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, 2017
 
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  [  ]  Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. [  ]
 
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: 220,231,751 shares outstanding as of October 31, 2017


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)
 
 
 
 
September 30,
 
December 31,
 
2017
 
2016
ASSETS
 
 
 
Cash and due from banks (restricted cash of $31,665 and $51,017)
$
304,760

 
$
331,994

Interest bearing cash and temporary investments (restricted cash of $701 and $0)
540,806

 
1,117,438

Total cash and cash equivalents
845,566

 
1,449,432

Investment securities
 
 
 
Trading, at fair value
11,919

 
10,964

Available for sale, at fair value
3,047,358

 
2,701,220

Held to maturity, at amortized cost
3,905

 
4,216

Loans held for sale, at fair value
417,470

 
387,318

Loans and leases
18,677,762

 
17,508,663

Allowance for loan and lease losses
(139,503
)
 
(133,984
)
Net loans and leases
18,538,259

 
17,374,679

Restricted equity securities
45,509

 
45,528

Premises and equipment, net
276,316

 
303,882

Goodwill
1,787,651

 
1,787,651

Other intangible assets, net
31,819

 
36,886

Residential mortgage servicing rights, at fair value
141,225

 
142,973

Other real estate owned
4,160

 
6,738

Bank owned life insurance
305,572

 
299,673

Deferred tax asset, net

 
34,322

Other assets
238,934

 
227,637

Total assets
$
25,695,663

 
$
24,813,119

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Deposits
 
 
 
Noninterest bearing
$
6,571,471

 
$
5,861,469

Interest bearing
13,280,439

 
13,159,516

Total deposits
19,851,910

 
19,020,985

Securities sold under agreements to repurchase
321,542

 
352,948

Term debt
852,306

 
852,397

Junior subordinated debentures, at fair value
266,875

 
262,209

Junior subordinated debentures, at amortized cost
100,690

 
100,931

Deferred tax liability, net
51,423

 

Other liabilities
265,657

 
306,854

Total liabilities
21,710,403

 
20,896,324

COMMITMENTS AND CONTINGENCIES (NOTE 8)

 

SHAREHOLDERS' EQUITY
 
 
 
Common stock, no par value, shares authorized: 400,000,000 in 2017 and 2016; issued and outstanding: 220,225,406 in 2017 and 220,177,030 in 2016
3,516,558

 
3,515,299

Retained earnings
476,226

 
422,839

Accumulated other comprehensive loss
(7,524
)
 
(21,343
)
Total shareholders' equity
3,985,260

 
3,916,795

Total liabilities and shareholders' equity
$
25,695,663

 
$
24,813,119


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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
INTEREST INCOME
 
 
 
 
 
 
 
Interest and fees on loans and leases
$
223,321

 
$
212,037

 
$
642,315

 
$
640,255

Interest and dividends on investment securities:
 
 
 
 
 
 
 
Taxable
13,979

 
10,779

 
43,130

 
35,797

Exempt from federal income tax
2,125

 
2,181

 
6,604

 
6,599

Dividends
357

 
332

 
1,105

 
1,063

Interest on temporary investments and interest bearing deposits
934

 
1,090

 
2,815

 
2,222

Total interest income
240,716

 
226,419

 
695,969

 
685,936

INTEREST EXPENSE
 
 
 
 
 
 
 
Interest on deposits
12,052

 
8,999

 
32,341

 
25,952

Interest on securities sold under agreement to repurchase and federal funds purchased
81

 
32

 
432

 
100

Interest on term debt
3,491

 
3,558

 
10,663

 
11,592

Interest on junior subordinated debentures
4,628

 
3,938

 
13,266

 
11,500

Total interest expense
20,252

 
16,527

 
56,702

 
49,144

Net interest income
220,464

 
209,892

 
639,267

 
636,792

PROVISION FOR LOAN AND LEASE LOSSES 
11,997

 
13,091

 
34,326

 
28,503

Net interest income after provision for loan and lease losses
208,467

 
196,801

 
604,941

 
608,289

NON-INTEREST INCOME
 
 
 
 
 
 
 
Service charges on deposits
15,849

 
15,762

 
46,056

 
45,945

Brokerage revenue
3,832

 
4,129

 
11,857

 
12,803

Residential mortgage banking revenue, net
33,430

 
47,206

 
94,158

 
99,415

(Loss) gain on investment securities, net
(6
)
 

 
27

 
858

Gain on loan sales, net
7,969

 
1,285

 
13,033

 
9,296

Loss on junior subordinated debentures carried at fair value
(1,590
)
 
(1,590
)
 
(4,717
)
 
(4,734
)
BOLI income
2,041

 
2,116

 
6,199

 
6,407

Other income
13,877

 
11,802

 
40,133

 
31,330

Total non-interest income
75,402

 
80,710

 
206,746

 
201,320

NON-INTEREST EXPENSE
 
 
 
 
 
 
 
Salaries and employee benefits
108,732

 
105,341

 
323,766

 
319,424

Occupancy and equipment, net
37,648

 
38,181

 
113,276

 
114,326

Communications
4,549

 
5,107

 
14,512

 
15,966

Marketing
1,950

 
2,124

 
6,057

 
7,978

Services
9,578

 
9,983

 
32,269

 
32,183

FDIC assessments
4,405

 
4,109

 
12,939

 
11,523

Gain on other real estate owned, net
(99
)
 
(14
)
 
(474
)
 
(82
)
Intangible amortization
1,689

 
1,867

 
5,067

 
6,755

Merger related expenses
6,664

 
2,011

 
9,324

 
12,095

Goodwill impairment

 

 

 
142

Other expenses
13,238

 
12,478

 
38,353

 
33,377

Total non-interest expense
188,354

 
181,187

 
555,089

 
553,687

Income before provision for income taxes
95,515

 
96,324

 
256,598

 
255,922

Provision for income taxes
34,182

 
34,515

 
92,450

 
92,257

Net income
$
61,333

 
$
61,809

 
$
164,148

 
$
163,665




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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
61,333

 
$
61,809

 
$
164,148

 
$
163,665

Dividends and undistributed earnings allocated to participating securities
14

 
31

 
40

 
92

Net earnings available to common shareholders
$
61,319

 
$
61,778

 
$
164,108

 
$
163,573

Earnings per common share:
 
 
 
 
 
 
 
Basic
$0.28
 
$0.28
 
$0.75
 
$0.74
Diluted
$0.28
 
$0.28
 
$0.74
 
$0.74
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
220,215

 
220,291

 
220,270

 
220,313

Diluted
220,755

 
220,751

 
220,793

 
220,936


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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
61,333

 
$
61,809

 
$
164,148

 
$
163,665

Available for sale securities:
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
4,118

 
(9,768
)
 
22,581

 
32,228

Income tax (expense) benefit related to unrealized gains (losses)
(1,594
)
 
3,780

 
(8,745
)
 
(12,472
)
 
 
 
 
 
 
 
 
Reclassification adjustment for net realized (gains) losses in earnings
6

 

 
(27
)
 
(858
)
Income tax (benefit) expense related to realized (gains) losses
(3
)
 

 
10

 
332

Other comprehensive income (loss), net of tax
2,527

 
(5,988
)
 
13,819

 
19,230

Comprehensive income
$
63,860

 
$
55,821

 
$
177,967

 
$
182,895


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, 2016
220,171,091

 
$
3,520,591

 
$
331,301

 
$
(2,558
)
 
$
3,849,334

Net income
 
 
 
 
232,940

 
 
 
232,940

Other comprehensive loss, net of tax
 
 
 
 
 
 
(18,785
)
 
(18,785
)
Stock-based compensation
 
 
9,790

 
 
 
 
 
9,790

Stock repurchased and retired
(1,117,061
)
 
(17,708
)
 
 
 
 
 
(17,708
)
Issuances of common stock under stock plans
1,123,000

 
2,626

 
 
 
 
 
2,626

Cash dividends on common stock ($0.64 per share)
 
 
 
 
(141,402
)
 
 
 
(141,402
)
Balance at December 31, 2016
220,177,030

 
$
3,515,299

 
$
422,839

 
$
(21,343
)
 
$
3,916,795

 
 
 
 
 
 
 
 
 
 
BALANCE AT JANUARY 1, 2017
220,177,030

 
$
3,515,299

 
$
422,839

 
$
(21,343
)
 
$
3,916,795

Net income
 
 
 
 
164,148

 
 
 
164,148

Other comprehensive income, net of tax
 
 
 
 
 
 
13,819

 
13,819

Stock-based compensation
 
 
6,688

 
 
 
 
 
6,688

Stock repurchased and retired
(340,849
)
 
(5,977
)
 
 
 
 
 
(5,977
)
Issuances of common stock under stock plans
389,225

 
548

 
 
 
 
 
548

Cash dividends on common stock ($0.50 per share)
 
 
 
 
(110,761
)
 
 
 
(110,761
)
Balance at September 30, 2017
220,225,406

 
$
3,516,558

 
$
476,226

 
$
(7,524
)
 
$
3,985,260


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)
Nine Months Ended
 
September 30,
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
164,148

 
$
163,665

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of investment premiums, net
22,526

 
16,401

Gain on sale of investment securities, net
(27
)
 
(858
)
Gain on sale of other real estate owned, net
(620
)
 
(1,683
)
Valuation adjustment on other real estate owned
146

 
1,601

Provision for loan and lease losses
34,326

 
28,503

Change in cash surrender value of bank owned life insurance
(6,272
)
 
(6,483
)
Depreciation, amortization and accretion
43,628

 
44,607

Loss on sale of premises and equipment
1,127

 
5,221

Additions to residential mortgage servicing rights carried at fair value
(23,486
)
 
(25,020
)
Change in fair value of residential mortgage servicing rights carried at fair value
25,234

 
42,391

Change in junior subordinated debentures carried at fair value
4,666

 
4,657

Stock-based compensation
6,688

 
7,523

Net increase in trading account assets
(955
)
 
(1,280
)
Gain on sale of loans, net
(103,665
)
 
(136,949
)
Change in loans held for sale carried at fair value
(7,210
)
 
(13,555
)
Origination of loans held for sale
(2,563,978
)
 
(2,928,951
)
Proceeds from sales of loans held for sale
2,631,668

 
3,133,551

Goodwill impairment

 
142

Change in other assets and liabilities:
 
 
 
Net decrease in other assets
21,390

 
9,336

Net (decrease) increase in other liabilities
(2,282
)
 
44,314

Net cash provided by operating activities
247,052

 
387,133

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of investment securities available for sale
(783,430
)
 
(443,094
)
Proceeds from investment securities available for sale
437,007

 
461,342

Proceeds from investment securities held to maturity
392

 
389

Purchases of restricted equity securities
(243,171
)
 
(600
)
Redemption of restricted equity securities
243,190

 
12

Net change in loans and leases
(1,405,145
)
 
(1,248,475
)
Proceeds from sales of loans
218,944

 
429,997

Net change in premises and equipment
(14,131
)
 
(22,573
)
Proceeds from bank owned life insurance death benefits
373

 
814

Proceeds from sales of other real estate owned
5,825

 
13,608

Net cash used in investing activities
$
(1,540,146
)
 
$
(808,580
)
 
 
 
 

8

Table of Contents

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) 
(UNAUDITED)
(in thousands)
Nine Months Ended
 
September 30,
 
2017
 
2016
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Net increase in deposit liabilities
$
831,811

 
$
1,213,354

Net (decrease) increase in securities sold under agreements to repurchase
(31,406
)
 
4,903

   Proceeds from term debt borrowings
205,000

 
490,000

Repayment of term debt borrowings
(205,000
)
 
(475,014
)
Dividends paid on common stock
(105,748
)
 
(105,824
)
Proceeds from stock options exercised
548

 
1,098

Repurchase and retirement of common stock
(5,977
)
 
(14,354
)
Net cash provided by financing activities
689,228

 
1,114,163

Net (decrease) increase in cash and cash equivalents
(603,866
)
 
692,716

Cash and cash equivalents, beginning of period
1,449,432

 
773,725

Cash and cash equivalents, end of period
$
845,566

 
$
1,466,441

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 

 
 

Cash paid during the period for:
 

 
 

Interest
$
58,191

 
$
53,783

Income taxes
$
25,668

 
$
12,921

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Change in unrealized gains on investment securities available for sale, net of taxes
$
13,819

 
$
19,230

Cash dividend declared on common stock and payable after period-end
$
39,649

 
$
35,250

Transfer of loans to loans held for sale
$

 
$
265,741

Change in GNMA mortgage loans recognized due to repurchase option
$
1,445

 
$
(11,857
)
Transfer of loans to other real estate owned
$
2,851

 
$
5,409

Transfers from other real estate owned to loans due to internal financing
$
78

 
$
5,881



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 2016 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 2016 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, 2017 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.

Note 2 – Investment Securities 
 
The following tables present the amortized costs, unrealized gains, unrealized losses and approximate fair values of investment securities at September 30, 2017 and December 31, 2016

 (in thousands)
September 30, 2017
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
 
Cost
 
Gains
 
Losses
 
Value
AVAILABLE FOR SALE:
 

 
 

 
 

 
 

U.S. Treasury and agencies
$
40,026

 
$

 
$

 
$
40,026

Obligations of states and political subdivisions
291,908

 
6,775

 
(889
)
 
297,794

Residential mortgage-backed securities and collateralized mortgage obligations
2,725,745

 
5,499

 
(23,689
)
 
2,707,555

Investments in mutual funds and other equity securities
1,959

 
24

 

 
1,983

 
$
3,059,638

 
$
12,298

 
$
(24,578
)
 
$
3,047,358

HELD TO MATURITY:
 
 
 
 
 
 
 
Residential mortgage-backed securities and collateralized mortgage obligations
$
3,905

 
$
1,114

 
$

 
$
5,019

 
$
3,905

 
$
1,114

 
$

 
$
5,019



10

Table of Contents

 (in thousands)
December 31, 2016
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
 
Cost
 
Gains
 
Losses
 
Value
AVAILABLE FOR SALE:
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
305,708

 
$
5,526

 
$
(3,537
)
 
$
307,697

Residential mortgage-backed securities and collateralized mortgage obligations
2,428,387

 
3,664

 
(40,498
)
 
2,391,553

Investments in mutual funds and other equity securities
1,959

 
11

 

 
1,970

 
$
2,736,054

 
$
9,201

 
$
(44,035
)
 
$
2,701,220

HELD TO MATURITY:
 
 
 
 
 
 
 
Residential mortgage-backed securities and collateralized mortgage obligations
$
4,216

 
$
1,001

 
$

 
$
5,217

 
$
4,216

 
$
1,001

 
$

 
$
5,217

 
Investment securities that were in an unrealized loss position as of September 30, 2017 and December 31, 2016 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position.
 
September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 (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
$
13,108

 
$
147

 
$
25,256

 
$
742

 
$
38,364

 
$
889

Residential mortgage-backed securities and collateralized mortgage obligations
1,169,351

 
10,792

 
667,296

 
12,897

 
1,836,647

 
23,689

Total temporarily impaired securities
$
1,182,459

 
$
10,939

 
$
692,552

 
$
13,639

 
$
1,875,011

 
$
24,578


December 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
$
71,571

 
$
3,065

 
$
1,828

 
$
472

 
$
73,399

 
$
3,537

Residential mortgage-backed securities and collateralized mortgage obligations
1,855,304

 
35,981

 
182,804

 
4,517

 
2,038,108

 
40,498

Total temporarily impaired securities
$
1,926,875

 
$
39,046

 
$
184,632

 
$
4,989

 
$
2,111,507

 
$
44,035

 
The unrealized losses on obligations of states and 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, 2017, 95% 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, 2017 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.


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Table of Contents

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 more likely than not 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, these investments are not considered other-than-temporarily impaired. 

The following table presents the maturities of investment securities at September 30, 2017
 
 (in thousands)
Available For Sale
 
Held To Maturity
 
Amortized
 
Fair
 
Amortized
 
Fair
 
Cost
 
Value
 
Cost
 
Value
AMOUNTS MATURING IN:
 
 
 
 
 
 
 
Due within one year
$
1,786

 
$
1,791

 
$

 
$

Due after one year through five years
101,898

 
102,915

 

 

Due after five years through ten years
416,627

 
419,502

 
18

 
19

Due after ten years
2,537,368

 
2,521,167

 
3,887

 
5,000

Other investment securities
1,959

 
1,983

 

 

 
$
3,059,638

 
$
3,047,358

 
$
3,905

 
$
5,019


The following tables present the gross realized gains and losses on the sale of securities available for sale for the three and nine months ended September 30, 2017 and 2016:

(in thousands)
Three Months Ended
 
September 30, 2017
 
September 30, 2016
 
Gains
 
Losses
 
Gains
 
Losses
Obligations of states and political subdivisions
$

 
$
6

 
$

 
$

 
$

 
$
6

 
$

 
$

 
 
 
 
 
 
 
 
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2016
 
Gains
 
Losses
 
Gains
 
Losses
Obligations of states and political subdivisions
$

 
$
9

 
$
971

 
$

Residential mortgage-backed securities and collateralized mortgage obligations
135

 
99

 
270

 
383

 
$
135

 
$
108

 
$
1,241

 
$
383


The following table presents, as of September 30, 2017, 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 the Federal Home Loan Bank to secure borrowings
$
458

 
$
467

To state and local governments to secure public deposits
926,917

 
927,182

Other securities pledged principally to secure repurchase agreements
426,540

 
423,854

Total pledged securities
$
1,353,915

 
$
1,351,503


 
 

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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, 2017 and December 31, 2016
(in thousands)
September 30,
 
December 31,
 
2017
 
2016
Commercial real estate
 
 
 
Non-owner occupied term, net
$
3,475,243

 
$
3,330,442

Owner occupied term, net
2,467,995

 
2,599,055

Multifamily, net
2,993,203

 
2,858,956

Construction & development, net
521,666

 
463,625

Residential development, net
186,400

 
142,984

Commercial
 
 
 
Term, net
1,819,664

 
1,508,780

LOC & other, net
1,134,045

 
1,116,259

Leases and equipment finance, net
1,137,732

 
950,588

Residential
 
 
 
Mortgage, net
3,094,361

 
2,887,971

Home equity loans & lines, net
1,079,931

 
1,011,844

Consumer & other, net
767,522

 
638,159

Total loans and leases, net of deferred fees and costs
$
18,677,762

 
$
17,508,663

 
The loan balances are net of deferred fees and costs of $74.5 million and $67.7 million as of September 30, 2017 and December 31, 2016, respectively. Net loans also include discounts on acquired loans of $13.1 million and $41.3 million as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017, loans totaling $10.7 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 $276.5 million and $368.2 million at September 30, 2017 and December 31, 2016, respectively. The carrying balance of purchased impaired loans was $206.6 million and $280.4 million at September 30, 2017 and December 31, 2016, respectively.

The following tables present the changes in the accretable yield for purchased impaired loans for the three and nine months ended September 30, 2017 and 2016:
(in thousands)
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Balance, beginning of period
$
82,306

 
$
111,379

 
$
95,579

 
$
132,829

Accretion to interest income
(10,774
)
 
(11,042
)
 
(28,905
)
 
(35,217
)
Disposals
(2,721
)
 
(4,209
)
 
(10,270
)
 
(15,470
)
Reclassifications from non-accretable difference
6,189

 
4,931

 
18,596

 
18,917

Balance, end of period
$
75,000

 
$
101,059

 
$
75,000

 
$
101,059



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Table of Contents

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, 2017 and 2016
(in thousands)
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Commercial real estate
 
 
 
 
 
 
 
Non-owner occupied term, net
$
3,596

 
$
1,340

 
$
7,519

 
$
18,614

Owner occupied term, net
10,936

 
10,380

 
38,158

 
28,283

Multifamily, net

 
49

 

 
129,879

Commercial
 
 
 
 
 
 
 
Term, net
5,932

 
1,809

 
12,449

 
4,729

LOC & other, net
187

 

 
187

 

Leases and equipment finance, net
19,199

 

 
46,312

 

Residential
 
 
 
 
 
 
 
Mortgage, net
72,493

 
103,465

 
101,286

 
239,196

Total
$
112,343

 
$
117,043

 
$
205,911

 
$
420,701




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Table of Contents

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. 
 
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 economic conditions; and any other factors deemed relevant. Additionally, Financial Pacific Leasing Inc. considers the additional quantitative and qualitative factors:  migration analysis; a static pool analysis of historic recoveries; and forecasting uncertainties. A migration analysis is a technique used to estimate the likelihood that an account will progress through the various delinquency states and ultimately be charged off.
 
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, 2017. 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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Table of Contents

 
Activity in the Allowance for Loan and Lease Losses 
 
The following tables summarize 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, 2017 and 2016
(in thousands)
Three Months Ended September 30, 2017
 
Commercial
 
 
 
 
 
Consumer
 
 
 
Real Estate
 
Commercial
 
Residential
 
& Other
 
Total
Balance, beginning of period
$
47,414

 
$
60,057

 
$
18,051

 
$
11,345

 
$
136,867

Charge-offs
(503
)
 
(10,504
)
 
(128
)
 
(2,087
)
 
(13,222
)
Recoveries
676

 
2,121

 
287

 
777

 
3,861

(Recapture) provision
(696
)
 
9,900

 
755

 
2,038

 
11,997

Balance, end of period
$
46,891

 
$
61,574

 
$
18,965

 
$
12,073

 
$
139,503

 
 
 
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
(in thousands)
Nine Months Ended September 30, 2017
 
Commercial
 
 
 
 
 
Consumer
 
 
 
Real Estate
 
Commercial
 
Residential
 
& Other
 
Total
Balance, beginning of period
$
47,795

 
$
58,840

 
$
17,946

 
$
9,403

 
$
133,984

Charge-offs
(1,651
)
 
(31,304
)
 
(745
)
 
(6,468
)
 
(40,168
)
Recoveries
2,533

 
5,662

 
597

 
2,569

 
11,361

(Recapture) provision
(1,786
)
 
28,376

 
1,167

 
6,569

 
34,326

Balance, end of period
$
46,891

 
$
61,574

 
$
18,965

 
$
12,073

 
$
139,503

 
 
 
 
 
 
 
 
 
 
 
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


The valuation allowance on purchased impaired loans was increased by provision expense, which includes amounts related to subsequent deterioration of purchased impaired loans of $96,000 for the nine months ended September 30, 2017, and $1.4 million for the nine months ended September 30, 2016. There was no provision expense that related to subsequent deterioration of purchased impaired loans recorded during the three months ended September 30, 2017 and 2016. The valuation allowance on purchased impaired loans was decreased by recaptured provision of $317,000 and $531,000 for the three and nine months ended September 30, 2017, respectively, and $55,000 and $902,000 for the three and nine months ended September 30, 2016, respectively.

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Table of Contents


The following tables present the allowance and recorded investment in loans and leases by portfolio segment as of September 30, 2017 and 2016
 (in thousands)
September 30, 2017
 
Commercial
 
 
 
 
 
Consumer
 
 
 
Real Estate
 
Commercial
 
Residential
 
& Other
 
Total
Allowance for loans and leases:
Collectively evaluated for impairment
$
43,792

 
$
60,809

 
$
18,383

 
$
12,045

 
$
135,029

Individually evaluated for impairment
749

 
416

 

 

 
1,165

Loans acquired with deteriorated credit quality
2,350

 
349

 
582

 
28

 
3,309

Total
$
46,891

 
$
61,574

 
$
18,965

 
$
12,073

 
$
139,503

Loans and leases:
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
$
9,440,129

 
$
4,054,600

 
$
4,136,418

 
$
767,054

 
$
18,398,201

Individually evaluated for impairment
40,832

 
32,125

 

 

 
72,957

Loans acquired with deteriorated credit quality
163,546

 
4,716

 
37,874

 
468

 
206,604

Total
$
9,644,507

 
$
4,091,441

 
$
4,174,292

 
$
767,522

 
$
18,677,762

 
 (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

 

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, 2017 and 2016
(in thousands) 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Balance, beginning of period
$
3,816

 
$
3,531

 
$
3,611

 
$
3,574

Net charge to other expense
116

 
5

 
321

 
(38
)
Balance, end of period
$
3,932

 
$
3,536

 
$
3,932

 
$
3,536


 (in thousands)
 
 
Total
Unfunded loan and lease commitments:
 
September 30, 2017
$
4,839,882

September 30, 2016
$
4,118,259


17

Table of Contents

 
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 tables summarize our non-accrual loans and leases and loans and leases past due, by loan and lease class, as of September 30, 2017 and December 31, 2016
(in thousands)
September 30, 2017
 
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
$
258

 
$
947

 
$
599

 
$
1,804

 
$
3,500

 
$
3,469,939

 
$
3,475,243

Owner occupied term, net
2,087

 
2,397

 
1

 
4,485

 
6,780

 
2,456,730

 
2,467,995

Multifamily, net

 
325

 

 
325

 
366

 
2,992,512

 
2,993,203

Construction & development, net

 

 

 

 
1,091

 
520,575

 
521,666

Residential development, net

 

 

 

 
6,153

 
180,247

 
186,400

Commercial
 
 
 
 
 
 
 
 
 
 
 
 

Term, net
131

 
973

 

 
1,104

 
13,081

 
1,805,479

 
1,819,664

LOC & other, net
583

 
169

 
505

 
1,257

 
3,700

 
1,129,088

 
1,134,045

Leases and equipment finance, net
5,379

 
8,072

 
2,411

 
15,862

 
9,902

 
1,111,968

 
1,137,732

Residential
 
 
 
 
 
 
 
 
 
 
 
 

Mortgage, net (2)

 
5,024

 
35,532

 
40,556

 

 
3,053,805

 
3,094,361

Home equity loans & lines, net
1,235

 
1,309

 
2,023

 
4,567

 

 
1,075,364

 
1,079,931

Consumer & other, net
2,360

 
1,002

 
304

 
3,666

 

 
763,856

 
767,522

Total, net of deferred fees and costs
$
12,033

 
$
20,218

 
$
41,375

 
$
73,626

 
$
44,573

 
$
18,559,563

 
$
18,677,762


(1) Other includes purchased credit impaired loans of $206.6 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 $12.3 million at September 30, 2017.

18

Table of Contents

 (in thousands)
December 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
$
718

 
$
1,027

 
$
1,047

 
$
2,792

 
$
2,100

 
$
3,325,550

 
$
3,330,442

Owner occupied term, net
974

 
4,539

 
1

 
5,514

 
4,391

 
2,589,150

 
2,599,055

Multifamily, net

 

 
—</