Edgar Filing: UMPQUA HOLDINGS CORP

10-Q

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q



[X]	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	for the quarterly period ended: March 31, 2016
	or



[ ]	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	for the transition period from to .

Commission File Number: 001-34624

Umpqua Holdings Corporation

(Exact Name of Registrant as Specified in Its Charter)



OREGON	93-1261319
(State or Other Jurisdiction	(I.R.S. Employer Identification Number)
of Incorporation or Organization)

One SW Columbia Street, Suite 1200

Portland, Oregon 97258

(Address of Principal Executive Offices)(Zip Code)

(503) 727-4100

(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

[X] Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[ ] Yes [X] No

Indicate the number of shares outstanding for each of the issuer's classes of common stock, as of the latest practical date:

Common stock, no par value: 220,462,520 shares outstanding as of April 30, 2016

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UMPQUA HOLDINGS CORPORATION

FORM 10-Q

Table of Contents



PART I. FINANCIAL INFORMATION		3
Item 1.	Financial Statements (unaudited)	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	45
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	69
Item 4.	Controls and Procedures	69
Part II. OTHER INFORMATION		70
Item 1.	Legal Proceedings	70
Item 1A.	Risk Factors	70
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	71
Item 4.	Mine Safety Disclosures	71
Item 5.	Other Information	71
Item 6.	Exhibits	71
SIGNATURES		72
EXHIBIT INDEX		73

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



(in thousands, except shares)
	March 31,			December 31,
	2016			2015
ASSETS
Cash and due from banks (restricted cash of $89,003 and $58,813)	$	299,871		$	277,645
Interest bearing cash and temporary investments (restricted cash of $575 and $3,938)	613,049			496,080
Total cash and cash equivalents	912,920			773,725
Investment securities
Trading, at fair value	9,791			9,586
Available for sale, at fair value	2,542,535			2,522,539
Held to maturity, at amortized cost	4,525			4,609
Loans held for sale ($403,288 and $363,275, at fair value)	659,264			363,275
Loans and leases	16,955,583			16,866,536
Allowance for loan and lease losses	(130,243		)	(130,322		)
Net loans and leases	16,825,340			16,736,214
Restricted equity securities	47,545			46,949
Premises and equipment, net	322,822			328,734
Goodwill	1,787,651			1,787,793
Other intangible assets, net	42,948			45,508
Residential mortgage servicing rights, at fair value	117,172			131,817
Other real estate owned	20,411			22,307
Bank owned life insurance	293,703			291,892
Deferred tax asset, net	108,865			138,082
Other assets	240,194			203,351
Total assets	$	23,935,686		$	23,406,381
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing	$	5,460,310		$	5,318,591
Interest bearing	12,702,664			12,388,598
Total deposits	18,162,974			17,707,189
Securities sold under agreements to repurchase	325,203			304,560
Term debt	903,382			888,769
Junior subordinated debentures, at fair value	256,917			255,457
Junior subordinated debentures, at amortized cost	101,173			101,254
Other liabilities	307,407			299,818
Total liabilities	20,057,056			19,557,047
COMMITMENTS AND CONTINGENCIES (NOTE 8)
SHAREHOLDERS' EQUITY
Common stock, no par value, shares authorized: 400,000,000 in 2016 and 2015; issued and outstanding: 220,171,163 in 2016 and 220,171,091 in 2015	3,518,792			3,520,591
Retained earnings	343,421			331,301
Accumulated other comprehensive income (loss)	16,417			(2,558		)
Total shareholders' equity	3,878,630			3,849,334
Total liabilities and shareholders' equity	$	23,935,686		$	23,406,381

See notes to condensed consolidated financial statements

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)



(in thousands, except per share amounts)	Three Months Ended
	March 31,
	2016			2015
INTEREST INCOME
Interest and fees on loans and leases	$	217,928		$	213,875
Interest and dividends on investment securities:
Taxable	13,055			11,789
Exempt from federal income tax	2,235			2,481
Dividends	366			101
Interest on temporary investments and interest bearing deposits	480			825
Total interest income	234,064			229,071
INTEREST EXPENSE
Interest on deposits	8,413			7,103
Interest on securities sold under agreement to repurchase	36			48
Interest on term debt	4,186			3,464
Interest on junior subordinated debentures	3,727			3,337
Total interest expense	16,362			13,952
Net interest income	217,702			215,119
PROVISION FOR LOAN AND LEASE LOSSES	4,823			12,637
Net interest income after provision for loan and lease losses	212,879			202,482
NON-INTEREST INCOME
Service charges on deposits	14,516			14,274
Brokerage revenue	4,094			4,769
Residential mortgage banking revenue, net	15,426			28,227
Gain on investment securities, net	696			116
Gain on loan sales, net	2,371			6,728
Loss on junior subordinated debentures carried at fair value	(1,572		)	(1,555		)
BOLI income	2,139			2,302
Other income	8,281			9,044
Total non-interest income	45,951			63,905
NON-INTEREST EXPENSE
Salaries and employee benefits	106,538			107,444
Occupancy and equipment, net	38,295			32,150
Communications	5,564			4,794
Marketing	2,850			3,036
Services	10,671			14,126
FDIC assessments	3,721			3,214
Loss on other real estate owned, net	1,389			1,814
Intangible amortization	2,560			2,806
Merger related expenses	3,450			14,082
Goodwill impairment	142			—
Other expenses	8,809			9,153
Total non-interest expense	183,989			192,619
Income before provision for income taxes	74,841			73,768
Provision for income taxes	27,272			26,639
Net income	$	47,569		$	47,129

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)

(UNAUDITED)



(in thousands, except per share amounts)	Three Months Ended
	March 31,
	2016		2015
Net income	$	47,569	$	47,129
Dividends and undistributed earnings allocated to participating securities	29		84
Net earnings available to common shareholders	$	47,540	$	47,045
Earnings per common share:
Basic	$0.22		$0.21
Diluted	$0.22		$0.21
Weighted average number of common shares outstanding:
Basic	220,227		220,349
Diluted	221,052		221,051

See notes to condensed consolidated financial statements

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



(in thousands)	Three Months Ended
	March 31,
	2016			2015
Net income	$	47,569		$	47,129
Available for sale securities:
Unrealized gains arising during the period	31,651			12,740
Reclassification adjustment for net gains realized in earnings (net of tax expense of $269 and $45 for the three months ended March 31, 2016 and 2015, respectively)	(427		)	(71		)
Income tax expense related to unrealized gains	(12,249		)	(5,096		)
Other comprehensive income, net of tax	18,975			7,573
Comprehensive income	$	66,544		$	54,702

See notes to condensed consolidated financial statements

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(UNAUDITED)



(in thousands, except shares)									Accumulated
									Other
	Common Stock					Retained			Comprehensive
	Shares		Amount			Earnings			Income (Loss)			Total
BALANCE AT JANUARY 1, 2015	220,161,120		$	3,519,316		$	246,242		$	12,068		$	3,777,626
Net income						222,539						222,539
Other comprehensive loss, net of tax									(14,626		)	(14,626		)
Stock-based compensation			14,383									14,383
Stock repurchased and retired	(844,215	)	(14,589		)							(14,589		)
Issuances of common stock under stock plans and related net tax benefit	854,186		1,481									1,481
Cash dividends on common stock ($0.62 per share)						(137,480		)				(137,480		)
Balance at December 31, 2015	220,171,091		$	3,520,591		$	331,301		$	(2,558	)	$	3,849,334

BALANCE AT JANUARY 1, 2016	220,171,091		$	3,520,591		$	331,301		$	(2,558	)	$	3,849,334
Net income						47,569						47,569
Other comprehensive income, net of tax									18,975			18,975
Stock-based compensation			3,227									3,227
Stock repurchased and retired	(370,016	)	(5,539		)							(5,539		)
Issuances of common stock under stock plans and related net tax benefit	370,088		513									513
Cash dividends on common stock ($0.16 per share)						(35,449		)				(35,449		)
Balance at March 31, 2016	220,171,163		$	3,518,792		$	343,421		$	16,417		$	3,878,630

See notes to condensed consolidated financial statements

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)	Three Months Ended
	March 31,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	47,569		$	47,129
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premiums, net	4,602			5,605
Gain on sale of investment securities, net	(696		)	(116		)
Gain on sale of other real estate owned, net	(34		)	(578		)
Valuation adjustment on other real estate owned	1,423			2,392
Provision for loan and lease losses	4,823			12,637
Change in cash surrender value of bank owned life insurance	(2,208		)	(2,336		)
Depreciation, amortization and accretion	14,828			11,490
Loss on sale of premises and equipment	299			1,340
Increase in residential mortgage servicing rights	(5,980		)	(8,837		)
Change in residential mortgage servicing rights carried at fair value	20,625			9,731
Change in junior subordinated debentures carried at fair value	1,460			1,358
Stock-based compensation	3,227			3,433
Net increase in trading account assets	(205		)	(453		)
Gain on sale of loans	(33,340		)	(34,692		)
Change in loans held for sale carried at fair value	(4,861		)	(4,875		)
Origination of loans held for sale	(764,076		)	(862,155		)
Proceeds from sales of loans held for sale	759,893			775,309
Tax deficiency (excess tax benefits) from the exercise of stock options	122			(586		)
Goodwill impairment	142			—
Change in other assets and liabilities:
Net (increase) decrease in other assets	(19,966		)	511
Net increase in other liabilities	15,193			20,253
Net cash provided (used) by operating activities	42,840			(23,440		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale	(96,603		)	(394,872		)
Proceeds from investment securities available for sale	103,629			165,100
Proceeds from investment securities held to maturity	111			164
Purchases of restricted equity securities	(600		)	—
Redemption of restricted equity securities	4			2,116
Net change in loans and leases	(505,995		)	(303,577		)
Proceeds from sales of loans	151,466			79,575
Net change in premises and equipment	(10,099		)	(20,040		)
Proceeds from bank owned life insurance death benefits	25			—
Proceeds from sales of other real estate owned	2,461			5,528
Net cash used in investing activities	$	(355,601	)	$	(466,006	)

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UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (UNAUDITED)

(in thousands)	Three Months Ended
	March 31,
	2016			2015
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit liabilities	$	456,620		$	331,988
Net increase in securities sold under agreements to repurchase	20,643			7,881
Proceeds from term debt borrowings	115,000			—
Repayment of term debt borrowings	(100,000		)	(39,999		)
Dividends paid on common stock	(35,281		)	(33,109		)
(Tax deficiency) excess tax benefits from stock based compensation	(122		)	586
Proceeds from stock options exercised	635			22
Retirement of common stock	(5,539		)	(2,220		)
Net cash provided by financing activities	451,956			265,149
Net increase (decrease) in cash and cash equivalents	139,195			(224,297		)
Cash and cash equivalents, beginning of period	773,725			1,605,171
Cash and cash equivalents, end of period	$	912,920		$	1,380,874

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	18,313		$	16,673
Income taxes	$	8,165		$	5,936
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Change in unrealized gains on investment securities available for sale, net of taxes	$	18,975		$	7,573
Cash dividend declared on common stock and payable after period-end	$	35,247		$	33,126
Transfer of loans to loans held for sale	$	255,976		$	—
Change in GNMA mortgage loans recognized due to repurchase option	$	(5,021	)	$	(2,912	)
Transfer of loans to other real estate owned	$	2,210		$	1,464
Transfers from other real estate owned to loans due to internal financing	$	256		$	—
Receivable from BOLI death benefits	$	372		$	1,935

See notes to condensed consolidated financial statements

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Summary of Significant Accounting Policies

The accounting and financial reporting policies of Umpqua Holdings Corporation conform to accounting principles generally accepted in the United States of America. The accompanying interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material inter-company balances and transactions have been eliminated. The condensed consolidated financial statements have not been audited. A more detailed description of our accounting policies is included in the 2015 Annual Report filed on Form 10-K. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the 2015 Annual Report filed on Form 10-K. All references in this report to "Umpqua," "we," "our," "us," the "Company" or similar references mean Umpqua Holdings Corporation, and include our consolidated subsidiaries where the context so requires. References to "Bank" refer to our subsidiary Umpqua Bank, an Oregon state-chartered commercial bank, and references to "Umpqua Investments" refer to our subsidiary Umpqua Investments, Inc., a registered broker-dealer and investment adviser. The Bank also has a wholly-owned subsidiary, Financial Pacific Leasing Inc., a commercial equipment leasing company. Pivotus Ventures, Inc., a wholly-owned subsidiary of Umpqua Holdings Corporation, focuses on advancing bank innovation by developing new bank platforms that could have a significant impact on the experience and economics of banking.

In preparing these condensed consolidated financial statements, the Company has evaluated events and transactions subsequent to March 31, 2016 for potential recognition or disclosure. In management's opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments include normal and recurring accruals considered necessary for a fair and accurate presentation. The results for interim periods are not necessarily indicative of results for the full year or any other interim period. Certain reclassifications of prior period amounts have been made to conform to current classifications.

Umpqua identified an error related to the accounting for loans sold to Ginnie Mae (“GNMA”) that have become past due 90 days or more. Pursuant to GNMA purchase and sales agreements, Umpqua has the unilateral right to repurchase loans that become past due 90 days or more. As a result of this unilateral right, once the delinquency criteria has been met, and regardless of whether the repurchase option has been exercised, the loan should be recognized, with an offsetting liability, to account for these loans that no longer meet the true-sale criteria. The Company has continued to grow the portfolio of GNMA loans sold and serviced, which has led to an increasing number and amount of delinquent loans. As such, the Company has recorded an adjustment to record the balance of the GNMA loans sold and serviced that are over 90 days past due, but not repurchased, as loans, with a corresponding other liability. Management evaluated the materiality of the error from qualitative and quantitative perspectives and concluded that the error was immaterial to the prior period financial statements taken as a whole. To provide consistency in the amounts reported in the comparable periods, the Company has recognized the delinquent GNMA loans for which the Company has the unconditional repurchase option, as well as the corresponding other liability, for the periods reported. As of December 31, 2015, this change resulted in an increase in loans and leases, net loans and leases, total assets, other liabilities, and total liabilities of $19.2 million. As of March 31, 2016, the adjustment related to these same line items of the balance sheet was $14.2 million. This change did not affect net income or shareholders' equity for any period.

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Note 2 – Investment Securities

The following table presents the amortized costs, unrealized gains, unrealized losses and approximate fair values of investment securities at March 31, 2016 and December 31, 2015:



(in thousands)	March 31, 2016
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
AVAILABLE FOR SALE:
Obligations of states and political subdivisions	$	292,128	$	12,164	$	(618	)	$	303,674
Residential mortgage-backed securities and collateralized mortgage obligations	2,221,653		19,775		(4,597		)	2,236,831
Investments in mutual funds and other equity securities	1,959		71		—			2,030
	$	2,515,740	$	32,010	$	(5,215	)	$	2,542,535
HELD TO MATURITY:
Residential mortgage-backed securities and collateralized mortgage obligations	$	4,525	$	982	$	—		$	5,507
	$	4,525	$	982	$	—		$	5,507



(in thousands)	December 31, 2015
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
AVAILABLE FOR SALE:
Obligations of states and political subdivisions	$	300,998	$	12,741	$	(622	)	$	313,117
Residential mortgage-backed securities and collateralized mortgage obligations	2,223,742		7,218		(23,540		)	2,207,420
Investments in mutual funds and other equity securities	1,959		43		—			2,002
	$	2,526,699	$	20,002	$	(24,162	)	$	2,522,539
HELD TO MATURITY:
Residential mortgage-backed securities and collateralized mortgage obligations	$	4,609	$	981	$	—		$	5,590
	$	4,609	$	981	$	—		$	5,590

Investment securities that were in an unrealized loss position as of March 31, 2016 and December 31, 2015 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position. In the opinion of management, these securities are considered only temporarily impaired due to changes in market interest rates or the widening of market spreads subsequent to the initial purchase of the securities, and not due to concerns regarding the underlying credit of the issuers or the underlying collateral.



March 31, 2016
(in thousands)	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
AVAILABLE FOR SALE:
Obligations of states and political subdivisions	$	14,031	$	171	$	3,751	$	447	$	17,782	$	618
Residential mortgage-backed securities and collateralized mortgage obligations	101,107		254		534,964		4,343		636,071		4,597
Total temporarily impaired securities	$	115,138	$	425	$	538,715	$	4,790	$	653,853	$	5,215

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December 31, 2015
(in thousands)	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
AVAILABLE FOR SALE:
Obligations of states and political subdivisions	$	2,530	$	83	$	8,208	$	539	$	10,738	$	622
Residential mortgage-backed securities and collateralized mortgage obligations	1,256,994		14,465		334,981		9,075		1,591,975		23,540
Total temporarily impaired securities	$	1,259,524	$	14,548	$	343,189	$	9,614	$	1,602,713	$	24,162

The unrealized losses on obligations of political subdivisions were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities. Management monitors the published credit ratings of these securities for material rating or outlook changes. As of March 31, 2016, 94% of these securities were rated A3/A- or higher by rating agencies. Substantially all of the Company's obligations of states and political subdivisions are general obligation issuances. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

All of the available for sale residential mortgage-backed securities and collateralized mortgage obligations portfolio in an unrealized loss position at March 31, 2016 are issued or guaranteed by government sponsored enterprises. The unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities, and not concerns regarding the underlying credit of the issuers or the underlying collateral. It is expected that these securities will be settled at a price at least equal to the amortized cost of each investment. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until contractual maturity, these investments are not considered other-than-temporarily impaired.

The following table presents the maturities of investment securities at March 31, 2016:



(in thousands)	Available For Sale				Held To Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
AMOUNTS MATURING IN:
Three months or less	$	17,287	$	17,344	$	—	$	—
Over three months through twelve months	77,419		78,313		5		5
After one year through five years	1,529,310		1,548,750		137		375
After five years through ten years	613,289		615,665		319		799
After ten years	276,476		280,433		4,064		4,328
Other investment securities	1,959		2,030		—		—
	$	2,515,740	$	2,542,535	$	4,525	$	5,507

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The amortized cost and fair value of collateralized mortgage obligations and mortgage-backed securities are presented by expected average life, rather than contractual maturity, in the preceding table. Expected maturities may differ from contractual maturities because borrowers have the right to prepay underlying loans without prepayment penalties. The following table presents the gross realized gains and losses on the sale of securities available for sale for the three months ended March 31, 2016 and 2015:



(in thousands)	Three Months Ended
	March 31, 2016				March 31, 2015
	Gains		Losses		Gains		Losses
Obligations of states and political subdivisions	$	696	$	—	$	—	$	—
Residential mortgage-backed securities and collateralized mortgage obligations	—		—		316		200
	$	696	$	—	$	316	$	200

The following table presents, as of March 31, 2016, investment securities which were pledged to secure borrowings, public deposits, and repurchase agreements as permitted or required by law:



(in thousands)	Amortized		Fair
	Cost		Value
To Federal Home Loan Bank to secure borrowings	$	707	$	727
To state and local governments to secure public deposits	1,646,550		1,666,384
Other securities pledged principally to secure repurchase agreements	447,746		450,494
Total pledged securities	$	2,095,003	$	2,117,605

Note 3 – Loans and Leases

The following table presents the major types of loans and leases, net of deferred fees and costs, as of March 31, 2016 and December 31, 2015:



(in thousands)	March 31,		December 31,
	2016		2015
Commercial real estate
Non-owner occupied term, net	$	3,165,154	$	3,140,845
Owner occupied term, net	2,731,228		2,691,921
Multifamily, net	2,945,826		3,074,918
Construction & development, net	343,519		301,892
Residential development, net	121,025		99,459
Commercial
Term, net	1,437,992		1,425,009
LOC & other, net	1,041,516		1,043,076
Leases and equipment finance, net	791,798		729,161
Residential
Mortgage, net	2,879,600		2,909,399
Home equity loans & lines, net	943,254		923,667
Consumer & other, net	554,671		527,189
Total loans and leases, net of deferred fees and costs	$	16,955,583	$	16,866,536

The loan balances are net of deferred fees and costs of $57.7 million and $47.0 million as of March 31, 2016 and December 31, 2015, respectively. Net loans include discounts on acquired loans of $83.9 million and $105.6 million as of March 31, 2016 and December 31, 2015, respectively. As of March 31, 2016, loans totaling $10.0 billion were pledged to secure borrowings and available lines of credit.

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The outstanding contractual unpaid principal balance of purchased impaired loans, excluding acquisition accounting adjustments, was $486.2 million and $540.4 million at March 31, 2016 and December 31, 2015, respectively. The carrying balance of purchased impaired loans was $362.3 million and $438.1 million at March 31, 2016 and December 31, 2015, respectively.

The following table presents the changes in the accretable yield for purchased impaired loans for the three months ended March 31, 2016 and 2015:



(in thousands)	Three Months Ended
	March 31,
	2016			2015
Balance, beginning of period	$	132,829		$	201,699
Accretion to interest income	(14,198		)	(13,283		)
Disposals	(8,513		)	(6,913		)
Reclassifications from nonaccretable difference	4,217			4,084
Balance, end of period	$	114,335		$	185,587

Loans and leases sold

In the course of managing the loan and lease portfolio, at certain times, management may decide to sell loans and leases. The following table summarizes the carrying value of loans and leases sold by major loan type during the three months ended March 31, 2016 and 2015:



(in thousands)	Three Months Ended
	March 31,
	2016		2015
Commercial real estate
Non-owner occupied term, net	$	8,509	$	—
Owner occupied term, net	9,661		3,319
Multifamily, net	129,430		435
Commercial
Term, net	1,494		2,340
Residential
Mortgage, net	—		66,753
Total	$	149,094	$	72,847

As of March 31, 2016, the Company transferred $170.8 million of portfolio residential mortgage loans and $85.2 million of multi-family loans to held for sale, which are expected to be sold during the second quarter of 2016. These loans were transferred to held for sale at the lower of cost or market, and no gain or loss has been recorded.

Note 4 – Allowance for Loan and Lease Loss and Credit Quality

The Bank's methodology for assessing the appropriateness of the Allowance for Loan and Lease Loss ("ALLL") consists of three key elements: 1) the formula allowance; 2) the specific allowance; and 3) the unallocated allowance. By incorporating these factors into a single allowance requirement analysis, we believe all risk-based activities within the loan and lease portfolios are simultaneously considered.

Formula Allowance

When loans and leases are originated or acquired, they are assigned a risk rating that is reassessed periodically during the term of the loan or lease through the credit review process. The Bank's risk rating methodology assigns risk ratings ranging from 1 to 10, where a higher rating represents higher risk. The 10 risk rating categories are a primary factor in determining an appropriate amount for the formula allowance.

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The formula allowance is calculated by applying risk factors to various segments of pools of outstanding loans and leases. Risk factors are assigned to each portfolio segment based on management's evaluation of the losses inherent within each segment. Segments or regions with greater risk of loss will therefore be assigned a higher risk factor.

Base risk – The portfolio is segmented into loan categories, and these categories are assigned a Base risk factor based on an evaluation of the loss inherent within each segment.

Extra risk – Additional risk factors provide for an additional allocation of ALLL based on the loan and lease risk rating system and loan delinquency, and reflect the increased level of inherent losses associated with more adversely classified loans and leases.

Risk factors may be changed periodically based on management's evaluation of the following factors: loss experience; changes in the level of non-performing loans and leases; regulatory exam results; changes in the level of adversely classified loans and leases; improvement or deterioration in local economic conditions; and any other factors deemed relevant.

Specific Allowance

Regular credit reviews of the portfolio identify loans that are considered potentially impaired. Potentially impaired loans are referred to the ALLL Committee which reviews and approves designated loans as impaired. A loan is considered impaired when, based on current information and events, we determine that we will probably not be able to collect all amounts due according to the loan contract, including scheduled interest payments. When we identify a loan as impaired, we measure the impairment using discounted cash flows or estimated note sale price, except when the sole remaining source of the repayment for the loan is the liquidation of the collateral. In these cases, we use the current fair value of the collateral, less selling costs, instead of discounted cash flows. If we determine that the value of the impaired loan is less than the recorded investment in the loan, we either recognize an impairment reserve as a specific allowance to be provided for in the allowance for loan and lease losses or charge-off the impaired balance on collateral-dependent loans if it is determined that such amount represents a confirmed loss. Loans determined to be impaired are excluded from the formula allowance so as not to double-count the loss exposure. The non-accrual impaired loans as of period-end have already been partially charged-off to their estimated net realizable value, and are expected to be resolved over the coming quarters with no additional material loss, absent further decline in market prices.

The combination of the formula allowance component and the specific allowance component represents the allocated allowance for loan and lease losses. There is currently no unallocated allowance.

Management believes that the ALLL was adequate as of March 31, 2016. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in additional charges to the provision for loan and lease losses.

The reserve for unfunded commitments ("RUC") is established to absorb inherent losses associated with our commitment to lend funds, such as with a letter or line of credit. The adequacy of the ALLL and RUC are monitored on a regular basis and are based on management's evaluation of numerous factors. These factors include the quality of the current loan portfolio; the trend in the loan portfolio's risk ratings; current economic conditions; loan concentrations; loan growth rates; past-due and non-performing trends; evaluation of specific loss estimates for all significant problem loans; historical charge-off and recovery experience; and other pertinent information.

There have been no significant changes to the Bank's ALLL methodology or policies in the periods presented.

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Activity in the Allowance for Loan and Lease Losses

The following table summarizes activity related to the allowance for loan and lease losses by loan and lease portfolio segment for the three months ended March 31, 2016 and 2015:



(in thousands)	Three Months Ended March 31, 2016
	Commercial									Consumer
	Real Estate			Commercial			Residential			& Other			Total
Balance, beginning of period	$	54,085		$	47,695		$	22,017		$	6,525		$	130,322
Charge-offs	(502		)	(4,655		)	(337		)	(2,356		)	(7,850		)
Recoveries	500			1,173			231			1,044			2,948
(Recapture) Provision	(2,847		)	6,782			(1,014		)	1,902			4,823
Balance, end of period	$	51,236		$	50,995		$	20,897		$	7,115		$	130,243

	Three Months Ended March 31, 2015
	Commercial									Consumer
	Real Estate			Commercial			Residential			& Other			Total
Balance, beginning of period	$	55,184		$	41,216		$	15,922		$	3,845		$	116,167
Charge-offs	(1,329		)	(8,937		)	(399		)	(1,880		)	(12,545		)
Recoveries	223			1,071			31			2,520			3,845
Provision	1,104			10,850			667			16			12,637
Balance, end of period	$	55,182		$	44,200		$	16,221		$	4,501		$	120,104

The valuation allowance on purchased impaired loans was increased by provision expense, which includes amounts related to subsequent deterioration of purchased impaired loans of $8,000 and $1.6 million for the three months ended March 31, 2016 and 2015, respectively. The increase due to the provision expense of the valuation allowance on purchased impaired loans was offset by recaptured provision of $777,000 and $185,000 for the three months ended March 31, 2016 and 2015, respectively.

The following table presents the allowance and recorded investment in loans and leases by portfolio segment as of March 31, 2016 and 2015:



(in thousands)	March 31, 2016
	Commercial						Consumer
	Real Estate		Commercial		Residential		& Other		Total
Allowance for loans and leases:
Collectively evaluated for impairment	$	48,855	$	50,464	$	20,223	$	7,058	$	126,600
Individually evaluated for impairment	317		482		—		—		799
Loans acquired with deteriorated credit quality	2,064		49		674		57		2,844
Total	$	51,236	$	50,995	$	20,897	$	7,115	$	130,243
Loans and leases:
Collectively evaluated for impairment	$	8,986,638	$	3,234,076	$	3,767,604	$	553,723	$	16,542,041
Individually evaluated for impairment	27,547		23,701		—		—		51,248
Loans acquired with deteriorated credit quality	292,567		13,529		55,250		948		362,294
Total	$	9,306,752	$	3,271,306	$	3,822,854	$	554,671	$	16,955,583

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(in thousands)	March 31, 2015
	Commercial						Consumer
	Real Estate		Commercial		Residential		& Other		Total
Allowance for loans and leases:
Collectively evaluated for impairment	$	49,543	$	41,436	$	15,521	$	4,437	$	110,937
Individually evaluated for impairment	1,081		319		—		—		1,400
Loans acquired with deteriorated credit quality	4,558		2,445		700		64		7,767
Total	$	55,182	$	44,200	$	16,221	$	4,501	$	120,104
Loans and leases:
Collectively evaluated for impairment	$	8,475,620	$	2,919,336	$	3,132,805	$	413,882	$	14,941,643
Individually evaluated for impairment	66,481		27,859		—		—		94,340
Loans acquired with deteriorated credit quality	422,878		28,154		68,939		1,153		521,124
Total	$	8,964,979	$	2,975,349	$	3,201,744	$	415,035	$	15,557,107

The loan and lease balances are net of deferred fees and costs of $57.7 million and $31.7 million at March 31, 2016 and March 31, 2015, respectively.

Summary of Reserve for Unfunded Commitments Activity

The following table presents a summary of activity in the RUC and unfunded commitments for the three months ended March 31, 2016 and 2015:



(in thousands)	Three Months Ended
	March 31,
	2016			2015
Balance, beginning of period	$	3,574		$	3,539
Net change to other expense	(92		)	(345		)
Balance, end of period	$	3,482		$	3,194



(in thousands)
	Total
Unfunded loan and lease commitments:
March 31, 2016	$	3,703,352
March 31, 2015	$	3,993,400

Asset Quality and Non-Performing Loans and Leases

We manage asset quality and control credit risk through diversification of the loan and lease portfolio and the application of policies designed to promote sound underwriting and loan and lease monitoring practices. The Bank's Credit Quality Administration is charged with monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of non-performing, past due loans and leases and larger credits, designed to identify potential charges to the allowance for loan and lease losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers, the value of the applicable collateral, loan and lease loss experience, estimated loan and lease losses, growth in the loan and lease portfolio, prevailing economic conditions and other factors.

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Non-Accrual Loans and Leases and Loans and Leases Past Due

The following table summarizes our non-accrual loans and leases and loans and leases past due, by loan and lease class, as of March 31, 2016 and December 31, 2015:



(in thousands)	March 31, 2016
	Greater than 30 to 59 Days Past Due		60 to 89 Days Past Due		Greater than 90 Days and Accruing		Total Past Due		Non-Accrual		Current & Other (1)		Total Loans and Leases
Commercial real estate
Non-owner occupied term, net	$	175	$	343	$	430	$	948	$	2,648	$	3,161,558	$	3,165,154
Owner occupied term, net	3,551		4,298		1,801		9,650		5,352		2,716,226		2,731,228
Multifamily, net	—		—		—		—		511		2,945,315		2,945,826
Construction & development, net	—		—		—		—		—		343,519		343,519
Residential development, net	—		—		—		—		—		121,025		121,025
Commercial
Term, net	463		465		—		928		14,810		1,422,254		1,437,992
LOC & other, net	1,605		4,887		—		6,492		664		1,034,360		1,041,516
Leases and equipment finance, net	4,874		1,961		1,327		8,162		6,060		777,576		791,798
Residential
Mortgage, net (2)	1,351		—		29,051		30,402		—		2,849,198		2,879,600
Home equity loans & lines, net	849		1,216		3,234		5,299		—		937,955		943,254
Consumer & other, net	2,252		764		456		3,472		—		551,199		554,671
Total, net of deferred fees and costs	$	15,120	$	13,934	$	36,299	$	65,353	$	30,045	$	16,860,185	$	16,955,583

(1) Other includes purchased credit impaired loans of $362.3 million.

(2) Includes government guaranteed GNMA mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more, totaling $14.2 million at March 31, 2016.

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(in thousands)	December 31, 2015
	Greater than 30 to 59 Days Past Due		60 to 89 Days Past Due		Greater than 90 Days and Accruing		Total Past Due		Non-Accrual		Current & Other (1)		Total Loans and Leases



Commercial real estate
Non-owner occupied term, net	$	1,312	$	2,776	$	137	$	4,225	$	2,633	$	3,133,987	$	3,140,845
Owner occupied term, net	2,394		1,150		423		3,967		5,928		2,682,026		2,691,921
Multifamily, net	408		—		—		408		—		3,074,510		3,074,918
Construction & development, net	—		2,959		—		2,959		—		298,933		301,892
Residential development, net	—		—		—		—		—		99,459		99,459
Commercial
Term, net	298		333		—		631		15,185		1,409,193		1,425,009
LOC & other, net	1,907		92		8		2,007		664		1,040,405		1,043,076
Leases and equipment finance, net	2,933		3,499		822		7,254		4,801		717,106		729,161
Residential
Mortgage, net (2)	31		2,444		29,233		31,708		—		2,877,691		2,909,399
Home equity loans & lines, net	1,084		643		3,080		4,807		—		918,860		923,667
Consumer & other, net	3,271		889		642		4,802		4		522,383		527,189
Total, net of deferred fees and costs	$	13,638	$	14,785	$	34,345	$	62,768	$	29,215	$	16,774,553	$	16,866,536

(1) Other includes purchased credit impaired loans of $438.1 million.

(2) Includes government guaranteed GNMA mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more, totaling $19.2 million at December 31, 2015.

Impaired Loans

Loans with no related allowance reported generally represent non-accrual loans. The Bank recognizes the charge-off on impaired loans in the period it arises for collateral-dependent loans. Therefore, the non-accrual loans as of March 31, 2016 have already been written down to their estimated net realizable value and are expected to be resolved with no additional material loss, absent further decline in market prices. The valuation allowance on impaired loans primarily represents the impairment reserves on performing restructured loans, and is measured by comparing the present value of expected future cash flows on the restructured loans discounted at the interest rate of the original loan agreement to the loan's carrying value.

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The following table summarizes our impaired loans by loan class as of March 31, 2016 and December 31, 2015:



(in thousands)	March 31, 2016
	Unpaid		Recorded Investment
	Principal		Without		With		Related
	Balance		Allowance		Allowance		Allowance
Commercial real estate
Non-owner occupied term, net	$	8,660	$	2,036	$	6,247	$	185
Owner occupied term, net	5,845		5,299		183		11
Multifamily, net	4,025		511		3,519		30
Construction & development, net	1,864		—		1,862		37
Residential development, net	7,889		—		7,890		54
Commercial
Term, net	25,834		14,512		6,203		269
LOC & other, net	3,470		664		2,322		213
Residential
Mortgage, net	—		—		—		—
Home equity loans & lines, net	—		—		—		—
Consumer & other, net	—		—		—		—
Total, net of deferred fees and costs	$	57,587	$	23,022	$	28,226	$	799



(in thousands)	December 31, 2015
	Unpaid		Recorded Investment
	Principal		Without		With		Related
	Balance		Allowance		Allowance		Allowance
Commercial real estate
Non-owner occupied term, net	$	8,633	$	1,946	$	6,260	$	91
Owner occupied term, net	7,476		4,340		3,072		40
Multifamily, net	3,519		—		3,519		49
Construction & development, net	1,091		—		1,091		11
Residential development, net	7,889		—		7,891		90
Commercial
Term, net	26,106		14,788		6,220		283
LOC & other, net	3,470		664		2,322		224
Residential
Mortgage, net	—		—		—		—
Home equity loans & lines, net	—		—		—		—
Consumer & other, net	—		—		—		—
Total, net of deferred fees and costs	$	58,184	$	21,738	$	30,375	$	788

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The following table summarizes our average recorded investment and interest income recognized on impaired loans by loan class for the three months ended March 31, 2016 and 2015:



(in thousands)	Three Months Ended				Three Months Ended
	March 31, 2016				March 31, 2015
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Commercial real estate
Non-owner occupied term, net	$	8,767	$	63	$	38,071	$	323
Owner occupied term, net	7,554		53		15,606		65
Multifamily, net	3,775		30		3,669		31
Construction & development, net	1,476		19		1,091		11
Residential development, net	7,912		81		9,622		103
Commercial
Term, net	21,248		73		19,907		3
LOC & other, net	3,028		20		10,491		47
Residential
Mortgage, net	—		—		—		—
Home equity loans & lines, net	—		—		—		—
Consumer & other, net	—		—		—		—
Total, net of deferred fees and costs	<