Edgar Filing: UMPQUA HOLDINGS CORP

Document

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: September 30, 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: 220,208,309 shares outstanding as of October 31, 2016

Table of Contents

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	48
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	76
Item 4.	Controls and Procedures	76
Part II. OTHER INFORMATION		77
Item 1.	Legal Proceedings	77
Item 1A.	Risk Factors	77
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77
Item 3.	Defaults Upon Senior Securities	78
Item 4.	Mine Safety Disclosures	78
Item 5.	Other Information	78
Item 6.	Exhibits	78
SIGNATURES		79
EXHIBIT INDEX		80

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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)
	September 30,			December 31,
	2016			2015
ASSETS
Cash and due from banks (restricted cash of $107,399 and $58,813)	$	364,013		$	277,645
Interest bearing cash and temporary investments (restricted cash of $1,004 and $3,938)	1,102,428			496,080
Total cash and cash equivalents	1,466,441			773,725
Investment securities
Trading, at fair value	10,866			9,586
Available for sale, at fair value	2,520,037			2,522,539
Held to maturity, at amortized cost	4,302			4,609
Loans held for sale, at fair value	565,624			363,275
Loans and leases	17,392,051			16,866,536
Allowance for loan and lease losses	(133,692		)	(130,322		)
Net loans and leases	17,258,359			16,736,214
Restricted equity securities	47,537			46,949
Premises and equipment, net	306,287			328,734
Goodwill	1,787,651			1,787,793
Other intangible assets, net	38,753			45,508
Residential mortgage servicing rights, at fair value	114,446			131,817
Other real estate owned	8,309			22,307
Bank owned life insurance	297,561			291,892
Deferred tax asset, net	27,587			138,082
Other assets	290,454			203,351
Total assets	$	24,744,214		$	23,406,381
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing	$	5,993,793		$	5,318,591
Interest bearing	12,924,987			12,388,598
Total deposits	18,918,780			17,707,189
Securities sold under agreements to repurchase	309,463			304,560
Term debt	902,678			888,769
Junior subordinated debentures, at fair value	260,114			255,457
Junior subordinated debentures, at amortized cost	101,012			101,254
Other liabilities	331,959			299,818
Total liabilities	20,824,006			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: 220,207,300 in 2016 and 220,171,091 in 2015	3,514,858			3,520,591
Retained earnings	388,678			331,301
Accumulated other comprehensive income (loss)	16,672			(2,558		)
Total shareholders' equity	3,920,208			3,849,334
Total liabilities and shareholders' equity	$	24,744,214		$	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						Nine months ended
	September 30,						September 30,
	2016			2015			2016			2015
INTEREST INCOME
Interest and fees on loans and leases	$	212,037		$	218,975		$	640,255		$	649,993
Interest and dividends on investment securities:
Taxable	10,779			11,882			35,797			35,188
Exempt from federal income tax	2,181			2,393			6,599			7,284
Dividends	332			112			1,063			382
Interest on temporary investments and interest bearing deposits	1,090			440			2,222			1,814
Total interest income	226,419			233,802			685,936			694,661
INTEREST EXPENSE
Interest on deposits	8,999			7,450			25,952			21,934
Interest on securities sold under agreement to repurchase	32			43			100			134
Interest on term debt	3,558			3,629			11,592			10,585
Interest on junior subordinated debentures	3,938			3,465			11,500			10,208
Total interest expense	16,527			14,587			49,144			42,861
Net interest income	209,892			219,215			636,792			651,800
PROVISION FOR LOAN AND LEASE LOSSES	13,091			8,153			28,503			32,044
Net interest income after provision for loan and lease losses	196,801			211,062			608,289			619,756
NON-INTEREST INCOME
Service charges on deposits	15,762			15,616			45,945			44,701
Brokerage revenue	4,129			5,003			12,803			14,420
Residential mortgage banking revenue, net	47,206			24,041			99,415			92,282
Gain on investment securities, net	—			220			858			355
Gain on loan sales, net	1,285			5,212			9,296			20,651
Loss on junior subordinated debentures carried at fair value	(1,590		)	(1,590		)	(4,734		)	(4,717		)
BOLI income	2,116			2,165			6,407			6,510
Other income	11,802			10,705			31,330			32,177
Total non-interest income	80,710			61,372			201,320			206,379
NON-INTEREST EXPENSE
Salaries and employee benefits	105,341			106,482			319,424			324,733
Occupancy and equipment, net	38,181			37,235			114,326			104,253
Communications	5,107			4,443			15,966			15,131
Marketing	2,124			2,846			7,978			7,920
Services	9,983			10,389			32,183			35,382
FDIC assessments	4,109			3,369			11,523			9,738
(Gain) loss on other real estate owned, net	(14		)	(158		)	(82		)	2,136
Intangible amortization	1,867			2,806			6,755			8,419
Merger related expenses	2,011			5,991			12,095			41,870
Goodwill impairment	—			—			142			—
Other expenses	12,478			9,791			33,377			28,149
Total non-interest expense	181,187			183,194			553,687			577,731
Income before provision for income taxes	96,324			89,240			255,922			248,404
Provision for income taxes	34,515			31,633			92,257			88,884
Net income	$	61,809		$	57,607		$	163,665		$	159,520

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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				Nine months ended
	September 30,				September 30,
	2016		2015		2016		2015
Net income	$	61,809	$	57,607	$	163,665	$	159,520
Dividends and undistributed earnings allocated to participating securities	31		84		92		261
Net earnings available to common shareholders	$	61,778	$	57,523	$	163,573	$	159,259
Earnings per common share:
Basic	$0.28		$0.26		$0.74		$0.72
Diluted	$0.28		$0.26		$0.74		$0.72
Weighted average number of common shares outstanding:
Basic	220,291		220,297		220,313		220,370
Diluted	220,751		220,904		220,936		221,062

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						Nine months ended
	September 30,						September 30,
	2016			2015			2016			2015
Net income	$	61,809		$	57,607		$	163,665		$	159,520
Available for sale securities:
Unrealized (losses) gains arising during the period	(9,768		)	15,258			32,228			3,695
Income tax benefit (expense) related to unrealized gains	3,780			(6,103		)	(12,472		)	(1,478		)

Reclassification adjustment for net realized gains in earnings	—			(220		)	(858		)	(355		)
Income tax expense related to realized gains	—			88			332			142
Other comprehensive (loss) income, net of tax	(5,988		)	9,023			19,230			2,004
Comprehensive income	$	55,821		$	66,630		$	182,895		$	161,524

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						163,665						163,665
Other comprehensive income, net of tax									19,230			19,230
Stock-based compensation			7,523									7,523
Stock repurchased and retired	(931,523	)	(14,354		)							(14,354		)
Issuances of common stock under stock plans and related net tax benefit	967,732		1,098									1,098
Cash dividends on common stock ($0.48 per share)						(106,288		)				(106,288		)
Balance at September 30, 2016	220,207,300		$	3,514,858		$	388,678		$	16,672		$	3,920,208

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)	Nine months ended
	September 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	163,665		$	159,520
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of investment premiums, net	16,401			18,135
Gain on sale of investment securities, net	(858		)	(355		)
Gain on sale of other real estate owned, net	(1,683		)	(646		)
Valuation adjustment on other real estate owned	1,601			2,782
Provision for loan and lease losses	28,503			32,044
Change in cash surrender value of bank owned life insurance	(6,483		)	(6,588		)
Depreciation, amortization and accretion	44,607			37,716
Loss on sale of premises and equipment	5,221			2,543
Additions to residential mortgage servicing rights carried at fair value	(25,020		)	(27,812		)
Change in fair value of residential mortgage servicing rights carried at fair value	42,391			20,257
Change in junior subordinated debentures carried at fair value	4,657			4,371
Stock-based compensation	7,523			11,275
Net (increase) decrease in trading account assets	(1,280		)	490
Gain on sale of loans	(136,949		)	(115,399		)
Change in loans held for sale carried at fair value	(13,555		)	(5,716		)
Origination of loans held for sale	(2,928,951		)	(2,703,100		)
Proceeds from sales of loans held for sale	3,133,551			2,694,945
Goodwill impairment	142			—
Change in other assets and liabilities:
Net decrease in other assets	9,336			69,980
Net increase in other liabilities	44,314			23,317
Net cash provided by operating activities	387,133			217,759
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale	(443,094		)	(706,964		)
Proceeds from investment securities available for sale	461,342			508,428
Proceeds from investment securities held to maturity	389			481
Purchases of restricted equity securities	(600		)	—
Redemption of restricted equity securities	12			72,430
Net change in loans and leases	(1,248,475		)	(1,313,156		)
Proceeds from sales of loans	429,997			246,100
Net change in premises and equipment	(22,573		)	(58,089		)
Proceeds from bank owned life insurance death benefits	814			4,485
Proceeds from sales of other real estate owned	13,608			18,747
Net cash used in investing activities	$	(808,580	)	$	(1,227,538	)

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

(in thousands)	Nine months ended
	September 30,
	2016			2015
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit liabilities	$	1,213,354		$	578,995
Net increase in securities sold under agreements to repurchase	4,903			10,401
Proceeds from term debt borrowings	490,000			—
Repayment of term debt borrowings	(475,014		)	(114,999		)
Dividends paid on common stock	(105,824		)	(99,333		)
Proceeds from stock options exercised	1,098			1,696
Repurchase and retirement of common stock	(14,354		)	(14,536		)
Net cash provided by financing activities	1,114,163			362,224
Net increase (decrease) in cash and cash equivalents	692,716			(647,555		)
Cash and cash equivalents, beginning of period	773,725			1,605,171
Cash and cash equivalents, end of period	$	1,466,441		$	957,616

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	53,783		$	50,156
Income taxes	$	12,921		$	17,334
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Change in unrealized gains on investment securities available for sale, net of taxes	$	19,230		$	2,004
Cash dividend declared on common stock and payable after period-end	$	35,250		$	35,285
Transfer of loans to loans held for sale	$	265,741		$	—
Change in GNMA mortgage loans recognized due to repurchase option	$	(11,857	)	$	7,640
Transfer of loans to other real estate owned	$	5,409		$	6,833
Transfers from other real estate owned to loans due to internal financing	$	5,881		$	—

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 September 30, 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. In the second quarter of 2016, the loan portfolio was analyzed for correct classification of certain commercial and commercial real estate loan types, and as a result of this analysis, loan classifications were updated. The prior period loan classifications have been updated to be comparable to the current period presentation in note 3 -Loans and Leases and note 4 -Allowance for Loan and Lease Losses and Credit Quality.

During the first quarter of 2016, 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. This change did not affect net income or shareholders' equity for any period.

Application of new accounting guidance

As of April 1, 2016, Umpqua adopted the Financial Accounting Standards Board's (FASB) Accounting Standard Update ("ASU") No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09, seeks to simplify several aspects of the accounting for employee share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. As required by ASU 2016-09, all adjustments are reflected as of the beginning of the fiscal year, January 1, 2016. By applying this ASU, the Company no longer adjusts common stock for the tax impact of shares released, instead the tax impact is recognized as tax expense in the period the shares are released. This simplifies the tracking of the excess tax benefits and deficiencies, but could cause volatility in tax expense for the periods presented. The statement of cash flows has been adjusted to reflect the provisions of this ASU. The application of this ASU did not have a material impact on the financial statements.

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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 September 30, 2016 and December 31, 2015:



(in thousands)	September 30, 2016
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
AVAILABLE FOR SALE:
Obligations of states and political subdivisions	$	292,213	$	11,625	$	(469	)	$	303,369
Residential mortgage-backed securities and collateralized mortgage obligations	2,198,654		20,038		(4,058		)	2,214,634
Investments in mutual funds and other equity securities	1,959		75		—			2,034
	$	2,492,826	$	31,738	$	(4,527	)	$	2,520,037
HELD TO MATURITY:
Residential mortgage-backed securities and collateralized mortgage obligations	$	4,302	$	892	$	—		$	5,194
	$	4,302	$	892	$	—		$	5,194



(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 September 30, 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.



September 30, 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	$	13,793	$	179	$	2,010	$	290	$	15,803	$	469
Residential mortgage-backed securities and collateralized mortgage obligations	345,169		1,291		199,606		2,767		544,775		4,058
Total temporarily impaired securities	$	358,962	$	1,470	$	201,616	$	3,057	$	560,578	$	4,527

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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 September 30, 2016, 93% 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. All of the available for sale residential mortgage-backed securities and collateralized mortgage obligations portfolio in an unrealized loss position at September 30, 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 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 September 30, 2016:



(in thousands)	Available For Sale				Held To Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
AMOUNTS MATURING IN:
Three months or less	$	24,868	$	24,960	$	—	$	—
Over three months through twelve months	93,437		94,520		3		3
After one year through five years	1,818,751		1,837,341		159		474
After five years through ten years	302,574		308,125		358		865
After ten years	251,237		253,057		3,782		3,852
Other investment securities	1,959		2,034		—		—
	$	2,492,826	$	2,520,037	$	4,302	$	5,194

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.

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The following table presents the gross realized gains and losses on the sale of securities available for sale for the three and nine months ended September 30, 2016 and 2015:



(in thousands)	Three Months Ended
	September 30, 2016				September 30, 2015
	Gains		Losses		Gains		Losses
U.S. Treasury and agencies	$	—	$	—	$	13	$	—
Obligations of states and political subdivisions	—		—		6		—
Residential mortgage-backed securities and collateralized mortgage obligations	—		—		634		433
	$	—	$	—	$	653	$	433

	Nine Months Ended
	September 30, 2016				September 30, 2015
	Gains		Losses		Gains		Losses
U.S. Treasury and agencies	$	—	$	—	$	13	$	—
Obligations of states and political subdivisions	971		—		6		—
Residential mortgage-backed securities and collateralized mortgage obligations	270		383		1,177		841
	$	1,241	$	383	$	1,196	$	841

The following table presents, as of September 30, 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	$	624	$	645
To state and local governments to secure public deposits	1,199,852		1,217,873
Other securities pledged principally to secure repurchase agreements	536,501		540,958
Total pledged securities	$	1,736,977	$	1,759,476

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Note 3 – Loans and Leases

The following table presents the major types of loans and leases, net of deferred fees and costs, as of September 30, 2016 and December 31, 2015:



(in thousands)	September 30,		December 31,
	2016		2015
Commercial real estate
Non-owner occupied term, net	$	3,280,660	$	3,226,836
Owner occupied term, net	2,573,942		2,582,874
Multifamily, net	2,968,019		3,151,516
Construction & development, net	388,934		271,119
Residential development, net	127,447		99,459
Commercial
Term, net	1,480,173		1,408,676
LOC & other, net	1,142,946		1,036,733
Leases and equipment finance, net	927,857		729,161
Residential
Mortgage, net	2,868,337		2,909,306
Home equity loans & lines, net	1,008,219		923,667
Consumer & other, net	625,517		527,189
Total loans and leases, net of deferred fees and costs	$	17,392,051	$	16,866,536

The loan balances are net of deferred fees and costs of $66.8 million and $47.0 million as of September 30, 2016 and December 31, 2015, respectively. Net loans also include discounts on acquired loans of $52.9 million and $105.6 million as of September 30, 2016 and December 31, 2015, respectively. As of September 30, 2016, loans totaling $10.3 billion were pledged to secure borrowings and available lines of credit.

The outstanding contractual unpaid principal balance of purchased impaired loans, excluding acquisition accounting adjustments, was $413.1 million and $540.4 million at September 30, 2016 and December 31, 2015, respectively. The carrying balance of purchased impaired loans was $301.3 million and $438.1 million at September 30, 2016 and December 31, 2015, respectively.

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The following table presents the changes in the accretable yield for purchased impaired loans for the three and nine months ended September 30, 2016 and 2015:



(in thousands)	Three Months Ended
	September 30,
	2016			2015
Balance, beginning of period	$	111,379		$	165,362
Accretion to interest income	(11,042		)	(14,432		)
Disposals	(4,209		)	(6,569		)
Reclassifications from nonaccretable difference	4,931			5,285
Balance, end of period	$	101,059		$	149,646

	Nine months ended
	September 30,
	2016			2015
Balance, beginning of period	$	132,829		$	201,699
Accretion to interest income	(35,217		)	(42,864		)
Disposals	(15,470		)	(21,825		)
Reclassifications from nonaccretable difference	18,917			12,636
Balance, end of period	$	101,059		$	149,646

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 and nine months ended September 30, 2016 and 2015:



(in thousands)	Three Months Ended				Nine months ended
	September 30,				September 30,
	2016		2015		2016		2015
Commercial real estate
Non-owner occupied term, net	$	1,340	$	—	$	18,614	$	7,181
Owner occupied term, net	10,380		20,003		28,283		39,963
Multifamily, net	49		—		129,879		435
Commercial
Term, net	1,809		1,079		4,729		4,499
Residential
Mortgage, net	103,465		54,938		239,196		173,371
Total	$	117,043	$	76,020	$	420,701	$	225,449

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

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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.

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 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 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 September 30, 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 and nine months ended September 30, 2016 and 2015:



(in thousands)	Three Months Ended September 30, 2016
	Commercial									Consumer
	Real Estate			Commercial			Residential			& Other			Total
Balance, beginning of period	$	50,584		$	52,355		$	20,146		$	7,957		$	131,042
Charge-offs	(1,071		)	(8,975		)	(915		)	(2,127		)	(13,088		)
Recoveries	628			1,186			137			696			2,647
(Recapture) Provision	(2,839		)	12,846			626			2,458			13,091
Balance, end of period	$	47,302		$	57,412		$	19,994		$	8,984		$	133,692

	Three Months Ended September 30, 2015
	Commercial									Consumer
	Real Estate			Commercial			Residential			& Other			Total
Balance, beginning of period	$	58,343		$	45,518		$	17,964		$	5,246		$	127,071
Charge-offs	(2,789		)	(3,266		)	(171		)	(2,250		)	(8,476		)
Recoveries	960			1,360			281			784			3,385
Provision	2,093			2,608			1,186			2,266			8,153
Balance, end of period	$	58,607		$	46,220		$	19,260		$	6,046		$	130,133




(in thousands)	Nine months ended September 30, 2016
	Commercial									Consumer
	Real Estate			Commercial			Residential			& Other			Total
Balance, beginning of period	$	54,293		$	47,487		$	22,017		$	6,525		$	130,322
Charge-offs	(2,137		)	(23,224		)	(1,546		)	(6,713		)	(33,620		)
Recoveries	1,348			3,633			661			2,845			8,487
(Recapture) Provision	(6,202		)	29,516			(1,138		)	6,327			28,503
Balance, end of period	$	47,302		$	57,412		$	19,994		$	8,984		$	133,692

	Nine months ended September 30, 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	(6,220		)	(15,917		)	(707		)	(5,619		)	(28,463		)
Recoveries	2,448			3,544			420			3,973			10,385
Provision	7,195			17,377			3,625			3,847			32,044
Balance, end of period	$	58,607		$	46,220		$	19,260		$	6,046		$	130,133

The valuation allowance on purchased impaired loans was increased by provision expense, which includes amounts related to subsequent deterioration of purchased impaired loans of $1.4 million for the nine months ended September 30, 2016, and $279,000 and $1.9 million for the three and nine months ended September 30, 2015, respectively. There was no provision expense that related to subsequent deterioration of purchased impaired loans recorded during the three months ended September 30, 2016. The increase due to the provision expense of the valuation allowance on purchased impaired loans was offset by recaptured provision of $55,000 and $902,000 for the three and nine months ended September 30, 2016, respectively, and $2.2 million and $2.4 million for the three and nine months ended September 30, 2015, respectively.

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The following table presents the allowance and recorded investment in loans and leases by portfolio segment as of September 30, 2016 and 2015:



(in thousands)	September 30, 2016
	Commercial						Consumer
	Real Estate		Commercial		Residential		& Other		Total
Allowance for loans and leases:
Collectively evaluated for impairment	$	43,473	$	55,735	$	19,225	$	8,913	$	127,346
Individually evaluated for impairment	1,099		1,327		—		—		2,426
Loans acquired with deteriorated credit quality	2,730		350		769		71		3,920
Total	$	47,302	$	57,412	$	19,994	$	8,984	$	133,692
Loans and leases:
Collectively evaluated for impairment	$	9,051,925	$	3,521,571	$	3,830,060	$	624,708	$	17,028,264
Individually evaluated for impairment	39,737		22,736		—		—		62,473
Loans acquired with deteriorated credit quality	247,340		6,669		46,496		809		301,314
Total	$	9,339,002	$	3,550,976	$	3,876,556	$	625,517	$	17,392,051



(in thousands)	September 30, 2015
	Commercial						Consumer
	Real Estate		Commercial		Residential		& Other		Total
Allowance for loans and leases:
Collectively evaluated for impairment	$	55,054	$	45,693	$	18,577	$	5,978	$	125,302
Individually evaluated for impairment	533		390		—		—		923
Loans acquired with deteriorated credit quality	3,020		137		683		68		3,908
Total	$	58,607	$	46,220	$	19,260	$	6,046	$	130,133
Loans and leases:
Collectively evaluated for impairment	$	8,768,933	$	3,023,609	$	3,608,456	$	497,107	$	15,898,105
Individually evaluated for impairment	38,041		22,402		—		—		60,443
Loans acquired with deteriorated credit quality	371,019		15,271		60,762		1,036		448,088
Total	$	9,177,993	$	3,061,282	$	3,669,218	$	498,143	$	16,406,636

The loan and lease balances are net of deferred fees and costs of $66.8 million and $42.8 million at September 30, 2016 and September 30, 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 and nine months ended September 30, 2016 and 2015:



(in thousands)	Three Months Ended				Nine months ended
	September 30,				September 30,
	2016		2015		2016			2015
Balance, beginning of period	$	3,531	$	2,864	$	3,574		$	3,539
Net change to other expense	5		217		(38		)	(458		)
Balance, end of period	$	3,536	$	3,081	$	3,536		$	3,081

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(in thousands)
	Total
Unfunded loan and lease commitments:
September 30, 2016	$	4,118,259
September 30, 2015	$	3,454,473

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.

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 September 30, 2016 and December 31, 2015:



(in thousands)	September 30, 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	$	1,463	$	10,254	$	155	$	11,872	$	1,261	$	3,267,527	$	3,280,660
Owner occupied term, net	460		4,498		58		5,016		3,248		2,565,678		2,573,942
Multifamily, net	143		—		—		143		995		2,966,881		2,968,019
Construction & development, net	—		324		—		324		—		388,610		388,934
Residential development, net	—		—		—		—		—		127,447		127,447
Commercial
Term, net	1,727		—		—		1,727		10,706		1,467,740		1,480,173
LOC & other, net	1,513		86		—		1,599		4,034		1,137,313		1,142,946
Leases and equipment finance, net	4,281		5,032		1,672		10,985		7,547		909,325		927,857
Residential
Mortgage, net (2)	5		3,346		29,483		32,834		—		2,835,503		2,868,337
Home equity loans & lines, net	1,196		967		1,641		3,804		—		1,004,415		1,008,219
Consumer & other, net	3,271		1,142		499		4,912		—		620,605		625,517
Total, net of deferred fees and costs	$	14,059	$	25,649	$	33,508	$	73,216	$	27,791	$	17,291,044	$	17,392,051

(1) Other includes purchased credit impaired loans of $301.3 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 $7.3 million at September 30, 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