Ronald Farnsworth - Executive Vice President and Chief Financial Officer Raymond Davis - President, Director and Chief Executive Officer Cort O'Haver - President, Commercial Banking Mark Wardlow - Executive Vice President and Chief Credit Officer.

Jeff Rulis - D.A. Davidson Aaron Deer - Sandler O'Neill & Partners Steven Alexopoulos - JPMorgan Jacque Chimera - KBW Joe Morford - RBC Capital Market.

Good day, and welcome to the Umpqua Holdings Corporation third quarter earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ron Farnsworth, Chief Financial Office. Please go ahead, sir..

Thank you, Roxie. Good morning and thank you for joining us today, as we discuss the results of operations for the third quarter of 2014 for Umpqua Holdings Corporation. With me this morning are Ray Davis, President and CEO of Umpqua Holdings Corporation; Cort O'Haver, our President of Commercial Banking; and Mark Wardlow, our Chief Credit Officer.

Greg Seibly, our President of Consumer Banking, is unable to join us as he's out traveling on business. Cort and Mark will join us for the Q&A session. Yesterday afternoon we issued an earnings release discussing our financial 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, 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 2 of our third quarter 2014 earnings presentation.

A two-week rebroadcast 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..

Thanks. Good morning, everybody. Today we are reporting the first full quarter and second overall quarter of the combined Umpqua Sterling financial results. We continue to make good progress on the integration of the two companies, and remain on track to complete the majority of these activities by the end of the first quarter of 2015.

Umpqua's third quarter earnings performance and organic balance sheet growth were right in line with our expectations and validates our integration projections, as well as our creative strategies for continued growth in spite of our consolidation activities.

For the quarter, Umpqua Holdings reported operating earnings of $65 million or $0.30 per common share. This is up from $54 million or $0.27 per common share in the second 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.

Our results for the quarter also reflect continued strong organic loan and deposit growth, higher topline revenues and increased capital and liquidity levels.

During the quarter, our focus continued to be on successfully completing integration, continued organic expansion and positioning the balance sheet for an eventual higher interest rate environment. As mentioned in previous quarters, we believe that building up core deposits within this interest rate environment is important.

Once rates do move up, the true value of building a franchise that offers more than attractive rates to clients and customers will come to light. As you are aware, over the last 20 years, Umpqua has successfully done just that.

Our franchise, which funds commercial loan activities with solid core deposits is built to endure difficult economic times and prosper during good economic periods. During the third quarter, we grew over $400 million in deposits, which represents an annualized rate of 10%.

The majority of these were core deposits, checking, savings and money market, with a good mix of commercial and consumer. This growth was driven by both an increase in average balances and net new account generation, including 3,000 new DDA accounts. Our loan to deposit ratio ended the quarter at 91.2%, down from 92.7% in the prior quarter.

We also significantly increased our interest bearing cash position, ending the quarter at $1.2 billion, up from $0.5 billion in the second quarter. This improves the sensitivity of the balance sheet and provides us with more flexibility, once integration is complete and should interest rate start to rise. Turning to the left side of the balance sheet.

We saw another solid quarter of loan growth. The non-covered loan portfolio grew by $263 million sequentially or 7% annualized. This growth was partially offset by sales of $118 million for net growth for the quarter of $146 million.

We project these loan sales, which we previously have forecasted, will continue for some time as we rebalance our overall loan portfolio. We saw a solid growth in a number of our smaller segments such as retail, small business, private banking, wealth management and dealer banking.

While the dollar amount of growth is relatively small compared to the overall size of the balance sheet, these segments are experiencing strong annualized growth rates, and provide us with portfolio diversification, valuable deposits and income. The adjusted net interest margin was 4.71% this quarter, down from 4.85% in the prior quarter.

Most of this decrease was from lower credit discount accretion in the quarter. If we strip away the credit discount accretion, which we do not consider core, our adjusted margin was down 3 basis points from the second quarter level, which is attributable to the higher cash balance at the fed.

Total non-interest income increased by $17.4 million from the prior quarter. This was made up of gains from planned loan sales in the third quarter and higher mortgage banking and fee revenues. Total mortgage banking revenues were up $1.7 million from the prior quarter.

On the last earnings call, we mentioned that we were integrating the Sterling home lending centers into Umpqua to improve the profitability of those units. That effort has been successful, as we saw the net non-interest revenue spread improved from an annualized $3.6 million loss pre-deal to a positive $7.7 million annualized gain in September.

Total non-interest expense declined 15% this quarter from $214 million to $182.6 million, primarily related to a decline in merger expense. Excluding merger-related expense, operating non-interest expense was $173.9 million in Q3, up from $156.6 million in Q2 driven by an additional 19 days of expense associated with Sterling this quarter.

Through the month of September, on an annualized basis, we had reached approximately 45% of the $87 million in cost synergies we announced with this deal, up from 30% in the month of June. We remain comfortable. We will eventually exceed the $87 million synergy target and look forward to reporting on that through mid 2015.

For the third quarter, our efficiency ratio based on operating earnings was 59.8%, an improvement from 60.3% in the second quarter. Overall, credit quality remained strong this quarter. The ratio of non-covered, non-performing assets, the total assets, was 0.36%, unchanged from the second quarter.

And lastly, our capital position remains strong, regulatory capital ratios improved across the board and we remain above well-capitalized under all rules, including the effects of Basel III. We also paid a dividend of $0.15 per share, which represents a yield of about 3.8%.

Before I turn the call over to Ron, I want to provide an update on our store integration. Last quarter we announced that we would be consolidating 27 stores that are in close proximity to another. We are pleased to report that this process is on schedule with no major issues.

We are encouraged to also to report that of the stores consolidated, in lieu of normal deposit attrition often experienced by others, we have experienced growth. Good deposit growth, another testament to the strength of our brand and company culture and how well our associates are truly working together.

As forecasted, we anticipate completing store consolidations before the end of this year. I'll turn the call back over to Ron..

Thanks, Ray. As I go through my comments, I will be referring to certain slides from the presentation deck, which we posted on the Investor Relations section of umpquabank.com, yesterday afternoon. As shown, net of tax, on Slide 4 of the presentation, merger expenses decreased by 85% from the prior quarter, as expected.

We will incur additional merger-related expense over the next few quarters, as we complete store consolidations, excess facility consolidations and the system conversions. As noted on Slide 5, our interest-bearing cash increased this quarter to $1.2 billion or 5% of total assets.

We intentionally increase this balance as predicted last quarter, to increase our asset sensitivity, heading into a potentially higher interest rate environment next year. This growth was funded by continued increase in deposits of our loans and maturities from the investment portfolio.

Building higher level of interest-bearing cash is a complex decision. We are constantly monitoring the cash position in light of current and potential market interest rates, including recognizing the volatility and longer-term treasury yields over the past few weeks.

But we also weigh the potential for duration investments to negatively impact our tangible book value in higher rate environments, our interest rate risk profile and our targets. The last thing we want is for rates to increase and fund ourselves with underwater investments, while economic activity is picking up.

I can say we are getting closer to that breakeven point of holding cash versus reinvesting additional incoming cash. But at the same time it's a decision, where we currently want to maintain as much optionality on our side of the fence as possible.

At the bottom of Slide 5, I'll note, our tangible book value continues to increase, up $0.09 this quarter, reflective of strong income, offset by the dividend and a small decline in unrealized bond gain. Just like the prior quarter, our third quarter results were impacted by the purchase accounting effects from the merger. Let's recap those.

Please look at Slide 7 of the presentation. As we discussed last quarter, Sterling's allowance for loan losses was eliminated and replaced with the credit discount or mark on the date of acquisition. That credit mark stood at approximately $211 million as of September 30, 2014.

Of this, we expect approximately $139 million to accrete back into interest income over the life of the acquired loan portfolio. For the third quarter, $21.7 million of credit discount accretion was included in the interest income. This is down slightly from $24.5 million in the prior quarter.

The primary reason for the decrease was that we had fewer early loan payoffs this quarter, and therefore slightly lower accelerated accretion from last quarter. The scheduled amount of credit accretion averages $14.5 million a quarter for the first year following close.

Keep in mind the schedule amount does not include any accelerated accretion, which will vary from quarter to quarter based on accelerated paydowns. We expect the reported accretion will remain above the scheduled level in the near-term, given heightened refinancings in this low interest environment.

Offsetting that discount accretion was a $9.7 million provision for loans losses, related primarily to new loans originated by the former Sterling workforce, including the refinancing of existing legacy Sterling loans. This amount was up from $7.7 million in the second quarter.

Overall, the Sterling deal was 49% accretive to operating earnings per share in the third quarter. Like last quarter, the net credit accounting of discount accretion, offset by related provision benefited reported earnings by $0.03 per share net of tax here this quarter. And this net benefit is down from $0.05 per share last quarter.

When you exclude the net credit accounting impact of $0.03 per share here in Q3, the deal was 33% accretive to legacy Umpqua operating earnings up from 7% accretion last quarter.

Another topic of credit discount accretion has come up a lot in our discussions over the past quarter, and as Ray stated earlier, the integration is on track and we are making good progress in achieving the $87 million in total annual cost synergies, that we guided to when we announced the deal.

We expect the full realization of our cost synergies will offset any drop in this net credit accounting in the future. As we mentioned earlier, we had plan sales of multifamily and longer term portfolio residential loans this quarter, leading to gains of $7.1 million in other non-interest income.

These gains net to $0.02 per share here in Q3, and offset the $0.02 decline and the net credit accounting we just talked about. Now, turning back to Slide 6 for a minute.

Our operating performance ratios continue to improve as we complete the integration of the company, with our return on assets at 1.16%; our return on tangible common equity at 13.8%; and our efficiency ratio below 60%. These ratios are in the range of guidance we gave with announcement of the deal last fall. Moving now to Slide 8.

You can see we continue to demonstrate strong loan growth. The commercial loan pipeline remains strong at $2.4 billion and this pipeline is roughly 72% C&I. Total commercial loan production was $798 million this quarter, up 13% from the second quarter.

Total CRE and commercial loans were down slightly this quarter, related in part to the multifamily loan sale, paydowns by customers due to the sale of their companies, and certain low rate refinancings to other institutions we chose not to match.

Offsetting the drop in CRE, FinPac had another quarter of strong growth with leases and the equipment finance loans increasing at a 24% annualized rate. The remainder of our net loan growth this quarter was centered in wealth management, residential, consumer and dealer banking. Turning to Slide 9.

Total deposits increased 10% annualized, while core deposits increased by 14% on an annualized basis. The cost of those interest-bearing deposits remained flat at 22 basis points. Now, turning to Slide 10. Our adjusted net interest income increased by $18 million from the prior quarter mostly related to a full quarter for the Sterling acquisition.

With the lower credit discount accretion mentioned earlier, the adjusted net interest margin declined from 4.85% to 4.71%.

Excluding the Sterling credit discount accretion, our pro forma adjusted net interest margin would have been 4.25%, down only 3 basis points from 4.28% last quarter, reflective of the increase in deposits and higher interest-bearing cash balances.

Non-interest income increased by $17 million from the prior quarter, again, driven largely by a full quarter from the Sterling deal. This included the loan sales mentioned earlier; an increase in mortgage revenue, which I'll discuss shortly; and a $1.3 million increase in debt capital markets revenue. Turning now to Slide 11.

You can see mortgage banking revenue increased to $26 million this quarter. This was driven by an increase in income from the origination and sale mortgages and a continued increase in servicing revenue, partially offset by a $4.3 million charge for the change in fair value of our MSR asset.

On Slide 12, we trend our mortgage production and gain on sale margin over time. As I mentioned last quarter, the legacy Sterling gain on sale margin is up here in Q3, and now conforms to the legacy Umpqua margin. However, we saw a drop in the overall locked pipeline this quarter of $97 million.

And given a portion of revenue is booked off the locked pipeline change, the overall margin ended Q3 relatively flat at 2.44%. Excluding this locked pipeline drop, our total margins again would have been in the high 2% range.

For portfolio loans, they are included in the total production figures, but we do not recognize mortgage banking revenue on them. Hence we have also provided additional production stats in our earnings release on the loans intended for sale. On slide 13, you will see similar trends with our margin on loans originated for sale at 3.5%.

Our production for Q3 was roughly 70% purchase and 30% refinance. But that has now changed here subsequent to quarter end, with the current app pipeline closer to 50-50 as rates have dropped here in October.

Our locked pipeline has increased, suggesting our fourth quarter, which is historically seasonally slower than the summer quarters, will be fairly strong. Turning to non-interest expense on Slide 14. As noted earlier, non-interest expense decreased in total related to a drop in merger expense.

Excluding merger expense of just under $9 million, our operating expenses increased to $174 million in the third quarter, primarily due to a full 92-day quarter for former Sterling operations.

Legacy Sterling allocated operating expense was $78 million in Q3, compared to $65 million for the second quarter, which included only 72 days from the April 18 acquisition date.

Extrapolating the second quarter level to a full 92-day quarter, the $78 million here in Q3 is down another $3.5 million from Q2 or $14 million on an annualized basis, reflective of additional cost synergies we achieved this quarter, as we continue our integration.

This higher realization increased our cost synergy achievement from 30% in June to 45% in September. We expect to see additional cost synergies following Q4 related to the remainder of the store consolidations, and then again following Q1 next year after the system conversion.

On Slide 15, for credit quality related costs, the non-covered provision for loan loss was $14.4 million for the quarter, down from $15.4 million last quarter. As I mentioned earlier, $9.7 million of this related to the Sterling acquisition accounting. Another $5.1 million was from continued very strong lease growth at FinPac.

The remaining small recapture was from continued quality improvement in the legacy Umpqua portfolio. Now, please turn to Slide 16. All of our credit quality ratios remain strong.

One thing to note, when you look at the level of our allowance for loan losses, recall the allowance related to legacy Sterling was eliminated and replaced with the credit of discount against loans.

What we have done at the bottom of this slide is to show the ratio of the allowance for non-covered credit losses to non-covered loans and leases, both as reported, and after factoring in the Sterling related credit discount remaining at quarter end, when you gross up the level of allowance and related loan portfolio, you can see that reserve ratio would be 2.1%, which is very strong.

Lastly on the P&L. Our effective income tax rate decreased this quarter, as predicted in our call three months ago. Our year-to-date tax rate was 35.5%, which we expect to be the full year rate. Now, looking at capital on Slide 17. All the regulatory capital ratios remain in excess of well capitalized levels, and our internal policy limits.

Our Tier 1 common ratio should be in the high 10% range for the remainder of the year, declining to approximately 10% under Basel III next year. Our total risk-based capital ratio should be in the mid-14% range for the remainder of this year, declining to the mid 13% range under Basel III next year.

Management's past actions are clearly evident that we will continue to manage our capital efficiently. Now, before I turn the call back to Ray, let me conclude by summarizing the change in operating earnings from the second to third quarter. In Q2, we reported $0.27 of operating earnings per share.

Here in the third quarter, we had a decline of $0.02 from the net credit accounting, I mentioned earlier.

Offsetting that $0.02 decline was a gain on sale of loans for $0.02; a $0.01 from a combined lower provision and higher debt capital markets revenue; $0.01 from higher cost energy realization; and a $0.01 from a slightly lower effective tax rate, getting to $0.30 of operating earnings per share.

Now, I'll turn the call back to Ray to wrap up our prepared remarks..

Last quarter, we reiterated that our most important endeavors were focused on Sterling integration, continued organic growth, and improving shareholder returns. These have not changed. And as we have reported this morning, progress has been made in all three.

We also mentioned that other strategies we continue to build on are to protect and grow deposits in a rising rate environment, continued rebalancing of the loan portfolio, lowering our efficiency ratio to under 60% and to continue to evolve our delivery systems to ensure their relevancy into the future.

Again, as reported this morning, strong progress has been realized in all of the above. We will now take your questions..

Last quarter, we reiterated that our most important endeavors were focused on Sterling integration, continued organic growth, and improving shareholder returns. These have not changed. And as we have reported this morning, progress has been made in all three.

We also mentioned that other strategies we continue to build on are to protect and grow deposits in a rising rate environment, continued rebalancing of the loan portfolio, lowering our efficiency ratio to under 60% and to continue to evolve our delivery systems to ensure their relevancy into the future.

Again, as reported this morning, strong progress has been realized in all of the above. We will now take your questions..

(Operator Instructions) We'll take our first question from Jeff Rulis with D.A. Davidson..

Ray, you mentioned the expectation of loan sales to continue.

Any idea of sort of similar levels going forward both on the amount of sales and perhaps the gains?.

As far as the amount of sales, one thing I think we've been very consistent with all of our comments is, we do not expect any major overhauls of the portfolio. It's going to be a long drawn-out process over a period of time, depending on what the market says to us and the availability of buyers at prices we like.

So somewhere in this area we're pretty comfortable with..

And the characteristics of those loan sales, what exactly are you selling or is it across the board? Obviously, you detailed the loan or the categories it came from, but any other detail on what exactly you are selling or what looks attractive to sell?.

Yes. As you mentioned, we did detail out the categories of sales. I'd say, the additional color would be on the portfolio residential side. There was just some long-term fixed rate stuff we wanted to include in the sale to position us for higher rates..

And with that intention on the loan sales, is there also an expectation of seeing similar net loan growth figures based on what you know today?.

We believe strongly that our overall loan production teams that Cort O'Haver has built over the last several years is working fine, and we do anticipate future loan growth. One of the things we tried to do to let everybody understand what's going on with our portfolio is we report it both ways.

We report a gross, because I want you to know that the amount of production this past quarter was another very big quarter in production for us. But you also need to understand that as far as the rebalancing goes, there will be some loan sales, and we believe these loan sales will continue for some time..

And then on the conversions, maybe a little more detail, you said the majority of conversions completed in Q1.

Could you itemize what might slip into Q2 or what exactly is slated for Q1 of the major conversions?.

You bet. Jeff, this is Ron. From a conversion standpoint, there has already been several smaller system conversions that have occurred. There are several conversions, all on parallel paths for various systems, all culminating with main core system conversion, which will be in Q1. It will be very little left following that from a system standpoint..

So your discussion on the targeted cost synergies should be all completed as of Q1 going into Q2, is that correct?.

In Q1 we'll be in pretty good shape..

We'll take our next question from Aaron Deer with Sandler O'Neill & Partners..

Ray, just following up, you sounded fairly optimistic on the loan production.

Do you have any targets in terms of what we might expect to see for net production over the coming year?.

Well, first, we don't give number of -- yes, Aaron, we don't give specific guidance on those numbers.

And again, the net obviously depends on, and I'm speaking obvious here, our overall gross production less whatever we do determine if it's appropriate to sell to continue to rebalance the portfolio a little bit heavier on the C&I side and on the consumer side. So I think steady as she goes is fine with us right now.

I know there is lot of questions that we fielded on the amount of cash we have and the deposit growth that we are experiencing, which is very positive, will that outstrip our overall loan growth? And I actually believe that our loan production will pretty much stay in line with overall deposit growth for the long-term. So, yes.

If I sounded optimistic, I meant to sound optimistic..

Can you give us any sense of where maybe the pipeline stands today for the overall organization versus where it was last quarter at this time?.

This is Ron. Yes, roughly $2.5 billion for the commercial and that's relatively flat from the last couple of quarters on a combined basis..

Yes. I remember you noted that it was heavily commercially focused.

I mean can we expect better production on it coming out of the commercial portfolio then?.

That's a good question. This past quarter we've seen, I'd say, very little to no movement on overall line utilization. But that line portfolio is being built up nicely through the C&I production that we are adding, which will eventually provide additional wind in our sales. So, yes, we feel good about that..

And then just lastly, other than the 27 store consolidations that you've announced, if you guys have kind of worked further through this process, are there any more stores that you anticipate might be opportunities for some consolidation?.

I don't roll that out. I believe that there could very likely be a few more consolidations. We really aren't closing anything. They're all being consolidated into one another. So, yes, we look forward to seeing a few more. I don't think there will be another 27, but there could be another six to eight..

And one last one, if I may.

Ron, you have the legacy yield, the average balance and average yield for the legacy Sterling portfolio?.

The average balance and average yield for the legacy Sterling portfolio, not on my fingertips..

We'll take our next question from Steven Alexopoulos with JPMorgan..

I want to start, could you talk about what total originations were in the quarter on the loan side, and how you view that number in the context of these companies that have finally come together? Is there a lot of upside to that over the next couple of quarters? How do you view, but first I'd like to get the number where we were, and how you view that as a run rate or opportunity to improve it?.

Steve, its Cort. So total production in the quarter for home lending commercial and consumer breaks down to be about $1.9 billion. Of that home lending, about 53%, about $1 billion; commercial was about $800 million; and consumer was about $100 million, about 5%. So that's how it breaks down in total.

On the commercial side, in that segment, about a-half of it was C&I and a-half of it was real estate-related debt financing. Pipeline for commercial, and I think Ron talked about it in fairly great depth of home lending side, has remained fairly strong. We have directed the sales force more to C&I side.

We've seen a shift and we've seen a shift in our pipeline, and the production on the commercial side was up fairly dramatically during the quarter. We anticipate that will continue going in the fourth quarter into next year..

Cort, what were the originations for multifamily? I know you sold $35 million, but what were the originations there?.

In the quarter, $204 million..

Shifting gears for a second. The non-covered loan yields are pretty high, the 5.62%, recognize the accretions in there.

What was the blended yield that you guys were adding new loans in the quarter?.

I'm sorry, say it one more time..

So I'm trying to get a sense of, the portfolio loan yields are very high, but the loans that you held in portfolio this quarter, what was the approximate yield, like that new money yield that you added new loans in the quarter?.

Well, it depends on the loan type. I would say, on a fixed rate basis, on a five-year fixed rate, you are in the fours, on a floating-rate debt obligation for all of C&I, you're probably harboring around prime-ish, maybe a little bit under, if you got good deposits and other fee related income.

Most deals over five years we swap, so we don't do a lot over the five year. So I would say, around 4%, 4.25% on a five year, and say, you can use 3%, 3.25% on a floating rate..

And just one final one, maybe for you, Ron. When you think about the combined company, I know you're holding cash, increases your asset sensitivity.

But when you think about the combined company and sensitivity to the long end of the curve versus short end of the curve, how are you positioned today?.

Well, I'd say, like most community bank sits on the overnight to roughly four to five year part of the curve, the 10 year part of the curve as it moves up and down, that affects really two things for most community banks, it affects bond pricing and mortgage production in related MSR.

So we're really off of the overnight to four to five year part of the curve..

We'll here next from Jacque Chimera with KBW..

You mentioned in your prepared remarks that some of the loans that had refinanced away, they had terms that you weren't interested in booking them at.

Is that any different from other quarters, or are you seeing competition pick up even further?.

We're always under pressure from big banks. It's mostly big banks on price. And we're seeing floating rate bids that are pretty low, well under 200 over LIBOR, so we'll pass on those. So it's a little more competitive, Jacque, then it has been. Last year, it was probably more on terms. This year, it seems to be more on rate.

And we just -- we're not going to bid..

So if the terms come back, the terms are more acceptable then, you're not seeing terms and rate.

It's just more rate this year?.

Last year term was in vogue and this year it seems to be rate..

Anyone's guess what next year will be? And then also just as I look at the deposit growth, I mean it was really wonderful in the quarter.

Do you have any sort of ongoing campaigns right now or anything special that you are focusing on?.

Yes, we do, Jacque. In fact, we have a major -- we don't even call them campaigns anymore. We have a major overall cultural brand platform that we'll be kicking off here in November, which we believe will be significant.

It's something that all associates of Umpqua have been teased about and we're looking forward to rolling that out here in the mid-November timeframe. We should have again put a little bit more speed into what we're doing on overall deposit growth and building relationships..

And does that tie into the comment on new creative strategies for early next year?.

It certainly does..

And is that something that would be more driven on loan and deposit growth or would there be additional fee potential as well from that?.

It will be all-encompassing. It's all about relationships and overall relationship profitability with us. So it will be all-encompassing..

And then just one last quick one. The original merger costs, I have them written down is about $80 million.

Is that still a good number or will they go up from there?.

No. Jacque this is Ron. I talked a quarter ago, we had some allocations.

So slightly lower other liability fair value adjustments, and we expect it's slightly higher merger expense, so it would be up a little bit from that in total and you will see the balance of that come in over the next couple of quarters, as I mentioned, related to store facility consolidations and then our system conversions..

We'll move next to Joe Morford with RBC Capital Market..

I guess you talked about building up cash at the fed for flexibility.

What are the things you're kind of focused on that are decision points that are going to get you to start deploying that more actively, or are you just waiting for more of a broader uptick in loan demand or something like that?.

Well, we've had strong loan growth. We've also had strong deposit growth. I personally -- we see all the volatility in the treasury yields and the bond yields, and I mean, heck, over the last, what, half month, we're down anywhere from 30 bps to 50 bps on the 10-year treasury, which is really one of the main drivers for investment yields.

So again, as I mentioned earlier, it's a complex decision, but what we do then in the third quarter and early here in the fourth, we were increasing mid-spring cash position to improve the overall interest rate risk profile for next year, and we'll continue to monitor that. We're getting closer to that breakeven point.

I don't think we're quite there yet. We want to maintain some optionality on our side of the fence. But going forward it will be really based on balancing out the overall net loan or deposit flows..

And then, I guess, just a general comment or a question just about; if you look across your footprint what are the markets that are maybe a little stronger than others or maybe a little weak.

Just trying to get a little better sense of the different trends in your markets?.

Really, it hasn't changed very much since last quarter. We're seeing solid growth in multifamily coming out of our Southern California operations.

The major urban areas, San Francisco, Bay Area, Portland, Puget Sound, those are obviously, for obvious reasons, the strongest areas where we have the largest amount of teams on the ground and we're seem to be doing very well there..

[Operator Instructions] At this time, there appears that there are no additional questions in the queue. I'd like to now turn the conference over to Mr. Ron Farnsworth..

Excellent. 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..

That does conclude today's conference. Thank you for your participation..