Ronald Farnsworth - EVP and CFO Raymond Davis - President, CEO and Director Cort O'Haver - Senior Executive Vice President and President, Commercial Bank Gregory Seibly - Senior Executive Vice President and President, Consumer Bank Mark Wardlow - EVP and Chief Credit Officer.

Jeff Rulis - D.A. Davidson & Co. Aaron Deer - Sandler O'Neill & Partners Joe Morford - RBC Capital Markets Jacque Chimera - Keefe, Bruyette & Woods, Inc. Jared Shaw - Wells Fargo Securities Steven Alexopoulos - JPMorgan David Long - Raymond James & Associates, Inc..

Good day, 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 call over to Mr. Ron Farnsworth, Chief Financial Officer. Please go ahead, sir..

Okay. Thank you. Good morning and thank you for joining us today on our first quarter 2015 earnings call. With me this morning are Ray Davis, the President and CEO of Umpqua Holdings Corporation; Cort O'Haver, our President of Commercial Banking; Greg Seibly, our President of Consumer Banking; and Mark Wardlow, our Chief Credit Officer.

Cort, Greg and Mark will join us, as we take your question after our prepared remarks. Yesterday afternoon we issued an earnings release discussing our first quarter 2015 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. During today's call, we may 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 Law.

For a list of factors that may cause actual results to differ materially from expectations. Please refer to Page 2 of our earnings conference call presentation, as well as the disclosures contained within our SEC filing. I will now turn the call over to Ray Davis..

Okay. Thanks, Ron. As we have reported over the last few quarters, our company's focus has been on completing the integration of Umpqua and Sterling including converting all systems and capturing the remaining cost synergy while we continue to generate strong organic growth.

We have made good progress on both although the financial benefit of that progress was not fully reflected in the current quarters operating results. I will discuss both of this in greater detail on just a few moments.

For the quarter we have reported operating earnings of $56.4 million which equates to $0.26 per share compared to the $0.27 per share we earned in the fourth quarter of 2014 and $0.21 per share over the same period a year ago.

Ron, will go through our financial results in more detail but I want to outline the key items that impacted our first quarter financial results. First, although loan growth was strong in the first quarter, net interest income decreased by $11 million from the prior quarter.

Over half of the decrease related to a lower credit discount accretion with the remaining portion primarily coming from too fewer days of interest income in the quarter. This is not to be a surprise as we have guided expectations to steady decreases and the credit discount accretion overtime.

Second, the provision for loan and lease losses was higher by $8.5 million from the prior quarter. This increase was due to stronger loan growth during the first quarter and from increased charge-offs on a quarter-over-quarter basis.

Third, we benefited from a decline in the 10-year treasury in the early part of the quarter which drove an increase in mortgage refinances. That combined with the 70 basis point improvement in our gain on sale margin contributed to an $11.7 million increase in the mortgage banking revenue.

Embedded in this increase, is a $1.5 million higher charge on the fair value of the MSR, given the decrease in the 10-year towards the end of the quarter. Fourth, core non-interest expense decreased by just under $2 million as compared to the fourth quarter of 2014.

This is an important part of the story and Ron will walk you through the detailed pieces during his comments. Turning back to integration, over this past weekend, we completed the conversion of our core banking systems. I want to again congratulate our teams as they successfully completed 18 separate conversions.

This accomplishment is and was the major hurdle that we have now crossed in wrapping up the Sterling integration.

This event enables the company to quickly realize the remaining projected expense synergies and benefit from the flexibility that operating on one technology platform provides especially for a company like Umpqua where innovation is the major differentiator.

Last quarter, you may remember we discussed the new initiatives we are putting in place to leverage our lending power and market position and why we were optimistic for stronger growth in 2015. The success momentum of these initiatives are beginning to have a meaningful positive impact on our loan growth.

During the first quarter of '15, our loan and lease portfolio increased by $294 million or 8% annualized growth before loan sales. Net of loan sales our portfolio increased by $221 million or 6% annualized. This was driven by growth in both our commercial and consumer divisions including another very strong quarter from FinPac leasing.

Commercial loan production continued at strong pace with production of approximately $690 million in the first quarter. This represents a 15% increase over the production level in the fourth quarter of 2014. Over half of that production occurred in March and we believe that momentum will carry forward into the second quarter.

Our consumer division also experienced a strong quarter with mortgage production of $1.2 billion, a 25% increase from the fourth quarter. Gain on sale margins also improved to 365 basis points in line with our expectations and guidance on the last quarterly call.

Total deposits grew by $330 million from the prior quarter which represents an annualized growth rate again of 8%. This was driven by growth in non-interest bearing demand accounts, savings accounts and money market accounts partially offset by a decline in CDs. Our loan-to-deposit ratio ended the quarter at 90%.

As they have historically, our credit quality, capital and liquidity levels remain strong for the quarter. The ratio of non-performing assets, the total assets declined to 36 basis points down from 43 basis points in the prior quarter. Tangible book value for common share increased to $8.88 from $8.79 in the prior quarter.

All of our regulatory capital ratios which we are now showing under Basel III rules remain above well capitalized levels. And as you are aware we also paid a dividend of $0.15 per share which represents a yield of about 3.5%.

As I mentioned, with the core conversion behind us we have now shifted our attention to the financial stages of integration and realizing the remaining expense synergies, which will help us achieve our short term goal of reducing our efficiency ratio below 60%. Now, let me turn the call over to Ron..

Okay, thanks Ray. As I go through my detailed quarterly review comments I will be referring to certain slides from our first quarter presentation deck, which we posted on the Investor Relations section of UmpquaBank.com yesterday afternoon for you to follow along. With that please turn to the income statement on Slide 3 of the presentation.

We reported $0.26 per share in operating earnings for the first quarter of 2015. This is down $0.01 per share from $0.27 in the fourth quarter of 2014.

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. A few moving parts led to the $0.01 decline this quarter.

I'll cover each of these in detail shortly, but at a high level we had $0.03 of pressure from lower net interest income and $0.02 of decline from the higher provision for loan losses. Offsetting this was a higher net contribution from our home lending group of $0.02 and $0.02 of benefit from lower operating expenses.

Turning towards the bottom of the P&L summary on Slide 5, we had $8.5 million of merger expense this quarter after-tax. We expect a slightly higher amount for the second quarter related to the core system conversion with much smaller amounts trailing through year end.

Now turning to Slide 6, net interest income decreased by $11 million from the prior quarter level. A little over $6 million of this decline related to lower credit discount accretion from the Sterling deal. The remaining $5 million of the decline came simply from two fewer days in the quarter.

On the Sterling credit discount a little over half of the $6 million decline was from lower purchased credit impaired loan payoffs. We've discussed the credit discount accounting now for several quarters and do not expect a significant drop-off, just a steady decline over time absent an increase in accelerated payoffs.

Our total net interest margin declined by 14 basis points from the prior quarter driven primarily by the lower level of credit discount accretion. Excluding that credit discount accretion, our pro forma margin was 4.19%, down 3 basis points from the 4.22% for Q4.

Given the low interest rate environment along with continued pressure from higher yielding loans payoffs, we like all banks expect this pro forma margin to continue to decline at a slow rate in 2015. On Slide 7, the provision for loan and lease losses increased by $8.5 million from the prior quarter level.

This increase was driven by stronger loan growth in the quarter which Ray talked about and a $5.1 million increase in net charge-offs. We expect this to be lower in subsequent quarters. On Slide 8, total non-interest income increased by $13.3 million as compared to the fourth quarter level.

The biggest driver of this increase was higher mortgage banking revenue which is broken out on slides 9 and 10. Turning to Slide 9, mortgage banking revenue increased by $11.7 million from the prior quarter. As interest rates declined early in the quarter we were well positioned to benefit from the spike in refinance activity.

This led to a $13 million increase in origination and sale revenue. However, with the drop in rates came a $1.5 million increase on the mortgage servicing right asset charge for the quarter. As you will note on Slide 10, our gain on sale margin increased 70 basis points as expected to 3.65%.

Our application and LOC pipelines remain high heading into the traditional purchase season. Now please turn to Slide 11. Excluding merger expense, our operating expenses decreased $1.7 million to $179 million for the first quarter.

Moving from left to right, you see we had a $5 million increase in variable mortgage expense related to the higher level of production in the quarter. Other expenses primarily marketing and services were lower by $3.9 million and loss on other real estate owned was lower by $1.8 million.

In addition, we recognized $1 million in savings in the month of March related to store staff reductions and realignment following the previously completed store consolidation. This represents $12 million on an annualized basis. Recall through December we had achieved 45% or $39 million of the annualized $87 million synergy target.

Add to that, this $12 million annualized amount at the end of March and we have now achieved approximately 59% or $51 million of our stated target. Now that we have completed the core system conversions, we expect realization of the remaining synergies to accelerate over the next two quarters.

Turning to the balance sheet on Slide 12, note that our interest bearing cash decreased this quarter to $1.1 billion or just below 5% of total assets. A small decline in cash spent at like increase in investment securities. As we reported in January, our investment portfolio is expected to remain around $2.5 billion for the near term.

Our total available liquidity is $7.8 billion. That combined with a 90% loan to deposit ratio puts us in a good position to fund continued, strong, organic loan growth. Slide 13 covers the loan portfolio. As Ray highlighted, we saw strong growth in loans this quarter.

Gross loans and leases before sales increased by $294 million which represents an 8% annualized growth rate. During the quarter, we sold 72.8 million of loans primarily longer term portfolio residential mortgages. Net amount of sales, our growth rate was 6% annualized up from 2014 levels.

With the initiatives mentioned last quarter taking hold in the conversion behind us, we expect stronger, commercial and consumer loan growth for the balance of this year. On Slide 14, total deposits increased by 330 million from the prior quarter with strong core deposit growth, partially offset by the market preferred runoff of CDs.

The cost of interest-bearing deposit remained low at 24 basis points for the first quarter. Non interest bearing demand now comprised 29% of the balances. Please turn to Slide 15. As you can see all of our credit quality ratios remained strong for the first quarter, we expect continued declines in non-performing assets over the balance of the year.

Now to Slide 16, which covers our capital ratios. Basel III is now in effect. I will highlight here that our Basel III Tier 1 common ratio is estimated at 10.8% down as expected from the 11.5% under Basel I rules back in December but up slightly from our previous projections in the low 10% range.

All of our regulatory capital ratios remain in excess of well capitalized levels. We estimated $200 million of excess capital above our internal policy floors. This is good to have but also recognize this is not a significant amount of excess capital.

We will deploy as we have historically done and as shareholder friendly manner over time, through share repurchase, organic growth, dividend increases or future M&A. Having some excess capital gives us flexibility which is good.

If we were to the side to repurchase shares, it would be done in a ratable manner over a period of time, not in a single move. This gives us the most flexibility in adjusting the changing market condition.

Back in late 2013 when we announced the Sterling deal, we stated our post integration targets were, a return on assets of 1.2 to 1.3%, a return on average tangible equity of 13% to 15% and our efficiency ratio below 60%. With the completion of integration on the horizon, we are on our way to those targets.

Now I will turn the call back to Ray to wrap up our prepared remarks..

Okay, before we take your questions, just a reminder, our priorities for the near term have not changed.

We remain focused on finalizing the remaining pieces of the integration, continued strong organic loan and deposit growth, further optimization of revenues and expenses, leveraging our technology to continue to enhance the customer experience and improving shareholder returns by managing current capital and deploying excess capital in a prudent manner.

We believe we are well positioned in each of these areas and look forward to updating you on our progress over the coming quarters. We'll now pause and take your questions..

[Operator Instructions] We’ll take our first question from Jeff Rulis with D.A. Davidson..

Thanks, good morning. Ron, just to go back to the non-interest expense slide you've got a core expense of $179 million in Q1.

I guess if you would look at the $36 million annualized cost savings yet to be achieved or $9 million a quarter I guess that implies the run rate is around $170 million a quarter, is that correct?.

Actually it would be a bit less than that because also I want to stress in here in the first quarter with the store savings of $1 million, that was just for the month of March which is $12 million annualized, or $3 million a quarter so, that will taken fully in the second..

So you don't embed that in the cost savings target?.

It's in the cost savings target but it's already been achieved. So, for the first quarter there was only $1 million of that reflected in the $179 million of ending expenses but that’s $12 million on a annualized basis, so it was only $1 million for the month of March in the first quarter, it will be for $3 million you will see on that in the second..

Okay.

So on a core really sub $170 is what you’re implying?.

Yes..

Okay.

And then just as you talk about the savings accelerating in the next two quarters is it lumpy in the form of Q2 should see the bulk of that and then Q3 is the remainder or will it be evenly balanced?.

Yes, this is Ray Jeff. I think you're going to see a chunk of it in the second quarter, the remaining balance - the biggest piece perhaps by the end of the third quarter..

Okay, fair enough.

And then in the net charge-off category I guess were there significant loans in there fairly granular and maybe within what category if you could give maybe some color about what's charged-off?.

Okay, Jeff this is Mark.

Yes, I would say there was a couple of deals that I would categorize is having higher than normal levels of charge off but I would also point out that, if you look at the rest of our credit metrics just about every measurement you want to look at including the imperial ratio has come down and as Ron mentioned we expect continued reductions and Umpqua is going forward, we also expect that provision expense will come down in subsequent quarters as well..

And Mark, any indication on those charge-offs did they come from Sterling or Umpqua legacy?.

They were - the biggest bulk was a classic Umpqua deal..

Got it.

And maybe one for Ray just on the appetite on M&A you've outlined your capital surplus is around $200 million but given that you're through conversion does that change your mentality incrementally quarter-to-quarter here?.

Jeff, I really don't think it changes it. I think we have - even during the sub - post announcement of the transaction, we have been presented deals that we have no interest and looking at but we’re always interested in looking that something that can, strategically fit in with what we are trying to do and make sense.

But I think we still have some ways to go on integrating. We want to wrap this up, clearly but I would not roll out, if something hit my desk that we really thought made sense but we take a look at it we would but I don't - there is nothing imminent, nor do I see anything happening in the near future..

Okay. Thank you..

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

Good morning everyone. I wanted to touch on the topic of loan growth. It was nice you guys got some acceleration in your organic growth this quarter. It seemed like a lot of it was in the multifamily category and then some residential mortgage.

I'm wondering you can talk a little bit about what happened with the C&I in the quarter and kind of what the outlook for that? And just in general to the extent you guys are looking to reposition some of the loan book how might we see you stepping on the gas in certain categories to get more in the C&I and the consumer side?.

This is Cort, Aaron. Let me talk about the commercial side little bit, Greg comment little bit on consumer, so on commercial lending of the 690, a new production actually 41% of it was in commercial lending.

Now relative to the footings that you see on the balance sheet, we're heavy into ag and so we had some - if you look at the slight decline that we had in commercial footings, it was really related to ag. And we see that every first quarter and sometime it trails early into the second quarter and those people get in the planning season nevertheless.

But relative to total production commercial was actually pretty good, if you add up the two combined banks production for the first quarter, we were $10 million more this quarter then the best quarter both banks have posted combine integrated recessions.

We feel very, very strong about the momentum that we created late last year and all of the disciplines that we got. So that would commercial lending, commercial real estate, multifamily, SPA and its impact.

Both of your question around multifamily obviously with rates coming down slightly in January actually quite a bit late January and February, we saw an uptick and some refinance opportunities in multifamily and we also saw some deals got the back door, so we have some loans pay off and so we can back fill what paid off for the little bit of gross production.

We haven’t really lifted the overall position of the multifamily in aggregate on the total portfolio, so as we close the deals let's about 17%, we feel pretty good about that, it’s a great asset class that we are in all the major metropolitan markets up in down the west coast, majority of the loans we do a multifamily are in metro market.

We feel very strong about the asset class. Relative to commercial lending proper going forward, we did do some things in the first quarter and we’ll continue to do some things throughout the balance of the year that should continue to help us well at C&I portfolio.

We opened a new CBC in Toronto's, we are new in South California but their close on Sterling’s we’re happy to have that when opened. We added six SPA lenders and concluding one in Salt Lake City, one in Phoenix which are new markets for us, and we’ll use that kind of as a potential look at those markets for traditional, commercial banking.

We’re looking at a couple of new initiatives deployed to plug into the bank one being in FinPac.

We have one particular vertical as I call it that we haven’t filled yet but we are very, very close, it would be the vendor, remember we had third party, we do bank proper leasing and then we have a vendor channel that we're looking to round out hopefully very, very soon, that portfolio has grown, extensively over the last two years.

And we’re looking at a new team and I’m not going to say what city, because we have actually taken this team from another competitor bank but we're looking at adding another team in mid California to may be closure to Southern California that should help us with C&I ag type business in Southern California.

But lot of things going on, we feel very, very strong, very, very good but what we did in the first quarter and going to the second and third quarter which are generally our stronger quarters for commercial banking..

That's encouraging on the commercial side for sure. On the multifamily that was booked in the quarter just and the reason I'm asking is because a lot of the banks that I've talked to recently have suggested that the pricing on that product in particular has just gotten really compressed.

Can you talk about what kind of yields those particular loans were coming on at this quarter?.

Yes, I mean you are right, and we see a lot of - I call goofy pricing and goofy structures too to be quite honest with you Aaron. We're still getting in the fours, most of our loans even know there are 10, 15, 20-year maturities have five year resets.

So they reprise with the margin over the index in five years, so even though they look on our books with hard maturity that’s out there for quite some term, they reprise in a more reasonable near term and we are very, very sensitive the amount of low fixed rate debt to be put on the books, we are very, very selective..

Okay. Thanks for taking my questions..

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

Thanks. Good morning everyone.

Just a circle back on the capital deployment recognizing you're going to be kind orderly with it and not do it all at once or whatever, when might we see you move on some of that action be it I mean recognizing organic growth is a top priority but to the extent you might consider a buyback or something like that, when might we see you look to pursue that?.

Joe hi, it's Ray.

I can't give you a date, when we are start doing, I can't tell you this, so its something that we talk about on our regular executive meetings on a regular basis, what is the capital position, what is our best use of the capital today, what are our prospects for in the near term so it's a value added constantly but for me to give you a date would be very speculative and I don’t want to do that..

Okay.

So it's not like this tied to a certain time of year where you review these actions? It's kind of an ongoing dialogue?.

That is correct..

Okay.

Then the other question is just curious to learn a little more about the drivers to the deposit growth this quarter which seemed to accelerate and seemed to be a good mix shift as well but drivers to that and then how sustainable that may be going forward?.

Yes, Joe, it’s Greg. So couple of things on that, first of all, you are right the mix shift continues to improve up to just under 30% right now in terms of DDA. I think what we’re seeing is really an extension of a four quarter run.

If you go back to essentially the first quarter after the deal closed, we’ve seen nearly $1.2 billion of total growth about 6.7% last year about 8% annualized in the first quarter.

I think it’s just good blocking and tackling and it’s coming out of the stores, it’s coming out of the commercial themes as well I think people are very focused on making sure that our core funding is where we needed to be to be able to support loan growth.

So all over it’s water on that issue and again to me this is a very good linked year-over-year quarter for us, because typically we would see numbers that would be a bit more flattish in the first quarter, but I think what you’re seeing at the moment and that’s been built very intentionally over the course of last four quarters..

Okay. That’s encouraging. Thanks, Greg..

We’ll take our next question from Jacque Chimera with KBW..

Hi, good morning guys.

I wonder if you could touch on mortgage banking? You had a really strong quarter in that and just how things have been looking this first couple of weeks into the quarter and your expectations as we move forward?.

Yeah, Jacque, it’s Greg. We feel good. I think if you just look at again we had some favorable trends in terms of the 10-year into quarter. Little bit of a dip at the end of the quarter that had some impact on MSR as Ron said that we’d have preferred not to had the deal with, but I think we’re well positioned.

Again, I’d encourage you to kind of look at the story overtime and when the companies first came together year-over-year quarter last year if you put the companies together would have been in the mid-$700 million type production.

And then that’s grown sequentially really every quarter through 2014 and then to just under $1.2 billion during the first quarter I think the gentlemen who run our mortgage operation our top door they have done a very good job of making sure that we’re focused around a couple of factors both growth on a disciplined basis and also profitability.

What we’re really focused on is trying to make sure that we’re doing about 75% of that production originated for sale making sure that we keep our operations and our team sharp and focused around expense management. And our view is – we have lots of opportunity here overtime as we kind of widened that across the footprint as well..

Okay.

And that 70 basis point expansion in your gain on sale margin, was that gradual throughout the quarter the increase?.

Well, I think some of it. It’s a couple of different things. Ron you can go on to some details as well I think part of it is the benefit of increasing LOC pipeline some of it is obviously some pricing opportunities as we had dips in truck order for us to widen margins selectively.

There is several contributing factors, but I would say it’s going back towards the trend that you would have seen historically out of classic Umpqua we had to grow focuses on making sure that we have profitable and sustainable growth..

Okay.

So is it fair to say that it's somewhat impacted by the mix with the refi having a higher gain on sale margin and since that was a higher portion of the mix than in past quarters that also benefited?.

That has something I mean I think the short answer is yes mix does have a benefit and you are right that we would see enhanced profitability there I think the other issues. Again in the rate environment that would be similar to today with that LOC pipeline stand where it is.

We think that we’re looking at a continuation of the trends that you saw in the first quarter for the foreseeable next couple of months or so certainly..

Okay. And if my calculations are correct then purchase volume was only down 10% which was surprising, I would've thought that there would have been more of a seasonal dip in that.

Do you think that we could see that move up quite a bit as we head into the spring season?.

Well, I think we’re definitely I mean we’re moving into purchase season. It’s a little interesting for company’s position where we are across our five states, because the winter of 2014 and ‘15 was kind of the winter that never was, right? So we saw….

Yeah..

At our purchase activity in points North and we typically would see, because people were kind of out and about and it was an ordinary day in the life. So we think purchase stayed up to your point. It was more robust and we typically would see at this time in the year. I think it all depends on rates, Jacque.

Yeah, I think if rates stay where they are I think you could still see about a 60/40 refi to purchase type volume in the second quarter, which was inverse of where we were couple of quarters ago, but anywhere – I think anywhere between 40% and 50% in terms of refi it’ll work just fine for us..

Okay. Great..

It’s going to be pretty I think pretty balanced over the course of the next quarter or two..

And are you seeing any of your markets any of the metro areas where supply is constraining in terms of purchasers?.

Yes, increasingly so. I mean there are more lookers than there is available in inventories for people. It’s obviously creating some good price appreciation and we’re actually seeing some pretty interesting trends now around people, who may have stayed-put through the down graft in the economy.

Starting to look for - not just kind of one step move up, but multiple step move ups in the next purchase. So I think it’s having some impacts on the overall size of the average loan demand that we’re looking at as well, which is not necessarily a bad thing, but it’s different than it has been coming out of other cycles..

And just really broadly have you done any work or had any thoughts on -- I don't want to say wasted time of your lenders because obviously when they're working it's not wasted but just borrowers who are putting in multiple offers and continue to be rejected, is that starting to take a toll on just efficiency and production?.

It does a bit. We were mindful of that. We still we watch very closely kind of all our pull through numbers, because clearly one of the issues we worry about in terms of fallout is we have a bunch of folks, who are just window shopping, but aren’t necessarily closing particularly if you get to that apps stage.

But we’re seeing our pull through rate has stayed really strong I think part of it is the markets that we’re in.

We still are very focused in a lot of what I would characterize is suburban non-metro type markets in a pull through that we typically seen in those markets -- has stayed in the mid-80% range, which is right where it’s been over the course of the last many years..

Okay, great. Thank you so much for all the color. It’s wonderful..

We’ll take our next question from Jared Shaw with Wells Fargo Securities..

Hi good afternoon. Thanks for the call. Just a question on the non-performers.

Actually first we could go what was the balance of the covered loans at the end of the quarter? And then the allowance assigned for those covered loans and the net charge-offs coming from the covered loans?.

Again, we combined that, because by the end of the quarter two of the three portfolios was - hit the expiration of the charge-offs – sorry, the lost share for the commercial side of the house.

So what we have left is just a little over $100 million, which will move off of coverage status by the end of Q2 and that was related to the Nevada security deal from June of 2010.

And in terms of the allowance of that as we showed last quarter fairly static, so no significant change in the level of reserve for it nor with the provision from quarter-to-quarter..

Okay.

And then when you had mentioned an expected reduction in NPAs going to the second quarter, is that due to curing of the non-performers or through charge-offs?.

No. It is Mark, Jared. It’s actually a good thing. It’s sales of two or three large OREO properties and resolution of large credit that should all happen in the second quarter with very little in the way of charge-offs with those resolutions..

Okay, great.

And then, just finally following up I guess on Jacque's question on the mortgage sales, so you think that the gain on sale margin could be sustained going into second quarter here at these higher levels?.

Yes. We have looked at that extensively I think its right to stay where they are. We continue to hold up our LOC pipeline. We think we’ll be stable in terms of kind of the linked quarter gain on sale expectations..

Great. Thank you very much..

And we’ll take our next question from Steven Alexopoulos with JPMorgan..

Hey, good afternoon everyone.

Could I start -- can you talk about the strategic decision to sell the $73 million of resi mortgage loans in the quarter?.

Sure. This is Ron. Similar to the last couple quarters it’s just about managing overall interest rate risk it’s a longer term fixed loans within the portfolio..

Okay, got you.

And then following up on the strong growth in multifamily this quarter can you talk about the appetite to grow the overall commercial real estate bucket and what your overall thoughts here on managing that concentration risk of CRE?.

Hi Steven, it's Cort. Relative to multifamily, we just kind of look at it quarter-to-quarter and we do run-off some in the quarter, we had some run-off, we run-off by $50 million a month in multifamily.

Once again we have not increased the overall percentage in the overall portfolio, so we look at it pretty closely relative to commercial real estate, we don't feel that we’re overly concentrated in commercial real estate, I might let Mark comment on that if you would like we do a different type of real estate than the bank had done in the past.

We deal with a - we call Tier 1 real estate type customer, we see a lot of velocity in that portfolio also these are shorter term value added kind of deals, we don’t do a lot of fixed rate in the commercial real estate portfolio proper type financing. So there is high velocity every 18 to 24 months.

Those deals will prove to non-recourse like company type finance which is where it needs to be and off our balance sheet. So we have an appetite for it because we have velocity in both the multifamily and the more traditional commercial real estate portfolio..

Okay, got you.

Then shifting gears outside of realizing the expected $87 million of cost saves how should we think about organic growth of expenses of the core business given just the investments that you're making?.

Just from the core business it's going to be consistent with past annual trends in that 2% to 3% range..

Okay perfect. And Ron just one technical question. The cost of interest-bearing deposits has just drifted up over the last few quarters.

I'm just curious why that's the case given you seem to have excess deposits today?.

Well strong deposit growth also you see some mixed change impacting that, so if you look at the total, cost of total deposits you will see it flat if not down and I would say overall for interest bearing it is just bouncing along across the bottom..

Okay. Got it. Okay thanks for the color..

Thank you..

We'll take our next question from David Long with Raymond James..

Hey guys. You guys talked a lot about the expense rationalization from the acquisitions but let's look at the other side at the revenue side.

What color can you provide us with revenue synergies that have been realized from the Sterling acquisition to date and then what's your outlook over the next few quarters?.

This is Ray. Let me hit the big button, obviously what Greg has talked to you about on the consumer side on home mortgage has gone up dramatically, that's one area.

The second area that has gone up also and Greg has got the number in top of his head, I think it is percentage of growth I think was 58% in our consumer lending throughout the stores and the network that the work that he has done which is exact on not only training our people in the stores to originate the loans and process but that has been another major win for the company and that has upside for us as well.

So I think from a revenue point of view, those are the two biggest areas that we’re seeing incremental revenue growth coming from..

Okay.

And with the closing of the integration does that accelerate? Are there more initiatives that you can take on at this point or has everything already been started?.

Well the whole lending side - you tell me what rates are going to be and I will tell you how well we are going to do. On the consumer side, yes, I think we have an upside on that because it really is just really come out of the gate, I think we have significant upside on the overall consumer lending portfolio growth opportunity that we have.

The interesting thing about this whole integration as we look back at and believe me guys we do post mortem on just about everything we do around here to make sure that we don't lose track of the good things that are going on and make sure we minimize the things that didn’t work out so well.

But I can tell you that now with the conversion behind us and this is important because when I said earlier this is the major hurdle that was stopping us or preventing us from doing all the things that we want to get on with growing the business, optimizing revenues, getting that efficiency ratio down below 60% all of that now is open.

That gate is now opened. So we realize the pressure is on us now that there is no hurdle for us to overcome.

Let's pray there is no unforeseen something bad that happens in the economy or in Europe or whatever but I mean the company couldn’t be better positioned and if you look back at these numbers that these fellows are sharing with you on growth, on what we - through the conversion, through the integration, and then have the strong organic growth we have had, I had to say that we had our bumps on some of the things on integration but I would say overall this has been a very, very big success for our company one that all of us, all of us are very, very proud of..

Great thanks for the color, Ray..

And at this time there are no other questions. Thank you. I will turn it back to our presenters for any closing remarks..

Okay. I’m going to thank everyone for their interest in Umpqua Holdings and attendance on the call today. This will conclude the call. Good bye..

That does conclude today's conference call. We appreciate your participation..