1. Overview of Commercial Banking Ken Carson SVP/Credit Administrator Umpqua Bank February 8, 2006 Ken Carson SVP/Credit Administrator Umpqua Bank February 8, 2006

2. Agenda Marketing Commercial Lending Credit Assessment Credit Policy Pricing Problem Loans Careers in Commerical Lending Marketing Commercial Lending Credit Assessment Credit Policy Pricing Problem Loans Careers in Commerical Lending

3. Marketing Commercial Banking Products Consumer Lead Product: –The checking account Commercial Lead Product: –The loan Consumer Lead Product: –The checking account Commercial Lead Product: –The loan

4. Marketing Commercial Banking Products Commercial Banking Products: –Loans –Depository –Cash Management Services –Merchant Visa –Internet & Electronic Banking –Investments –Leases Commercial Banking Products: –Loans –Depository –Cash Management Services –Merchant Visa –Internet & Electronic Banking –Investments –Leases

5. Marketing Commercial Banking Products Transactional BankingRelational Banking Low Rates & Fees, High Volume Higher Rates & Fees, Lower V0lume Mass marketing“Handshake” marketing Lenders are order takers Lenders are “trusted advisors” WalmartNordstroms

6. Marketing Commercial Banking Products Competition –Other Commercial Banks –Non-Bank Competition –Quasi-governmental agencies Competition –Other Commercial Banks –Non-Bank Competition –Quasi-governmental agencies

7. Commercial Loans Types of Commercial Loans –Short Term Working Capital Loans –Revolving Lines of Credit –Term Loans –Commercial Real Estate Loans Types of Commercial Loans –Short Term Working Capital Loans –Revolving Lines of Credit –Term Loans –Commercial Real Estate Loans

8. Commercial Loans Cash Flow vs. Asset Based Cash Flow BasedAsset Based Repayment: ProfitsRepayment: Liquidiation Collateral: UnsecuredCollateral: Secured Not marginedMargined Cash Flow CovenantsWorking Capital Covenants

9. Credit Assessment The Five C’s –Character –Capacity The Five C’s –Character –Capacity

10. Credit Assessment Capacity The Key Principle: Loans are repaid by cash, not by profits. The Key Principle: Loans are repaid by cash, not by profits.

11. Credit Assessment Capacity Corollary to the Key Principle Your loan is repaid by cash, not by ratios. Corollary to the Key Principle Your loan is repaid by cash, not by ratios.

12. Credit Assessment The Five C’s –Character –Capacity The Five C’s –Character –Capacity –Capital –Collateral –Conditions –Capital –Collateral –Conditions

13. Credit Policies and Procedures Internal Credit Procedures –Board of Directors –Chief Credit Officer –Credit Committee vs. One-over-one –House Limit & the Legal Lending Limit –Total Credit Exposure Internal Credit Procedures –Board of Directors –Chief Credit Officer –Credit Committee vs. One-over-one –House Limit & the Legal Lending Limit –Total Credit Exposure

14. Credit Policies and Procedures Monitoring Loans –Loan Covenants –Collateral Monitoring –Risk Ratings Monitoring Loans –Loan Covenants –Collateral Monitoring –Risk Ratings

15. Credit Policies and Procedures Lending Between Banks –Why? Reduce concentration risk Manage overall portfolio Manage the bank’s balance sheet –Types of inter-bank lending Syndications Participations Sale to the Secondary market Lending Between Banks –Why? Reduce concentration risk Manage overall portfolio Manage the bank’s balance sheet –Types of inter-bank lending Syndications Participations Sale to the Secondary market

16. Pricing Loans Pricing Structures –Variable Rate Loans –Fixed Rate Loans –Swaps, Collars & Other Derivates –Loan Fees Pricing Structures –Variable Rate Loans –Fixed Rate Loans –Swaps, Collars & Other Derivates –Loan Fees

17. Pricing Loans Pricing Considerations –Cost of Funds Actual Cost of Funds Marginal Cost of Funds Pricing Considerations –Cost of Funds Actual Cost of Funds Marginal Cost of Funds

18. Interest Rate Yield Curve

19. Pricing Loans Pricing Considerations –Cost of Funds Actual Cost of Funds Marginal Cost of Funds –Risk Factors –Market Factors –Relationship Factors Pricing Considerations –Cost of Funds Actual Cost of Funds Marginal Cost of Funds –Risk Factors –Market Factors –Relationship Factors

20. Managing Problem Loans Risk Rating Systems –1 through 10 (1=high, 10=low) –Pass Rated (1 through 6) –Criticized (7), Classified (8 & 9), Loss (10) Non-Performing Loans (NPAs) Charge-Offs & Recoveries Special Assets Department Risk Rating Systems –1 through 10 (1=high, 10=low) –Pass Rated (1 through 6) –Criticized (7), Classified (8 & 9), Loss (10) Non-Performing Loans (NPAs) Charge-Offs & Recoveries Special Assets Department

21. Loan Loss Allocation Beginning Allocation44.2 - Charge Offs-7.8 + Recoveries+4.9 + Loss Provision Exp.+2.5 = Ending Allocation=43.8

22. Adequacy of Loan Loss Allocation Pass x= Spec Mention x= Substandard x= Doubtful x= Total + Special Allocation Total Loan Loss Allocation

23. Careers in Banking The Typical Career Path –Loan Assistant –Credit Analyst –Assistant Relationship Manager –Relationship Manager The Typical Career Path –Loan Assistant –Credit Analyst –Assistant Relationship Manager –Relationship Manager

24. Careers in Banking Skills & Character Qualities –Non-negotiables You will be drug tested No criminal records Skills & Character Qualities –Non-negotiables You will be drug tested No criminal records

25. Careers in Banking Skills & Character Qualities –Technical Skills Accounting Computer Skills Skills & Character Qualities –Technical Skills Accounting Computer Skills

26. Careers in Banking Skills & Character Qualities –Character Qualities Work Ethic & Initiative Professionalism Teachable Patience Skills & Character Qualities –Character Qualities Work Ethic & Initiative Professionalism Teachable Patience