Good day, ladies and gentlemen and thank you for standing by. And welcome to the Umpqua Holdings Corporation First Quarter Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Ron Farnsworth, CFO. Please go ahead, sir.

Okay. Thank you, Hanna. Good morning and thank you for joining us today on our first quarter 2018 earnings call. With me this morning are Cort O'Haver, the President and CEO of Umpqua Holdings Corporation; Tory Nixon, our Chief Banking Officer; and Dave Shotwell, our Chief Risk Officer. After our prepared remarks, we will then take questions. Yesterday afternoon, we issued an earnings release discussing our first quarter 2018 results. We have also prepared a slide presentation, which we will refer to during our remarks this morning. Both of these materials can be found on our website at umpquabank.com, in the Investor Relations section. During today’s call, we will make forward-looking statements, which are subject to risks and uncertainties, and are intended to be covered by the Safe Harbor provisions of Federal Securities laws. For a list of factors that may cause actual results to differ materially from expectations, please refer to page two of our earnings conference call presentation as well as the disclosures contained within our SEC filings. And I will now turn the call over to Cort O'Haver.

Thanks, Ron and welcome to everyone listening in on the call. Let me begin by providing a brief recap of our quarterly financial performance and an update on Umpqua Next Gen. Ron will discuss the financials in more detail, including results from the operational and back office efficiency review we've been conducting. After that, we'll take your questions. Our first quarter of 2018 was very strong with earnings per share of $0.35, one of the best quarters we've ever had. The financial performance achieved this quarter was attributable to the success of key initiatives we put into place over the last 12 months. Our strong results were anchored by continued growth in loans and deposits, stronger fee income, stable credit quality and a reduction in core expenses, along with the benefits of tax reform and short term interest rate increases. As I go through my remarks today, I want to focus on three of the key initiatives we introduced last year as a part of Umpqua Next Gen strategy; balanced growth, operational excellence, and human digital. Starting with balanced growth, when we announced this initiative last year, our focus was on adding new multi-faceted relationships across the bank. This means more consistent and diversified growth, driven by stronger, deeper and more profitable customer relationships. Today, I can confidently say this initiative is working well. Our first quarter is typically a slower seasonal loan growth quarter. We also experienced some higher payoffs and despite this, we were able to grow the loan and lease portfolio by 234 million, which represents a 5% annualized growth over the prior quarter. This growth was distributed nicely throughout the commercial, commercial real estate and consumer loan portfolios. Our commercial loan portfolio, which includes C&I as well as our leasing business, increased by 11% annualized over…

Okay. Thank you, Cort. And for those on the call who want to follow along, I will be referring to certain page numbers from our earnings presentation. Turning first to page 6 of the slide presentation, which contains our summary P&L. First quarter earnings were 78 million or $0.35 per share, down from 82 million or $0.37 per share in the fourth quarter, but up from 46 million or $0.21 per share in the same quarter a year ago. At a high level, the $0.02 decrease from Q4 to Q1 resulted from $0.01 of higher net interest income with continued loan growth and recent short term interest rate increases, $0.03 from higher non-interest income and $0.02 from lower non-interest expense, offset by $0.08 from the increased income tax rate at 24% here in Q1 versus 4% in Q4, given the revaluation of our net deferred tax liability back in Q4, resulting from federal tax reform. Turning to net interest income and margin on slide 7 and noted on page 6 of the earnings release. Net interest income increased 1.2% from Q4. Great to see when historically Q1 sees a small seasonal decline, the increase reflects continued solid loan growth and an increasing rate environment. Also within net interest income, our interest income on investments was up slightly, representing lower premium amortization and our interest expense on deposits increased 2.4 million or 7 basis points based in part on the growth this quarter and modest repricing based on recent Fed funds rate increase. Our deposit beta based on the Fed rate increases over the past year has increased slightly to 19%, driven primarily by higher cost public funds and brokered deposits. For the first quarter, our net interest margin increased 8 basis points, while the margin ex-credit discount, was also up…

[Operator Instructions] And we'll go first to Jeff Rulis with D. A. Davidson.

Ron, just a follow-up on the expense run rate. So if we're at 175 to 180 at year end and then you've got a remaining 6 to 12 savings carryover from Phase one, is that -- is the phase two 6 to 12 in addition to sort of what's smoothing [ph] into ’19?

Yes. So for the phase 1, I expect we’ll hit two-thirds of that in Q4, which is why we dropped that Q4 range by 3 million approximately, along that range. Then the balance of that, the other third of that will come in -- by mid-2019. The phase two is additive to phase one, so an additional 12 million, we expect to have in-house by the end of the year of 2019.

Okay. So it's -- got it, that is helpful. And then maybe just an overall comment on that core margin is a nice jump and I mean you talked about some of the components there, but I guess the biggest sense is the flow through from further rate hikes. Any comments on kind of margin impact going forward, being that there are some wild cards on the deposit beta?

Yeah. I mean that's the primary wildcard, right. So, on the asset side, it's moved up as we expected in connection with the rate increases here over the last couple of quarters, but the liability cost side has lagged now. It's unknown when that's going to kick in, everybody has theories on it. I'll just reiterate that our three year goals were targeted off of betas of approximately 60%. So yes, we are outperforming the flat rate and even the mildly increasing rate at this pace, here in Q1 of 18. I’d like to think that’s going to continue. I think in the near term, it will, but as we look into ‘19 and ‘20, I’ve got to default back to my expectation that betas will return to some form of historical norm based on that level of increase.

And then one final one maybe for Cort. Just you talked about kind of the customer response of the branch consolidations and the deposit retention, how about just employee kind of morale, any commentary on how that's been received, and it's been a pretty big change in focus since the past regime I guess if you will?

Yeah. I mean I think it's always tough, right, I’ll be honest with Jeff. I mean when you’re consolidating operations, and there certainly was a loss of associates in some of those stores, but the people that have remained obviously from the performance of the stores would indicate that they are heads up and they're doing the right thing and we have turnover relative to natural attrition and that is always a part of it. So we did mention or message to the stores that we would be doing this, I think, we were 90 days or actually it might have been four months prior to the actual closure, and it gave some time for the natural attrition to work its way through, which also helps with the staffing. So I think the morale is good. We are working on making sure that the culture of the company stays strong throughout this process and it's a very good question that you asked.

And we’ll go next to Steven Alexopoulos with JPMorgan.

I wanted to start, what was behind the decision to push the remaining branch closures to 2019 and 2020?

Actually, when we laid this out last fall, we had intentionally targeted a third, a third, a third over the course of the three years. So at this point, we're not making a call to accelerate any of the 2019 items. We will be watching that. I mean as we go over the next couple of quarters as these initiatives kick in, there's potentially, we could pull some forward, but at this time, we're not announcing that.

And Ron, specific to Next Gen, what are the cost saves that are in the run rate currently?

Specific to Next Gen, cost saves related to the operational back office efficiency review. There is virtually none in the run rate currently here for Q1. That’s why I gave the updated guidance range for Q4 and then the guidance in to 2019.

So, if we look at the almost 7 million reduction in the core expenses this quarter, none of that was related to Next Gen, is that what are you saying?

Correct. In terms of back office operational review, savings have not kicked in yet.

Okay. So I want to put this together, just from a very high level. So if we look at the total cost savings that are left from all of the initiatives that you're currently doing, how much -- nothing's in the run rate you're saying, how much will hit this year, how much will hit in 2019, and how much will hit in 2020, how much gets reinvested, and what falls to the bottom line?

Great point. So I'll start with the technology and digital investments, we already included in the three year goals of the return on intangible targets for 2020 that we talked about in October and January. Harken back to page 4, slide 4 of the earnings presentation, we're targeting $3 million to $4 million of saves, hitting in Q4, which is roughly two-thirds of the 18 million to 24 million annualized. For 2019, you will have the majority, if not all of the eighteen 18 million to 24 million from Phase 1, and then we expect a chunk, a quarter, quarter and a half of the Phase 2 amount in late 2019. If you go to 2020, and then you’d expect to see the entire amount, and again I’m going to reiterate that we've got very good visibility into the Phase 1 initiatives, Phase 2 we've identified. We have not yet determined the cost to achieve that will occur over the coming quarters, but we'll be rolling that out in more detail as we get that detailed information to you guys on these quarterly calls.

Okay. And then Ron on the tech spend, how much are you planning to spend on technology this year.

Well, that's kind of a loaded question because technology also includes operations. So when I think about maybe new initiatives that were included in the three year targets, three year goals and return tangible that we talked about, there's roughly $10 million to $15 million of additional technology and/or marketing investments for 2018 through 2020 on an annual basis. So that's what I can give to you. I think what you're going forward suggest with the new initiatives, not the base.

I'm looking for full year tech spend this year.

Full year tech spend this year from a technology direct cost, that's roughly $115 million. Let’s say, in terms of additional digital marketing investments, more on the product market side, probably another 15 million on that, so roughly 130 million out of the total spend. But that includes a lot of technology that I think is something different to what you're talking about, right, just the core.

Yeah. And then Ron, just quick, I know the NIM came out a little bit better than you were looking for, how are you thinking about the NIM here near term?

I'm thinking -- I feel pretty good about it here near term. As I talked about earlier, the wildcards come when betas kick in and there's no near term visibility to that occurring. So that could be a discussion – that’s the discussion obviously we will have on a quarterly basis going forward. But I think here in the near term, our NIM should be relatively range bound about this level.

We’ll go next to Michael Young with SunTrust.

Ron, maybe if I can just start with a quick follow-up on the NIM question, how much premium amortization decline was there this quarter, how much of a benefit to the margin was that and what's the, maybe just on a nominal basis or absolute basis, what's the level of premium amortization running through right now?

Yes. So for the bond portfolio, that’s obviously a benefit of rising rates, which is factored into our sensitivity models. So that was roughly three quarters of $1 million drop in premium amortization quarter, and ended up right around 5.5 million give or take for the quarter.

And maybe on a bigger picture question, I think we're just trying to capture, obviously, the back office piece is good but that plus Next Gen all together you know prepackaged, with where we're at now and declining expenses to the end of the year and then how much of that is left to come in 2019. So, in other words, we should be down year-over-year even with normal expense inflation in 2019, which should be the lower kind of rate than where we are this year and then do that continue going forward and indeed just trying to put a high level understanding on that?

Yeah. I mean I'm not giving a 2019 total expense guidance level at this point. That’s something we’ll talk about later this year, but a big tailwind on that is what we talked about here in terms of operational back office savings we were targeting through this and again, as we lay on slide four there, that phase one component of roughly 18 million to 24 million will be in 2019 results for the year with a good chunk or probably half of the Phase 2 amount in 2019 and that will carry into 2020. But a lot of other moving parts, including the investments I talked about earlier. Some sense for home lending, which pretty much align with MBA forecast, 5% to 10% drop. So a lot of moving parts there. All that though bakes into the return on tangible common equity goals we really talked about because that’s what we’re driving towards.

Right. And my last question just on that, the denominator is obviously a key portion of being able to achieve those. Where do you kind of feel as you're gating factor on capital right now and is dividend really the priority or if now at higher profitability levels with the Tax Act than where we initially planned going into next gen, do you think there's an opportunity to kind of lower that equity base and achieve those RTCE targets sooner?

I think as we talked about with the excess capital forecast, I expect that excess capital to decline naturally over the coming two and a half years just with the growth initiatives and we fully expect to maintain a healthy dividend payout ratio, which I think over my 20-year career, we just view as a better form of capital return to shareholders than buybacks, which are pretty onetime and up and down.

We will go next to Aaron Deer with Sandler O'Neill.

Following up on the expense discussion, just want to be clear the guidance that you gave in sort of in terms of dollar range, say in the fourth quarter, does that include or not include the anticipated exit and disposal costs that you've talked about.

We don't expect any in Q4 of this year. I think especially with the Q1 amount being a 2.5 million, I expect the excess costs in Q2 will be relatively small, if not a small credit just with some gains flowing through. So that excludes exit costs from Q4. That will probably be more a future Q1 of 2019 with the next round of consolidations and granted as we move through the year, we decided to move some of those forward, then that would change the exit number but just move it from one quarter to the next.

Okay. And then with the, I guess, the planned runoff of the public deposits. Those were higher cost in fund, so I imagine that that also helped on the funding costs this quarter, but as you look to replace that funding with other kind of core deposits, where have you kind of seen the incremental cost of deposits to fund the growth going forward.

On a blended basis, it’s pretty close to our interest bearing deposit cost, but I'll point out of the seven bps this quarter, right, just because of the cost of growing deposits, the real traction that I'm excited to see is the growth in the core consumer checking products, obviously DDAs, no beta. But then we've got a lot of growth still in the wealth and commercial space, which generally tends to come in the 50 to 100 bp range. So overall, I expect we will see a modest increase in our cost of deposits over the course of this year, but betas will stay pretty small. In terms of the first quarter impact for the public runoff, it was very minimal.

Okay. Just one last question then on the mortgage activity. You mentioned in terms of production expectations and sales follow the bell curve, what about in terms of the gain on sale margin. Is that obviously that came in this quarter? Do you expect it to stay down kind of at this lower end of the historic range?

If I could talk about in January, that's part of the bell curve. So we expect roughly 3.25 to 3 range, which is in Q1, closer to 3.5, Q2, Q3, and then back down to this level in Q4. So that’s the bell curve I’m referencing.

We’ll go next to Tyler Stafford with Stephens.

Hey, I wanted to start on loan growth and fin tech specifically, what are the average yields of that portfolio now and can you just remind us of the pricing dynamics of that portfolio, how much is floating in what index that may or may not be based off of?

Hi, Tyler. It’s Tory Nixon. The yield on the fin tech portfolio is around 12%. The mix kind of generated is really moving towards a third and a third and a third, meaning a third of our kind of classic small ticket, which has the highest yield, a third in our vendor finance business and then third in our larger ticket. We think that is primarily connected to our corporate banking initiative and that obviously would produce the lowest yield of the three.

How much is just total of that portfolio floating?

I don’t have that number in front of me. I’m sorry.

Okay. And just from a growth perspective, what do you think about kind of the outlook of the growth of the fin tech portfolio. Do you think it would track historic levels over the last couple of years?

Yeah. I think the fin tech portfolio will continue kind of growing in -- as it has in the last several quarters for sure. As I said just a couple of minutes ago, the mix is a little bit different. We are moving more towards having less on the small ticket side and more in the kind of direct business through banking relationships.

Okay. Got it. And then I think in the prepared remarks, you mentioned higher pay-offs this quarter. Can you quantify that for us and just for a frame of reference, what was the payoff levels in the fourth quarter?

This is Tory again. The total payoff was, I think, around 70 million more for us in the commercial space and that was primarily due to maturing construction loans to our commercial real estate group. So, and that was by design. Essentially, at maturity, we’ll take another look at the project and spending our credit metrics in price, decide if something we want to bid on to keep or to let it go. So we're doing this very consciously as we can really kind of continue to move the commercial real estate business into some more term lending.

Okay. Got it. Thanks for that Tory. And then just lastly, Ron, just to be clear on the phase 2 back office cost savings, whatever you get out of that would be upside to the 50 basis point ROITC improvement from Phase one. Is that correct?

That is correct.

We’ll go next to Matthew Clark with Piper Jaffray.

Hi. Wanted to clarify the non-interest expense run rate in the upcoming quarter. I think you mentioned it’s on a GAAP basis, maybe including 5 million to 6 million of severance in 2Q, 3Q. Should we strip out – if you think about kind of the unusual aspect of that being 2.5 million to 3 million in each, for those two quarters, is that fair to come up with kind of a core operating number.

Yeah. It’s Ron. Actually, 5 million to 6 million for both Q2 and Q3. So well, it’s 10 to 12, a total of two quarters combined, but that is included in the 188 to 193 guidance range for Q2.

Got it. And then the fourth quarter run rate you mentioned is claimed of severance and disposal costs, right?

Correct.

And then on the margin outlook, in terms of what's embedded in your guidance with the two different rate scenarios, you mentioned it incorporates a 60% deposit beta, what are you assuming for a loan beta in that outlook and how does that compare to historicals?

Well, when I refer to betas, it’s really on the deposit side. On the loan side, we of course assume front end rates are moving up over the course of that horizon. So as it impacts prime and LIBOR rates, that's roughly 100% in terms of those. Now, we assume consistent spread expectations. You could have some play with that, but I think it's point that I said there.

Okay. And then just can you remind us how big that indirect auto portfolio is at the end of the first quarter?

Yeah. 450 million, down 45 million during the quarter.

Okay. And then in the other fees, I think you mentioned swap revenue was up 2.7 million from the fourth and I think there was 2 million of miscellaneous gains. Is that right and what were those?

Correct. That was in other net interest income, about $2 million of miscellaneous gains. Part of that was gain on some track redemption we did this quarter. Another part of that was we had a interest gain that was unexpected nor expected to recur, but pretty small.

We’ll go next to Jackie Bohlen with KBW.

Touching on the money market accounts again and just kind of the remixing that took place in the quarter, do you have the timing of when that happened Ron?

That was in the month of February for the most part, some public money market out replaced with some wealth in commercial money market and or CDs. So we’re starting to see some transition as rates are moving up back into CDs.

Okay. So the money market, that transition in to the CDs and some of that movement and I know you mentioned it earlier in the call, but just trying to fine tune it a little bit and so that's not having a large impact on the margin going forward then, the changes that happened in the quarter.

Correct. I think the bigger impact on the margin going forward will be the betas pick up and get closer to historical norms.

Okay. And the CDs that you added, what’s the duration on those.

I’m sorry, the, oh CDs, sorry. Yes. Generally the CDs have 12, that seems to be the most popular maturity bucket.

Okay. And then, okay, I think almost everything else I’ve had have already been asked. The loan to deposit ratio, where you’re at right now? I know it’s been fairly consistent, is that a more of an upper level of your comfortable zone?

Yes. I would say mid-90s is where I want to keep it on the high end, anything moving north of that will be looked into adjust the left side of the balance sheet, but again goals for the year laid out, we had deposit growth exceeding loan growth. And we knew this would occur here in the first quarter. Seasonally, we’re slower through the April, May timeframe especially with taxes. So we expect that to rebound in Q3.

Okay. So essentially you will just advantageously take advantage where you can to kind of remix the deposit book into more core accounts and not have some of the additional public funds you might have. Is that fair?

Correct.

We’ll go next to David Long with Raymond James.

Hey, Cort, you were talking about the addition of talent and how that helped with your loan growth in the quarter and just curious if you could talk about any recent hires of some veteran lenders, maybe is it C&I, commercial real estate in any geographies where you may be having more success than others?

David, let me kick that over to Tory because he's been doing the hiring on that side of the aisle for the last couple of years. So, let me kick it to Tory.

Okay. Hey, David, Tory Nixon. Over the past four or five quarters really, we made this major push to kind of reallocate some resource in to people in the middle market space and it's been kind of spread throughout our footprint. So all the way from Seattle, not any really in Portland, but in San Francisco, Sacramento, Los Angeles, Orange County, San Diego have primarily been where we've added the folks and they've come from larger middle market banks throughout our geography and we've had success kind of really throughout that footprint. I think predominantly the success has been in the Bay Area of San Francisco, San Jose, Los Angeles, Orange County, San Diego. So more of a California increase than in the Pacific Northwest.

David, Cort. What Tory's been able to do in hiring people and the growth we’re showing, we are an attractive alternative for a lot of lenders to get out of maybe larger institutions to come here. And that's a testament to Tory's art work in hiring the right people.

And with your guidance that you gave, with the operating expenses for the rest of the year, what hiring assumptions do you have built into that.

This is Ron on that front. We’re not -- there's not a noticeable amount of x millions of dollars of new teams coming onboard. I think at this point with where we're at, it's going to be continue to select the changes, but not material on the expense line within those ranges.

We're opportunistic on that if we need to be. There's a group or a lender that can bring near term revenue to the bank. We always look at those on a pretty opportunistic basis.

We’ll go next to David Chiaverini with Wedbush Securities.

A follow up on the loan growth commentary. In your prepared remarks, you said how loan growth should remain strong this year. So mid to high single digit that still stands.

Yeah. Hi, David. This is Tory Nixon again. Yeah. I mean I think that that still stands and the pipeline is strong. It's consistent where it was at the end of Q4 and it's 350 or so million higher than this time last year. So I think we'll continue to see some good loan growth throughout the rest of the year.

Great. Thanks. And then it was also mentioned that the deposit attrition so far, there's been no significant deposit attrition thus far from 31 branches that were consolidated. Now, previously, it was stated that the attrition expectation was 20% to 30%. Is there still an expectation that there could still be some attrition from those branches and if so what level are you guys thinking now?

It’s Cort. So, we, once again, hats off to the people in the stores that we consolidated and we had forecasted obviously to make sure we were being conservative in our expectation that we would do something to the client and we didn't. I mean, I don't know if I can actually honestly answer that because we've out performed what we thought and we still have a forecast that we're beating substantially that would show some decline. So I'd like to think that the efforts to store personnel are putting in place, will continue to hold through in the second, third and fourth quarter. And so I can't specifically answer your question because we’re outperforming my expectation, which is great. They've done just a great job plus some of the things we're doing with digital are digital marketing where we've just kicked that off in the last six to eight weeks will help to augment any runoff collectively in the bank that we might have seen relative to those consolidations and that was not something we had budgeted for, that was an add on that we had not budgeted that will be more accretive to any deposit growth we see going forward. So we have enough things going on and based on our performance, with these consolidations, I’d feel pretty good about it.

And how much in deposits do these 31 branches comprise.

Roughly $1 billion dollars.

And out of curiosity, you mentioned that you had some cool and creative ideas to keep customers banking with Umpqua. What are some of those ideas?

Well, one of the things that we did and I mentioned it was just to reach out to the larger depositors in these stores we were consolidating, so we did an active calling campaign where we actually called these customers, told what was going on and obviously we have to notice customers when we are consolidating or closing store operations, but we had an active campaign to do that and we -- I don't know if it’s exactly 100% of the customers, but it was a fairly robust campaign to do that. I think our digital marketing is being used in some of these markets to try to – whether to attract new customers or probably touching the customers we've got. I can tell you what we're going to do with our engage application that it's going to hit our stores in the third -- by the third quarter or in the third quarter, will also be a really cool added feature to provide a unique experience. So it's a digital mobile application where you basically have a banker on your phone who is a real person who can provide you just about any service we can do in a store today with the exception of giving you cash, which is a pretty cool feature and as far as I know and certainly in the United States, there is no one doing that. So we think it's a really cool feature that will roll out in some of the markets where we're consolidating.

We'll go next to Michael Young with SunTrust.

Hey, thanks for the follow-up. Just wanted to ask on kind of the next round of branch rationalization. Are these branches relatively larger in terms of their deposit balances or any reason why you would think the attrition rate on those would be higher than maybe this first round.

This is Cort. No, I mean, when we identified these 100 stores and we have identified them, we looked at impacting markets. And when so we're looking at consolidations, we want to make sure we're impacting geographical locations. We had all kinds of things we did when we kind of triage these. So I don't anticipate that anything in phase two or phase three would be any different than phase one in which we stage them more on a basis of impact to customers and associates. So we didn't overly impact any one particular area. That's how we did it. So there may be some that are as, whatever measurements were used to determine what stores would close that are just as susceptible to closure in phase three as we did in phase one.

Okay. So we're not rationalizing kind of the bottom third and then the next third and the next third?

No. Absolutely not.

And then maybe separately along those lines that I guess, is there a rationale or a reason to do them all in the first quarter? I mean you've kind of hinted at you guys might spread these out over a little more period of time, as there is some work flow or notification timeline where it's easier to do them all at once.

Well, yeah, there's a notification timeline that we have to give to the customers and the communities, but the rationalization truly was is that, you know, I mean let's be honest to the banking sectors, it's collectively experiencing more difficult time attracting deposits, right. When you guys probably cover everybody and you probably a main topic of conversation for any CFO and CEO. And we knew that consolidating basically a third of our stores in a difficult deposit time would be, I mean, you know, we can close 100 and we could really come off the cliff. So we opted to stage it and then we will look at the performance and the attrition rates as we close these 30. And if we – and Ron mentioned this, if we feel like that we're beating our forecast right now, we are and we could pull something in to 2018, we’ll do that but you know we don't want to over correct here just for the sake of a couple of quarters, a couple of pennies. I mean we could really tip the scale a little bit. So we're going to be very calculated about how we do this and we do have an impact to communities and the customers too. I mean, there is an impact. There is no way to minimize back that in some communities. We are leaving some communities and we want to make sure we minimize that, we message it correctly and we work with our partners in these communities, including our regulators and there's a whole process you have to go through.

And we’ll go to Jared Shaw with Wells Fargo Securities.

This is actually Timur Braziler filling in for Jared. One follow up question on the hires and the success that you're seeing there. Looking at some of the hiring activity that has taken place over those four or five quarters in California, where are they kind of relative to capacity or relative to initial expectations? Are we reaching a point where the hiring is kind of stabilizing or is there still a solid opportunity to kind of see ramping growth out of those markets.

This is Tory again. I think that the ramp up period for them has been different depending on the person and the market. I do not feel in any way, shape or form that we've reached the full capacity with the people that we've brought in and there is I think a lot of opportunity and some respects, I think we're just starting to hit our stride. And I think as you know, so we will, I think we'll continue to see improvement in efficiency and growth from those people. Additionally, as Cort mentioned, I think we will be opportunistic and look for -- continue to look for people and/or teams that we feel are will be accretive to the company and if it fits the right geography and it’s the right team, it's a culture of the bank that we’ll make every effort to continue to bring them in.

This is Cort. Tory has done a great job hiring in Southern California and that market is so big. I mean, it's a huge market and we continue to be a great alternative for lenders to come to a bank that’s entrepreneurial and has a good solid credit culture, but also for customers right who are looking for a bank who's got capacity, who maybe doesn't feel like they're getting the kind of treatment they should get at a larger bank and so we are a great alternative. We offer a great alternative solution to big banks and if you're a growing company and you're growing out your small bank, we're right in the sweet spot. So there's a lot of growth opportunity.

And then just one last one for Ron and I apologize if I misunderstood it, but did you say that attrition is now going to be running through OCI and no longer the P&L?

This is on the trust preferred fair value. So, yes, attritions at discount, which historically has gone in that line, specific line within non interest income is now going to OCI, but again, because with 13, 15 years from now, when these things mature and we pay them off at par, we will have taken $100 million or so through OCI that’s got to flip back out to the P&L, get back in retained earnings. So that’s the story.

And that concludes today’s question-and-answer session. At this time, I’d like to turn the conference back over to today's presenters for any additional or closing remarks.

Great. Well, thank you for your interest in Umpqua Holdings and your attendance on the call today. This will conclude the call. Good bye.

Again that does conclude today's presentation. Thank you for your participation. You may now disconnect.