Good day, and welcome to the Umpqua Holdings Second Quarter Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Ron Farnsworth. Please go ahead, sir.

Okay, good morning and thank you for joining us today us today as we discuss the results of operations for the second quarter of 2014 for Umpqua Holdings Corporation. With me this morning are Ray Davis, President and CEO of Umpqua Holdings Corporation; Greg Seibly, President of Consumer Banking; and Mark Wardlow, our Chief Credit Officer. Our President of Commercial Banking Cort O’Haver is out on vacation. Greg and Mark will join us for the Q&A session. Last night we issued an earnings release discussing our financial results. We have also prepared a slide presentation which will refer to during our remarks this morning. Both of these materials can be found on our website at umpquabank.com under the Ask Us, Investor Relations section. I would also like to remind you that today's presentation may include forward-looking statements, within the meaning of the Safe Harbor provisions for the Private Securities Litigation Reform Act of 1995, which management believes are a benefit to shareholders. These statements are necessarily subject to risk and uncertainty and actual results could differ materially due to certain risk factors including those set forth in our filings with the SEC. You should not place undue reliance on forward-looking statements. The company does not intend to correct or update any of the forward-looking statements that we make today. We ask that you review the forward-looking statement disclosures contained within our SEC filings such as our most recent Form 10-Q, our earnings release as well as on page two of our second quarter earnings presentation. A two-week re-broadcast of this call will be available two hours after the call by dialing 888-203-1112. This phone number and the access code are also noted in the earnings release we issued yesterday afternoon. And I will now turn the call over to Ray Davis.

Okay. Thanks, Ron. Good morning, everybody. The second quarter was a very busy and productive one for us as we continued to capitalize on opportunities to grow Umpqua in a profitable manner. Our second quarter performance reflects the results of operations from Sterling since the date of acquisition on April 18th. I am also pleased to report our integration is proceeding smoothly and is on schedule. We have a lot to get through today, since the reporting of the combined Umpqua Sterling financial results includes purchase accounting rules for the acquisition. After my remarks, Ron will take us through the financial and operating results in greater detail and provide an update on integration planning, cost synergies and the key deal performance metrics. After that of course we’ll then take your questions. For the quarter Umpqua Holdings reported operating earnings of $53.9 million or $0.27 per diluted share, up 29% from the prior quarter. As a reminder, operating earnings are defined as earnings available to common shareholders before gains and losses on junior subordinated debentures carried at fair value and merger related expenses, both net of tax. The increase in operating earnings was driven by accretion from the Sterling deal along with continued organic growth for the combined company. This past quarter, although focused on a successful integration, we’re also pleased to report that our momentum for additional growth has not slowed. Our progress is reflected in the strong organic loan and deposit growth results this past quarter. Excluding those acquired from Sterling or subsequently divested, our non-covered loan portfolio grew by $338 million sequentially offset by $44 million in loan sales for net growth of $294 million or 8% annualized. Similarly, organic deposit growth was a $189 million sequentially on annualized growth rate of 5% and a loan deposit ratio…

Okay, thanks Ray. As I go through my comments I will be referring to the earnings release along with certain slides from the presentation deck which we posted on the Investor Relations section of umpquabank.com. On the date of the acquisition April 18 we added Sterling’s balance sheet and as required under purchase accounting rules recorded it at estimated fair value. That is detailed on page three of the earnings release we issued yesterday. Let’s walk through the key elements of this transaction as it will help explain the combined operating results. Last quarter, we told you we had intentional increased to our liquidity to provide flexibility for the deal and balance sheet restructuring. Shortly after closing, we utilized some liquidity to pay off the majority of the Sterling repurchase agreements which was funded by the sale of investment securities along with the portion of the term borrowing. This had the effect of shrinking the balance sheet by $800 million. Our total available liquidity coming out of this past quarter remains strong at $7 billion or 43% of deposit. Now for a recap of the purchase accounting effects. As you are aware Sterling for loan losses was eliminated and replaced with the credit discount or mark of approximately $264 million. Of this, we expect approximately 180 million to accrete back into interest income over the life of the acquired loan portfolio. What that means is that each quarter reported interest income will be higher by the amount of credit discount and the remaining credit mark will decrease by the same amount. This will flow in overtime based on the number and amount of pay downs, maturities and refinancing of loans on the books as of April 18. For the second quarter, this credit discount accretion was $24.5 million. Offsetting that…

Okay, I believe it's clear that Umpqua's immediate attention continues to be focused on the successful integration of Sterling. As reported, integration is moving forward rapidly with little to no disruption throughout the institution’s operations. Regarding the organic growth, the momentum created by Umpqua a couple of years ago continues to propel the company forward as this past quarter's organic growth numbers indicate. The company’s success in differentiating itself with our unique delivery system and highly trained and empowered associates continues to build on an already flourishing company culture, now stronger than ever. The Umpqua culture has also been instrumental in reinforcing the company's value proposition of being able to compete with more than price or rate. This competitive gap created over the years continues to be instrumental in our overall growth strategy. While our most important endeavors are completing the Sterling integration, continued organic growth and improving shareholder returns, I want to assure you that management also keeps an eye in the future to other initiatives. Some of these include the completion of our strategy to protect and grow deposits in a rising rate environment. Our long-term goal to adjust the loan portfolio concentration, noting this will be accomplished over an extended period of time. The standing efficiency ratio level below 60% after integration is complete and to continue to evolve our store design that enables us to sustain our strategy of utilizing technology to enhance the customer experience. In closing, as expected the busy quarter and the very good one for the company with strong upside prospects. And with that we’ll now take your questions.

Thank you. (Operator Instructions). And we’ll take our first question from Steven Alexopoulos with JP Morgan.

Hello everyone.

Good morning Steve.

I wanted to start maybe if you’re on looking at it looks like you acquired $7 billion right?

I am sorry. What's that Steve? He disconnected.

Steven, your line is open.

Hello?

Is that any better?

Yes, very good Steve. Thank you.

Okay. Sorry, I was on mute. So it looks like you’re acquiring $7 billion fair value loans from Sterling, I guess Ron what I am trying to figure out, so if I look at your supplement here you are saying the yield on the non-covered loan as far as by 44. How would that, what was the yield on the acquired and the yield on the non-acquired loan?

We'll see when the great detail about the deal with the credit, you know the credit discount accretion expected the yield on non-covered loans and if you look at the trend, last quarter we were roughly 5%, this quarter were a bit higher you can do the math based on the acquired loan figure out what the specific loan was. But again I got to reiterate, we talked about the pro forma adjusted margins at 428 excluding the credit discount accretion that's really the number we're driving on. And overall with the deal 7% accretion on the bottom-line where we did not factor in any of the credit discount accretion into our 12% operating earnings per share plus accretion for next year's cost save. So I will just refer you back to that.

Right. Okay, let me ask this way. So if we look at, I guess if we take the interest income in the quarter and back out the 24, the 25 million that you cited from Sterling, we're left about 166 million. How much of that is related to the acquired loans which fakes out what you referred to?

I think in terms of the overall yield, you can see we were roughly 5% if you back that, if you back out the credit discount accretion from the non-covered yield in total it can be roughly pretty consistent that's our Umpqua Classic yield excluding credit discount accretion.

So okay. And Ron how are you guys modeling the run off for the Sterling portfolio, what's your estimated run off per year that?

We talk about this back in September and again in April. The overall, we were looking at four to five years. But again as that impacts the credit discount accretion and the provision none of those numbers were factored into our accretion estimates to start with.

Okay. And then finally could you guys give us the breakdown of the organic loan growth I know you gave it overall and maybe talk about by category what you saw in the quarter?

You bet, so again, net organic loan growth was $294 million or 8% annualized which was very strong especially as we are putting together the two companies. By category it was pretty evenly split across commercial, consumer, residential, private and longest impact again this impact production growth at 80 million than that growth there was 45 million on the commercial side we were just a bit under a 100 and the balance would have been majority of that in residential and quite a bit of that was related to our private banking and jumbo business and Puget Sound and Bay area.

And maybe just one final one for Ray, I know you said you plan to exceed the cost saves now that you actually have Sterling integrated what are your thoughts on maybe required investment there in terms of changing some of their branches to your look exporting your culture et cetera? Thanks.

Steve, first of all we are entirely integrated we are integrating so we got some work we still have work to do, but all of the capital expenditures related to store redesign, store upgrades, all factored in the original announcement of the deal, but we forecast to that as somewhere around $40 million.

Okay, so no change to that?

No change to that.

Okay, those were my questions. Thanks.

We will take our next question from Joe Morford with RBC Capital Markets.

Thanks, good morning guys.

Good morning Joe.

I guess first just following up on Steve’s question on the loan side can you talk about the loan production levels at both Umpqua and Sterling in the quarter both in terms of the magnitude and the mix. And again it's unrelated to that, I'm just trying to understand why the provision for Sterling's production is as high as it is at least relative to Umpqua Classic excluding FinPac?

Well also keep in mind that on the Umpqua Classic side, there is a loan loss reserve behind the things. So not all of that production equates to provision for loan loss, just get another changes in the reserve, which is why we went into the detail on that. And the calculation for overall production, it was just a bit under $900 million for the quarter the majority of that, a bit over half of that was on the commercial side. I talked about FinPac earlier at $80 million very strong quarter for production. On the residential side, the portfolio, it is as roughly $200 million and private banking and consumer combined were just under $100 million.

And was Sterling a big piece of that 900 or I mean do you breaking that out the way again trying to understand this, kind of get to the provision level going forward for Sterling as well?

Sterling would have been roughly half of that number.

Okay.

Keep in mind too Sterling was on the balance sheet for 72 days during the quarter, not a full 90.

Okay. I guess relative to that problematic question given we don’t have the full run rate and expenses as well. But also given that you've already achieved 30% of the targeted cost savings. Can you talk about the expectations for further expense reductions over the rest of 2014, before you complete the systems conversion, kind of the pace of declines that we may see in next couple of quarters?

I think, Joe, this is Ray. I think you are going to see it continue to move forward on a steady rate. I think the two big hits if that's accurate would be the completion of the consolidation of the storage which is going to have an impact. And then last but not least in our third quarter of February 2015 our planned technology conversion which will be completed. So that sort of the timeline you should be looking at I would say that shortly after that conversion give or take a couple of months we should be just about wrapping up total synergies.

Okay, thanks so much guys.

Thank you.

We'll take our next question from Jeff Rulis with D.A. Davidson.

Thanks, good morning.

Good morning.

Question on the -- I guess since Sterling is not a full quarter just trying to back into that expense base. I guess could you remind me what the original expense base of the 87 million cost synergy targets based on is that just a 290 annualized number?

Yes. Again it was based on as we talked about last couple of quarters it was based on the second quarter 2013, operating expense run rate annualized. That was roughly $318 million on an annualized basis, 30% of that was 87 million.

Okay, great. And then, Ron, I don't know if you -- is the loss on the sub debt 1.4 million is that sort of fair value calculation a good run rate for future quarters, is there anything kind of again with Sterling not being on for a full quarter, does that impact?

It would be modestly adjusted just given 72 days, but again that's real consistent with where we've been. So that was entirely related to the fair value adjustment on the trust preferred borrowing $91 million total adjustment running off over 20 plus years. Nothing now on the new combined base going forward.

Okay. So you referenced the adjustment up or down from Q2 of the loss.

That number going forward is going to be real consistent with what it is here in Q2; 18 days not going to make a big difference on that number.

Okay. All right, thank you.

Yes, thanks.

(Operator Instructions). And we’ll go next to Brett Rabatin with Sterne Agee.

Hi guys. Good morning.

Good morning, Brett.

I wanted to I guess just revisit this question around the provision on the Sterling. I guess I’ve seen other transactions where in the first quarter or two as loans matured on the portfolio acquired, you had a pretty heavy provision and then it tapered off pretty significantly. I know you just talked about how the life of Sterling’s loan portfolio is four to five years. Would it be logical to assume that the provision needed for Sterling’s portfolio re-pricing or re-upping so to speak declines over the next quarter or two? Or can you give us a little more color around just the provision you might need to make on to your car portfolio as it re-prices or re-ups so to speak?

Brett, this is Ray. Yes, I think it’s safe to say that number is probably going to come down. The only caveat to that depends on loan production. But as far as historical refinances pay downs, yes, I think that number will slow down.

Okay. And then the other thing, I just wanted to make sure I understood was the $24.5 million credit discount accretion in the quarter versus the credit mark that you’re not accreting “through income over the life of the portfolio.” Can you walk us through a little bit maybe A; the pace of the first piece and then B; the piece is not accreting kind of the credit on the credit side, what ends up happening with that?

Sure. This is Ron. And we've talked about the total credit market $264 million with $180 million of that being sit up accretable on day one. That will be $80 million for non-accretable as an estimate based on the PCI pool, which is roughly $400 million. We think there is upside of that but we’re going to be conservative with it. That will come in over time assuming payments on those PCI loans are better than forecasted, very minor amount here in Q1. But that's why it's non-accretable, it's based on payment performance over time. In terms of the $24.5 million that came out of the $180 million accretable pool, again as Ray just mentioned similar answer on the provision from loan loss that's really going to be driven by payments on the performing portfolio when including refinancing. And so it's difficult to give an exact estimate of that going forward other than we know over time it should trend down slightly based off of life of the portfolio four to five years that’s we expected to run.

Okay. And then just last question, we saw another transaction in Idaho today and I know Sterling is your big focus right now but Ray, as we get out another quarter or two, do you think you’ll be back in the M&A market, maybe give us some thoughts on what you should be doing with excess capital in 2015?

You're right that are focus right now is to make sure that integration of Sterling goes very well and exceeds all expectations which I feel very comfortable in saying to everybody that it has exceeded everything that we forecasted on our original call when the deal was announced. It couldn't be going much better. The strength of the Sterling people has been terrific there. The culture between the two companies is so similar. It's really been a very pleasant experience. I can say that from everybody’s point of view here. So that’s our focus. We never take our eyes off of opportunities but I don’t want to give any impression or indication that Umpqua is out looking for deals right now. At some point when we see light at the end of the tunnel on the overall integration of the company, we’ll -- we look again, again, we are a growth company as you well know Brett. And as long as potential acquisition has through strategic value to us, we would certainly take a look at it. But right now our focus is continue to make sure that this transaction ramps up and exceeds every expectation that everybody has.

Okay, fair enough. Thanks for all the color.

You bet.

We will take our next question from Jacque Chimera with KBW.

Hi, good morning guys. Understanding and touching on the provision again, and I completely understand the portion that moves from the credit discount mark and then when you refinance that elevates the provision. But looking at just general net new generation; is there a difference in mix between Classic Umpqua and what’s being booked by the Sterling lenders because unless I misinterpreted, it sounded like perhaps those are being provisioned at a higher level?

No, not provisioned at a higher level, we have got that all confirmed with our credit underwriting policy.

Okay. So most of what was provisioned in the quarter is driven by the refinance of existing loans?

And production, we had very strong production which led the very strong organic loan growth.

Okay. But if 50% was from Sterling and 50% was from Umpqua and so I would consider those both to be very strong production. How do I reconcile the much larger provision from Sterling versus Classic Umpqua?

Again, the provision for Sterling especially in this first quarter as you talked about earlier was related to the effect, there was not a reserve, we were able to bring over. On Classic Umpqua side, there is a reserve that's able to bucker some of the production.

Okay, okay. And then moving on to the loan sales in the quarter. Is that something you would look to do on a go forward basis?

Yes, I think we'll see us take advantage of loan sales were they make sense, especially as we continue to balance the portfolio. But I will say that I don't think anybody should plan on seeing any dramatic changes to the portfolio in a short period of time. This is, our rebalancing is going to take many years that you can imagine, it's like moving the Titanic in some ways. But as Ron mentioned, everybody in the company and credit is working off of one set of policies, everybody knows the direction we're headed in. We're making I think pretty good progress. I will tell you this, that as we do rebalance the portfolio, I think you will see quarters where it looks more out of balance and then it will come back down, this isn't going to be a straight line depending again on production the type of loans that we book.

Okay, great. Thanks for the color Ray.

Yes.

(Operator Instructions). And we'll go next to Doug Johnson with Evercore.

Good morning guys.

Good morning Doug.

A couple questions related to mortgage banking. I guess first you mentioned changing the pricing in Sterling and how they kind of price your volume and new price for margin. It sounds like margin are going to go higher but would you also expect originations to production to kind of decline a little bit from 2Q levels?

So this is Greg. Just a little color I think is that two companies came together in the first two announcements we saw really good progress, but we are working on as Ron said, a single rate achieved are we seeing really good growth and one quarter volume is it about 37% for the two companies and it looks like it's sustaining certainly in the first quarter to the third quarter. And all that was against back drop of really a significant organizational shift where we're moving to a single platform (inaudible) platform. We're in the process of finalizing a decision round the move to a best in class loan servicing platform. And we continue to invest in the business across the footprint most notably build out in Northern California and select hires in Southern California and some new hires in our Pacific Northwest footprint as well.

Okay, understood. Okay, great. And just one more on mortgage was the production expense this quarter, I know you’ve given that in the past?

Well production expense for the group was just under $19 million and I'll point out to that net manager spread improved as we talked about earlier.

Okay, great thanks for taking the question.

(Operator Instructions). It appears we have no further questions at this time.

Okay. Thank you. I want to thank everyone for their interest in Umpqua Holdings and their attendance on the call today. This will conclude the call. Good bye.