and 2009. Market risk with respect to forward contracts arises principally from changes in the value of contractual positions due to changes in interest rates. The Bank limits its exposure to market risk by monitoring differences between commitments to customers and forward contracts with broker/dealers. In the event the Company has forward delivery contract commitments in excess of available mortgage loans, the Company completes the transaction by either paying or receiving a fee to or from the broker/dealer equal to the increase or decrease in the market value of the forward contract. At September 30, 2010, the Bank had commitments to originate mortgage loans held for sale totaling $184.2 million and forward sales commitments of $142.1 million.

The following tables summarize the types of derivatives, separately by assets and liabilities, their locations on the Condensed Consolidated Balance Sheets, and the fair values of such derivatives as of September 30, 2010 and December 31, 2009:

(in thousands)


Underlying Risk Exposure	Description	Balance Sheet Location	September 30, 2010		December 31, 2009
Asset Derivatives
Interest rate contracts	Rate lock commitments	Other assets	$	1,200	$	124
Interest rate contracts	Forward sales commitments	Other assets		113		845

Total asset derivatives			$	1,313	$	969


Liability Derivatives
Interest rate contracts	Rate lock commitments	Other liabilities	$	12	$	133
Interest rate contracts	Forward sales commitments	Other liabilities		243		-

Total liability derivatives			$	255	$	133

The following table summarizes the types of derivatives, their locations within the Condensed Consolidated Statements of Operations, and the gains (losses) recorded during the three and nine months ended September 30, 2010 and 2009:

(in thousands)

Underlying

Risk Exposure

Description

Income Statement

Location

Three months ended
September 30,

2010

2009

Interest rate contracts

Rate lock commitments

Mortgage banking revenue

(8)

332

Interest rate contracts

Forward sales commitments

Mortgage banking revenue

(2,183)

(956)

Total

(2,191)

(624)

Underlying

Risk Exposure

Description

Income Statement

Location

Nine months ended
September 30,

2010

2009

Interest rate contracts

Rate lock commitments

Mortgage banking revenue

1,198

(433)

Interest rate contracts

Forward sales commitments

Mortgage banking revenue

(6,532)

(649)

Total

(5,334)

(1,082)

The Company’s derivative instruments do not have specific credit risk-related contingent features. The forward sales commitments do have contingent features that may require transferring collateral to the broker/dealers upon their request. However, this amount would be limited to the net unsecured loss exposure at such point in time and would not materially affect the Company’s liquidity or results of operations.

Note 11 – Shareholders’ Equity

On February 3, 2010, the Company raised $303.6 million through a public offering by issuing 8,625,000 shares of the Company’s common stock, including 1,125,000 shares pursuant to the underwriters’ over-allotment option, at a share price of $11.00 per share and 18,975,000 depository shares, including 2,475,000 depository shares pursuant to the underwriter’s over-allotment option, also at a price of $11.00 per share. Fractional interests (1/100th) in each share of the Series B Common Stock Equivalent were represented by the 18,975,000 depositary shares; as a result, each depositary share would convert into one share of common stock. The net proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were $288.1 million. The net proceeds from the offering were used to redeem the preferred stock issued to the United States Department of the Treasury (U.S. Treasury) under the Troubled Asset Relief Program (“TARP”) Capital Purchase Program (“CPP”), to fund FDIC-assisted acquisition opportunities and for general corporate purposes.

On February 17, 2010, the Company redeemed all of the outstanding Fixed Rate Cumulative Perpetual Preferred Stock, Series A, issued to the U.S. Treasury under the TARP CPP for an aggregate purchase price of $214.2 million. As a result of the repurchase of the Series A preferred stock, the Company incurred a one-time deemed dividend of $9.7 million due to the accelerated amortization of the remaining issuance discount on the preferred stock.

On March 31, 2010, the Company repurchased the common stock warrant issued to the U.S. Treasury pursuant to the TARP CPP, for $4.5 million. The warrant repurchase, together with the Company’s redemption in February 2010 of the entire amount of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, issued to the U.S. Treasury, represents full repayment of all TARP obligations and cancellation of all equity interests in the Company held by the U.S. Treasury.

On April 20, 2010, shareholders of the Company approved an amendment to the Company’s Restated Articles of Incorporation. The amendment, which became effective on April 21, 2010, increased the number of authorized shares of common stock to 200,000,000 (from 100,000,000). As a result of the effectiveness of the amendment, as of the close of business on April 21, 2010, the Company’s Series B Common Stock Equivalent preferred stock automatically converted into newly issued shares of common stock at a conversion rate of 100 shares of common stock for each share of Series B Common Stock Equivalent preferred stock. All shares of Series B Common Stock Equivalent preferred stock and representative depositary shares ceased to exist upon the conversion. Trading in the depositary shares on NASDAQ (ticker symbol “UMPQP”) ceased and the UMPQP symbol voluntarily delisted effective as of the close of business on April 21, 2010.

Stock-Based Compensation

The compensation cost related to stock options, restricted stock and restricted stock units (included in salaries and employee benefits) was $1.2 million and $2.6 million for the three and nine months ended September 30, 2010, respectively, as compared to $391,000 and $1.7 million for the three and nine months ended September 30, 2009, respectively. The total income tax benefit recognized related to stock-based compensation was $481,000 and $1.1 million for the three and nine months ended September 30, 2010, respectively, as compared to $157,000 and $678,000 for the comparable periods in 2009, respectively.

The following table summarizes information about stock option activity for the nine months ended September 30, 2010:

(in thousands, except per share data)


	Nine months ended September 30, 2010
	Options Outstanding		Weighted-Avg Exercise Price		Weighted-Avg Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Balance, beginning of period		1,763	$	15.05
Granted		425	$	12.45
Exercised		(108)	$	8.99
Forfeited/expired		(23)	$	14.25

Balance, end of period		2,057	$	14.84		6.18	$	1,643


Options exercisable, end of period		1,231	$	16.59		4.45	$	1,287

The total intrinsic value (which is the amount by which the stock price exceeded the exercise price on the date of exercise) of options exercised during the three and nine months ended September 30, 2010 was $26,000 and $408,000, respectively. This compared to the total intrinsic value of options exercised during the three and nine months ended September 30, 2009 of $4,000 and $209,000, respectively. During the three and nine months ended September 30, 2010, the amount of cash received from the exercise of stock options was $59,000 and $976,000, respectively, as compared to $44,000 and $276,000 for the same periods in 2009, respectively.

The fair value of each option grant is estimated as of the grant date using the Black-Scholes option-pricing model. The following weighted average assumptions were used for stock options granted in the nine months ended September 30, 2010 and 2009:


	Nine months ended September 30,
	2010		2009
Dividend yield		2.72%		2.23%
Expected life (years)		7.1		7.3
Expected volatility		52%		46%
Risk-free rate		2.72%		2.18%
Weighted average fair value of options on date of grant	$	5.27	$	3.65

The Company grants restricted stock periodically as a part of the 2003 Stock Incentive Plan for the benefit of employees. Restricted shares issued generally vest on an annual basis over five years. A deferred restricted stock award was granted to an executive in the second quarter of 2007. The award vests monthly based on continued service in various increments through July 1, 2011. The Company will issue certificates for the vested award within the seventh month following termination of the executive’s employment. The following table summarizes information about nonvested restricted share activity for the nine months ended September 30, 2010:

(in thousands, except per share data)


	Nine months ended September 30, 2010
	Restricted Shares Outstanding		Weighted Average Grant Date Fair Value
Balance, beginning of period		187	$	21.46
Granted		265	$	12.19
Released		(44)	$	22.36
Forfeited/expired		(14)	$	13.35

Balance, end of period		394	$	15.40

The total fair value of restricted shares vested and released during the three and nine months ended September 30, 2010 was $9,000 and $547,000, respectively. This compares to the total fair value of restricted shares vested and released during the three and nine months ended September 30, 2009 of $8,000 and $417,000, respectively.

The Company grants restricted stock units as a part of the 2007 Long Term Incentive Plan for the benefit of certain executive officers. Restricted stock unit grants are subject to performance-based vesting as well as other approved vesting conditions. In the second quarter of 2007, restricted stock units were granted that cliff vest after three years based on performance and service conditions. In the first quarter of 2008 and 2009, additional restricted stock units were granted to these executives under substantially similar vesting terms. The total number of restricted stock units granted represents the maximum number of restricted stock units eligible to vest based upon the performance and service conditions set forth in the grant agreements. The following table summarizes information about restricted stock unit activity for the nine months ended September 30, 2010:

(in thousands, except per share data)


	Nine months ended September 30, 2010
	Restricted Stock Units Outstanding		Weighted Average Grant Date Fair Value
Balance, beginning of period		335	$	15.54
Granted		-	$	-
Released		(16)	$	24.52
Forfeited/expired		(95)	$	24.52

Balance, end of period		224	$	11.13

No restricted stock units were vested and released during the three months ended September 30, 2010. The total fair value of restricted stock units vested and released during the nine months ended September 30, 2010 was $213,000. This compares to the total fair value of restricted stock units vested and released during the three and nine months ended September 30, 2009 of none and $186,000, respectively.

As of September 30, 2010, there was $2.9 million of total unrecognized compensation cost related to nonvested stock options which is expected to be recognized over a weighted-average period of 3.6 years. As of September 30, 2010, there was $3.8 million of total unrecognized compensation cost related to nonvested restricted stock which is expected to be recognized over a weighted-average period of 3.0 years. As of September 30, 2010, there was $338,000 of total unrecognized compensation cost related to nonvested restricted stock units which is expected to be recognized over a weighted-average period of 0.9 years, assuming expected performance conditions are met.

For the three and nine months ended September 30, 2010, the Company received income tax benefits of $11,000 and $391,000, respectively, related to the exercise of non-qualified employee stock options, disqualifying dispositions on the exercise of incentive stock options, the vesting of restricted shares and the vesting of restricted stock units. For the three and nine months ended September 30, 2009, the Company received income tax benefits of $5,000 and $311,000, respectively. In the nine months ended September 30, 2010, the Company had net tax deficiencies (tax deficiency resulting from tax deductions less than the compensation cost recognized) of $207,000, compared to net tax deficiencies of $354,000 for the nine months ended September 30, 2009. Only cash flows from gross excess tax benefits are classified as financing cash flows.

Note 12 – Income Taxes

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, as well as the Oregon and California state jurisdictions. Except for the California amended returns of an acquired institution for the tax years 2001, 2002, and 2003, and only as it relates to the net interest deduction taken on these amended returns, the Company is no longer subject to U.S. federal or Oregon state tax authority examinations for years before 2006 and California state tax authority examinations for years before 2004. The Internal Revenue Service concluded an examination of the Company’s U.S. income tax returns for 2006 and 2007 in the second quarter of 2010, and concluded an examination of the Company’s U.S. income tax return for 2008 in the third quarter of 2010. The results of these examinations had no significant impact on the Company’s financial statements.

Income taxes are accounted for using the asset and liability method. Under this method a deferred tax asset or liability is determined based on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company’s income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not, that all or some portion of the potential deferred tax asset will not be realized.

The Company applies the provisions of FASB ASC 740, Income Taxes, relating to the accounting for uncertainty in income taxes. The Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities’ examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment.

The Company recorded a reduction in its liability for unrecognized tax benefits relating to temporary differences settled during audit in the second quarter of 2010. The Company had gross unrecognized tax benefits recorded as of September 30, 2010 in the amount of $590,000. If recognized, the unrecognized tax benefit would reduce the 2010 annual effective tax rate by 1.5%. During the first nine months of 2010, the Company recognized a benefit of $202,000 in interest reversed primarily due to the reduction of its liability for unrecognized tax benefits during the same period. Interest expense is reported by the Company as a component of tax expense. As of September 30, 2010, the accrued interest related to unrecognized tax benefits is $163,000.

Note 13 – Earnings Per Common Share

Nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of the Company’s nonvested restricted stock awards qualify as participating securities.

Net income, less any preferred dividends accumulated for the period (whether or not declared), is allocated between the common stock and participating securities pursuant to the two-class method. Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested restricted shares.

Diluted earnings per common share is computed in a similar manner, except that first the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares, excluding the participating securities, were issued using the treasury stock method. For all periods presented, warrants, stock options, certain restricted stock awards and restricted stock units are the only potentially dilutive non-participating instruments issued by the Company. Next, we determine and include in diluted earnings per common share calculation the more dilutive effect of the participating securities using the treasury stock method or the two-class method. Undistributed losses are not allocated to the nonvested share-based payment awards (the participating securities) under the two-class method as the holders are not contractually obligated to share in the losses of the Company.

The following is a computation of basic and diluted income (loss) per common share for the three and nine months ended September 30, 2010 and 2009:


	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
NUMERATORS:
Net income (loss)	$	8,191	$	(7,144)	$	21,379	$	(126,684)
Less:
Preferred stock dividends		-		3,225		12,192		9,632
Dividends and undistributed earnings allocated to participating securities ⁽¹⁾		18		7		49		22

Net income (loss) available to common shareholders	$	8,173	$	(10,376)	$	9,138	$	(136,338)

DENOMINATORS:
Weighted average number of common shares outstanding - basic		114,528		74,085		105,695		64,878
Effect of potentially dilutive common shares ⁽²⁾		232		-		229		-

Weighted average number of common shares outstanding - diluted		114,760		74,085		105,924		64,878

INCOME (LOSS) PER COMMON SHARE:
Basic	$	0.07	$	(0.14)	$	0.09	$	(2.10)
Diluted	$	0.07	$	(0.14)	$	0.09	$	(2.10)

(1)	Represents dividends paid and undistributed earnings allocated to nonvested restricted stock awards.

(2)	Represents the effect of the assumed exercise of warrants, assumed exercise of stock options, vesting of non-participating restricted shares, and vesting of restricted stock units, based on the treasury stock method.

The following table presents the weighted average outstanding securities that were not included in the computation of diluted earnings per common share because their effect would be anti-dilutive for the three and nine months ended September 30, 2010 and 2009.

(in thousands)


	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
Stock options		2,000		1,778		2,062		1,844
CPP warrant		-		1,703		366		2,047
Non-participating, nonvested restricted shares		8		16		10		18
Restricted stock units		-		96		-		111

		2,008		3,593		2,438		4,020

Note 14 – Segment Information

The Company operates three primary segments: Community Banking, Mortgage Banking and Retail Brokerage. The Community Banking segment’s principal business focus is the offering of loan and deposit products to business and retail customers in its primary market areas. As of September 30, 2010, the Community Banking segment operated 184 locations throughout Oregon, Northern California, Washington, and Nevada.

The Mortgage Banking segment, which operates as a division of the Bank, originates, sells and services residential mortgage loans.

The Retail Brokerage segment consists of the operations of Umpqua Investments, which offers a full range of retail brokerage services and products to its clients who consist primarily of individual investors. The Company accounts for intercompany fees and services between Umpqua Investments and the Bank at estimated fair value according to regulatory requirements for services provided. Intercompany items relate primarily to management services, referral fees and deposit rebates.

Summarized financial information concerning the Company’s reportable segments and the reconciliation to the consolidated financial results is shown in the following tables:

Segment Information

(in thousands)


	Three Months Ended September 30, 2010
	Community Banking		Retail Brokerage		Mortgage Banking		Consolidated

Interest income	$	129,591	$	58	$	3,297	$	132,946
Interest expense		23,925		-		704		24,629

Net interest income		105,666		58		2,593		108,317
Provision for loan and lease losses		24,895		-		-		24,895
Non-interest income		2,263		2,683		7,187		12,133
Non-interest expense		77,480		3,474		4,216		85,170

Income (loss) before income taxes		5,554		(733)		5,564		10,385
Provision for (benefit from) income taxes		259		(291)		2,226		2,194

Net income (loss)		5,295		(442)		3,338		8,191
Preferred stock dividends		-		-		-		-
Dividends and undistributed earnings allocated to participating securities		18		-		-		18

Net earnings (loss) available to common shareholders	$	5,277	$	(442)	$	3,338	$	8,173


	Nine Months Ended September 30, 2010
	Community Banking		Retail Brokerage		Mortgage Banking		Consolidated

Interest income	$	348,478	$	201	$	9,240	$	357,919
Interest expense		68,214		-		2,036		70,250

Net interest income		280,264		201		7,204		287,669
Provision for loan and lease losses		96,768		-		-		96,768
Non-interest income		40,159		8,655		13,948		62,762
Non-interest expense		208,806		10,373		10,695		229,874

Income (loss) before income taxes		14,849		(1,517)		10,457		23,789
(Benefit from) provision for income taxes		(1,175)		(598)		4,183		2,410

Net income (loss)		16,024		(919)		6,274		21,379
Preferred stock dividends		12,192		-		-		12,192
Dividends and undistributed earnings allocated to participating securities		49		-		-		49

Net (loss) earnings available to common shareholders	$	3,783	$	(919)	$	6,274	$	9,138


	Three Months Ended September 30, 2009
	Community Banking		Retail Brokerage		Mortgage Banking		Consolidated

Interest income	$	103,805	$	46	$	3,237	$	107,088
Interest expense		24,463		-		863		25,326

Net interest income		79,342		46		2,374		81,762
Provision for loan and lease losses		52,108		-		-		52,108
Non-interest income		11,525		2,090		4,310		17,925
Non-interest expense		61,964		3,130		3,255		68,349

(Loss) income before income taxes		(23,205)		(994)		3,429		(20,770)
(Benefit from) provision for income taxes		(14,593)		(405)		1,372		(13,626)

Net (loss) income		(8,612)		(589)		2,057		(7,144)
Preferred stock dividends		3,225		-		-		3,225
Dividends and undistributed earnings allocated to participating securities		7		-		-		7

Net (loss) earnings available to common shareholders	$	(11,844)	$	(589)	$	2,057	$	(10,376)


	Nine Months Ended September 30, 2009
	Community Banking		Retail Brokerage		Mortgage Banking		Consolidated

Interest income	$	306,589	$	76	$	9,582	$	316,247
Interest expense		77,267		-		2,816		80,083

Net interest income		229,322		76		6,766		236,164
Provision for loan and lease losses		140,531