Umpqua Holdings Corp. posted a surprise second-quarter profit even as loan-loss provisions and nonperforming loans rose, while the bank continues to wind down its residential-construction-loan portfolio.

Chief Executive Ray Davis said the company's results were good, but it still has work to do as it reduces portfolio risk.

The company also noted it might have to write down goodwill because of the 42% drop in its stock price this year. Shares closed Wednesday at $8.42 and haven't traded premarket.

The parent of Oregon-based Umpqua Bank and retail brokerage Strand, Atkinson Williams & York Inc. posted income of $7.7 million, or 7 cents a share, down 25% from $10.2 million, or 17 cents a share. Analysts polled by Thomson Reuters expected a 7-cent loss.

Loan-loss provisions were $29.3 million, down 50% from the first quarter but up 17% from a year earlier. Net charge-offs, or loans that are thought to be uncollectible, fell to 1.71% of total loans from 2.51% a year earlier. Nonperforming assets, or those more than 90 days past due, rose, also to 1.71%, from 1.25% a year earlier.

Umpqua said in April that it expected nonperforming assets and charge-offs to fall significantly for the second quarter as it wound down its residential-development portfolio, which is down 40% from a year ago.

The number of construction loans outstanding fell 7% during the quarter and 26% on the year, with residential-development loans falling 40% from a year earlier, representing about 5% of the total. Most of the residential-development portfolio is in the West Coast. The housing market in California has been slammed amid the credit crisis and recession.

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