Umpqua Holdings Reports Strong Third Quarter Operating Earnings of $0.42 Per Diluted Share

Umpqua Holdings Corporation (NASDAQ:UMPQ), parent company of Umpqua Bank and Strand, Atkinson, Williams & York, Inc., today announced third quarter 2006 operating earnings of $24.3 million, or $0.42 per diluted share, compared to $19.9 million, or $0.44 per diluted share, for the third quarter of 2005. For the year to date, operating earnings were $62.5 million, or $1.23 per diluted share, compared to $51.1 million, or $1.14 per diluted share for the same period a year ago, an increase of 8% per diluted share. Operating earnings exclude merger related expenses, net of tax. Including merger expense, net income for the third quarter of 2006 was $22.9 million, or $0.39 per diluted share, compared to $19.9 million, or $0.44 per diluted share for the third quarter of 2005. For the year to date, net income was $59.9 million, or $1.17 per diluted share, compared to $50.9 million, or $1.13 per diluted share for the same period of the prior year. Quarter ended: Nine months ended: (Dollars in thousands, except per share data)   9/30/2006    6/30/2006    9/30/2005    9/30/2006    9/30/2005  Net Income $ 22,856  $ 19,631  $ 19,923  $ 59,914  $ 50,948  Add Back: Merger related expenses, net of tax   1,471    994    --    2,615    157  Operating Earnings $ 24,327  $ 20,625  $ 19,923  $ 62,529  $ 51,105    Earnings per diluted share: Net Income $ 0.39  $ 0.40  $ 0.44  $ 1.17  $ 1.13  Operating Earnings $ 0.42  $ 0.42  $ 0.44  $ 1.23  $ 1.14  During the third quarter of 2006, the Company had net charge-offs of $0.6 million or 0.04% of average loans and leases on an annualized basis. Non-performing loans and leases were $10.6 million at September 30, 2006, representing 0.20% of total loans and leases. The Company provided $2.4 million for future credit losses in the third quarter of 2006, based primarily on movement within the risk grades of the portfolio. This compares to no substantial provision in the second quarter of 2006 and no provision for the same period a year ago. The allowance for credit losses was 1.16% of total loans and leases at September 30, 2006. The Company also recognized a $1.1 million impairment charge for the valuation of the mortgage servicing right (MSR) portfolio during the quarter. This compared to a valuation recovery of $0.2 million for the second quarter of 2006, and a $1.0 million valuation recovery for the same quarter a year ago. The valuation impairment charge during the third quarter of 2006 resulted from declines in mortgage interest rates. "We are extremely pleased with the third quarter results, especially in light of the increased provision for credit loss and MSR impairment, which when combined, represent an impact of $0.03 per diluted share this quarter,” said Ray Davis, president and chief executive officer of Umpqua Holdings Corporation. "With the Western Sierra system integration behind us, we are focused now on growing the company throughout our footprint.” Total consolidated assets as of September 30, 2006, were $7.2 billion, compared to $5.2 billion a year ago. Total gross loans and leases, and deposits, were $5.4 billion and $5.7 billion, respectively, as of September 30, 2006, compared to $3.7 billion and $4.1 billion, respectively, a year ago. The following table presents the year-to-date annualized organic growth rates, which exclude the effects of the Western Sierra Bancorp acquisition: (in thousands) Loans and Leases   Deposits   Assets As reported, 9/30/06 $ 5,385,262  $ 5,650,338  $ 7,198,848  less: 12/31/05 balances   3,921,631      4,286,266      5,360,639  Total growth year to date 1,463,631  1,364,072  1,838,209    less: acquisition   1,022,231      1,016,053      1,491,466  Organic growth $ 441,400    $ 348,019    $ 346,743    Annualized organic growth rate 15% 11% 9% Umpqua Bank, Umpqua Holdings’ bank subsidiary, reported a net interest margin of 5.08% for the third quarter of 2006, compared to 4.93% for second quarter of 2006 and 5.13% for the same quarter a year ago. The increase in margin on a sequential quarter basis resulted from increases in short-term market interest rates, with the yield on earning assets increasing more than deposit and borrowing costs. The yield on earning assets for Umpqua Holdings increased 27 basis points on a sequential quarter basis to 7.49%, while the cost of interest bearing liabilities increased 18 basis points to 3.45%. Excluding merger expense, the Bank efficiency ratio was 51.2% for the third quarter of 2006, compared to 50.8% for the same period a year ago. As of September 30, 2006, total shareholders’ equity was $1.14 billion, and tangible book value per share was $7.94. As previously announced, the Company paid a quarterly cash dividend of $0.18 per share on October 16, 2006. This quarterly dividend represented a 50% increase over the previous quarterly cash dividend. Non-GAAP Financial Measures In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. Umpqua believes that providing non-GAAP financial measures provides investors with information useful in understanding Umpqua’s financial performance. Umpqua provides measures based on "operating earnings,” which exclude merger-related expenses. Operating earnings per diluted share is calculated by dividing operating earnings by the same diluted share total used in determining diluted earnings per share. A reconciliation of these non-GAAP measures to the most comparable GAAP equivalent is included in the attached financial tables or where the non-GAAP measure is presented. About Umpqua Holdings Corporation Umpqua Holdings Corporation (NASDAQ:UMPQ) is the parent company of Umpqua Bank, an Oregon-based community bank recognized for its entrepreneurial approach, innovative use of technology, and distinctive banking solutions. Umpqua Bank has 127 locations stretching from the greater Sacramento area and San Joaquin Valley to Seattle, Wash., as well as along the Oregon and Northern California Coast and in Central Oregon. Umpqua Holdings also owns retail brokerage subsidiary Strand, Atkinson, Williams & York, Inc., which has locations in Umpqua Bank stores and in dedicated offices throughout Oregon and Southwest Washington. Umpqua Bank's Private Client Services Division provides tailored financial services and products to individual customers. Umpqua Holdings Corporation is headquartered in Portland, Ore. For more information, visit www.umpquaholdingscorp.com. Umpqua Holdings Corporation will conduct a quarterly earnings conference call Thursday, October 19, 2006, at 10:00 a.m. PST (1:00 p.m. EST) during which the Company will discuss third quarter results and provide an update on recent activities, including the Company’s recent acquisition of Western Sierra Bancorp. There will be a question-and-answer session following the presentation. Shareholders, analysts and other interested parties are invited to join the call by dialing 888-577-8991 a few minutes before 10:00 a.m. The password is "UMPQUA.” Information to be discussed in the teleconference will be available on the Company’s website prior to the call at www.umpquaholdingscorp.com. A rebroadcast can be found approximately one hour after the conference call by dialing 800-944-0912, or by visiting that website. Umpqua Holdings Corporation Consolidated Statements of Income (Unaudited) Quarter Ended: Dollars in thousands, except per share data September 30, 2006   June 30, 2006   September 30, 2005 Interest income Loans and leases $106,320  $86,004  $65,579  Investments - taxable 6,797  6,693  6,558  Investments - tax exempt 1,127  836  427  Other interest 389  354  617  Dividends 105    56    40  Total interest income 114,738  93,943  73,221    Interest expense Deposits 34,121  25,953  16,101  Repurchase agreements and fed funds purchased 2,155  1,802  511  Trust preferred securities 3,971  3,376  2,719  Other borrowings 692    2,055    89  Total interest expense 40,939  33,186  19,420    Net interest income 73,799  60,757  53,801    Provision for loan and lease losses 2,352  54  -  Non-interest income Service charges 7,606  6,450  5,778  Brokerage fees 2,506  2,534  2,735  Mortgage banking revenue 1,445  2,503  3,256  Gain (loss) on sale of securities --  (1) 28  Other income 1,919    2,320    1,985  Total non-interest income 13,476  13,806  13,782    Non-interest expense Salaries and benefits 26,387  23,337  20,708  Occupancy and equipment 8,540  7,199  6,291  Other 13,308  11,051  10,084  Merger related expenses 2,451    1,656    --  Total non-interest expense 50,686  43,243  37,083    Income before income taxes 34,237  31,266  30,500  Provision for income tax 11,381    11,635    10,577  Net income $22,856    $19,631    $19,923    Weighted average shares outstanding 57,802,381  48,528,525  44,467,888  Weighted average diluted shares outstanding 58,452,461  48,994,482  45,021,879    Earnings per share – Basic $0.40  $0.40  $0.45  Earnings per share – Diluted $0.39  $0.40  $0.44  Umpqua Holdings Corporation Consolidated Statements of Income (Unaudited) Nine Months Ended: Dollars in thousands, except per share data September 30, 2006   September 30, 2005 Interest income Loans and leases $265,444  $182,735  Investments - taxable 20,201  19,359  Investments - tax exempt 2,685  1,839  Other interest 892  1,304  Dividends 205    121  Total interest income 289,427  205,358    Interest expense Deposits 81,112  40,910  Repurchase agreements and fed funds purchased 6,346  1,419  Trust preferred securities 10,359  7,663  Other borrowings 2,775    633  Total interest expense 100,592  50,625    Net interest income 188,835  154,733    Provision for loan and lease losses 2,427  2,400  Non-interest income Service charges 19,540  16,026  Brokerage fees 7,408  8,743  Mortgage banking revenue 5,792  4,834  Gain (loss) on sale of securities (1) 1,426  Other income 6,745    5,279  Total non-interest income 39,484  36,308    Non-interest expense Salaries and benefits 71,525  61,348  Occupancy and equipment 22,907  18,533  Other 34,119  28,796  Merger related expenses 4,358    262  Total noninterest expense 132,909  108,939    Income before income taxes 92,983  79,702  Provision for income tax 33,069    28,754  Net income $59,914    $50,948    Weighted average shares outstanding 50,377,923  44,412,115  Weighted average diluted shares outstanding 51,010,413  44,984,192    Earnings per share – Basic $1.19  $1.15  Earnings per share – Diluted $1.17  $1.13  Umpqua Holdings Corporation Consolidated Balance Sheets (Unaudited)   Dollars in thousands, except per share data September 30, 2006   June 30, 2006   September 30, 2005 Assets: Cash and due from banks $151,334  $176,983  $143,138  Temporary investments 40,700  61,981  29,027  Trading account securities 682  376  830  Investments available for sale 689,841  692,910  697,231  Investments held to maturity 9,494  9,676  10,676  Loans held for sale 18,951  31,118  20,202  Loans and leases 5,385,262  5,296,720  3,696,820  Less: Allowance for loan and lease losses (60,475)   (58,516)   (43,603) Loans and leases, net 5,324,787  5,238,204  3,653,217  Restricted equity securities 15,255  20,538  14,259  Premises and equipment, net 99,251  100,040  88,577  Other real estate owned 31  69  213  Mortgage servicing rights, net 10,427  11,550  10,729  Goodwill and other intangibles 680,722  682,789  407,059  Other assets 157,373    153,709    111,224  Total assets $7,198,848    $7,179,943    $5,186,382    Liabilities: Deposits $5,650,338  $5,464,770  $4,092,966  Securities sold under agreements to repurchase 65,471  61,720  61,551  Fed funds purchased --  200,000  84,000  Term Borrowings 57,072  57,081  3,236  Notes payable for trust preferred securities 203,955  204,222  165,847  Other liabilities 80,332    79,050    52,018  Total liabilities 6,057,168  6,066,843  4,459,618    Shareholders' equity: Common stock 929,893  923,309  563,640  Retained earnings 220,726  208,335  170,153  Accumulated other comprehensive loss (8,939)   (18,544)   (7,029) Total shareholders' equity 1,141,680    1,113,100    726,764  Total liabilities and shareholders' equity $7,198,848    $7,179,943    $5,186,382      Common shares outstanding at period end 58,028,555  57,651,533  44,476,104  Book value per share $19.67  $19.31  $16.34  Tangible book value per share $7.94  $7.46  $7.19  Tangible equity $460,958  $430,311  $319,705  Umpqua Holdings Corporation Loan Portfolio (Unaudited) Dollars in thousands September 30, 2006   June 30, 2006   September 30, 2005 Loans and leases by purpose: Commercial real estate $2,683,187  $2,717,551  $2,023,098  Residential real estate 312,639  301,389  220,079  Construction 1,238,369    1,142,487    564,530  Total real estate 4,234,195  4,161,427  2,807,707  Commercial 1,085,014  1,065,874  818,861  Leases 19,514  18,192  15,800  Consumer 44,831  49,576  53,208  Other 1,708    1,651    1,244  Total loans and leases $5,385,262    $5,296,720    $3,696,820    Quarter Ended Quarter Ended Quarter Ended Dollars in thousands September 30, 2006   June 30, 2006   September 30, 2005 Allowance for credit losses Balance beginning of period $58,516  $44,546  $44,510  Provision for loan and lease losses 2,352  54  --  Acquisition 184  14,043  --    Charge-offs (1,027) (947) (3,289) Less recoveries 450    820    2,382  Net charge-offs (577) (127) (907)   Total Allowance for loan and lease losses 60,475  58,516  43,603    Reserve for unfunded commitments 2,021    2,145    1,489  Total Allowance for credit losses $62,496    $60,661    $45,092    Net charge-offs to average loans and leases (annualized) 0.04% 0.01% 0.10% Recoveries to gross charge-offs 44% 87% 72% Allowance for credit losses to loans and leases 1.16% 1.15% 1.22% Allowance for credit losses to nonperforming loans and leases 591% 828% 546% Nonperforming loans and leases to total loans and leases 0.20% 0.14% 0.22%   Nonperforming assets: Nonperforming loans and leases $10,574  $7,330  $8,257  Real estate owned 31    69    213  Total nonperforming assets $10,605    $7,399    $8,470  Umpqua Holdings Corporation Loan Portfolio (Unaudited)   Nine Months Ended Nine Months Ended Dollars in thousands September 30, 2006   September 30, 2005 Allowance for credit losses Balance beginning of period $43,885  $44,229  Provision for loan and lease losses 2,427  2,400  Acquisitions 14,227  --    Charge-offs (2,587) (7,140) Less recoveries 2,523    4,114  Net charge-offs (64) (3,026)   Total Allowance for loan and lease losses 60,475  43,603    Reserve for unfunded commitments 2,021    1,489  Total Allowance for credit losses $62,496    $45,092    Net charge-offs to average loans and leases (annualized) 0.00% 0.11%   Recoveries to gross charge-offs 98% 58% Deposits by Type (Unaudited) September 30, 2006 June 30, 2006 September 30, 2005 Dollars in thousands Amount Mix Amount Mix Amount Mix Demand, non interest-bearing $1,246,499  22.1% $1,264,249  23.1% $1,071,940  26.2% Demand, interest-bearing 2,420,474  42.8% 2,198,838  40.3% 1,631,039  39.8% Savings 380,587  6.7% 421,248  7.7% 393,217  9.6% Time 1,602,778  28.4% 1,580,435  28.9% 996,770  24.4% Total Deposits $5,650,338  100.0% $5,464,770  100.0% $4,092,966  100.0% Umpqua Holdings Corporation Selected Ratios (Unaudited) Quarter Ended: September 30, 2006   June 30, 2006   September 30, 2005 Net Interest Spread: Yield on loans and leases 7.88% 7.63% 7.11% Yield on taxable investments 4.53% 4.53% 4.34% Yield on tax-exempt investments (1) 6.08% 5.56% 5.84% Yield on temporary investments 3.99% 4.13% 3.38% Total yield on earning assets (1) 7.49% 7.22% 6.65%   Cost of interest bearing deposits 3.19% 2.93% 2.09% Cost of securities sold under agreements to repurchase and fed funds purchased 4.45% 4.09% 2.52% Cost of borrowings 4.81% 5.04% 2.75% Cost of trust preferred securities 7.72% 7.63% 6.50% Total cost of interest bearing liabilities 3.45% 3.27% 2.33%   Net interest spread (1) 4.04% 3.95% 4.32% Net interest margin (1) 4.83% 4.68% 4.89%   As reported: Return on average assets 1.27% 1.31% 1.55% Return on average tangible assets 1.41% 1.42% 1.69% Return on average equity 8.06% 9.18% 11.01% Return on average tangible equity 20.50% 21.17% 25.43%   Excluding merger related expense net of tax (2): Return on average assets 1.35% 1.37% 1.55% Return on average tangible assets 1.50% 1.49% 1.69% Return on average equity 8.58% 9.64% 11.01% Return on average tangible equity 21.82% 22.24% 25.43%   Bank Only Ratios: Umpqua Bank efficiency ratio (2) 51.20% 51.78% 50.78% Umpqua Bank net interest margin (1) 5.08% 4.93% 5.13%   (1) Tax exempt interest has been adjusted to a taxable equivalent basis using a 35% tax rate. (2) Excludes merger related expense, net of tax. Umpqua Holdings Corporation Selected Ratios (Unaudited) Nine Months Ended: September 30, 2006   September 30, 2005 Net Interest Spread: Yield on loans and leases 7.65% 6.84% Yield on taxable investments 4.50% 4.28% Yield on tax-exempt investments (1) 5.77% 6.37% Yield on temporary investments 4.09% 2.96% Total yield on earning assets (1) 7.25% 6.42%   Cost of interest bearing deposits 2.94% 1.83% Cost of securities sold under agreements to repurchase and fed funds purchased 4.23% 2.37% Cost of borrowings 4.97% 2.09% Cost of trust preferred securities 7.59% 6.17% Total cost of interest bearing liabilities 3.25% 2.06%   Net interest spread (1) 4.00% 4.36% Net interest margin (1) 4.74% 4.84%   As reported: Return on average assets 1.29% 1.36% Return on average tangible assets 1.41% 1.49% Return on average equity 8.80% 9.66% Return on average tangible equity 20.87% 22.87%   Excluding merger related expense net of tax (2): Return on average assets 1.35% 1.37% Return on average tangible assets 1.47% 1.49% Return on average equity 9.18% 9.69% Return on average tangible equity 21.78% 22.94%   Bank Only Ratios: Umpqua Bank efficiency ratio (2) 52.08% 52.31% Umpqua Bank net interest margin (1) 4.99% 5.08%   (1) Tax exempt interest has been adjusted to a taxable equivalent basis using a 35% tax rate. (2) Excludes merger related expense, net of tax. Umpqua Holdings Corporation Average Balances (Unaudited) Quarter Ended: Dollars in thousands September 30, 2006   June 30, 2006   September 30, 2005   Loans held for sale $19,258  $14,619  $18,021  Loans and leases 5,333,728  4,505,246  3,640,617  Earning assets 6,107,193  5,236,760  4,382,499  Goodwill & other intangibles 681,988  486,167  406,955  Total assets 7,135,488  6,030,752  5,088,738    Non interest bearing demand deposits 1,235,838  1,048,201  1,007,113  Interest bearing deposits 4,248,328    3,547,093    3,049,774  Total deposits 5,484,166  4,595,294  4,056,887  Interest bearing liabilities 4,701,582  4,064,871  3,308,962    Total shareholders’ equity 1,124,398  858,168  717,827  Tangible equity 442,410  372,001  310,872  Umpqua Holdings Corporation Average Balances (Unaudited) Nine Months Ended: Dollars in thousands September 30, 2006   September 30, 2005   Loans held for sale $14,512  $15,756  Loans and leases 4,623,013  3,557,648  Earning assets 5,360,360  4,295,746  Goodwill & other intangibles 526,459  407,489  Total assets 6,198,868  4,993,162    Non interest bearing demand deposits 1,085,161  950,957  Interest bearing deposits 3,683,415    2,995,811  Total deposits 4,768,576  3,946,768  Interest bearing liabilities 4,141,511  3,282,451    Total shareholders’ equity 910,311  705,371  Tangible equity 383,852  297,882  Umpqua Holdings Corporation Mortgage Banking Statistical Analysis (unaudited) Quarter Ended: September 30, 2006   June 30, 2006   September 30, 2005 Dollars in thousands Mortgage Servicing Rights (MSR): Mortgage loans serviced for others $978,723  $1,004,148  $1,015,597    MSR Asset (gross) $13,668  $13,735  $12,871  Less: Valuation reserve (3,241)   (2,185)   (2,142) MSR Asset (net of reserve) $10,427    $11,550    $10,729    MSR as % of serviced portfolio 1.07% 1.15% 1.06%   Dollars in thousands Mortgage Banking Revenue: Origination and sale $2,141  $1,937  $2,102  Servicing 360  344  109  MSR valuation reserve change (1,056)   222    1,045  Total Mortgage Banking Revenue $1,445    $2,503    $3,256      Nine Months Ended: September 30, 2006   September 30, 2005 Dollars in thousands Mortgage Banking Revenue: Origination and sale $5,601  $5,655  Servicing 1,058  529  MSR valuation reserve change (867)   (1,350) Total Mortgage Banking Revenue $5,792    $4,834