Umpqua Holdings Corporation (UMPQ)

Ray Davis, CEO of Umpqua said in an interview that as of right now there were no plans to cut the dividend and they also did not see any necessity to raise additional capital unless certain opportunities presented themselves.

When asked him about what he was seeing in terms of the real estate market in the Pacific Northwest when compared to Northern California and he said that they were "not in the same class". He said that the Pacific Northwest with the exception of the Bend, Oregon region was holding up much better than California. He also told me that commercial real estate, which represents nearly 50% of Umpqua's portfolio was "doing fine" and most of the weakness was in the residential development area.

The current management has done an excellent job of growing the company from a single branch with 8 employees in 1953 to the 147 branches it has today. The company recently acquired a couple of smaller regional banks in Oregon and California. In addition, the company has been the subject of several case studies examining its innovative interior design and branch layout. Umpqua was also recently ranked 13th by Fortune Magazine's survey of the best American companies to work for. All of this suggests that the company's senior management is on top of core business fundamentals like growth and customer experience.

Like the rest of the financial sector, and especially regional banks, the stock has taken a hard hit. The stock is now down over 28% from when we added it to our watchlist on February 1st at a price of $17, and down more than 50% from its 52 week high of $24.80. The weakness in the housing sector is far from over and we may be at the brink of a bear market, but things appear to be stabilizing at Umpqua.

Most of its lending has been to businesses, rather than to individual homeowners. Its also recently shown a 5% organic growth in the number of checking accounts it signed up in the second quarter. So, Umpqua's soft earnings are balanced by the fact that its business is primarily in sectors that haven't been hit as hard by the subprime crisis.

In an encouraging sign, Umpqua saw a decrease in both non-performing loans and non-performing assets last quarter. The company got a boost last quarter from the $12.6 million sale of Visa (V) stock and the reversal of a $5.2 million litigation reserve the company had set up in the fourth quarter related to Visa's settlement with American Express (AXP). With such one-time gains unlikely when the company reports second quarter results, year-over-year comparison with second quarter 2007 earnings of $19.91 million is going to be tough.

However, comparisons will start getting better in the second half of this year, and since investors are "forward looking", it may be a good idea to initiate a starter position in Umpqua at this point and pick up more after second quarter results are announced later this month.

Umpqua's dividend yield of over 6% is also attractive and the CEO has reiterated over the last two quarters that he does not see a need to cut the dividend.

UMPQUA Holdings Corp. (UMPQ) trading at $15.49/share with a yield of 4.61% sheds a nice dividend that appears supported, trade at a decent volume per day and have a successful niche market, excellent management, or both, indicating hope for future prosperity.

Regional banks make a sensible investment. As the big box banks are hampered adjusting to local markets and tastes, those above and other regional banks should, by nomenclature, be more familiar with the markets they serve and thus able to offer product and risk avoidance techniques that may prove to be more adaptable and profitable. Studies show that people and businesses often choose banks for their accessibility and familiarity in the neighborhood. In the present financial environment, loyalty counts, and regional banks that have successful business and marketing models should shine.