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: June 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: 220,195,666 shares outstanding as of July 31, 2016


Table of Contents

UMPQUA HOLDINGS CORPORATION 
FORM 10-Q 
Table of Contents 
 
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2

Table of Contents

PART I.        FINANCIAL INFORMATION
Item 1.        Financial Statements (unaudited) 

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED BALANCE SHEETS 
(UNAUDITED)
(in thousands, except shares)
 
 
 
 
June 30,
 
December 31,
 
2016
 
2015
ASSETS
 
 
 
Cash and due from banks (restricted cash of $111,070 and $58,813)
$
369,535

 
$
277,645

Interest bearing cash and temporary investments (restricted cash of $1,186 and $3,938)
535,828

 
496,080

Total cash and cash equivalents
905,363

 
773,725

Investment securities
 
 
 
Trading, at fair value
10,188

 
9,586

Available for sale, at fair value
2,482,072

 
2,522,539

Held to maturity, at amortized cost
4,382

 
4,609

Loans held for sale ($542,917 and $363,275, at fair value)
552,681

 
363,275

Loans and leases
17,355,240

 
16,866,536

Allowance for loan and lease losses
(131,042
)
 
(130,322
)
Net loans and leases
17,224,198

 
16,736,214

Restricted equity securities
47,542

 
46,949

Premises and equipment, net
312,647

 
328,734

Goodwill
1,787,651

 
1,787,793

Other intangible assets, net
40,620

 
45,508

Residential mortgage servicing rights, at fair value
112,095

 
131,817

Other real estate owned
16,437

 
22,307

Bank owned life insurance
295,444

 
291,892

Deferred tax asset, net
63,038

 
138,082

Other assets
278,149

 
203,351

Total assets
$
24,132,507

 
$
23,406,381

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Deposits
 
 
 
Noninterest bearing
$
5,475,986

 
$
5,318,591

Interest bearing
12,782,488

 
12,388,598

Total deposits
18,258,474

 
17,707,189

Securities sold under agreements to repurchase
360,234

 
304,560

Term debt
902,999

 
888,769

Junior subordinated debentures, at fair value
258,660

 
255,457

Junior subordinated debentures, at amortized cost
101,093

 
101,254

Other liabilities
348,889

 
299,818

Total liabilities
20,230,349

 
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: 220,482,147 in 2016 and 220,171,091 in 2015
3,517,240

 
3,520,591

Retained earnings
362,258

 
331,301

Accumulated other comprehensive income (loss)
22,660

 
(2,558
)
Total shareholders' equity
3,902,158

 
3,849,334

Total liabilities and shareholders' equity
$
24,132,507

 
$
23,406,381


See notes to condensed consolidated financial statements

3

Table of Contents

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

(in thousands, except per share amounts)
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
INTEREST INCOME
 
 
 
 
 
 
 
Interest and fees on loans and leases
$
210,290

 
$
217,143

 
$
428,218

 
$
431,018

Interest and dividends on investment securities:
 
 
 
 
 
 
 
Taxable
11,963

 
11,517

 
25,018

 
23,306

Exempt from federal income tax
2,183

 
2,410

 
4,418

 
4,891

Dividends
365

 
169

 
731

 
270

Interest on temporary investments and interest bearing deposits
652

 
549

 
1,132

 
1,374

Total interest income
225,453

 
231,788

 
459,517

 
460,859

INTEREST EXPENSE
 
 
 
 
 
 
 
Interest on deposits
8,540

 
7,381

 
16,953

 
14,484

Interest on securities sold under agreement to repurchase
32

 
43

 
68

 
91

Interest on term debt
3,848

 
3,492

 
8,034

 
6,956

Interest on junior subordinated debentures
3,835

 
3,406

 
7,562

 
6,743

Total interest expense
16,255

 
14,322

 
32,617

 
28,274

Net interest income
209,198

 
217,466

 
426,900

 
432,585

PROVISION FOR LOAN AND LEASE LOSSES 
10,589

 
11,254

 
15,412

 
23,891

Net interest income after provision for loan and lease losses
198,609

 
206,212

 
411,488

 
408,694

NON-INTEREST INCOME
 
 
 
 
 
 
 
Service charges on deposits
15,667

 
14,811

 
30,183

 
29,085

Brokerage revenue
4,580

 
4,648

 
8,674

 
9,417

Residential mortgage banking revenue, net
36,783

 
40,014

 
52,209

 
68,241

Gain on investment securities, net
162

 
19

 
858

 
135

Gain on loan sales, net
5,640

 
8,711

 
8,011

 
15,439

Loss on junior subordinated debentures carried at fair value
(1,572
)
 
(1,572
)
 
(3,144
)
 
(3,127
)
BOLI income
2,152

 
2,043

 
4,291

 
4,345

Other income
11,247

 
12,428

 
19,528

 
21,472

Total non-interest income
74,659

 
81,102

 
120,610

 
145,007

NON-INTEREST EXPENSE
 
 
 
 
 
 
 
Salaries and employee benefits
107,545

 
110,807

 
214,083

 
218,251

Occupancy and equipment, net
37,850

 
34,868

 
76,145

 
67,018

Communications
5,296

 
5,894

 
10,859

 
10,688

Marketing
3,004

 
2,038

 
5,854

 
5,074

Services
11,529

 
10,866

 
22,200

 
24,993

FDIC assessments
3,693

 
3,155

 
7,414

 
6,369

(Gain) loss on other real estate owned, net
(1,457
)
 
480

 
(68
)
 
2,294

Intangible amortization
2,328

 
2,807

 
4,888

 
5,613

Merger related expenses
6,634

 
21,797

 
10,084

 
35,879

Goodwill impairment

 

 
142

 

Other expenses
12,089

 
9,206

 
20,899

 
18,358

Total non-interest expense
188,511

 
201,918

 
372,500

 
394,537

Income before provision for income taxes
84,757

 
85,396

 
159,598

 
159,164

Provision for income taxes
30,470

 
30,612

 
57,742

 
57,251

Net income
$
54,287

 
$
54,784

 
$
101,856

 
$
101,913




4

Table of Contents

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

(in thousands, except per share amounts)
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
54,287

 
$
54,784

 
$
101,856

 
$
101,913

Dividends and undistributed earnings allocated to participating securities
32

 
93

 
61

 
177

Net earnings available to common shareholders
$
54,255

 
$
54,691

 
$
101,795

 
$
101,736

Earnings per common share:
 
 
 
 
 
 
 
Basic
$0.25
 
$0.25
 
$0.46
 
$0.46
Diluted
$0.25
 
$0.25
 
$0.46
 
$0.46
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
220,421

 
220,463

 
220,324

 
220,406

Diluted
220,907

 
221,150

 
221,001

 
221,088


See notes to condensed consolidated financial statements

5

Table of Contents

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  
(UNAUDITED) 
 
(in thousands)
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
54,287

 
$
54,784

 
$
101,856

 
$
101,913

Available for sale securities:
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
10,346

 
(24,303
)
 
41,997

 
(11,563
)
Income tax (expense) benefit related to unrealized gains
(4,004
)
 
9,721

 
(16,253
)
 
4,625

 
 
 
 
 
 
 
 
Reclassification adjustment for net realized gains in earnings
(162
)
 
(19
)
 
(858
)
 
(135
)
Income tax expense related to realized gains
63

 
9

 
332

 
54

Other comprehensive income (loss), net of tax
6,243

 
(14,592
)
 
25,218

 
(7,019
)
Comprehensive income
$
60,530

 
$
40,192

 
$
127,074

 
$
94,894


See notes to condensed consolidated financial statements

6

Table of Contents

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
 
 
 
 
101,856

 
 
 
101,856

Other comprehensive income, net of tax
 
 
 
 
 
 
25,218

 
25,218

Stock-based compensation
 
 
5,245

 
 
 
 
 
5,245

Stock repurchased and retired
(604,716
)
 
(9,374
)
 
 
 
 
 
(9,374
)
Issuances of common stock under stock plans
and related net tax benefit
915,772

 
778

 
 
 
 
 
778

Cash dividends on common stock ($0.32 per share)
 
 
 
 
(70,899
)
 
 
 
(70,899
)
Balance at June 30, 2016
220,482,147

 
$
3,517,240

 
$
362,258

 
$
22,660

 
$
3,902,158


See notes to condensed consolidated financial statements

7

Table of Contents

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(UNAUDITED) 
(in thousands)
Six Months Ended
 
June 30,
 
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
101,856

 
$
101,913

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of investment premiums, net
10,114

 
12,011

Gain on sale of investment securities, net
(858
)
 
(135
)
Gain on sale of other real estate owned, net
(1,530
)
 
(193
)
Valuation adjustment on other real estate owned
1,462

 
2,487

Provision for loan and lease losses
15,412

 
23,891

Change in cash surrender value of bank owned life insurance
(4,366
)
 
(5,439
)
Depreciation, amortization and accretion
30,059

 
24,411

Loss on sale of premises and equipment
4,211

 
2,481

Additions to residential mortgage servicing rights carried at fair value
(14,843
)
 
(20,101
)
Change in fair value of residential mortgage servicing rights carried at fair value
34,565

 
10,154

Change in junior subordinated debentures carried at fair value
3,203

 
2,920

Stock-based compensation
5,245

 
7,985

Net increase in trading account assets
(602
)
 
(6
)
Gain on sale of loans
(80,169
)
 
(77,395
)
Change in loans held for sale carried at fair value
(13,809
)
 
282

Origination of loans held for sale
(1,810,425
)
 
(1,859,380
)
Proceeds from sales of loans held for sale
1,972,727

 
1,794,637

Goodwill impairment
142

 

Change in other assets and liabilities:
 
 
 
Net (increase) decrease in other assets
(16,958
)
 
57,791

Net increase in other liabilities
57,836

 
4,468

Net cash provided by operating activities
293,272

 
82,782

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of investment securities available for sale
(247,620
)
 
(619,131
)
Proceeds from investment securities available for sale
319,919

 
337,088

Proceeds from investment securities held to maturity
282

 
344

Purchases of restricted equity securities
(600
)
 

Redemption of restricted equity securities
7

 
72,417

Net change in loans and leases
(1,084,966
)
 
(817,613
)
Proceeds from sales of loans
311,669

 
164,868

Net change in premises and equipment
(15,572
)
 
(42,580
)
Proceeds from bank owned life insurance death benefits
814

 
4,184

Proceeds from sales of other real estate owned
10,228

 
15,187

Net cash used in investing activities
$
(705,839
)
 
$
(885,236
)
 
 
 
 

8

Table of Contents

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) 
(UNAUDITED)
(in thousands)
Six Months Ended
 
June 30,
 
2016
 
2015
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Net increase in deposit liabilities
$
552,670

 
$
255,823

Net increase in securities sold under agreements to repurchase
55,674

 
12,390

   Proceeds from term debt borrowings
285,000

 

Repayment of term debt borrowings
(270,015
)
 
(114,999
)
Dividends paid on common stock
(70,528
)
 
(66,235
)
Proceeds from stock options exercised
778

 
1,558

Repurchase and retirement of common stock
(9,374
)
 
(11,307
)
Net cash provided by financing activities
544,205

 
77,230

Net increase (decrease) in cash and cash equivalents
131,638

 
(725,224
)
Cash and cash equivalents, beginning of period
773,725

 
1,605,171

Cash and cash equivalents, end of period
$
905,363

 
$
879,947

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 

 
 

Cash paid during the period for:
 

 
 

Interest
$
35,820

 
$
33,054

Income taxes
$
12,851

 
$
17,223

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Change in unrealized gains on investment securities available for sale, net of taxes
$
25,218

 
$
(7,019
)
Cash dividend declared on common stock and payable after period-end
$
35,296

 
$
33,098

Transfer of loans to loans held for sale
$
265,741

 
$

Change in GNMA mortgage loans recognized due to repurchase option
$
(7,881
)
 
$
3,493

Transfer of loans to other real estate owned
$
4,546

 
$
2,577

Transfers from other real estate owned to loans due to internal financing
$
256

 
$



See notes to condensed consolidated financial statements
 

9

Table of Contents

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 June 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, as a result of this analysis, loan classifications were updated in the current period. 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.

 

10

Table of Contents

Note 2 – Investment Securities 
 
The following table presents the amortized costs, unrealized gains, unrealized losses and approximate fair values of investment securities at June 30, 2016 and December 31, 2015

 (in thousands)
June 30, 2016
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
 
Cost
 
Gains
 
Losses
 
Value
AVAILABLE FOR SALE:
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
284,421

 
$
13,956

 
$
(271
)
 
$
298,106

Residential mortgage-backed securities and collateralized mortgage obligations
2,158,709

 
25,233

 
(2,019
)
 
2,181,923

Investments in mutual funds and other equity securities
1,959

 
84

 

 
2,043

 
$
2,445,089

 
$
39,273

 
$
(2,290
)
 
$
2,482,072

HELD TO MATURITY:
 
 
 
 
 
 
 
Residential mortgage-backed securities and collateralized mortgage obligations
$
4,382

 
$
868

 
$

 
$
5,250

 
$
4,382

 
$
868

 
$

 
$
5,250


 (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 June 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.
 
June 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
$

 
$

 
$
2,029

 
$
271

 
$
2,029

 
$
271

Residential mortgage-backed securities and collateralized mortgage obligations
9,803

 
28

 
241,289

 
1,991

 
251,092

 
2,019

Total temporarily impaired securities
$
9,803

 
$
28

 
$
243,318

 
$
2,262

 
$
253,121

 
$
2,290



11

Table of Contents

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 June 30, 2016, 92% 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 June 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 June 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
$
4,655

 
$
4,665

 
$

 
$

Over three months through twelve months
101,270

 
102,536

 
4

 
4

After one year through five years
1,607,293

 
1,630,492

 
188

 
496

After five years through ten years
531,111

 
540,023

 
367

 
857

After ten years
198,801

 
202,313

 
3,823

 
3,893

Other investment securities
1,959

 
2,043

 

 

 
$
2,445,089

 
$
2,482,072

 
$
4,382

 
$
5,250


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. 

12

Table of Contents


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

(in thousands)
Three Months Ended
 
June 30, 2016
 
June 30, 2015
 
Gains
 
Losses
 
Gains
 
Losses
Obligations of states and political subdivisions
$
275

 
$

 
$

 
$

Residential mortgage-backed securities and collateralized mortgage obligations
270

 
383

 
226

 
207

 
$
545

 
$
383

 
$
226

 
$
207

 
 
 
 
 
 
 
 
 
Six Months Ended
 
June 30, 2016
 
June 30, 2015
 
Gains
 
Losses
 
Gains
 
Losses
Obligations of states and political subdivisions
$
971

 
$

 
$

 
$

Residential mortgage-backed securities and collateralized mortgage obligations
270

 
383

 
542

 
407

 
$
1,241

 
$
383

 
$
542

 
$
407


The following table presents, as of June 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
$
699

 
$
723

To state and local governments to secure public deposits
1,563,608

 
1,589,716

Other securities pledged principally to secure repurchase agreements
570,194

 
576,532

Total pledged securities
$
2,134,501

 
$
2,166,971


 
 

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Table of Contents

Note 3 – Loans and Leases  
 
The following table presents the major types of loans and leases, net of deferred fees and costs, as of June 30, 2016 and December 31, 2015
(in thousands)
June 30,
 
December 31,
 
2016
 
2015
Commercial real estate
 
 
 
Non-owner occupied term, net
$
3,377,464

 
$
3,226,836

Owner occupied term, net
2,581,786

 
2,582,874

Multifamily, net
3,004,890

 
3,151,516

Construction & development, net
367,879

 
271,119

Residential development, net
111,941

 
99,459

Commercial
 
 
 
Term, net
1,440,704

 
1,408,676

LOC & other, net
1,116,876

 
1,036,733

Leases and equipment finance, net
884,506

 
729,161

Residential
 
 
 
Mortgage, net
2,882,076

 
2,909,306

Home equity loans & lines, net
989,814

 
923,667

Consumer & other, net
597,304

 
527,189

Total loans and leases, net of deferred fees and costs
$
17,355,240

 
$
16,866,536

 
The loan balances are net of deferred fees and costs of $63.3 million and $47.0 million as of June 30, 2016 and December 31, 2015, respectively. Net loans include discounts on acquired loans of $67.1 million and $105.6 million as of June 30, 2016 and December 31, 2015, respectively. As of June 30, 2016, loans totaling $10.0 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 $449.0 million and $540.4 million at June 30, 2016 and December 31, 2015, respectively. The carrying balance of purchased impaired loans was $330.9 million and $438.1 million at June 30, 2016 and December 31, 2015, respectively.


14

Table of Contents

The following table presents the changes in the accretable yield for purchased impaired loans for the three and six months ended June 30, 2016 and 2015:
(in thousands)
 
Three Months Ended
 
 
June 30,
 
 
2016
 
2015
Balance, beginning of period
 
$
114,335

 
$
185,587

Accretion to interest income
 
(9,977
)
 
(15,149
)
Disposals
 
(2,748
)
 
(8,343
)
Reclassifications from nonaccretable difference
 
9,769

 
3,267

Balance, end of period
 
$
111,379

 
$
165,362

 
 
 
 
 
 
 
Six Months Ended
 
 
June 30,
 
 
2016
 
2015
Balance, beginning of period
 
$
132,829

 
$
201,699

Accretion to interest income
 
(24,175
)
 
(28,432
)
Disposals
 
(11,261
)
 
(15,256
)
Reclassifications from nonaccretable difference
 
13,986

 
7,351

Balance, end of period
 
$
111,379

 
$
165,362

 
 
 
 
 

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 six months ended June 30, 2016 and 2015
(in thousands)
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Commercial real estate
 
 
 
 
 
 
 
Non-owner occupied term, net
$
8,765

 
$
7,181

 
$
17,274

 
$
7,181

Owner occupied term, net
8,242

 
16,641

 
17,903

 
19,960

Multifamily, net
400

 

 
129,830

 
435

Commercial
 
 
 
 
 
 
 
Term, net
1,426

 
1,080

 
2,920

 
3,420

Residential
 
 
 
 
 
 
 
Mortgage, net
135,731

 
51,680

 
135,731

 
118,433

Total
$
154,564

 
$
76,582

 
$
303,658

 
$
149,429


As of June 30, 2016, the Company had transferred $9.8 million of portfolio residential mortgage loans to held for sale that are expected to be sold during the third quarter of 2016. These portfolio loans were transferred to held for sale at the lower of cost or fair value, and no loss was incurred upon transfer.

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. 


15

Table of Contents

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. 
 
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 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 June 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. 
 

16

Table of Contents

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 six months ended June 30, 2016 and 2015
(in thousands)
Three Months Ended June 30, 2016
 
Commercial
 
 
 
 
 
Consumer
 
 
 
Real Estate
 
Commercial
 
Residential
 
& Other
 
Total
Balance, beginning of period
$
51,450

 
$
50,781

 
$
20,897

 
$
7,115

 
$
130,243

Charge-offs
(564
)
 
(9,594
)
 
(294
)
 
(2,230
)
 
(12,682
)
Recoveries
220

 
1,274

 
293

 
1,105

 
2,892

(Recapture) Provision
(522
)
 
9,894

 
(750
)
 
1,967

 
10,589

Balance, end of period
$
50,584

 
$
52,355

 
$
20,146

 
$
7,957

 
$
131,042

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2015
 
Commercial
 
 
 
 
 
Consumer
 
 
 
Real Estate
 
Commercial
 
Residential
 
& Other
 
Total
Balance, beginning of period
$
55,340

 
$
44,042

 
$
16,221

 
$
4,501

 
$
120,104

Charge-offs
(2,102
)
 
(3,714
)
 
(138
)
 
(1,488
)
 
(7,442
)
Recoveries
1,265

 
1,113

 
108

 
669

 
3,155

Provision
3,840

 
4,077

 
1,773

 
1,564

 
11,254

Balance, end of period
$
58,343

 
$
45,518

 
$
17,964

 
$
5,246

 
$
127,071


 
 
 
 
 
 
 
 
 
 
(in thousands)
Six Months Ended June 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
(1,066
)
 
(14,249
)
 
(631
)
 
(4,586
)
 
(20,532
)
Recoveries
720

 
2,447

 
524

 
2,149

 
5,840

(Recapture) Provision
(3,363
)
 
16,670

 
(1,764
)
 
3,869

 
15,412

Balance, end of period
$
50,584

 
$
52,355

 
$
20,146

 
$
7,957

 
$
131,042

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 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
(3,431
)
 
(12,651
)
 
(536
)
 
(3,369
)
 
(19,987
)
Recoveries
1,488

 
2,184

 
139

 
3,189

 
7,000

Provision
5,102

 
14,769

 
2,439

 
1,581

 
23,891

Balance, end of period
$
58,343

 
$
45,518

 
$
17,964

 
$
5,246

 
$
127,071



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 both the three and six months ended June 30, 2016, respectively, and $0 and $1.6 million for the three and six months ended June 30, 2015, respectively. The increase due to the provision expense of the valuation allowance on purchased impaired loans was offset by recaptured provision of $71,000 and $847,000 for the three and six months ended June 30, 2016, respectively, and $0 and $185,000 for the three and six months ended June 30, 2015, respectively.


17

Table of Contents

The following table presents the allowance and recorded investment in loans and leases by portfolio segment as of June 30, 2016 and 2015
 (in thousands)
June 30, 2016
 
Commercial
 
 
 
 
 
Consumer
 
 
 
Real Estate
 
Commercial
 
Residential
 
& Other
 
Total
Allowance for loans and leases:
Collectively evaluated for impairment
$
47,427

 
$
51,466

 
$
19,351

 
$
7,885

 
$
126,129

Individually evaluated for impairment
363

 
456

 

 

 
819

Loans acquired with deteriorated credit quality
2,794

 
433

 
795

 
72

 
4,094

Total
$
50,584

 
$
52,355

 
$
20,146

 
$
7,957

 
$
131,042

Loans and leases:
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
$
9,139,255

 
$
3,412,760

 
$
3,821,080

 
$
596,460

 
$
16,969,555

Individually evaluated for impairment
34,906

 
19,929

 

 

 
54,835

Loans acquired with deteriorated credit quality
269,799

 
9,397

 
50,810

 
844

 
330,850

Total
$
9,443,960

 
$
3,442,086

 
$
3,871,890

 
$
597,304

 
$
17,355,240

 
 (in thousands)
June 30, 2015
 
Commercial
 
 
 
 
 
Consumer
 
 
 
Real Estate
 
Commercial
 
Residential
 
& Other
 
Total
Allowance for loans and leases:
Collectively evaluated for impairment
$
53,018

 
$
42,665

 
$
17,294

 
$
5,176

 
$
118,153

Individually evaluated for impairment
774

 
377

 

 

 
1,151

Loans acquired with deteriorated credit quality
4,551

 
2,476

 
670

 
70

 
7,767

Total
$
58,343

 
$
45,518

 
$
17,964

 
$
5,246

 
$
127,071

Loans and leases:
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
$
8,689,870

 
$
2,924,846

 
$
3,366,001

 
$
458,189

 
$
15,438,906

Individually evaluated for impairment
37,711

 
26,458

 

 

 
64,169

Loans acquired with deteriorated credit quality
400,925

 
19,535

 
64,097

 
1,120

 
485,677

Total
$
9,128,506

 
$
2,970,839

 
$
3,430,098

 
$
459,309

 
$
15,988,752

 

The loan and lease balances are net of deferred fees and costs of $63.3 million and $38.8 million at June 30, 2016 and June 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 six months ended June 30, 2016 and 2015
(in thousands) 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Balance, beginning of period
$
3,482

 
$
3,194

 
$
3,574

 
$
3,539

Net change to other expense
49

 
(330
)
 
(43
)
 
(675
)
Balance, end of period
$
3,531

 
$
2,864

 
$
3,531

 
$
2,864



18

Table of Contents

 (in thousands)
 
 
Total
Unfunded loan and lease commitments:
 
June 30, 2016
$
4,006,031

June 30, 2015
$
3,216,725

 
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 June 30, 2016 and December 31, 2015
(in thousands)
June 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
$
1,438

 
$
304

 
$
1,023

 
$
2,765

 
$
1,492

 
$
3,373,207

 
$
3,377,464

Owner occupied term, net
2,903

 
1,165

 
505

 
4,573

 
5,190

 
2,572,023

 
2,581,786

Multifamily, net
516

 

 

 
516

 
514

 
3,003,860

 
3,004,890

Construction & development, net

 

 

 

 

 
367,879

 
367,879

Residential development, net

 

 

 

 

 
111,941

 
111,941

Commercial
 
 
 
 
 
 
 
 
 
 
 
 

Term, net
11

 
252

 
317

 
580

 
10,748

 
1,429,376

 
1,440,704

LOC & other, net
918

 
945

 

 
1,863

 
817

 
1,114,196

 
1,116,876

Leases and equipment finance, net
4,402

 
3,923

 
933

 
9,258

 
6,375

 
868,873

 
884,506

Residential
 
 
 
 
 
 
 
 
 
 
 
 

Mortgage, net (2)

 
5,093

 
30,012

 
35,105

 

 
2,846,971

 
2,882,076

Home equity loans & lines, net
2,682

 
891

 
1,310

 
4,883

 

 
984,931

 
989,814

Consumer & other, net
3,082

 
1,115

 
271

 
4,468

 

 
592,836

 
597,304

Total, net of deferred fees and costs
$
15,952

 
$
13,688

 
$
34,371

 
$
64,011

 
$
25,136

 
$
17,266,093

 
$
17,355,240


(1) Other includes purchased credit impaired loans of $330.9 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 $11.3 million at June 30, 2016.

19

Table of Contents

 (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