2008 was dominated by our management of problem credits and an unprecedented addition to our loan loss provision. Our residential development portfolio was hit hard, especially in our Sacramento and Bend markets. Through the tireless efforts of our credit and lending professionals, in 2008 we reduced that portfolio from more than $674 million to $384 million. Our loans to builders and developers were underwritten properly. However, we did not predict the housing market would fall as far and as fast as it did which resulted in unsold homes, unsold lots and good borrowers who ran out of cash to support their loans. We continue to focus on sound underwriting and account management practices as the foundation for our future growth.

As mentioned in previous communications to you, Umpqua has never bought or originated subprime loans and we internally underwrite all of our mortgage loans. To assist our homeowners who have difficulty making their mortgage payments, last year we implemented a mortgage modification program which has been well accepted. At the end of 2008 we were servicing over 7,500 mortgage loans, and due to the underwriting skills of our mortgage professionals, we experienced only two foreclosures for the entire year. With our sound underwriting and loan administration, less than 2.4% of the residential mortgage portfolio was delinquent 30 days or more at year-end.

Maintaining a strong capital position was a top priority in 2008 and it continues to be very important. In November 2008, we were one of the first community banks to receive an investment from the U.S. Treasury under the Capital Purchase Program (“CPP”). This investment boosted our total risk-based capital from an already “well-capitalized” position of 10.9% at the end of 2007 to 14.6%, where it stands today. The CPP, unlike some of the other TARP programs, was specifically designed to boost the capital levels of healthy banks, to restore stability and confidence to the financial system and to ensure the continued flow of credit to businesses and consumers. We are pleased to report that in 2008, our loan originations totaled $2 billion and loan activity continued to be strong in the fourth quarter, with $455 million in originations, despite a deteriorating economy, rising unemployment and falling consumer confidence.

To bring our dividend in line with our earnings, we reduced our common dividend to $0.05 per share in the fourth quarter of 2008. It goes without saying that we look forward to the day when we can increase our dividend in accordance with historical payout levels.

The price of our common stock is well below historical levels and increasing that price is important to all of us. It should be noted that our relative price performance for 2008 was significantly better than the overall market and industry indices. We finished 2008 at a price of $14.47 per share, which was a 5.7% decrease from December 31, 2007. By contrast, the S&P 500 was down 37.0% in 2008 and the Nasdaq bank index fell 23.9% over that same period. Your management team is focused on continuing to generate positive earnings and to grow earnings per share.

Making loans is critical to our growth and it is our responsibility under the Capital Purchase Program to enhance the flow of credit to our markets. We have announced a number of new loan programs, such as targeted lending for the wine industry, energy efficiency, municipalities and public agencies and new residential mortgage products. Make no mistake about it, Umpqua Bank is lending money in the markets we serve.

In January, we assumed the insured, non brokered deposits of the Bank of Clark County from the FDIC and in the process commenced operations at two new locations in Vancouver, Washington and welcomed many new customers and 41 new associates to the Umpqua family. The failure of a community bank in our region is an unfortunate sign of the times but we are pleased to be able to provide this assistance.

There has been a firestorm of protest over the outrageous pay practices of some Wall Street institutions and investment firms, most of it well deserved. Unfortunately, all of us in the banking industry seem to be painted with the same brush. Management and your board of directors have worked hard over the past several years to craft an executive compensation program that incorporates many best practices and, first and foremost, aligns the interests of management with those of our shareholders. We do this with a mix of base salary, annual incentives tied to company and personal performance and long term incentives tied to increases in stock price and earnings per share growth compared with a peer group of companies.

“Pay for performance” applies to all executives at Umpqua whose incentive compensation is tied to company and personal performance. Unfortunately, for the second year in a row, the company failed to meet its earnings per share targets, accordingly no executives or managers received an incentive payout related to the company’s financial performance.

Under our compensation plans, we don’t allow “golden parachutes”, and our plans provide for recoupment of incentives if they were paid based on earnings that are later restated.

For the third straight year, we were honored to rank in Fortune Magazine’s “100 Best Companies to Work For”. Our more than 1,700 associates are the backbone of our company and they are actively involved in our communities. We take community banking to heart and our associates logged almost 26,000 hours of community service in 2008 under our Connect volunteer program. We are very proud of the results our associates produce every day, and they give us confidence about our future.

Looking back, 2008 was focused on defensive measures to manage problem credits and build capital. In 2009, we’re positioning your company for growth as our nation hopefully begins to emerge from this recession. Already this year we have announced a new Asset Management division to take advantage of opportunities to build our non-interest income, and have hired new management at our retail brokerage subsidiary. Both moves provide immediate growth opportunities for the company.

In addition, we have created a mortgage refinance unit that is dedicated to helping our customers take advantage of attractive mortgage rates by refinancing their home mortgages.

Although we expect poor economic conditions to persist in 2009, which will result in our company facing new challenges, we remain totally committed to the success of the company and we are all working with a common sense of purpose.

We thank you for your confidence in our company and your continued support.