Satsuma Pharmaceuticals, Inc.

Thank you. Good morning.

Joining today’s call will be the following members of the management team at Sterling Financial Corporation, our President and Chief Executive Officer, Greg Seibly; and our Chief Financial Officer, Pat Rusnak. Additionally, we have some other team members available for the Q&A at the end of the call, President and Chief Operating Officer of Sterling Bank, Ezra Eckhardt; Vice Chairman and Chief Lending Officer David DePillo; and Chief Credit Officer, Steve Hauschild.

A supplemental slide deck, which will be referred to during the course of this morning’s call, is available on our website at www.sterlingfinancialcorporation.com. I would like to caution participants that during the course of today’s conference call, management may make statements that are not historical facts regarding events or future financial performance of the company that are forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act, which management believes are benefit to shareholders.

These statements are subject to risks and uncertainties 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. Specific risks that maybe discussed during the course of the presentation with respect to the pending merger of Sterling Financial Corporation and Umpqua Holdings Corporations include whether shareholders approve the merger, whether regulatory approvals are received the timing of closing, whether the companies have accurately predicted acquisition and consolidation expenses, the timing and amount of savings from consolidation, the expected earnings contributions of both companies and management’s ability to effectively integrate the companies.

Also this call is not deemed to be an offering or solicitation materials by Sterling or Umpqua in connection with the proposed mergers. Shareholders of both companies are urged to read the joint proxy statement perspectives that would be included in their registration statement on Form S-4, which Umpqua will file with SEC in connection with the proposed merger as it will contain important information about Sterling, Umpqua, the merger and related matters.

The directors and executive officers of Sterling and Umpqua maybe deemed to be participants in the solicitation of proxies from their respected shareholders. Information regarding the participants and their security holdings could be found in each of Umpqua’s and Sterling’s most recent proxy statements and certain current reports on Form 8-K filed with the SEC and the joint proxy statement perspectives as filed with the SEC.

All documents filed with the SEC are or will be available for free on the SEC’s Sterling and Umpqua websites or can be obtained by contacting Sterling or Umpqua’s Investor Relations departments. For a more detailed description of certain factors that may call the company’s actual results to be materially different, we refer you to the sections entitled forward-looking statements and the risk factors in our annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the Securities and Exchange Commission.

We’ll now begin with remarks from Greg and follow with comments from Pat and conclude by taking any questions you might have. Greg?

Thanks Rich and thank you everyone for joining us today for Sterling third quarter 2013 earnings conference call. For the third quarter, we reported net income of $21 million or $0.33 a share.

This compares to net income of $27.8 million or $0.44 a share for the prior quarter and net income of $30.6 million or $0.49 a share for the third quarter of 2012. The decrease from the prior quarter was almost entirely result of a lower income from mortgage banking operations due to higher market interest rates.

Our refinance originations were down approximately 50% from the prior quarter, which appears to be in line with industry averages. We also recognize $4 million of merger related expenses in the third quarter of 2013 compared to $2 million for the prior quarter.

This translates into $0.04 a share after tax, so EPS excluding merger related expenses would have been approximately $0.37 a share. In comparison to the same period a year ago, the decrease in net income and EPS is principally due to the fact that we did not report income tax in the year ago period.

Also the year ago period was near the peak of mortgage refinance activity. Pat will address this in more detail in his prepared remarks.

During the third quarter, we announced that Sterling will merge with Umpqua Holdings. When completed, we believe the merger will transform banking in the Pacific Northwest and we look forward to becoming part as the largest community bank in the region.

I want to spend a moment on the continued progress of Sterling’s key operating objectives over the quarter. First, we saw additional improvement in our deposit cost and mix.

Deposit cost fell to 35 basis points in the third quarter, our cost of funds decreased to 64 basis points. This marks the 27th consecutive quarter of funding cost reductions.

Second, de-risking and balance sheet improvement continued. 60 day delinquencies are now below 75 basis points after dropping under the 100 basis point threshold during the prior quarter.

The results are credit and asset resolution teams at provider are nothing short of remarkable. Third, we saw strong growth in loan balances and originations.

During the third quarter, portfolio originations totaled $588 million, up over 29% compared to the same period a year ago. Annualized organic loan growth during the third quarter was 11%.

Fourth, we continue to control operating expense. There was an uptick in non-interest expense during the quarter.

This was a result of M&A expense previously mentioned adding experienced loan and deposit production staff in Southern California and severance payments related to mortgage banking staffing reductions in light of the reduced production levels. With respect to our Southern California expansion, during the third quarter, we substantially completed the staffing of three new commercial banking offices, which will be located in Glendale, Oxnard and Encino.

We’re in the final stages of facility selection and expect all three new offices to be fully operational in early 2014. In the meantime, our new bankers are ramping up out of temporary quarters.

In addition we’ve hired four seasoned bankers for our Southern California specialty deposit group. This group combined with the three new banking offices, the Commerce National Bank acquisition in New Port Beach and our highly productive loan production offices in Irvine and El Segundo will form a solid foundation for commercial banking delivery in that market.

Given the headwinds in our home loans business, we made staffing reductions in the third quarter. We’ll continue to seek opportunities to improve efficiencies in that division and throughout the organization over the next several quarters.

Lastly, regarding capital management, in addition of the completion of the Commerce National Bank acquisition on October 1, we also paid a special dividend of $0.35 in July and we’ll be continuing the $0.20 regular quarterly cash dividend. With the announcement of the Umpqua merger we’re precluded from paying additional special dividends or increasing the regular dividend rate or buy back stock.

I will now turn the call over to Pat, who will walk you through the third quarter results in additional detail.

Thanks Greg and good morning. I am fighting a cold this morning and not in great voice, so I apologize in advance.

I will take a few minutes to go through the financials then we’ll open it up for any questions. Let start with the income statement, tax equivalent net interest margin for the third quarter was 3.59%, was down 11 basis point from our prior quarter, up 16 basis points from the same period in 2012, decrease from the prior quarter was primarily result reduced yield on loans.

The margin expansion compared to the year ago period was principally due to reduced deposit costs and structured repo pre-payments and contractual maturities, which outpaced the loan yield compression. Loan growth and reduced funding costs help drive a 2.1 million or 2.7% increase in net interest income over the prior quarter despite the lower loan yields.

The yield on earning assets for the third quarter of 2013 was 4.2%, down 12 basis points from the prior quarter and down 18 basis points from the third quarter of 2012. Compared to prior quarter, a decrease in the average loan yield of 13 basis points was partially offset by 5 basis point increase in the yield on MBS.

With respect to loans approximately $564 million of loans re-priced down by an average of 35 basis points during the third quarter. By comparison, $639 million of loans re-priced down by an average of 19 basis points during the second quarter of 2013 and $526 million of loans re-priced down by an average of 47 basis points in the same period last year.

That improvement in MBS yield was a result of reduced premium amortization. The average cost of deposits for the third quarter was 35 basis points, down 2 basis points from the prior quarter and down 18 basis points from a year ago, reflecting continuing incremental improvement in the mix of deposits and CD re-pricings.

No provision for loan losses was recorded during the third quarter or the prior quarter while the provision was $2 million for the third quarter of last year. The reduced provisioning compared to the year ago period reflects lower levels of delinquencies, non-performing loans and classified loans.

At September 30, 2013, the total credit allowance stood at $149 million or 2.08% of loans compared to 2.16% at June 30, 2013 and 2.64% a year ago. Net charge offs for the third quarter of 2013 were $1 million or 6 basis points annualized as a percent of loans.

The reduction from the prior two quarters was a result of lower gross charge-offs and not recoveries. The third quarter total gross charge-offs were $4.5 million were the lower since before the financial crises.

Non-interest income for the third quarter of 2013 was $32 million compared to $42 million for the prior quarter and $47 million for third quarter a year ago. As expected, refinance activities declined sharply due to increase in longer term market interest rates starting in June.

I direct you attention to Slide 4 of the supplemental deck for some additional information. The box at the top of the slide is quarterly comparison of the components of mortgage banking operations revenue.

Total mortgage revenue for the third quarter of 2013 was $13.5 million, decrease $9.7 million or 42% from the prior quarter. Origination and Sales Activity revenue was $11.7 million down $8.4 million or 42%.

Total mortgage banking activity which is comprised of sold loans was the change in the warehouse of held-for-sale loans and lock commitments, $474 million and the associated margin was 2.31%, reductions of 41% and 4 basis points respectively. The actual volume of closed loans for the third quarter was $678 million, a decrease of 26% from the prior quarter.

In addition to the reduction in noninterest revenue, the lower level of mortgage origination activity also had an adverse impact on the net interest margin, was $67 million decline in the average balance of mortgage loans held for sale. Loan servicing fees for the third quarter of 2013 were $1.5 million, down $2.6 million from the prior quarter.

This decrease was almost entirely due to a smaller MSR valuation reserve release $491,000 for the third quarter versus $2.8 million for the second quarter. The residential servicing portfolio had a carrying value of 88 basis points as of September 30, the remaining valuation reserve of about $900,000.

Mortgage banking operations revenue for the third quarter of 2013 also included a $265,000 positive valuation adjustment on a $27 million pool of residential mortgage loans which were accounted for a fair value. There was a negative adjustment of 1 million in the prior quarter.

The two boxes on the left side of the Slide provides some additional information and still looking at Slide 4, the top box shows some history on mortgage production and margins, bottom box shows historical purchase in refi composition. For the third quarter 2013, purchase and refinance activity was split about 65:35, it was 70:30 for the month of September, compared to the prior quarter when the mix was about 50:50.

The third quarter 2013 purchase activity was virtually unchanged from the prior quarter; more than $62 million, but refinance activity was down by 50% to $238 million. Fees and service charge revenue was essentially flat compared to the prior quarter at $15 million.

Noninterest expense for the third quarter of 2013 was $85 million, up $82 million for the prior quarter, down from $89 million in the same period a year ago. Compensation and benefits expense was $47 million for the third quarter of 2013 compared to $46 million for both prior quarter and the third quarter of last year.

For this discussion I will direct your attention to slide 5 of the supplemental deck. The increase in salary expense over the prior quarter of $1.5 million was due to a few factors including production staff additions in Southern California, the full quarter impact of the Boston Private acquisition which closed in mid-May, severance paid in connection with home loan division staffing reductions and normal accrual adjustments.

The decrease in bonus and incentive expense reflects decreased commission levels reflective of lower production [indiscernible] residential mortgage loans. The mortgage staff reduction included about 25 support staff positions.

In light of the outlook from mortgage originations, we’ve already initiated the process of further staff rationalization in this area. Total other noninterest expense for the third quarter of 2013 was $21 million compared to $19 million for the prior quarter, $24 million for the same period a year ago.

Included in this lined item is merger related expense which totaled 4 million for the third quarter. Approximately $3 million of the third quarter total is related to the pending Umpqua merger.

The final contingent consideration payment for the First Independent acquisition of approximately $10 million was made during the third quarter. So no additional consideration expenses will be recognized in connection with this acquisition.

Other non-interest expense for the prior quarter was favorably impacted by the recovery of $2.1 million, in connection with two legal matters. Moving on to the balance sheet, gross portfolio loans, which exclude loans held-for-sale ended the quarter at $7.2 billion, up $152 million for the quarter.

Total portfolio originations for the third quarter were $588 million, was down 14% from the prior quarter and up 29% over the third quarter of 2012. In the supplemental deck, slide 6 is an updated version of the loan growth slide from last quarter.

A breakout of the composition of the organic growth is shown to the right of the table. We purchased $5.2 million of prime quality private student loans and $24 million of syndicated commercial credits consisting of three loans during the third quarter.

Aside from the sales of government guaranteed loans, there were no material bulk loan purchases or divestitures during the third quarter. We did our road transfer of $55 million multifamily loans to the health reserve classification in September 30, as the sale was pending in quarter end.

The sale was completed during October, the net gain of approximately 524,000, or about 1%. The third quarter annualized organic loan growth of 11% was higher than the guidance range indicated on last quarter’s call.

We remain comfortable with a near-term outlook for quarterly annualized organic loan growth in the mid to upper single digits range, although there maybe some fluctuations from quarter to quarter through the seasonality and payout flows. We also expect that the level of bulk multifamily loan sales will increase during the fourth quarter due to ongoing portfolio concentration management.

There were no securities sold during the second or third quarters of 2013. Compared to the same period a year ago, securities balances were down $553 million due in par with maturities to fund the prepayment of structured repos.

Investment portfolio average life at September 30, 2013 was approximately 4.9 years and effective duration was approximately 4%. OREO balances at the end of the quarter were $17 million compared to $27 million last quarter and $47 million a year ago.

As of September 30, 2013, the OREO portfolio was comprised of 33 properties carried at an average discount of 68% to the loan principal balance. On the liability side, we continue to be focused on improving the mix of our deposits by growing transaction money market savings accounts.

We are in the process of expanding our deposit gathering activity in Southern California to complement our multi-family lending operations, which have been very successful in this market. In the third quarter we formed a new specialty deposits group based in North County that includes four experienced bankers.

As far as the overall balance sheet management is concerned we once again managed to remain stone’s throw under $10 billion at quarter end. Total assets at September 30, were $9.984 billion.

We do not expect to undertake any special actions to reduce the balance sheet size during the next few quarter, like prepayment of structured repos. Such actions are precluded by the Umpqua merger agreement.

Obviously creating a combined organization with more than 20 billion in assets is a quantum leap past the pain point for the [indiscernible] amendment impact. Final two items, I would like to cover this morning are income taxes and capital.

We recognized income tax expense of $8.1million during the third quarter of 2013, which represented an effective tax rate of 28%. This rate is below the statutory rate due to permanent differences such as the Borrego Springs Bank bargain purchase gain recognized during the first quarter and other tax-exempt income items.

We expect the effective tax rate for the fourth quarter to be similar to the year-to-date effective tax rate of 30%. With respect to capital, the Tier 1 common equity ratio as of quarter end was 12.3%, down from 12.9% on June 30 and 13.9% a year ago.

The consolidated leverage, Tier 1, risk-based and total risk-based capital ratios at September 30, 2013 were 11.9%, 15.5%, and 16.8% respectively. Although we indicated on the last quarter’s call, we will be able to initiate share repurchase program after the third anniversary of our recap on August 26.

A merger agreement with Umpqua precludes such actions as well as special dividends or any increase to the regular dividend rate ending completion of the merger. The Commerce National Bank acquisition was completed on October 1st, with total cash consideration of $42.9 million.

This acquisition is expected to reduce the regulatory capital ratios by about 45 basis points and it adds to banking office in Newport Beach and equipment leasing operation based in Anaheim. At this point I’d like to turn the call back to Greg for some closing comments before we open up for questions.

Thanks Pat. The third quarter was another solid quarter for Sterling.

I want to acknowledge and thank our team members for all of their ongoing focus on our key objectives as we as their hard work and dedication. I also want to emphasize that we’ll continue to focus on our key operating objectives until that merger with Umpqua is complete.

We look forward to sharing additional developments with you on each of these fronts next quarter. With that Eric, we’re ready to take questions.

I wonder if you could just give a little more detail on your outlook for what you want to do with that going forward, if you are looking at more sales rather than adding through the balance sheet given concentration levels or little bit of both kind of just what you’re thinking over the next couple of quarters?

We are starting to stay closer to our approved concentration limits for commercial real estate in general not on the occupied. We are still on a process of remixing away from traditional theory into multifamily.

So we haven’t quite fit our targets that we would like to see for balance sheet purposes. Given the current volumes and the current franchise our expectations are we would have to sell certain amount of production into the market every quarter on a go forward basis.

The expectation would be that it wouldn’t be a significant amount of our production levels but, and not keep us within or that specified limitations for based on our risk based capital at this point.

And how has demand been trending for those sales?

Demand is good. There is a lot of financial institutions out there that want the product.

It’s very easy for them to get their arms around; it’s a very homogenous (Ph) product. It’s right above general single family from a complexity standpoint, generally relatively small in dollars and very, what we would consider non-unique from the underwriting standpoint.

So, there is a lot more demand out there than we actually have product available for sale and if you look to the secondary market there is high demand for the product with very little supply in general.

And is that demand growing as the refinance volume and single family mortgages dies down?

It’s been there for the last couple of years as it’s been a segment that people are looking to for asset quality and an ability to grow and manage their balance sheets but certainly with our demand for residential mortgages going away those of which have been balance sheet in residential mortgages, this is certainly a great alternative of better yield than what they would achieve shorter and the duration of the six to eight period of the assets and typically will qualify for the same capital treatment as the residential mortgage.

And then now that there you’re building up the deposit gathering franchise down there, do you see with the customers that you work with in Southern California with the multifamily and all the other lending that you deal, do you see across that opportunities that you can now realize?

I think the one other thing that people tend to not focus on it as they look at our multifamily lending pipeline as a transactional business. But majority, these customers are repeat customers, they typically have an average net worth of 18 million to 20 million and discretionary liquidity between three and five million.

But from a bankable customer’s stand point there’s just about as customer you’re going to find within a banking platform, our ability to cross all the customers prior to the acquisition of CNB, and the placement of our banking teams within the market was limited. Basically, remote deposit capture and are limited deposit services.

So, our expectations are that we would have more traditional cost ratio against those customers that we’ll experience in the past against this product line. So, again, a very rich and deep customer, multitude of product requirements, heavy on the financial services, cash management needs of great fee income opportunities as well.

And how long do you think after the opening of the deposit offices in early 2014 it'll take before it can make an impact in the linked quarter deposit growth for the franchise?

Jackie its Greg, we're going to refrain from that. We don’t want to give guidance on exactly what those offices are going to look like, what I would say is this, you know we'll have T&B on board at October 1st, we have staff in place in temporary quarters around the three locations Ontario, Encino [indiscernible].

We have the two multifamily offices that are in El Segundo and Irvine and what we have, we hired four very seasoned deposit specialists in that market. So I think is what you'll see is we have essentially out licensed depository taking offices in Southern California over the course of the next one or two quarters and we think that there is great opportunity, we have around $800 million of deployed multifamily assets in that market today, this is public information, you know our view is that there are good targets for us to expand our deposits within our existing customer base and the folks that we’ve hired are very well know seasoned bankers in that market so we’re optimistic about the future but we're not providing any specifics around growth and deposit growth in that market at this point.

Jacque Chimera - KBW Okay, fair enough, and just to clarify is that Oxnard or Ontario for the third office.

No, Oxnard is the third office, there were some folks who were, there was an opportunity to pick up a team that fell away as a result of a recent merger transaction, we think that they come with a very good customer base and lots of market opportunity there.

Yes, I went to school down there, I'm very familiar with the market. Okay, great, thank you very much for taking my questions.

Hi this is [indiscernible] standing in for Jeff. So my first question will be on the mortgage business, what would you see as a normalized environment once the refi volume settles down to where it bottoms and what kind of expectations do you have for the business and that kind of environment?

We're just not in a position to give any specific guidance on the mortgage business, we could give some guidance track in the first quarter, there's the volatility at this point with rates, it's just at a level where we're just not comfortable giving any specific guidance.

It's Greg, I'll answer the second part of your question, I think when you look at the mortgage business it’s one of the four key operating platforms we have at the company along with our retail business, our commercial business, our real estate business, home loans is that fourth pillar of the foundation that we built our company around, and look we’re in a period of time now where that point you've seen reduction certainly of the refi volumes as he said in his comments, you know purchase volume was about the same on a linked quarter basis for us, you know there, undoubtedly the some refinements I think in every institution's go to market strategy is on mortgage but you know this is still a bit market in the west and Sterling we think has opportunity over time in the markets that we serve, so we were committed to the business, we're not going to give specifics about we think the business is going to perform, we addressed in our comments the fact that we're doing the things we think we need to do to reposition some of the fixed cost basis of that business. We'll continue to look at that and make those adjustments as appropriate as we move forward, but our commitment to the business doesn't change as a result of the environment we’re in.

Secondly on margin, can you just comment on the trends you saw in the quarter and maybe any trends going forward, any further balance sheet restructuring effects on the margin?

Sure, this is Pat. I guess to take the last part first that we will not be undertaking any balance sheet restructuring.

I think we'd mentioned that we were, last few calls that we were evaluating that on a quarter by quarter basis, we still have 500 million of very high cost structured repos average cost is 3.8% and there's three and three quarter years left on average. But in light of the merger, pending merger with Umpqua in the merger agreement we will not be undertaking any special balance sheet actions with respect to those high cost borrowings.

On the margin we had been indicating last few quarter's call that of the impact of new loan production coming on at lower rates I think we're seeing a point where we’re nearing the end of the line with what we can do on deposit funding cost. We're down to just moving a couple of basis points a quarter and so I would say that the outlook would be for some describe it as modest, margin compression driven by lower loan yields.

For example the portfolio of production that went on in the second quarter at an average rate of 3.95% in the case of loans coming on at a significantly lower rate than the loans that are paying off the pay-off and run-off was in the mid to upper 4% range. And again that's something that we're not being able to outpace with reduced deposit cost.

However we do have I think an optimistic outlook for continued loan growth and like we demonstrated this quarter we're able to keep generating solid organic loan growth, we should be able to offset the impacts of declining margin on net interest income. So again it's a fewer basis points of margin but continually drive solid mid to upper single digit organic loan growth I think will allow to continue to drive some incremental improvement in net interest income.

And lastly just on expenses, what should we think of if it like a normalized expense rate x any one-time merger cost or one-time items?

We had the only really big non-recurring item for the quarter was the merger expenses. So I think they were not going to be look at the third quarter non-interest expense excluding the merger charges.

There will be some slight elevation from that point as we have been adding staff through the third quarter. And then we could also potentially have some additional severance expenses.

It was not a significant amount, it was around 250,000 for the third quarter but we could also have some severance costs as we continue to have that. We'll also have a full quarter impact of CNB coming on.

So as an acquisition that's closing the 1st of October, so we'll have the expenses coming on from CNB as well.

That's great. Thanks everybody for joining the third quarter conference call, we'll look forward to talking to you next quarter.