Umpqua

DEAR SHAREHOLDER,

2016 was a strong year for Umpqua Holdings Corporation. In addition to accomplishing a successful leadership transition, the company 
completed the last of our major system conversions and strategically expanded our commercial bank capabilities into new markets while 
delivering solid financial results.

First, a note about leadership transitions, which are one of the most important functions of an organization’s board of directors. Over the 
past year, Umpqua’s board implemented a smooth and successful process that emphasized continuity, evolution and a deep commitment 
to the company’s most valuable asset, our culture. With the board’s support and guidance, we each take on new roles this year with great 
confidence in the company’s future.    

Turning to the company’s financial performance, we’re pleased with the progress we made and the momentum we built during 2016, 
which resulted in strong growth in loans and deposits, stable credit quality, disciplined expense management and a healthy capital 
position. Excluding strategic loan sales, our teams grew loans and leases by eight percent and deposits by seven percent over the 
previous year. That included very strong growth in the commercial portfolio, including 30 percent growth in our lease and equipment 
finance business. In addition, we’re maintaining stellar credit quality, with non-performing assets of just 0.25 percent of the company’s 
total assets.

The company once again ended 2016 well capitalized, which is an indicator of the prudent capital strategies we continue to pursue 
as we remain focused on delivering sustainable shareholder value. Last year, we were pleased to report an 11 percent increase in our 
tangible book value per common share after including the impact of our healthy dividend.

It’s important to note the strength of this organization, financially and strategically. With the most significant bank integration in our history 
officially behind us, we can now look forward to fully leveraging what makes Umpqua unique: our brand, our culture and a renewed drive 
to revitalize our distinctive customer experience. As a $25 billion bank in some of the country’s fastest growing markets, with a culture 
built around serving our customers and communities, Umpqua is poised to generate strong organic growth. 

We believe that the standout companies of tomorrow will be those that combine human and digital capabilities in smart, thoughtful 
ways. As we look ahead, we’re confident Umpqua will be one of those organizations. As before, we’ll continue to invest in our customer 
experience and culture, while streamlining our operations in ways that benefit our customers and associates. We’ll also explore new 
technologies that will focus on delivering personalized banking for all…anytime, anywhere. In the near future, with our subsidiary Pivotus 
Ventures, we look forward to introducing a new digital banking experience that will allow customers to enjoy the same high level of 
personalized service found today in our bank stores. 

Our success last year and our promise this year are due to the incredible hard work and commitment of Umpqua’s 4,300 incredibly 
talented associates, who work tirelessly to bring our values, customer experience and culture to life. We share their commitment to 
delivering outstanding results for one another, and for our customers, communities and shareholders. 

Thank you for your investment and interest in Umpqua. 

Sincerely,

Cort O’Haver 
President & CEO    

Raymond P. Davis
Executive Chair

This annual report includes forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to 
risk and uncertainty and actual results could differ materially due to certain risk factors, including those set forth in the attached Form 10-K and our filings with the SEC. You should not place undue 
reliance on forward-looking statements. We make forward-looking statements about Pivotus Ventures, future organic growth and the introduction of new products and services.

U M P Q U A   H O L D I N G S   C O R P O R A T I O N   —   A N N U A L   R E P O R T   2 0 1 6

 
 
 
 
 
 
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K

[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended: December 31, 2016

[

] 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
(State or Other Jurisdiction
of Incorporation or Organization)

93-1261319
(I.R.S. Employer Identification Number)

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Common Stock

Name of each exchange on which registered

The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: 

 None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. [ X ] Yes [

] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. [

] Yes [ X ] No

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]

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

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2016, based
on the closing price on that date of $15.47 per share, and 218,945,453 shares held was $3,387,086,158.

Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practical date:
The number of shares of the Registrant’s common stock (no par value) outstanding as of January 31, 2017 was 220,247,016.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2017 Annual Meeting of Shareholders of Umpqua Holdings Corporation (‘‘Proxy
Statement’’) are incorporated by reference in this Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.

UMPQUA HOLDINGS CORPORATION

FORM 10-K CROSS REFERENCE INDEX

PART I

ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
ITEM 3.
ITEM 4. MINE SAFETY DISCLOSURES

PROPERTIES
LEGAL PROCEEDINGS

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER

PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA

ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED

STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

SIGNATURES
EXHIBIT INDEX

2
2
18
24
24
24
24
25
25

29
31

54
59
124

124
124
125
125
125
125

125
125
125
125
126
127

1

ITEM 1. BUSINESS.

PART I

In this Annual Report on Form 10-K, we refer to Umpqua Holdings Corporation as the ‘‘Company,’’ ‘‘Umpqua,’’ ‘‘we,’’ ‘‘us,’’
‘‘our,’’ or similar references; to Sterling Financial Corporation as ‘‘Sterling’’; and to the merger of Sterling with and into
Umpqua effective as of April 18, 2014, as the ‘‘Sterling merger’’ or the ‘‘Merger.’’

This Annual Report on Form 10-K contains forward-looking statements, within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbor
for ‘‘forward-looking statements’’ provided by the Private Securities Litigation Reform Act of 1995. These statements may
include statements that expressly or implicitly predict future results, performance or events. Statements other than
statements of historical fact are forward-looking statements. You can find many of these statements by looking for words
such as ‘‘could,’’ ‘‘may,’’ ‘‘anticipates,’’ ‘‘expects,’’ ‘‘believes,’’ ‘‘estimates’’ and ‘‘intends’’ and words or phrases of similar
meaning. We make forward-looking statements regarding projected sources of funds and liquidity; availability of acquisition
and growth opportunities; dividends; adequacy of our allowance for loan and lease losses, reserve for unfunded
commitments and provision for loan and lease losses; performance of troubled debt restructurings; our commercial real
estate portfolio, its collectability and subsequent chargeoffs; resolution of non-accrual loans; litigation; Pivotus Ventures, Inc.;
junior subordinated debentures; and the impact of Basel III on our capital. Forward-looking statements involve substantial
risks and uncertainties, many of which are difficult to predict and are generally beyond our control. There are many factors
that could cause actual results to differ materially from those contemplated by these forward-looking statements. Risks and
uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and
projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange
Commission (‘‘SEC’’), Item 1A of this Annual Report on Form 10-K, and the following:

(cid:129) our ability to attract new deposits and loans and leases;

(cid:129) demand for financial services in our market areas;

(cid:129)

competitive market pricing factors;

(cid:129) our ability to effectively develop and implement new technology;

(cid:129) deterioration in economic conditions that could result in increased loan and lease losses;

(cid:129)

risks associated with concentrations in real estate related loans;

(cid:129) market interest rate volatility;

(cid:129)

(cid:129)

(cid:129)

compression of our net interest margin;

stability of funding sources and continued availability of borrowings;

changes in legal or regulatory requirements or the results of regulatory examinations that could increase
expenses or restrict growth;

(cid:129) our ability to recruit and retain key management and staff;

(cid:129) availability of, and competition for acquisition opportunities;

(cid:129)

(cid:129)

risks associated with merger and acquisition integration;

significant decline in the market value of the Company that could result in an impairment of goodwill;

(cid:129) our ability to raise capital or incur debt on reasonable terms;

(cid:129)

(cid:129)

(cid:129)

(cid:129)

regulatory limits on the Bank’s ability to pay dividends to the Company;

the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (‘‘Dodd-Frank Act’’) and
other new legislation on the Company’s business operations, including our compliance costs, interest
expense, and revenue;

the impact of the ‘‘Basel III’’ capital rules issued by federal banking regulators (‘‘Basel III Rules’’); and

competition, including from financial technology companies.

2

For a more detailed discussion of some of the risk factors, see the section entitled ‘‘Risk Factors’’ below. We do not intend

to update any factors, except as required by SEC rules, or to publicly announce revisions to any of our forward-looking

statements. Any forward-looking statement speaks only as of the date that such statement was made. You should consider

any forward looking statements in light of this explanation, and we caution you about relying on forward-looking statements.

Introduction

Umpqua Holdings Corporation, an Oregon corporation, was formed as a bank holding company in March 1999. At that time,

we acquired 100% of the outstanding shares of South Umpqua Bank, an Oregon state-chartered bank formed in 1953. We

became a financial holding company in March 2000 under the provisions of the Gramm-Leach-Bliley Act of 1999 (‘‘GLB Act’’).

Umpqua has two principal operating subsidiaries, Umpqua Bank (the ‘‘Bank’’) and Umpqua Investments, Inc. (‘‘Umpqua

Investments’’).

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and

other information with the SEC. You may obtain these reports, and any amendments, from the SEC’s website at

www.sec.gov. You may obtain copies of these reports, and any amendments, through our website at

www.umpquaholdingscorp.com. These reports are available through our website as soon as reasonably practicable after they

are filed electronically with the SEC.

General Background

Headquartered in Roseburg, Oregon, Umpqua Bank is considered one of the most innovative community banks in the

United States, recognized nationally and internationally for its unique company culture and customer experience strategy,

which differentiate the Company from its competition. The Bank provides a broad range of banking, wealth management,

mortgage and other financial services to corporate, institutional, and individual customers, and also has a wholly-owned

subsidiary, Financial Pacific Leasing Inc., a commercial equipment leasing company.

Umpqua Investments is a registered broker-dealer and registered investment advisor with offices in Oregon, Washington, and

California, and also offers products and services through Umpqua Bank stores. The firm is one of the oldest investment

companies in the Northwest and is actively engaged in the communities it serves. Umpqua Investments offers a full range of

investment products and services including: stocks, fixed income securities (municipal, corporate, and government bonds,

CDs, and money market instruments), mutual funds, annuities, options, retirement planning, advisory account services, goals

based planning and insurance.

In 2014, the Company completed its merger with Sterling, and the combined company’s banking operations joined together

under the Umpqua Bank name and brand.

In 2015, we formed Pivotus Ventures, Inc. as a subsidiary of Umpqua Holdings Corporation. Pivotus will use a startup

dynamic and collaboration with other institutions to validate, develop, and test new bank platforms that could have a

significant impact on the experience and economics of banking. We believe the collaborative model will enhance Pivotus’s

ability to imagine and develop disruptive technologies, test them with a broad range of customers, and deliver them at

scale.

Along with its subsidiaries, the Company is subject to the regulations of state and federal agencies and undergoes regular

examinations by these regulatory agencies.

Business Strategy

Umpqua Bank’s primary objective is to become the leading community-oriented financial services organization throughout

the Western United States. The Sterling merger expanded Umpqua Bank’s footprint into Southern California, Eastern

Washington, Eastern Oregon, and Idaho markets. We intend to continue to grow our assets and increase profitability and

shareholder value by differentiating ourselves from competitors through the following strategies:

Capitalize on Innovative Product Delivery System. Our philosophy has been to create a unique delivery model that

transforms banking from a chore into an experience that’s both relevant to customers and highly differentiated from other

financial institutions. With this approach in mind, in 1995 we introduced a bank store concept designed to reflect customer

and community preferences and drive revenue growth by making the Bank’s products and services more tangible and

3

accessible. We’ve continued to evolve this model, introducing the next generation of our Neighborhood Store in the Capitol

Hill area of Seattle, Washington, in 2010, and in 2013, rolling out the next generation of our flagship store in San Francisco.

In 2016, a new flagship store was opened in downtown Spokane, Washington, replacing an older store with a traditional

bank setup.

Focus on Customer Experience. At every level of the Company, from the Board of Directors to our newest associates, and

across all customer service delivery channels, we are focused on delivering an extraordinary customer experience. It’s an

integral part of our culture, and we believe we are among the first banks to introduce a measurable quality service program.

Under our Return on Quality or ROQ program, the performance of each sales associate and store is evaluated based on

specific measurable factors, including reports by incognito ‘‘mystery shoppers’’ and customer surveys. Based on scores

achieved, Umpqua’s ROQ program rewards both individual sales associates and store teams with financial incentives.

Through such programs, we are able to measure the quality of the experience provided to our customers and maintain

employee focus on quality customer service.

Establish Strong Brand Awareness. As a financial services provider, we devote considerable resources to developing the

‘‘Umpqua Bank’’ brand. This is done through design strategy, marketing, merchandising, and delivery through our customer-

facing channels, as well as through active public relations, social media and community based events and initiatives. From

Bank-branded bags of custom roasted coffee beans and Umpqua-branded ice cream trucks, to educational seminars, in-store

events and social giving campaigns, Umpqua’s goal is to engage our customers and communities in fresh and engaging

ways. The unique look and feel of our stores and interactive displays help demonstrate our commitment to being an

innovative, customer-friendly provider of financial products and services, and our active community engagement and

investments stand out with commercial customers. Our brand activation approach is based on actions, not just advertising,

and builds strong consumer awareness of our products and services.

Use Technology to Retain and Expand Customer Base. As consumer preferences evolve with technological changes, our

strategy remains consistent: deliver an extraordinary experience across all customer touchpoints. As a result, we continue to

expand user-friendly, technology-based systems that reflect and complement the distinct customer experience the company

is known for. We believe this positions Umpqua well to adapt quickly as customer use of physical and digital channels

evolves. We offer technology-based services including remote deposit capture, online banking, bill pay and treasury services,

mobile banking, voice response banking, automatic payroll deposit programs, advanced function ATMs, interactive product

kiosks, and our web site. We believe the combination of physical and electronic banking services enhances our ability to

attract a broader range of customers and wrap our value proposition across all channels.

Increase Market Share in Existing Markets and Expand Into New Markets. As a result of our innovative retail product

orientation, measurable quality service program, strong brand awareness, and distinct customer experience across all delivery

channels, we believe there is significant potential to increase business with current customers, to attract new customers in

our existing markets and continue entering new markets.

In April 2014 we completed the largest acquisition in Umpqua’s history, merging with Sterling Financial Corporation. The

Sterling acquisition was a strategic opportunity to enhance shareholder value through a transformative business combination.

It allowed us to accelerate significantly our objective of creating something unique in the financial services industry: an
organization that offers the products and expertise of a large bank but delivers them with the personal service and

commitment of a community bank. As the landscape of the financial services industry is being reshaped by technological

advances and the introduction of new digital customer delivery channels and technology-driven products and services, we

believe the alignment of our physical and digital customer delivery channels is crucial in creating an exceptional customer

experience. By doing so, we believe we can best serve our customers—anytime and anywhere—which will drive stronger

growth, better customer retention, and create valuable fee and treasury management opportunities. During 2015, we

focused on completing the integration of Sterling and realizing the financial benefits of the merger, as well as growing the

combined bank and launching Pivotus Ventures, Inc. During 2016, we focused on expense discipline and adjusting the mix of

the loan portfolio, entered new markets, expanded our product offerings, and enhanced the digital experience for our

customers.

Prudently Manage Capital. An important part of our strategy is to continue to manage capital prudently, and to employ

excess capital in a thoughtful and opportunistic manner that improves shareholder returns. We accomplish this through

4

dividends, share repurchases, and pursuing strategic acquisitions, which could include technology-driven enterprises or banks

and financial services companies in markets where we see growth potential.

Marketing and Sales

Our goal of increasing our share of financial services in our market areas is driven by a marketing, communications and sales

strategy with the following key components:

Integrated Marketing and Communications. Our comprehensive marketing and communications strategy aims to strengthen

the Umpqua Bank brand and generate public awareness through innovative marketing and PR initiatives that stand out in our

markets and our industry. The Bank has been recognized nationally for its use of new media and unique approach. From the

Bank’s Local Spotlight program, ice cream trucks and social giving platform, to interactive initiatives like Made to Grow,

Umpqua is leveraging both traditional and emerging media channels in new ways to advance the brand and create

meaningful connections with consumers.

Retail Store Concept. Being in the financial services business, we believe that the physical environment continues to play a

critical role both in creating awareness of our brand and franchise, as well as in successfully providing the right products and

services to our customers. Using a more retailer-oriented approach, we encourage existing and potential customers to come

in to our physical locations. To that end, we’ve designed our physical locations to display financial services and products in

ways that are highly tactile and engaging. Unlike many financial institutions, we encourage all in our communities to visit our

stores, where they are greeted by well-trained associates and encouraged to browse our products and services. Our ‘‘Next

Generation’’ store model includes features like free wireless, free use of laptop computers, open rooms with refrigerated

beverages and innovative product packaging. The stores host a variety of after-hours events, from poetry readings and yoga

classes to movie nights and seminars on how to build an art collection.

To bring financial services to our customers in a cost-effective way, we introduced ‘‘Neighborhood Stores.’’ We build these

stores in established neighborhoods and design them to be neighborhood hubs. These stand-alone, full-service stores are

smaller and emphasize advanced technology. To strengthen brand recognition, all Neighborhood Stores are similar in

appearance. In 2013, Umpqua Bank launched our flagship store in San Francisco which received international recognition as

the Retail Design Institutes 2013 Store of the Year award, the first time in the organization’s history that a financial services

institution received the award.

Service Culture. We believe strongly that if we lead with a service culture, we will have more opportunity to provide our

products and services and to create deeper customer relationships across all divisions, from retail to mortgage and

commercial. Although a successful marketing program will attract customers to visit, a highly tuned service environment and

well-trained associates are critical to selling products and services. Umpqua’s service culture has become well established

throughout the organization due to a clear focus and ongoing training of our associates on all aspects of sales and service.

We provide training through our in-house training, known as ‘‘The World’s Greatest Bank University,’’ to recognize and

celebrate exceptional service. This service culture has become iconic in our industry, and is a key element in our ability to

attract both talented associates and loyal customers.

Products and Services

We offer an array of traditional and digital financial products to meet the banking needs of our market area and target

customers. To ensure the ongoing viability of our product offerings, we regularly examine the desirability and profitability of

existing and potential new products. Other avenues through which customers can access our products include our web site,

mobile banking app, and our 24-hour telephone voice response system.

Deposit Products. We offer a traditional array of deposit products, including non-interest bearing checking accounts,

interest bearing checking and savings accounts, money market accounts and certificates of deposit. These accounts earn

interest at rates established by management based on competitive market factors and management’s desire to increase

certain types or maturities of deposit liabilities. Our approach is to tailor fit products and bundle those that meet the

customer’s needs. This approach is designed to add value for the customer, increase products per household and generate

related fee income.

5

Private Bank. Umpqua Private Bank serves high net worth individuals and nonprofits, providing investment services. The

private bank is designed to augment Umpqua’s existing high-touch customer experience, and works collaboratively with the

Bank’s affiliate Umpqua Investments to offer a comprehensive, integrated approach that meets clients’ financial goals,

including financial planning, trust services, and investments.

Broker Dealer and Investment Advisory Services.

In its combined role as a broker/dealer and a registered investment

advisor, Umpqua Investments may provide comprehensive financial planning advice to its clients as well as investment

services. This advice can include cash management, risk management (insurance planning/sales), investment planning

(including investment advice and/or portfolio checkups), retirement planning (for employees and employers), or estate

planning. The broker/dealer side of Umpqua Investments offers a full range of brokerage services including equity and fixed

income products, mutual funds, annuities, options and life insurance products. At December 31, 2016, Umpqua Investments

had 37 Series 7-licensed financial advisors serving clients at stand-alone retail brokerage offices, as well as ‘‘Investment

Opportunity Centers’’ located in select Bank stores.

Commercial Loans and Leases and Commercial Real Estate Loans. We offer a broad array of specialized loans for business

and commercial customers, including accounts receivable and inventory financing, multi-family loans, equipment loans,

commercial equipment leases, international trade, real estate construction loans and permanent financing and Small Business

Administration (‘‘SBA’’) program financing as well as capital markets and treasury management services. Additionally, we offer

specially designed loan products for small businesses through our Small Business Lending Center, and have a business

banking division to increase lending to small and mid-sized businesses. Ongoing credit management activities continue to

focus on commercial real estate loans given this is a significant portion of our loan portfolio. We are also engaged in

initiatives that continue to diversify the loan portfolio including a strong focus on commercial and industrial loans in addition

to financing owner-occupied properties.

Residential Real Estate Loans. Real estate loans are available for the construction, purchase, and refinancing of residential

owner-occupied and rental properties. Borrowers can choose from a variety of fixed and adjustable rate options and terms.

We sell most residential real estate loans that we originate into the secondary market. Servicing is retained on the majority of

these loans. We also support the Home Affordable Refinance Program and Home Affordable Modification Program.

Consumer Loans. We provide loans to individual borrowers for a variety of purposes, including secured and unsecured

personal loans, home equity and personal lines of credit and motor vehicle loans. Loans may be made directly to borrowers

or through Umpqua’s dealer banking department.

Market Area and Competition

The geographic markets we serve are highly competitive for deposits, loans, leases and retail brokerage services. We

compete with traditional banking institutions, as well as non-bank financial service providers, such as credit unions, brokerage

firms and mortgage companies. In our primary market areas of Oregon, Washington, California, Idaho, and Nevada, major

banks and large regional banks generally hold dominant market share positions. By virtue of their larger capital bases, these

institutions have significantly larger lending limits than we do and generally have more expansive branch networks.

Competition also includes other commercial banks that are community-focused.

As the industry becomes increasingly oriented toward technology-driven delivery systems, permitting transactions to be

conducted on computers, phones, tablets, and other mobile devices, non-bank institutions are able to attract funds and

provide lending and other financial services even without offices located in our primary service area. Some insurance

companies and brokerage firms compete for deposits by offering rates that are higher than may be appropriate for the Bank

in relation to its asset and liability management objectives. However, we offer a wide array of deposit products and believe

we can compete effectively through rate-driven product promotions. We also compete with full service investment firms for

non-bank financial products and services offered by Umpqua Investments.

Credit unions present a significant competitive challenge for our banking services and products. As credit unions currently

enjoy an exemption from income tax, they are able to offer higher deposit rates and lower loan rates than banks can on a

comparable basis. Credit unions are also not currently subject to certain regulatory constraints, such as the Community

Reinvestment Act (‘‘CRA’’), which, among other things, requires us to implement procedures to make and monitor loans

throughout the communities we serve. Adhering to such regulatory requirements raises the costs associated with our lending

activities, and reduces potential operating profits. Accordingly, we seek to compete by focusing on building customer

6

relationships, providing superior service and offering a wide variety of commercial banking products, such as commercial real

estate loans, inventory and accounts receivable financing, and SBA program loans for qualified businesses.

The following tables presents the Bank’s market share percentage for total deposits as of June 30, 2016, in each county

where we have operations. The table also indicates the ranking by deposit size in each market. All information in the table

was obtained from SNL Financial, which compiles deposit data published by the FDIC as of June 30, 2016 and updates the

information for any bank mergers and acquisitions completed subsequent to the reporting date.

County

Baker
Benton
Clackamas
Columbia
Coos
Curry
Deschutes
Douglas
Grant
Harney
Jackson
Josephine
Klamath
Lake
Lane
Lincoln
Linn
Malheur
Marion
Multnomah
Polk
Tillamook
Umatilla
Union
Wallowa
Washington
Yamhill

Oregon

Market Market
Rank

Share

Number
of Stores

25.9%
8.3%
2.3%
16.6%
35.8%
44.1%
7.1%
76.6%
21.6%
22.3%
18.8%
18.5%
30.0%
32.5%
16.7%
7.7%
13.0%
23.4%
7.5%
3.3%
6.8%
30.2%
5.6%
23.9%
24.8%
6.9%
2.8%

2
6
8
3
1
1
6
1
3
3
1
2
1
2
2
6
4
2
6
7
7
2
6
1
2
5
8

1
2
4
1
5
3
6
9
1
1
8
5
4
1
9
2
3
3
3
16
1
2
2
2
1
7
1

7

County

Adams
Asotin
Benton
Clallam
Clark
Columbia
Douglas
Franklin
Garfield
Grant
Grays Harbor
King
Kitsap
Kittitas
Klickitat
Lewis
Okanogan
Pierce
Skamania
Snohomish
Spokane
Thurston
Walla Walla
Whatcom
Whitman

Washington

Market Market
Rank

Share

Number
of Stores

21.5%
16.3%
5.5%
4.4%
16.3%
24.8%
7.3%
7.2%
53.5%
8.0%
9.1%
2.0%
0.9%
12.0%
33.9%
14.6%
24.5%
4.0%
63.3%
0.7%
7.2%
3.4%
4.0%
2.5%
8.6%

3
3
8
9
3
3
5
6
1
7
4
9
16
4
1
2
2
8
1
22
7
13
5
12
5

2
1
2
2
11
1
1
1
1
2
2
23
1
2
2
4
2
10
1
2
9
4
2
4
3

8

County

Amador
Butte
Calaveras
Colusa
Contra Costa
El Dorado
Glenn
Humboldt
Lake
Los Angeles
Marin
Mendocino
Napa
Orange
Placer
Sacramento
San Diego
San Francisco
San Joaquin
San Luis Obispo
Santa Clara
Shasta
Solano
Sonoma
Stanislaus
Sutter
Tehama
Trinity
Tuolumne
Ventura
Yolo
Yuba

County

Ada
Benewah
Idaho
Kootenai
Latah
Nez Perce
Valley

County

Clark
Washoe

California

Market Market
Rank

Share

Number
of Stores

4.5%
2.7%
26.0%
39.9%
0.4%
6.5%
29.8%
24.7%
16.3%
0.0%
1.7%
3.5%
8.8%
0.5%
4.3%
0.7%
0.1%
0.1%
0.5%
0.3%
0.0%
1.9%
3.2%
4.2%
0.7%
11.7%
16.6%
28.7%
14.3%
0.1%
2.3%
26.2%

7
10
2
1
16
5
2
1
2
74
11
7
4
28
6
15
38
29
17
11
40
8
8
9
15
4
1
2
3
24
11
3

1
1
4
2
3
3
2
7
2
3
3
1
5
1
7
6
3
3
1
1
1
1
4
8
2
2
2
1
3
1
1
2

Market Market
Rank

Share

Number
of Stores

0.6%
18.7%
48.8%
2.5%
25.0%
14.6%
24.9%

17
3
1
10
2
4
3

2
1
3
3
2
2
2

Market Market
Rank

Share

Number
of Stores

0.0%
0.2%

34
9

1
4

Idaho

Nevada

Lending and Credit Functions

The Bank makes both secured and unsecured loans to individuals and businesses. At December 31, 2016, commercial real

estate, commercial, residential, and consumer and other represented approximately 53.7%, 20.4%, 22.3%, and 3.6%,

respectively, of the total loan and lease portfolio.

9

Inter-agency guidelines adopted by federal bank regulators mandate that financial institutions establish real estate lending

policies with maximum allowable real estate loan-to-value limits, subject to an allowable amount of non-conforming loans as

a percentage of capital. We have adopted as loan policy loan-to-value limits that range from 5% to 10% less than the federal

guidelines for each category; however, policy exceptions are permitted for real estate loan customers with strong financial

credentials.

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 Group

is charged with monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application

of these policies and procedures across the Bank. The provision for loan and lease losses charged to earnings is based upon

management’s judgment of the amount necessary to maintain the allowance at a level adequate to absorb probable incurred

losses. The amount of provision charged is dependent upon many factors, including loan and lease growth, net charge-offs,

changes in the composition of the loan and lease portfolio, delinquencies, management’s assessment of loan and lease

portfolio quality, general economic conditions that can impact the value of collateral, and other trends. The evaluation of

these factors is performed through an analysis of the adequacy of the allowance for loan and lease losses. 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 a quarterly 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.

Employees

As of December 31, 2016, we had a total of 4,295 full-time equivalent employees. None of the employees are subject to a

collective bargaining agreement and management believes its relations with employees to be good. Information regarding

employment agreements with our executive officers is contained in Item 11 below, which item is incorporated by reference

to our proxy statement for the 2017 annual meeting of shareholders.

Government Policies

The operations of our subsidiaries are affected by state and federal legislative and regulatory changes and by policies of

various regulatory authorities, including, domestic monetary policies of the Board of Governors of the Federal Reserve

System (‘‘Federal Reserve’’), United States fiscal policy, and capital adequacy and liquidity constraints imposed by federal and

state regulatory agencies.

Supervision and Regulation

General. We are extensively regulated under federal and state law. These laws and regulations are generally intended to

protect depositors and customers, not shareholders. To the extent that the following information describes statutory or

regulatory provisions, it is qualified in its entirety by reference to the particular statute or regulation. Any change in

applicable laws or regulations may have a material effect on our business and prospects. We cannot accurately predict the

nature or the extent of the effects on our business and earnings that fiscal or monetary policies, or new federal or state

legislation or regulation may have in the future. Umpqua is subject to the disclosure and other requirements of the Securities

Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and rules promulgated thereunder and

administered by the Securities and Exchange Commission. As a listed company on NASDAQ, Umpqua is subject to

NASDAQ rules for listed companies.

The Federal Reserve and the FDIC have adopted non-capital safety and soundness standards for financial institutions. These

standards cover internal controls, information and internal audit systems, loan documentation, credit underwriting, interest

rate exposure, asset growth, compensation, fees and benefits, and standards for asset quality, earnings and stock valuation.

An institution that fails to meet these standards must develop a plan acceptable to the agency, specifying the steps that it

will take to meet the standards. Failure to submit or implement such a plan may subject the institution to regulatory

sanctions.

10

Holding Company Regulation. We are a registered financial holding company under the GLB Act, and are subject to the

supervision of, and regulation by the Federal Reserve. As a financial holding company, we are examined by and file reports

with the Federal Reserve. The Federal Reserve expects a bank holding company to serve as a source of financial and

managerial strength to its subsidiary bank and, under appropriate circumstances, to commit resources to support the

subsidiary bank.

Financial holding companies are bank holding companies that satisfy certain criteria and are permitted to engage in activities

that traditional bank holding companies are not. The qualifications and permitted activities of financial holdings companies

are described below under ‘‘Regulatory Structure of the Financial Services Industry.’’

Federal and State Bank Regulation. Umpqua Bank, as a state chartered bank with deposits insured by the FDIC, is primarily

subject to the supervision and regulation of the Oregon Department of Consumer and Business Services Division of Financial

Regulation(‘‘DCBS’’), the Washington Department of Financial Institutions (‘‘DFI’’), the California Department of Business

Oversight (‘‘DBO’’), the Idaho Department of Finance Banking Section, the Nevada Division of Financial Institutions, the FDIC

and the Consumer Financial Protection Bureau (‘‘CFPB’’). These agencies may prohibit the Bank from engaging in what they

believe constitute unsafe or unsound banking practices. Our primary state regulator, DCBS, regularly examines the Bank or

participates in joint examinations with the FDIC.

Community Reinvestment Act and Fair Lending Laws. Umpqua Bank has a responsibility under the CRA, as implemented by

FDIC regulations to help meet the credit needs of its communities, including low and moderate-income neighborhoods. The

CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s

discretion to develop the types of products and services that it believes are best suited to its particular community,

consistent with the CRA. In connection with its examination, the FDIC assesses Umpqua Bank’s record of compliance with the

CRA. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit discrimination in lending practices on

the basis of characteristics specified in those statutes. These factors are also considered in evaluating mergers, acquisitions

and applications to open a branch or new facility. Umpqua Bank’s failure to comply with the provisions of the CRA could, at

a minimum, result in regulatory restrictions on its activities and the activities of Umpqua potentially resulting in the

suspension of any growth of the Bank through acquisitions or opening de novo branches until the rating is improved.

Umpqua Bank’s failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in

enforcement actions against it by the FDIC, as well as other federal regulatory agencies, including the CFPB and the

Department of Justice. As of the most recent CRA examination, the Bank’s CRA rating was ‘‘Satisfactory.’’

Transactions with Affiliates and Insiders. Banks are also subject to certain restrictions imposed by the Federal Reserve Act

on extensions of credit to executive officers, directors, principal shareholders or any related interest of such persons.

Extensions of credit must be made on substantially the same terms, including interest rates and collateral, and follow credit

underwriting procedures that are not less stringent than, those prevailing at the time for comparable transactions with

persons not affiliated with the bank, and must not involve more than the normal risk of repayment or present other

unfavorable features. Banks are also subject to certain lending limits and restrictions on overdrafts to such persons. A

violation of these restrictions may result in the assessment of substantial civil monetary penalties on the affected bank or any

officer, director, employee, agent or other person participating in the conduct of the affairs of that bank, the imposition of a

cease and desist order, and other regulatory sanctions.

The Federal Reserve Act and related Regulation W limit the amount of certain loan and investment transactions between the

Bank and its affiliates, require certain levels of collateral for such loans, and limit the amount of advances to third parties that

may be collateralized by the securities of Umpqua or its subsidiaries. Regulation W requires that certain transactions between

the Bank and its affiliates be on terms substantially the same, or at least as favorable to the Bank, as those prevailing at the

time for comparable transactions with or involving nonaffiliated companies or, in the absence of comparable transactions, on

terms and under circumstances, including credit standards, that in good faith would be offered to or would apply to

nonaffiliated companies. Umpqua and its subsidiaries have adopted an Affiliate Transactions Policy and have entered into

various affiliate agreements in compliance with Regulation W.

Financial Privacy. Federal law and certain state laws currently contain client privacy protection provisions. These provisions

limit the ability of banks and other financial institutions to disclose non-public information about consumers to affiliated

companies and non-affiliated third parties. These rules require disclosure of privacy policies to clients and, in some

circumstances, allow consumers to prevent disclosure of certain personal information to affiliates or non-affiliated third parties

11

by means of opt out or opt in authorizations. Pursuant to the Gramm-Leach-Bliley Act (GLBA) and certain state laws,

companies are required to notify clients of security breaches resulting in unauthorized access to their personal information. In

connection with the regulations governing the privacy of consumer financial information, the federal banking agencies have

also adopted guidelines for establishing information security standards and programs to protect such information.

Federal Deposit Insurance. Substantially all deposits with Umpqua Bank are insured up to applicable limits by the Deposit

Insurance Fund (‘‘DIF’’) of the FDIC and are subject to deposit insurance assessments to maintain the DIF.

In October 2010, the FDIC adopted a new DIF restoration plan to ensure that the fund reserve ratio reaches 1.35% by

September 30, 2020, as required by the Dodd-Frank Act. At least semi-annually, the FDIC will update its loss and income

projections for the DIF and, if needed, increase or decrease assessment rates.

On February 7, 2011, the FDIC adopted a final rule modifying the risk-based assessment system from a domestic deposit

base to a scorecard based assessment system, effective April 1, 2011. As of April 1, 2011, the Bank was categorized as a

large institution as the Bank has more than $10 billion in assets. The initial base assessment rates range from 5 to 35 basis

points. After potential adjustments related to unsecured debt and brokered deposit balances, the final total assessment rates

range from 2.5 to 45 basis points. Initial base assessment rates for large institutions ranged from 5 to 35 basis points.

Increases in the assessment rate could have a material adverse effect on our earnings, depending upon the amount of the

increase.

The Dodd-Frank Wall Street Reform and Consumer Protection Act permanently raised the standard maximum federal deposit

insurance amount from $100,000 to $250,000 per qualified account.

The FDIC may terminate the deposit insurance of any insured depository institution if it determines that the institution has

engaged in or is engaging in unsafe and unsound banking practices, is in an unsafe or unsound condition or has violated

any applicable law, regulation or order or any condition imposed in writing by, or pursuant to, any written agreement with

the FDIC. The termination of deposit insurance for the Bank would have a material adverse effect on our financial condition

and results of operations.

Dividends. Under the Oregon Bank Act and the Federal Deposit Insurance Corporation Improvement Act of 1991

(‘‘FDICIA’’), the Bank is subject to restrictions on the payment of cash dividends to its parent company. A bank may not pay

cash dividends if that payment would reduce the amount of its capital below that necessary to meet minimum applicable

regulatory capital requirements. In addition, under the Oregon Bank Act, the amount of the dividend paid by the Bank may

not be greater than net unreserved retained earnings, after first deducting to the extent not already charged against

earnings or reflected in a reserve, all bad debts, which are debts on which interest is unpaid and past due at least six

months unless the debt is fully secured and in the process of collection; all other assets charged-off as required by Oregon

bank regulators or a state or federal examiner; and all accrued expenses, interest and taxes of the Bank. In addition, state

and federal regulatory authorities are authorized to prohibit banks and holding companies from paying dividends that would

constitute an unsafe or unsound banking practice. The Federal Reserve has issued a policy statement on the payment of

cash dividends by bank holding companies, which expresses the Federal Reserve’s view that a bank holding company should

pay cash dividends only to the extent that its net income for the past year is sufficient to cover both the cash dividends and

a rate of earnings retention that is consistent with the holding company’s capital needs, asset quality, and overall financial

condition.

Capital Adequacy. The federal and state bank regulatory agencies use capital adequacy guidelines in their examination and

regulation of holding companies and banks. If capital falls below the minimum levels established by these guidelines, a

holding company or a bank may be denied approval to acquire or establish additional banks or non-bank businesses or to

open new facilities.

The FDIC and Federal Reserve have adopted risk-based capital guidelines for holding companies and banks. The risk-based

capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profile among

holding companies and banks, to account for off-balance sheet exposure and to minimize disincentives for holding liquid

assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weightings. The

resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. The capital

adequacy guidelines limit the degree to which a holding company or bank may leverage its equity capital.

12

Federal regulations establish minimum requirements for the capital adequacy of depository institutions, such as the Bank.

Banks with capital ratios below the required minimums are subject to certain administrative actions, including prompt

corrective action, the termination of deposit insurance upon notice and hearing, or a temporary suspension of insurance

without a hearing.

On July 2, 2013, federal banking regulators approved final rules that revised the regulatory capital rules to incorporate

certain revisions by the Basel Committee on Banking Supervision to the Basel capital framework (‘‘Basel III’’). The phase-in

period for the final rules began for the Company on January 1, 2015, with full compliance with the final rules’ requirements

phased in on January 1, 2019.

The final rules, among other things, include a new common equity Tier 1 capital (‘‘CET1’’) to risk-weighted assets ratio,

including a capital conservation buffer, which will gradually increase from 4.5% on January 1, 2015 to 7.0% on January 1,

2019. The final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% on January 1,

2015 to 8.5% on January 1, 2019, as well as require a minimum leverage ratio of 4.0%.

Under the final rules, as Umpqua grew above $15.0 billion in assets as a result of an acquisition, the combined trust

preferred security debt issuances were phased out of Tier 1 and into Tier 2 capital (75% starting in the first quarter of 2015

and 100% starting in the first quarter of 2016). The final rules also provide for a number of adjustments to and deductions

from the new CET1. Under Basel III, the effects of certain accumulated other comprehensive items are not excluded;

however, the Company and the Bank, have made a one-time permanent election to continue to exclude these items in order

to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value

of the Company’s securities portfolio.

In addition, deductions include, for example, the requirement that mortgage servicing rights, certain deferred tax assets not

dependent upon future taxable income and significant investments in non-consolidated financial entities be deducted from

CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of

CET1.

FDICIA requires federal banking regulators to take ‘‘prompt corrective action’’ with respect to a capital-deficient institution,

including requiring a capital restoration plan and restricting certain growth activities of the institution. Umpqua could be

required to guarantee any such capital restoration plan required of the Bank if the Bank became undercapitalized. Pursuant

to FDICIA, regulations were adopted defining five capital levels: well capitalized, adequately capitalized, undercapitalized,

severely undercapitalized and critically undercapitalized. Under the regulations, the Bank is considered ‘‘well capitalized’’ as

of December 31, 2016.

Federal and State Regulation of Broker-Dealers. Umpqua Investments is a fully disclosed introducing broker-dealer clearing

through Wells Fargo Clearing Services, LLC. Umpqua Investments is regulated by the Financial Industry Regulatory Authority

(‘‘FINRA’’), as well as the SEC, and has deposits insured through the Securities Investors Protection Corp (‘‘SIPC’’) as well as

third party insurers. FINRA and the SEC perform regular examinations of Umpqua Investments that include reviews of

policies, procedures, recordkeeping, trade practices, and customer protection as well as other inquiries.

SIPC protects client securities and cash up to $500,000, including $100,000 for cash with additional coverage provided
through Wells Fargo Clearing Services, LLC who maintains additional coverage through Lexington Insurance Company, for

the remaining net equity balance in a brokerage account, if any. This coverage does not include losses in investment

accounts.

Broker-Dealer and Related Regulatory Supervision. Umpqua Investments is a member of, and is subject to the regulatory

supervision of, FINRA. Areas subject to FINRA oversight review include compliance with trading rules, financial reporting,

investment suitability, and compliance with stock exchange rules and regulations.

Effects of Government Monetary Policy. Our earnings and growth are affected not only by general economic conditions,

but also by the fiscal and monetary policies of the federal government, particularly the Federal Reserve. The Federal Reserve

implements national monetary policy for such purposes as curbing inflation and combating recession, through its open

market operations in U.S. Government securities, control of the discount rate applicable to borrowings from the Federal

Reserve, and establishment of reserve requirements against certain deposits. These activities influence growth of bank loans,

investments and deposits, and also affect interest rates charged on loans or paid on deposits. The nature and impact of

future changes in monetary policies and their impact on us cannot be predicted with certainty.

13

Regulation of the Financial Services Industry. Federal laws and regulations governing banking and financial services

underwent significant changes in recent years and we believe will continue to undergo significant changes in the future.

From time to time, legislation is introduced in the United States Congress that contains proposals for altering the structure,

regulation, and competitive relationships of the nation’s financial institutions. If enacted into law, these proposals could

increase or decrease the cost of doing business, limit or expand permissible activities, or affect the competitive balance

among banks, savings associations, and other financial institutions. Whether or in what form any such legislation may be

adopted or the extent to which our business might be affected thereby cannot be predicted.

The GLB Act, enacted in November 1999, repealed sections of the Banking Act of 1933, commonly referred to as the Glass-

Steagall Act, that prohibited banks from engaging in securities activities, and prohibited securities firms from engaging in

banking. The GLB Act created a new form of holding company, known as a financial holding company, that is permitted to

acquire subsidiaries that are engaged in banking, securities underwriting and dealing, and insurance underwriting.

A bank holding company, if it meets specified requirements, may elect to become a financial holding company by filing a

declaration with the Federal Reserve, and may thereafter provide its customers with a broader spectrum of products and

services than a traditional bank holding company is permitted to do. A financial holding company may, through a subsidiary,

engage in any activity that is deemed to be financial in nature and activities that are incidental or complementary to

activities that are financial in nature. These activities include traditional banking services and activities previously permitted to

bank holding companies under Federal Reserve regulations, but also include underwriting and dealing in securities,

providing investment advisory services, underwriting and selling insurance, merchant banking (holding a portfolio of

commercial businesses, regardless of the nature of the business, for investment), and arranging or facilitating financial

transactions for third parties.

To qualify as a financial holding company, the bank holding company must be deemed to be well-capitalized and

well-managed, as those terms are used by the Federal Reserve. In addition, each subsidiary bank of a bank holding company

must also be well-capitalized and well-managed and be rated at least ‘‘satisfactory’’ under the CRA. A bank holding

company that does not qualify, or has not chosen, to become a financial holding company must limit its activities to

traditional banking activities and those non-banking activities the Federal Reserve has deemed to be permissible because

they are closely related to the business of banking.

The GLB Act also includes provisions to protect consumer privacy by prohibiting financial services providers, whether or not

affiliated with a bank, from disclosing non-public personal, financial information to unaffiliated parties without the consent of

the customer, and by requiring annual disclosure of the provider’s privacy policy.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (‘‘Riegle-Neal Act’’), which became effective in 1995,

permits interstate banking and branching, which allows banks to expand nationwide through acquisition, consolidation or

merger. Under this law, an adequately capitalized bank holding company may acquire banks in any state or merge banks

across state lines if permitted by state law. Further, banks may establish and operate branches in any state subject to the

restrictions of applicable state law. Under Oregon law, an out-of-state bank or bank holding company may merge with or

acquire an Oregon state chartered bank or bank holding company upon receipt of approval from the Director of the Oregon

Department of Consumer and Business Services. The Bank now has the ability to open additional de novo branches in the
states of Oregon, California, Washington, Idaho, and Nevada.

Section 613 of the Dodd-Frank Act eliminated interstate branching restrictions that were implemented as part of the

Riegle-Neal Act, and removed many restrictions on de novo interstate branching by national and state-chartered banks. The

FDIC and the Office of the Comptroller of the Currency now have authority to approve applications by insured state

nonmember banks and national banks, respectively, to establish de novo branches in states other than the bank’s home state

if ‘‘the law of the State in which the branch is located, or is to be located, would permit establishment of the branch, if the

bank were a State bank chartered by such State.’’ The enactment of this Section 613 may significantly increase interstate

banking by community banks in western states, where barriers to entry were previously high.

Anti-Terrorism Legislation. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept

and Obstruct Terrorism Act (‘‘USA Patriot Act’’), enacted in 2001:

(cid:129) prohibits banks from providing correspondent accounts directly to foreign shell banks;

14

(cid:129)

imposes due diligence requirements on banks opening or holding accounts for foreign financial institutions

or wealthy foreign individuals;

(cid:129)

requires financial institutions to establish an anti-money-laundering (‘‘AML’’) compliance program; and

(cid:129) generally eliminates civil liability for persons who file suspicious activity reports.

The USA Patriot Act also increases governmental powers to investigate terrorism, including expanded government access to

account records. The Department of the Treasury is empowered to administer and make rules to implement the Act, which

to some degree, affects our record-keeping and reporting expenses. Should the Bank’s AML compliance program be

deemed insufficient by federal regulators, we would not be able to grow through acquiring other institutions or opening de

novo branches.

Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 addresses public company corporate governance, auditing,

accounting, executive compensation and enhanced and timely disclosure of corporate information.

The Sarbanes-Oxley Act represents significant federal involvement in matters traditionally left to state regulatory systems,

such as the regulation of the accounting profession, and regulation of the relationship between a Board of Directors and

management and between a Board of Directors and its committees.

The Sarbanes-Oxley Act provides for, among other things:

(cid:129) prohibition on personal loans by Umpqua to its directors and executive officers except loans made by the

Bank in accordance with federal banking regulations;

(cid:129)

(cid:129)

independence requirements for Board audit committee members and our external auditor;

certification of reports under the Securities Exchange Act of 1934 (‘‘Exchange Act’’) by the chief executive

officer, chief financial officer and principal accounting officer;

(cid:129) disclosure of off-balance sheet transactions;

(cid:129) expedited reporting of stock transactions by insiders; and

(cid:129)

increased criminal penalties for violations of securities laws.

The Sarbanes-Oxley Act also requires:

(cid:129) management to establish, maintain, and evaluate disclosure controls and procedures;

(cid:129) management to report on its annual assessment of the effectiveness of internal controls over financial

reporting;

(cid:129) our external auditor to attest to the effectiveness of internal controls over financial reporting.

The SEC has adopted regulations to implement various provisions of the Sarbanes-Oxley Act, including disclosures in

periodic filings pursuant to the Exchange Act. Also, in response to the Sarbanes-Oxley Act, NASDAQ adopted new
standards for listed companies.

The Dodd-Frank Wall Street Reform and Consumer Protection Act. On July 21, 2010, the Dodd-Frank Act was signed,

which was a sweeping overhaul of financial industry regulation. Among other provisions, the Act:

(cid:129) Created a systemic-risk council of top regulators, the Financial Stability Oversight Council, whose purpose

is to identify risks and respond to emerging threats to the financial stability of the U.S. arising from large,

interconnected bank holding companies or nonbank financial companies;

(cid:129) Gave the FDIC authority to unwind large failing financial firms. Treasury would supply funds to cover the

up-front costs of winding down the failed firm, but the government would have to put a ‘‘repayment plan’’

in place. Regulators will recoup any losses incurred from the wind-down afterwards by assessing fees on

financial firms with more than $50 billion in assets;

(cid:129) Directed the FDIC to base deposit-insurance assessments on assets minus tangible capital instead of on

domestic deposits and requires the FDIC to increase premium rates to raise the Deposit Insurance Fund’s

15

(‘‘DIF’’) minimum reserve ratio from 1.15% to 1.35% by September 30, 2020. Banks, like Umpqua, with

consolidated assets greater than $10 billion would pay the increased premiums;

(cid:129) Permanently increased FDIC deposit-insurance coverage to $250,000, retroactive to January 1, 2008. The

act also eliminated the 1.5% cap on the DIF reserve ratio and automatic dividends when the ratio exceeds

1.35%. The FDIC also has discretion on whether to provide dividends to DIF members;

(cid:129) Authorized banks to pay interest on business checking accounts;

(cid:129) Created the CFPB, housed under the Federal Reserve and led by a director appointed by the President

and confirmed by the Senate. All existing consumer laws and regulations enforcement will be transferred

to this agency and each existing regulatory agency will contribute their respective consumer regulatory and

exam staffs to the CFPB;

(cid:129) Gave the CFPB the authority to write consumer protection rules for banks and nonbank financial firms

offering consumer financial services or products and to ensure that consumers are protected from ‘‘unfair,

deceptive, or abusive’’ acts or practices. The CFPB also now has authority to examine and enforce

regulations for banks with greater than $10 billion in assets;

(cid:129) Authorized the CFPB to require banks to compile and provide reports relating to its consumer lending,

marketing and other consumer business activities and to make that information available to the public if

doing so is ‘‘in the public interest’’;

(cid:129) Directed the Federal Reserve to set interchange fees for debit card transactions charged by banks with

more than $10 billion in assets. The Federal Reserve must establish what it determines are reasonable fees

by factoring in their transaction costs compared to those for checks;

(cid:129) Requires loan originators to retain 5% of any loan sold and securitized, unless it is a ‘‘qualified residential

mortgage’’, which includes standard 30 and 15 year fixed rate loans. It also specifically exempts from risk

retention FHA, VA, Farmer Mac and Rural Housing Service loans;

(cid:129) Adopted additional various mortgage lending and predatory lending provisions;

(cid:129) Required federal regulators jointly to prescribe regulations mandating that financial institutions with more

than $1 billion in assets to disclose to their regulators their incentive compensation plans to permit the

regulators to determine whether the plans provide executive officers, employees, directors or principal

shareholders with excessive compensation, fees or benefits, or could lead to material financial loss to the

institution;

(cid:129)

Imposed a number of requirements related to executive compensation that apply to all public companies,

such as prohibition of broker discretionary voting in connection with a shareholder vote on executive

compensation; mandatory shareholder ‘‘say on pay’’ (every one to three years) and ‘‘say on golden

parachutes’’; and clawback of incentive compensation from current or former executive officers following

any accounting restatement;

(cid:129) Established a modified version of the ‘‘Volcker Rule’’ and generally prohibits banks from engaging in

proprietary trading or holding or obtaining an interest in a hedge fund or private equity fund, to the

extent that it would exceed 3% of the bank’s Tier 1 capital. A bank’s interest in any single hedge fund or

private equity fund may not exceed 3% of the assets of that fund.

Stress Testing and Capital Planning. Umpqua is subject to the annual Dodd-Frank Act capital stress testing (DFAST)

requirements of the Federal Reserve and the FDIC. As part of the DFAST process, Umpqua is required to submit the results

of the company-run stress tests to the FDIC by July 31, and Umpqua will disclose certain results from stress testing exercises,

generally in October of each year.

16

CFPB Regulation and Supervision. As noted above, the Dodd-Frank Act gives the CFPB authority to examine Umpqua and

Umpqua Bank for compliance with a broad range of federal consumer financial laws and regulations, including the laws and

regulations that relate to credit card, deposit, mortgage and other consumer financial products and services the Bank offers.

In addition, the Dodd-Frank Act gives the CFPB broad authority to take corrective action against Umpqua and Umpqua Bank

as it deems appropriate. The CFPB is authorized to issue regulations and take enforcement actions to prevent and remedy

acts and practices relating to consumer financial products and services that it deems to be unfair, deceptive or abusive. The

agency also has authority to impose new disclosure requirements for any consumer financial product or service. These

authorities are in addition to the authority the CFPB assumed on July 21, 2011 under existing consumer financial law

governing the provision of consumer financial products and services. The CFPB has concentrated much of its initial

rulemaking efforts on a variety of mortgage related topics required under the Dodd-Frank Act, including ability-to-repay and

qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-cost mortgage

requirements, appraisal and escrow standards and requirements for higher-priced mortgages.

In January 2014, new rules issued by the CFPB for mortgage origination and mortgage servicing became effective. The rules

require lenders to conduct a reasonable and good faith determination at or before consummation of a residential mortgage

loan that the borrower will have a reasonable ability to repay the loan. The regulations also define criteria for making

Qualified Mortgages which entitle the lender and any assignee to either a conclusive or rebuttable presumption of

compliance with the ability to repay rule. The new mortgage servicing rules include new standards for notices to consumers,

loss mitigation procedures, and consumer requests for information. Both the origination and servicing rules create new

private rights of action for consumers in the event of certain violations. In addition to the exercise of its rulemaking authority,

the CFPB is continuing its ongoing examination and supervisory activities with respect to a number of consumer businesses

and products.

October 2015, the CFPB’s final rules on integrated mortgage disclosures under the Truth in Lending Act and the Real Estate

Settlement Procedures Act became effective. Throughout 2015, the CFPB continued its focus on fair lending practices of

indirect automobile lenders. This focus led to some lenders to enter into consent orders with the CFPB and Department of

Justice. Indirect automobile lenders have also received continued pressure from the CFPB to limit or eliminate discretionary

pricing by dealers. Banking regulatory agencies have increasingly used their authority under Section 5 of the Federal Trade

Commission Act to take supervisory or enforcement action with respect to unfair or deceptive acts or practices (UDAP) by

banks under standards developed many years ago by the Federal Trade Commission in order to address practices that may

not necessarily fall within the scope of a specific banking or consumer finance law. The Dodd-Frank Act also gave to the

CFPB similar authority to take action in connection with unfair, deceptive, or abusive acts or practices (UDAAP) by entities

subject to CFPB supervisory or enforcement authority. Banks face considerable uncertainty as to the regulatory interpretation

of ‘‘abusive’’ practices. Financial services companies face increased regulation and exposure under the new Military Lending

Act (MLA) final rules issued by the Department of Defense that become effective for new loans entered into on and after

October 3, 2016. The new rules dramatically expand the scope of coverage of the MLA and compliance with the new rules

will affect operations of more financial services companies than under the previous rules. We continue to monitor, evaluate,

and implement new regulations.

Joint Agency Guidance on Incentive Compensation. On June 21, 2010, federal banking regulators issued final joint agency

guidance on Sound Incentive Compensation Policies. This guidance applies to executive and non-executive incentive

compensation plans administered by banks. The guidance says that incentive compensation programs must:

(cid:129) Provide employees incentives that appropriately balance risk and reward.

(cid:129) Be compatible with effective controls and risk- management; and

(cid:129) Be supported by strong corporate governance, including active and effective oversight by the board;

The Federal Reserve reviews, as part of the regular, risk-focused examination process, the incentive compensation

arrangements of the Company and other banking organizations. The findings of the supervisory initiatives are included in

reports of examination and any deficiencies will be incorporated into the Company’s supervisory ratings, which can affect the

Company’s ability to make acquisitions and take other actions.

17

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this report, you should carefully consider the factors discussed below. These

factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position,

and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-

looking statements contained in this report.

Difficult or volatile market conditions or weak economic conditions may adversely affect the financial services industry

and our business.

Our business and financial performance are vulnerable to weak economic conditions, primarily in the United States and

especially in the western United States. The severe conditions from 2007 to 2009 had a significant negative impact on the

financial services industry, and on Umpqua, including significant write-downs of asset values, bank failures and volatile

financial markets. A deterioration in economic conditions or a prolonged delay in economic recovery in our primary market

areas could result in the following consequences, any of which could materially and adversely affect our business: loan

delinquencies may increase; problem assets and foreclosures may increase putting further price pressures on valuations

generally; demand for our products and services may decrease; low cost or noninterest bearing deposits may decrease;

intangible asset impairment; and collateral for loans made by us, especially real estate, may decline in value, in turn reducing

customers’ borrowing power, and reducing the value of assets and collateral associated with our existing loans. In addition,

we could face the following risks in connection with these events:

(cid:129)

Increased regulation of our industry, which could increase the costs associated with regulatory compliance,

reduce existing sources of revenue and limit our ability to pursue business opportunities.

(cid:129) Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches

we use to select, manage, and underwrite our customers become less predictive of future performance.

(cid:129) The process we use to estimate losses inherent in our loan portfolio requires difficult, subjective, and

complex judgments, including forecasts of economic conditions and how these economic predictions

might impair the ability of our borrowers to repay their loans, which process may no longer be capable of

accurate estimation and may, in turn, impact its reliability.

(cid:129) Downward pressure on our stock price.

The majority of our assets are loans, which if not repaid would result in losses to the Bank.

The Bank, like other lenders, is subject to credit risk, which is the risk of losing principal or interest due to borrowers’ failure

to repay loans in accordance with their terms. Underwriting and documentation controls cannot mitigate all credit risk. A

downturn in the economy or the real estate market in our market areas or a rapid increase in interest rates could have a

negative effect on collateral values and borrowers’ ability to repay. To the extent loans are not paid timely by borrowers, the

loans are placed on non-accrual status, thereby reducing interest income. Further, under these circumstances, an additional

provision for loan and lease losses or unfunded commitments may be required.

Deterioration in the real estate market or other segments of our loan portfolio would lead to additional losses, which

could have a material adverse effect on our business, financial condition and results of operations.

As of December 31, 2016, approximately 76% of our total loan portfolio is secured by real estate, the majority of which is

commercial real estate. Our success depends in part on economic conditions in the western United States and adverse

changes in markets where our real estate collateral is located could adversely affect our business. Increases in delinquency

rates or declines in real estate market values would require increased net charge-offs and increases in the allowance for loan

and lease losses, which could have a material adverse effect on our business, financial condition and results of operations

and prospects.

A rapid change in interest rates, or maintenance of rates at historically high or low levels for an extended period, could

make it difficult to improve or maintain our current interest income spread and could result in reduced earnings.

Our earnings are largely derived from net interest income, which is interest income and fees earned on loans and

investments, less interest paid on deposits and other borrowings. Interest rates are highly sensitive to many factors that are

beyond the control of our management, including general economic conditions and the policies of various governmental

18

and regulatory authorities. The actions of the Federal Reserve influence the rates of interest that we charge on loans and

that we pay on borrowings and interest-bearing deposits. We cannot predict the nature or timing of future changes in

monetary, tax and other policies or the effects that they may have on our activities and financial results.

As interest rates change, net interest income is affected. With fixed rate assets (such as fixed rate loans and most investment

securities) and liabilities (such as certificates of deposit), the effect on net interest income depends on the cash flows

associated with the maturity of the asset or liability. Asset/liability management policies may not be successfully implemented

and from time to time our risk position is not balanced. An unanticipated rapid decrease or increase in interest rates could

have an adverse effect on the spreads between the interest rates earned on assets and the rates of interest paid on

liabilities, and therefore on the level of net interest income. For instance, any rapid increase in interest rates in the future

could result in interest expense increasing faster than interest income because of fixed rate loans and longer-term

investments. Historically low rates for an extended period of time result in reduced returns from the investment and loan

portfolios. The current very low interest rate environment, which is expected to continue with the potential for slight

increases over time, could affect consumer and business behavior in ways that are adverse to us and negatively impact our

ability to increase our net interest income. Further, substantially higher interest rates generally reduce loan demand and may

result in slower loan growth than previously experienced.

Changes in interest rates could reduce the value of mortgage servicing rights (MSR).

We acquire MSR when we keep servicing rights after we sell originated residential mortgage loans. We sell the majority of

our originated residential mortgage loans servicing retained. We measure MSR at fair value. Fair value is the present value of

estimated future net servicing income, calculated based on a number of variables, including assumptions about the

likelihood of prepayment by borrowers. Changes in interest rates can affect prepayment assumptions and consequently MSR

fair value. When interest rates fall, borrowers are usually more likely to prepay their mortgage loans by refinancing them at a

lower rate. As the likelihood of prepayment increases, MSR fair value can decrease, which reduces earnings in the period in

which the decrease occurs.

Our mortgage banking revenue can fluctuate significantly.

We earn revenue from fees received for originating and servicing mortgage loans. Generally, if interest rates rise, the

demand for mortgage loans tends to fall, reducing the revenue we receive from originations. At the same time, revenue from

MSR can increase through increases in fair value. When interest rates decline, originations tend to increase and the value of

MSR tends to decline, also with some offsetting revenue effect. The negative effect on revenue from a decrease in the fair

value of residential MSR is immediate, but any offsetting revenue benefit from more originations and the MSR relating to

new loans accrues over time. It is also possible that even if interest rates were to fall, mortgage originations may also fall or

any increase in mortgage originations may not be enough to offset the decrease in the MSR value caused by the lower rates.

We depend upon programs administered by Fannie Mae, Freddie Mac and Ginnie Mae.

Our ability to generate revenues in our home lending group depends on programs administered by government-sponsored

entities that play an important role in the residential mortgage industry. During 2016, 72% of mortgage loans were

originated for sale to, or through programs sponsored by, Fannie Mae, Freddie Mac or Ginnie Mae. We service loans on
behalf of Fannie Mae and Freddie Mac, as well as loans that have been securitized pursuant to securitization programs

sponsored by Fannie Mae, Freddie Mac and Ginnie Mae. A majority of our mortgage servicing rights and loans serviced

through subservicing agreements relate to these servicing activities. These entities establish the base service fee to

compensate us for servicing loans as well as the assessment of fines and penalties that may be imposed upon us for failing

to meet servicing standards. Our status as a Fannie Mae, Freddie Mac and Ginnie Mae approved seller and servicer is

subject to compliance with guidelines and failure to meet such guidelines could result in the unilateral termination of our

status as an approved seller or servicer. Changes in the existing government-sponsored mortgage programs or servicing

eligibility standards through legislation or otherwise, or our failure to maintain a relationship with each of Fannie Mae,

Freddie Mac and Ginnie Mae, could materially and adversely affect our business, financial position, results of operations and

cash flows through negative impact on the pricing of mortgage related assets in the secondary market, higher mortgage

rates to borrowers, or lower mortgage origination volumes and margins.

19

The financial services industry is highly competitive.

We face pricing competition for loans and deposits. We also face competition with respect to customer convenience,

product lines, accessibility of service and service capabilities. Our most direct competition comes from other banks,

brokerages, mortgage companies and savings institutions, but more recently has also come from financial technology (or

‘‘fintech’’) companies that rely on technology to provide financial services. We also face competition from credit unions,

government-sponsored enterprises, mutual fund companies, insurance companies and other non-bank businesses. The

significant competition in attracting and retaining deposits and making loans, as well as providing other financial services

throughout our market area may impact future earnings and growth. Our success depends, in part, on the ability to adapt

products and services to evolving industry standards. There is increasing pressure to provide products and services at lower

prices, which can reduce net interest income and non-interest income from fee-based products and services.

The failure to understand and adapt to continual technological changes could negatively impact our business.

The financial services industry is undergoing rapid technological change with frequent introductions of new technology-

driven products and services by depository institutions and fintech companies. New technology-driven products and services

are often introduced and adopted, including innovative ways that customers can make payments, access products and

manage accounts. We could be required to make substantial capital expenditures to modify or adapt existing products and

services or develop new products and services. We may not be successful in introducing new products and services or those

new products may not achieve market acceptance. We could lose business, be forced to price products and services on less

advantageous terms to retain or attract clients, or be subject to cost increases if we do not effectively develop and

implement new technology. Our future success depends, in part, upon our ability to address the needs of our customers by

using technology to provide products and services that will satisfy customer demands, as well as to create additional

efficiencies in operations. In addition, advances in technology such as digital, mobile, telephone, text, and on-line banking;

e-commerce; and self-service automatic teller machines and other equipment, as well as changing customer preferences to

access our products and services through digital channels, could decrease the value of our store network and other assets.

We may close or sell certain stores and restructure or reduce our remaining stores and work force. These actions could lead

to losses on assets, expense to reconfigure stores and loss of customers in certain markets. As a result, our business,

financial condition or results of operations may be adversely affected.

We are subject to extensive government regulation and supervision; the Dodd-Frank Act, new legislation, additional

regulation and heightened supervisory requirements could detrimentally affect the Company’s business.

Umpqua Holdings Corporation and its subsidiaries, primarily Umpqua Bank, are subject to extensive federal and state

regulation and supervision, the primary focus of which is to protect customers, depositors, the deposit insurance fund and

the safety and soundness of the banking system as a whole, and not shareholders. The quantity and scope of applicable

federal and state regulations may place banks and brokerage firms at a competitive disadvantage compared to less

regulated competitors such as fintech companies, finance companies, credit unions, mortgage banking companies and

leasing companies. These regulations affect our lending practices, capital structure, investment practices, dividend policy and

growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and

policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or

implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways, and could subject

us to additional costs, limits on the services and products we may offer or limits on the pricing of banking services and

products. Since the global financial crisis, financial institutions generally have been subject to increased scrutiny from

regulatory authorities, with an increased focus on risk management and consumer compliance. If we receive less than

satisfactory results on regulatory examinations, we could be subject to penalties, required to increase compliance costs or

restricted from making acquisitions, adding new stores, developing new lines of business, or otherwise continuing our growth

strategy for a period of time. Future changes in federal and state banking and brokerage regulations could adversely affect

our operating results and ability to continue to compete effectively. For example, the Dodd-Frank Act and related regulations

subject us to additional restrictions, oversight and reporting obligations, which have significantly increased costs. We cannot

predict the substance or impact of pending or future legislation or regulation, or the application thereof. Compliance with

such current and potential regulation and scrutiny could significantly increase our costs, impede the efficiency of our internal

business processes, require us to increase our regulatory capital and limit our ability to pursue business opportunities in an

efficient manner.

20

Interest rate volatility and credit risk adjusted rate spreads may impact our financial assets and liabilities measured at

fair value, particularly the fair value of our junior subordinated debentures.

The widening of the credit risk adjusted rate spreads on potential new issuances of junior subordinated debentures above

our contractual spreads and reductions in three month LIBOR rates have contributed to the cumulative positive fair value

adjustment in our junior subordinated debentures carried at fair value. Tightening of these credit risk adjusted rate spreads

and interest rate volatility may result in recognizing negative fair value adjustments charged to earnings in the future.

We may be required to raise additional capital in the future, but that capital may not be available when it is needed, or

it may only be available on unacceptable terms, which could adversely affect our financial condition and results of

operations.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are

outside our control, and on our financial performance. Accordingly, we may not be able to raise additional capital, if needed,

on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations

and pursue our growth strategy could be materially impaired. We and the Bank are currently well capitalized under

applicable regulatory guidelines. However, our business could be negatively affected if we or the Bank failed to remain well

capitalized. For example, because Umpqua Bank is well capitalized and we otherwise qualify as a financial holding company,

we are permitted to engage in a broader range of activities than are permitted to a bank holding company. Loss of financial

holding company status could require that we cease these broader activities. The banking regulators are authorized (and

sometimes required) to impose a wide range of requirements, conditions, and restrictions on banks, thrifts, and bank holding

companies that fail to maintain adequate capital levels.

New rules will require increased capital.

In June 2013, federal banking regulators jointly issued the Basel III rules. The rules impose new capital requirements and

implement Section 171 of the Dodd Frank Act. The new rules are to be phased in through 2019. Among other things, the

rules will require that we maintain a common equity Tier 1 capital ratio of 4.5%, a Tier 1 capital ratio of 6%, a total capital

ratio of 8%, and a leverage ratio of 4%. In addition, we will have to maintain an additional capital conservation buffer of

2.5% of total risk weighted assets or be subject to limitations on dividends and other capital distributions, as well as limiting

discretionary bonus payments to executive officers. It is possible the Company may accelerate redemption of the existing

junior subordinated debentures. This could result in adjustments to the fair value of these instruments including the

acceleration of losses on junior subordinated debentures carried at fair value within non-interest income. The Company

currently does not intend to redeem the junior subordinated debentures in order to support regulatory total capital levels.

The new rules may require us to raise more common capital or other capital that qualifies as Tier 1 capital. The application

of more stringent capital requirements could, among other things, result in lower returns on invested capital and result in

regulatory actions if we were to be unable to comply with such requirements.

Conditions in the financial markets may limit our access to additional funding to meet our liquidity needs.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale or pledging as

collateral of loans and other assets could have a substantial negative effect on our liquidity. Our access to funding sources in

amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services

industry in general. An adverse regulatory action against us could detrimentally impact our access to liquidity sources. Our

ability to borrow could also be impaired by factors that are nonspecific to us, such as severe disruption of the financial

markets or negative news and expectations about the prospects for the financial services industry as a whole as evidenced

by turmoil in the domestic and worldwide credit markets.

Our wholesale funding sources may prove insufficient to support our future growth or an unexpected reduction in

deposits.

We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity

management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of

loans and investments. If we grow more rapidly than any increase in our deposit balances, we are likely to become more

dependent on these sources, which include Federal Home Loan Bank advances, proceeds from the sale of loans and liquidity

21

resources at the holding company. Our financial flexibility will be severely constrained if we are unable to maintain our access

to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. If we are

required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase

proportionately to cover our costs, and our profitability would be adversely affected.

As a bank holding company that conducts substantially all of our operations through the Bank, our ability to pay

dividends, repurchase our shares or to repay our indebtedness depends upon liquid assets held by the holding

company and the results of operations of our subsidiaries.

The Company is a separate and distinct legal entity from our subsidiaries and it receives substantially all of its revenue from

dividends paid from the Bank. There are legal limitations on the extent to which the Bank may extend credit, pay dividends

or otherwise supply funds to, or engage in transactions with, us. Our inability to receive dividends from the Bank could

adversely affect our business, financial condition, results of operations and prospects.

Our net income depends primarily upon the Bank’s net interest income, which is the income that remains after deducting

from total income generated by earning assets the expense attributable to the acquisition of the funds required to support

earning assets (primarily interest paid on deposits). The amount of interest income is dependent on many factors including

the volume of earning assets, the general level of interest rates, the dynamics of changes in interest rates and the levels of

nonperforming loans. All of those factors affect the Bank’s ability to pay dividends to the Company.

Various statutory provisions restrict the amount of dividends the Bank can pay to us without regulatory approval. The Bank

may not pay cash dividends if that payment could reduce the amount of its capital below that necessary to meet the

‘‘adequately capitalized’’ level in accordance with regulatory capital requirements. It is also possible that, depending upon

the financial condition of the Bank and other factors, regulatory authorities could conclude that payment of dividends or

other payments, including payments to us, is an unsafe or unsound practice and impose restrictions or prohibit such

payments.

Under Oregon law, the Bank may not pay dividends in excess of unreserved retained earnings, deducting there from, to the

extent not already charged against earnings or reflected in a reserve, the following: (1) all bad debts, which are debts on

which interest is past due and unpaid for at least six months, unless the debt is fully secured and in the process of collection;

(2) all other assets charged-off as required by Oregon bank regulators or a state or federal examiner; and (3) all accrued

expenses, interest and taxes of the institution. The Federal Reserve has issued a policy statement on the payment of cash

dividends by bank holding companies, which expresses the Federal Reserve’s view that a bank holding company should pay

cash dividends only to the extent that its net income for the past year is sufficient to cover both the cash dividends and a

rate of earnings retention that is consistent with the holding company’s capital needs, asset quality and overall financial

condition.

Our business is highly reliant on technology and our ability to manage the operational risks associated with technology.

Our business involves storing and processing sensitive consumer and business customer data. A cyber security breach may

result in theft of such data or disruption of our transaction processing systems. We depend on internal systems and

outsourced technology to support these data storage and processing operations. Our inability to use or access these
information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business

operations. A material breach of customer data security may negatively impact our business reputation and cause a loss of

customers, result in increased expense to contain the event and/or require that we provide credit monitoring services for

affected customers, result in regulatory fines and sanctions and/or result in litigation. Cyber security risk management

programs are expensive to maintain and will not protect the Company from all risks associated with maintaining the security

of customer data and the Company’s proprietary data from external and internal intrusions, disaster recovery and failures in

the controls used by our vendors. In addition, Congress and the legislatures of states in which we operate regularly consider

legislation that would impose more stringent data privacy requirements.

Our business is highly reliant on third party vendors and our ability to manage the operational risks associated with

outsourcing those services.

We rely on third parties to provide services that are integral to our operations. These vendors provide services that support

our operations, including the storage and processing of sensitive consumer and business customer data, as well as our sales

efforts. A cyber security breach of a vendor’s system may result in theft of our data or disruption of business processes. A

22

material breach of customer data security at a service provider’s site may negatively impact our business reputation and

cause a loss of customers; result in increased expense to contain the event and/or require that we provide credit monitoring

services for affected customers, result in regulatory fines and sanctions and/or result in litigation. In most cases, we will

remain primarily liable to our customers for losses arising from a breach of a vendor’s data security system. We rely on our

outsourced service providers to implement and maintain prudent cyber security controls. We have procedures in place to

assess a vendor’s cyber security controls prior to establishing a contractual relationship and to periodically review

assessments of those control systems; however, these procedures are not infallible and a vendor’s system can be breached

despite the procedures we employ. We have alliances with other companies that assist in our sales efforts. In our wealth

management business, we have an alliance with Ferguson Wellman, a registered investment advisor to whom we refer

customers for investment advice and asset management services. We cannot be sure that we will be able to maintain these

relationships on favorable terms. In addition, some of our data processing services are provided by companies associated

with our competitors. The loss of these vendor relationships could disrupt the services we provide to our customers and

cause us to incur significant expense in connection with replacing these services.

Damage to our brand and reputation could significantly harm our business and prospects.

Our brand and reputation are important assets. Our relationship with many of our customers is predicated upon our

reputation as a high quality provider of financial services that adheres to the highest standards of ethics, service quality and

regulatory compliance. We believe that our brand has been, and continues to be, well received in our industry, with current

and potential customers, investors and employees. Our ability to attract and retain customers, investors and employees

depends upon external perceptions of us. Damage to our reputation among existing and potential customers, investors and

employees could cause significant harm to our business and prospects and may arise from numerous sources, including

litigation or regulatory actions, failing to deliver minimum standards of service and quality, lending practices, inadequate

protection of customer information, sales and marketing efforts, compliance failures, unethical behavior and the misconduct

of employees. Adverse developments with respect to our industry may also, by association, negatively impact our reputation

or result in greater regulatory or legislative scrutiny or litigation against us.

A decline in the Company’s stock price or expected future cash flows, or a material adverse change in our results of

operations or prospects, could result in impairment of our goodwill.

From time to time, the Company’s common stock has traded at a price below its book value, including goodwill and other

intangible assets. A significant and sustained decline in our stock price and market capitalization, a significant decline in our

expected future cash flows, a significant adverse change in the business climate or slower growth rates could result in

impairment of our goodwill. If impairment was deemed to exist, a write down of goodwill would occur with a charge to

earnings.

We have a significant gross deferred tax asset position at December 31, 2016, and we are required to assess the

recoverability of this asset on an ongoing basis.

Deferred tax assets are evaluated on a quarterly basis to determine if they are expected to be recoverable in the future. Our

evaluation considers positive and negative evidence to assess whether it is more likely than not that a portion of the asset
will not be realized. The risk of a valuation allowance increases if continuing operating losses are incurred. Future negative

operating performance or other negative evidence may result in a valuation allowance being recorded against some or all of

this amount. A valuation allowance on our deferred tax asset could have a material adverse impact on our capital and results

of operations.

Involvement in non-bank business creates risks associated with the securities industry.

Umpqua Investments’ retail brokerage operations present special risks not borne by community banks that focus exclusively

on community banking. For example, the brokerage industry is subject to fluctuations in the stock market that may have a

significant adverse impact on transaction fees, customer activity and investment portfolio gains and losses. Likewise,

additional or modified regulations may adversely affect Umpqua Investments’ operations. Umpqua Investments is also

dependent on a small number of established brokers, whose departure could result in the loss of a significant number of

customer accounts. A significant decline in fees and commissions or trading losses suffered in the investment portfolio could

adversely affect Umpqua Investments’ income and potentially require the contribution of additional capital to support its

operations. Umpqua Investments is subject to claim arbitration risk arising from customers who claim their investments were

23

not suitable or that their portfolios were too actively traded. These risks increase when the market, as a whole, declines. The

risks associated with retail brokerage may not be supported by the income generated by those operations. See

Management’s Discussion and Analysis of Financial Condition and Results of Operations-’’Non-interest Income’’.

The value of the securities in our investment securities portfolio may be negatively affected by continued disruptions in

securities markets.

The market for some of the investment securities held in our portfolio has become extremely volatile over the past three

years. Volatile market conditions or deteriorating financial performance of the issuer or obligor may detrimentally affect the

value of these securities. There can be no assurance that the declines in market value associated with these disruptions will

not result in other-than-temporary or permanent impairments of these assets, which would lead to accounting charges that

could have a material adverse effect on our net income and capital levels.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

The executive offices of Umpqua and Umpqua Investments are located at One SW Columbia Street in Portland, Oregon in

office space that is leased. The Bank’s headquarters, located in Roseburg, Oregon, is owned. At December 31, 2016, the

Bank conducted community banking activities or operated Commercial Banking Centers at 346 locations, in California,

Oregon and Washington along the I-5 corridor; in the San Francisco Bay area, Inland Foothills, Napa, and Coastal regions in

California; in Bend and along the Pacific Coast of Oregon; in greater Seattle and Bellevue, Washington, and in Idaho and

Reno, Nevada, of which 139 are owned and 207 are leased under various agreements. As of December 31, 2016, the Bank

also operated 24 facilities for the purpose of administrative and other functions, such as back-office support, of which 3 are

owned and 21 are leased. All facilities are in a good state of repair and appropriately designed for use as banking or

administrative office facilities. As of December 31, 2016, Umpqua Investments leased four stand-alone offices from unrelated

third parties and also leased space in 13 Bank stores under lease agreements based on market rates.

ITEM 3. LEGAL PROCEEDINGS.

Due to the nature of our business, we are involved in legal proceedings that arise in the ordinary course of our business.

While the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these

matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

The Company assumed, as successor-in-interest to Sterling, the defense of litigation matters pending against Sterling.

Sterling previously reported that on December 11, 2009, a putative securities class action complaint captioned City of

Roseville Employees’ Retirement System v. Sterling Financial Corp., et al., No. CV 09-00368-EFS, was filed in the United

States District Court for the Eastern District of Washington against Sterling and certain of its current and former officers. On

June 18, 2010, lead plaintiff filed a consolidated complaint alleging that the defendants violated sections 10(b) and 20(a) of

the Securities Exchange Act of 1934 and SEC Rule 10b-5 by making false and misleading statements concerning Sterling’s

business and financial results. Plaintiffs sought unspecified damages and attorneys’ fees and costs. On August 30, 2010,

Sterling moved to dismiss the Complaint, and the court granted the motion to dismiss without prejudice on August 5, 2013.

On October 11, 2013, the lead plaintiff filed an amended consolidated complaint with the same defendants, class period,

alleged violations, and relief sought. On January 24, 2014, Sterling moved to dismiss the amended consolidated complaint,

and on September 17, 2014, the court entered an order dismissing the amended consolidated complaint in its entirety with

no further leave to amend. On October 24, 2014, plaintiffs filed a Notice of Appeal to the U.S. Court of Appeals for the

Ninth Circuit from the district court’s order granting the motion to dismiss the amended consolidated complaint. Appellant

filed its opening brief on April 3, 2015 and the Company filed its reply brief on June 17, 2015; additional appellate briefing

was filed in the third quarter 2015 and the appeal hearing is currently scheduled for second quarter 2017.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable

24

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER

PURCHASES OF EQUITY SECURITIES.

(a) Our common stock is traded on The NASDAQ Global Select Market under the symbol ‘‘UMPQ.’’ As of December 31,

2016, there were 400,000,000 common shares authorized for issuance. The following table presents the high and low sales

prices of our common stock for each period, based on inter-dealer prices that do not include retail mark-ups, mark-downs or

commissions, and cash dividends declared for each period:

Quarter Ended

December 31, 2016

September 30, 2016

June 30, 2016

March 31, 2016

December 31, 2015

September 30, 2015

June 30, 2015

March 31, 2015

High

Low

Cash Dividend
Per Share

$19.30

$14.78

$16.51

$14.79

$16.78

$14.61

$16.35

$13.46

$18.05

$15.52

$18.89

$15.53

$18.92

$16.82

$17.50

$14.70

$0.16

$0.16

$0.16

$0.16

$0.16

$0.16

$0.15

$0.15

As of December 31, 2016, our common stock was held by approximately 5,042 shareholders of record, a number that does

not include beneficial owners who hold shares in ‘‘street name’’, or shareholders from previously acquired companies that

have not exchanged their stock. At December 31, 2016, a total of 219,000 stock options, 1.1 million shares of restricted

stock and 78,000 restricted stock units were outstanding.

The payment of future cash dividends is at the discretion of our Board of Directors and subject to a number of factors,

including results of operations, general business conditions, growth, financial condition and other factors deemed relevant by

the Board of Directors. Further, our ability to pay future cash dividends is subject to certain regulatory requirements and

restrictions discussed in the Supervision and Regulation section in Item 1 above.

During 2016, Umpqua’s Board of Directors approved a quarterly cash dividend of $0.16 per common share for each quarter.

These dividends were made pursuant to our existing dividend policy and in consideration of, among other things, earnings,

regulatory capital levels, the overall payout ratio and expected asset growth. We expect that the dividend rate will be

reassessed on a quarterly basis by the Board of Directors in accordance with the dividend policy.

We have a dividend reinvestment plan that permits shareholder participants to purchase shares at the then-current market

price in lieu of the receipt of cash dividends. Shares issued in connection with the dividend reinvestment plan are purchased

in open market transactions.

25

Equity Compensation Plan Information

The following table sets forth information about equity compensation plans that provide for the award of securities or the

grant of options to purchase securities to employees and directors of Umpqua and its subsidiaries and predecessors by

merger that were in effect at December 31, 2016.

(shares in thousands)

Equity Compensation Plan Information

Plan category

Equity compensation plans approved by

security holders

2013 Stock Incentive Plan(1)

2003 Stock Incentive Plan(1)

Other(2)

Total

Equity compensation plans not

approved by security holders

Total

(A)

(C)
Number of securities
remaining available for
Number of securities to be Weighted average exercise future issuance under equity
compensation plans
excluding securities
reflected in column (A)

issued upon exercise of
outstanding options
warrants and rights

price of outstanding
options, warrants and
rights(3)

(B)

—

240

95

335

—

335

$ —

$17.66

$17.52

$17.62

$ —

$17.62

7,926

—

—

7,926

—

7,926

(1) Shareholders approved the Company’s 2013 Incentive Plan (the ‘‘2013 Plan’’) on April 16, 2013, and approved an

amendment to the 2013 plan to increase the number of authorized shares at the 2016 annual meeting of

shareholders. The 2013 Plan authorizes the issuance of equity awards to directors and employees and reserves

12 million shares of the Company’s common stock for issuance under the plan (up to 6 million shares for ‘‘full value

awards’’ as described below). With the adoption of the 2013 Plan, no additional awards will be issued from the

2003 Stock Incentive Plan or the 2007 Long Term Incentive Plan. Under the terms of the 2013 Plan, options and

awards generally vest ratably over a period of three to five years, the exercise price of each option equals the

market price of the Company’s common stock on the date of the grant, and the maximum term is ten years. The

2013 Plan weights ‘‘full value awards’’ (restricted stock and performance share awards) as two shares issued from the

total authorized under the 2013 Plan; we have issued only full value awards under the 2013 Plan. For purposes of

column (C) above, the total number of shares available for future issuance under the 2013 Plan for full value awards

was 4.0 million at December 31, 2016. At December 31, 2016, 1.1 million shares issued under the 2013 Plan as

restricted stock/performance share awards were outstanding, but subject to forfeiture in the event time or

performance based conditions are not met.

Includes other Umpqua stock plans and stock plans assumed through previous mergers.

(2)
(3) Weighted average exercise price is based solely on securities with an exercise price.

(b) Not applicable.

(c) The following table provides information about repurchases of common stock by the Company during the quarter ended

December 31, 2016:

Period

10/1/16 - 10/31/16
11/1/16 - 11/30/16
12/1/16 - 12/31/16

Total for quarter

Total number
of Common Shares
Purchased(1)

Average Price
Paid per
Common Share

Total Number of
Shares Purchased as
Part of Publicly
Announced Plan(2)

Maximum Number of
Remaining Shares that
May be Purchased at
Period End under the Plan

365
78,388
364

79,117

$14.92
$17.75
$18.74

$17.74

—
75,000
—

75,000

10,882,429
10,807,429
10,807,429

26

(1) Common shares repurchased by the Company during the quarter consist of cancellation of 3,832 shares to be issued
upon vesting of restricted stock awards and 285 shares to be issued upon vesting of restricted stock units to pay
withholding taxes. During the three months ended December 31, 2016, 75,000 shares were repurchased pursuant to the
Company’s publicly announced corporate stock repurchase plan described in (2) below.

(2) The Company’s share repurchase plan, which was first approved by the Board and announced in August 2003, was

amended on September 29, 2011 to increase the number of common shares available for repurchase under the plan to
15 million shares. The repurchase program has been extended multiple times by the board with the current expiration
date of July 31, 2017. As of December 31, 2016, a total of 10.8 million shares remained available for repurchase. The
Company repurchased 635,000 shares under the repurchase plan during 2016, repurchased 571,000 shares in 2015, and
0 shares under the repurchase plan in 2014. The timing and amount of future repurchases will depend upon the market
price for our common stock, securities laws restricting repurchases, asset growth, earnings, and our capital plan.

There were 154,000 and 52,000 shares tendered in connection with option exercises during the years ended December 31,

2016 and 2015, respectively. Restricted shares cancelled to pay withholding taxes totaled 279,000 and 135,000 shares during

the years ended December 31, 2016 and 2015, respectively. There were 49,000 restricted stock units cancelled to pay

withholding taxes during the years ended December 31, 2016 and 86,000 in 2015.

27

Stock Performance Graph

The following chart, which is furnished not filed, compares the yearly percentage changes in the cumulative shareholder

return on our common stock during the five fiscal years ended December 31, 2016, with (i) the Total Return Index for

NASDAQ Bank Stocks (ii) the Total Return Index for The Nasdaq Stock Market (U.S. Companies) (iii) the Standard and Poor’s

500 and (iv) the Total Return Index for Nasdaq Bank Stocks and (v) SNL U.S. Bank Nasdaq. This comparison assumes $100.00

was invested on December 31, 2011, in our common stock and the comparison indices, and assumes the reinvestment of all

cash dividends prior to any tax effect and retention of all stock dividends. Price information from December 31, 2011 to

December 31, 2016, was obtained by using the NASDAQ closing prices as of the last trading day of each year.

e
u
l
a
V
x
e
d
n
I

$300

$275

$250

$225

$200

$175

$150

$125

$100

$75

$50

$25

$0

12/31/2011

12/31/2012

12/31/2013

12/31/2014

12/31/2015

12/31/2016

Umpqua Holdings Corporation

SNL U.S. Bank Nasdaq

Nasdaq U.S.

S&P 500

Nasdaq Bank Stocks

23FEB201719071500

Period Ending

12/31/2011

12/31/2012

12/31/2013

12/31/2014

12/31/2015

12/31/2016

Umpqua Holdings Corporation
Nasdaq Bank Stocks
Nasdaq U.S.
S&P 500
SNL U.S. Bank Nasdaq

$100.00
$100.00
$100.00
$100.00
$100.00

$ 97.72
$118.69
$117.45
$116.00
$119.19

$164.85
$168.21
$164.57
$153.57
$171.31

$151.65
$176.48
$188.84
$174.60
$177.42

$147.03
$192.08
$201.98
$177.01
$191.53

$180.70
$265.02
$219.89
$198.18
$265.56

28

 
(This page has been left blank intentionally.)

ITEM 6. SELECTED FINANCIAL DATA.

Umpqua Holdings Corporation

Annual Financial Trends

(in thousands, except per share data)

2016

2015

2014

2013

2012

Interest income
Interest expense

Net interest income

Provision for loan and lease losses
Non-interest income
Non-interest expense
Merger related expenses

Income before provision for income taxes

Provision for income taxes

Net income
Dividends and undistributed earnings allocated to

$

910,639 $
66,051

929,866 $
58,232

822,521 $
48,693

442,846 $
37,881

844,588
41,674
299,940
721,842
15,313

365,699
132,759

871,634
36,589
275,724
718,060
45,582

347,127
124,588

773,828
40,241
181,174
601,746
82,317

230,698
83,040

404,965
10,716
122,895
355,825
8,836

152,483
54,192

456,085
48,849

407,236
29,201
138,304
357,314
2,338

156,687
54,768

232,940

222,539

147,658

98,291

101,919

participating securities

125

357

484

788

682

Net earnings available to common shareholders

$

232,815 $

222,182 $

147,174 $

97,503 $

101,237

YEAR END
Assets
Earning assets
Loans and leases(1)
Deposits
Term debt
Junior subordinated debentures, at fair value
Junior subordinated debentures, at amortized cost
Total shareholders’ equity
Common shares outstanding

AVERAGE
Assets
Earning assets
Loans and leases(1)
Deposits
Term debt
Junior subordinated debentures
Total shareholders’ equity
Basic common shares outstanding
Diluted common shares outstanding

PER COMMON SHARE DATA
Basic earnings
Diluted earnings
Book value
Tangible book value(2)
Cash dividends declared

$24,813,119 $23,406,381 $22,620,965 $11,636,666 $11,792,241
10,465,742
19,381,411
7,176,670
15,338,794
9,379,275
16,892,099
253,605
1,006,395
249,294
85,081
110,985
101,576
1,720,600
3,777,626
111,890
220,161

21,775,347
17,508,663
19,020,985
852,397
262,209
100,931
3,916,795
220,177

20,309,574
16,866,536
17,707,189
888,769
255,457
101,254
3,849,334
220,171

10,272,043
7,732,228
9,117,660
251,494
87,274
101,899
1,723,917
111,973

$24,121,462 $22,905,541 $19,169,098 $11,507,688 $11,499,499
10,252,167
16,484,664
6,707,194
13,003,762
9,124,619
14,407,331
254,601
815,017
187,139
301,525
1,701,403
3,137,858
111,935
186,550
112,151
187,554

21,010,501
17,258,081
18,347,451
897,050
359,003
3,898,599
220,282
220,908

19,727,031
15,938,127
17,250,810
923,992
352,872
3,820,505
220,327
221,045

10,224,606
7,367,602
9,057,673
252,546
189,237
1,729,083
111,938
112,176

$

1.06 $
1.05
17.79
9.50
0.64

1.01 $
1.01
17.48
9.16
0.62

0.79 $
0.78
17.16
8.79
0.60

0.87 $
0.87
15.40
8.46
0.60

0.90
0.90
15.38
9.25
0.34

29

(dollars in thousands)

2016

2015

2014

2013

2012

PERFORMANCE RATIOS
Return on average assets(3)
Return on average common shareholders’ equity(4)
Return on average tangible common shareholders’

equity(5)

Efficiency ratio(6)
Average common shareholders’ equity to average

assets

Leverage ratio(7)
Net interest margin (fully tax equivalent)(8)
Non-interest income to total net revenue(9)
Dividend payout ratio(10)

ASSET QUALITY
Non-performing loans and leases(11)
Non-performing assets(11)
Allowance for loan and lease losses
Net charge-offs
Non-performing loans and leases to loans and leases
Non-performing assets to total assets
Allowance for loan and lease losses to total loans and

leases

Allowance for credit losses to loans and leases
Net charge-offs to average loans and leases

0.97%
5.97%

11.25%
64.15%

16.16%
9.21%
4.04%
26.21%
60.38%

0.97%
5.82%

11.22%
66.27%

16.68%
9.73%
4.44%
24.03%
61.39%

0.77%
4.69%

9.17%
71.23%

16.37%
10.99%
4.73%
18.97%
75.95%

0.85%
5.64%

9.77%
66.83%

15.03%
10.90%
4.01%
23.28%
68.97%

$

56,134 $
62,872
133,984
38,012
0.32%
0.25%

44,384 $
66,691
130,322
22,434
0.26%
0.28%

59,553 $
97,495
116,167
19,159
0.39%
0.43%

35,321 $
59,256
95,085
19,297
0.46%
0.51%

0.77%
0.79%
0.22%

0.77%
0.79%
0.14%

0.76%
0.78%
0.15%

1.23%
1.25%
0.26%

0.88%
5.95%

9.88%
64.94%

14.80%
11.44%
4.02%
25.35%
37.78%

70,968
98,480
103,666
32,823
0.99%
0.84%

1.44%
1.46%
0.49%

(1) Excludes loans held for sale
(2) Average common shareholders’ equity less average intangible assets (excluding MSR) divided by shares outstanding at
the end of the year. See Management’s Discussion and Analysis of Financial Condition and Results of Operation’’—
’’Results of Operations—Overview’’ for the reconciliation of non-GAAP financial measures, in Item 7 of this report.

(3) Net earnings available to common shareholders divided by average assets.
(4) Net earnings available to common shareholders divided by average common shareholders’ equity.
(5) Net earnings available to common shareholders divided by average common shareholders’ equity less average

intangible assets. See Management’s Discussion and Analysis of Financial Condition and Results of Operations—’’Results
of Operations—Overview’’ for the reconciliation of non-GAAP financial measures, in Item 7 of this report.
(6) Non-interest expense divided by the sum of net interest income (fully tax equivalent) and non-interest income.
(7) Tier 1 capital divided by leverage assets. Leverage assets are defined as quarterly average total assets, net of goodwill,

intangibles and certain other items as required by the Federal Reserve.

(8) Net interest margin (fully tax equivalent) is calculated by dividing net interest income (fully tax equivalent) by average

interest earnings assets.

(9) Non-interest income divided by the sum of non-interest income and net interest income.
(10) Dividends declared per common share divided by basic earnings per common share.
(11) Excludes 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 $10.9 million, $19.2 million, $11.1 million, $4.1 million and
$237,000, as of December 31, 2016, 2015, 2014, 2013, and 2012, respectively.

30

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS AND RISK FACTORS

See the discussion of forward-looking statements and risk factors in Part I Item 1 and Item 1A of this report.

EXECUTIVE OVERVIEW

Significant items for the year ended December 31, 2016 were as follows:

Financial Performance

(cid:129) Net earnings available to common shareholders per diluted common share were $1.05 for the year ended

December 31, 2016, as compared to $1.01 for the year ended December 31, 2015.

(cid:129) Net interest margin, on a tax equivalent basis, was 4.04% for the year ended December 31, 2016,

compared to 4.44% for the year ended December 31, 2015. The decrease in net interest margin was

primarily attributable to the lower level of accretion of the credit discount recorded on loans acquired from

Sterling, as well as lower average yields on interest-earning assets, particularly in loans and leases,

attributable to the low interest rate environment during most of 2016, as well as an increase in the cost of

interest-bearing liabilities.

(cid:129) Residential mortgage banking revenue was $157.9 million for 2016, compared to $124.7 million for 2015.

The 26.6% increase was the result of an increase in mortgage originations and sale income, which

increased due to an increase in the gain on sale margin from 3.36% to 3.72% and a 14.1% increase in

closed loans for sale. The increase was partially offset by $25.9 million negative fair value adjustments to

the mortgage servicing rights (‘‘MSR’’) asset during the year ended December 31, 2016, as compared to

negative fair value adjustments of $20.7 million for the year ended December 31, 2015.

(cid:129) Total gross loans and leases were $17.5 billion as of December 31, 2016, an increase of $642.1 million, or

3.8%, as compared to December 31, 2015. This increase is primarily driven by growth in the commercial

(including leasing and equipment financing) and consumer loans, partially offset by a decline in a multi-

family loans. Total gross loans and leases also decreased due to portfolio loan sales of $462.5 million,

primarily consisting of residential mortgage and multifamily loans.

(cid:129) Total deposits were $19.0 billion as of December 31, 2016, an increase of $1.3 billion, or 7.4%, as

compared to December 31, 2015. This increase was primarily driven by growth in all deposit categories,

most notably in non-interest bearing demand and money market accounts.

(cid:129) Total consolidated assets were $24.8 billion as of December 31, 2016, as compared to $23.4 billion at

December 31, 2015.

Credit Quality

(cid:129) Non-performing assets decreased to $62.9 million, or 0.25% of total assets, as of December 31, 2016, as

compared to $66.7 million, or 0.28% of total assets, as of December 31, 2015. Non-performing loans and

leases increased to $56.1 million, or 0.32% of total loans and leases, as of December 31, 2016, as

compared to $44.4 million, or 0.26% of total loans and leases as of December 31, 2015.

(cid:129) Net charge-offs on loans were $38.0 million for the year ended December 31, 2016, or 0.22% of average

loans and leases, as compared to net charge-offs of $22.4 million, or 0.14% of average loans and leases,

for the year ended December 31, 2015.

(cid:129) The provision for loan and lease losses was $41.7 million for 2016, as compared to $36.6 million

recognized for 2015. The increase was principally attributable to the growth in the loans and leases

portfolio as well as an increase in net charge-offs.

31

Capital and Growth Initiatives

(cid:129) The Company’s total risk based capital was 14.7% and its Tier 1 common to risk weighted assets ratio was

11.5% as of December 31, 2016. As of December 31, 2015, the Company’s total risk based ratio was

14.3% and its Tier 1 common to risk weighted assets ratio was 11.4%.

(cid:129) Declared cash dividends of $0.64 per common share for 2016 and $0.62 per common share for 2015.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

The SEC defines ‘‘critical accounting policies’’ as those that require application of management’s most difficult, subjective or

complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain

and may change in future periods. Our significant accounting policies are described in Note 1 in the Notes to Consolidated

Financial Statements in Item 8 of this report. Not all of these significant accounting policies require management to make

difficult, subjective or complex judgments or estimates. Management believes that the following policies would be

considered critical under the SEC’s definition.

Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments

The Bank performs regular credit reviews of the loan and lease portfolio to determine the credit quality and adherence to

underwriting standards. When loans and leases are originated, they are assigned a risk rating that is reassessed periodically during

the term of the loan 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 allowance for loan and lease losses. The Bank has a management Allowance for Loan and Lease Losses (‘‘ALLL’’)

Committee, which is responsible for, among other things, regularly reviewing the ALLL methodology, including loss factors, and

ensuring that it is designed and applied in accordance with generally accepted accounting principles. The ALLL Committee reviews

and approves loans and leases recommended for impaired status. The ALLL Committee also approves removing loans and leases

from impaired status. The Bank’s Audit and Compliance Committee provides board oversight of the ALLL process and reviews and

approves the ALLL methodology on a quarterly basis.

Each risk rating is assessed an inherent credit loss factor that determines the amount of the allowance for loan and lease

losses provided for that group of loans and leases with similar risk rating. Credit loss factors may vary by region based on

management’s belief that there may ultimately be different credit loss rates experienced in each region. Regular credit

reviews of the portfolio also 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, 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 component 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. The

combination of the risk rating-based allowance component and the impairment reserve allowance component lead to an

allocated allowance for loan and lease losses.

The Bank may also maintain an unallocated allowance amount to provide for other credit losses inherent in a loan and lease

portfolio that may not have been contemplated in the credit loss factors. This unallocated amount generally comprises less

than 5% of the allowance, but may be maintained at higher levels during times of economic conditions characterized by

falling real estate values. The unallocated amount is reviewed periodically based on trends in credit losses, the results of

credit reviews and overall economic trends. As of December 31, 2016, there was no unallocated allowance amount.

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

32

and non-performing trends; evaluation of specific loss estimates for all significant problem loans; historical charge-off and

recovery experience; and other pertinent information.

Management believes that the ALLL was adequate as of December 31, 2016. There is, however, no assurance that future

loan 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. In addition, bank regulatory authorities, as part of their periodic examination of the Bank,

may require additional charges to the provision for loan and lease losses in future periods if warranted as a result of their

review. A substantial percentage of our loan portfolio is secured by real estate; as a result, a significant decline in real estate

market values may require an increase in the allowance for loan and lease losses.

Acquired Loans

Acquired loans and leases are recorded at their fair value at the acquisition date. For purchased non-impaired loans, the

difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to

interest income using the effective interest method over the remaining contractual period to maturity.

The acquired loans that are purchased impaired loans are aggregated into pools based on individually evaluated common risk

characteristics and aggregate expected cash flows were estimated for each pool. A pool is accounted for as a single asset with a

single interest rate, cumulative loss rate and cash flow expectation. The cash flows expected to be received over the life of the

pool were estimated by management. These cash flows were input into an accounting loan system which calculates the carrying

values of the pools and underlying loans, book yields, effective interest income and impairment, if any, based on actual and

projected events. Default rates, loss severity, and prepayment speeds assumptions are periodically reassessed and updated within

the accounting model to update our expectation of future cash flows. The excess of the cash flows expected to be collected over

a pool’s carrying value is considered to be the accretable yield and is recognized as interest income over the estimated life of the

loan or pool using the effective yield method. The accretable yield may change due to changes in the timing and amounts of

expected cash flows. Changes in the accretable yield are disclosed quarterly.

Residential Mortgage Servicing Rights (‘‘MSR’’)

The Company determines its classes of servicing assets based on the asset type being serviced along with the methods used to

manage the risk inherent in the servicing assets, which includes the market inputs used to value the servicing assets. The Company

measures its residential mortgage servicing assets at fair value and reports changes in fair value through earnings. Fair value

adjustments encompass market-driven valuation changes and the runoff in value that occurs from the passage of time, which are

separately reported. Under the fair value method, the MSR is carried in the balance sheet at fair value and the changes in fair

value are reported in earnings under the caption residential mortgage banking revenue in the period in which the change occurs.

Retained mortgage servicing rights are measured at fair value as of the date of the related loan sale. We use quoted market

prices when available. Subsequent fair value measurements are determined using a discounted cash flow model. In order to

determine the fair value of the MSR, the present value of expected net future cash flows is estimated. Assumptions used

include market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and ancillary fee income

net of servicing costs. This model is periodically validated by an independent external model validation group. The model
assumptions and the MSR fair value estimates are also compared to observable trades of similar portfolios as well as to MSR

broker valuations and industry surveys, as available.

Valuation of Goodwill and Intangible Assets

Goodwill and other intangible assets with indefinite lives are not amortized but instead are periodically tested for

impairment. Management performs an impairment analysis for the intangible assets with indefinite lives on an annual basis

as of December 31. Additionally, goodwill and other intangible assets with indefinite lives are evaluated on an interim basis

when events or circumstances indicate impairment potentially exists. The impairment analysis requires management to make

subjective judgments. Events and factors that may significantly affect the estimates include, among others, competitive

forces, customer behaviors and attrition, changes in revenue growth trends, cost structures, technology, changes in discount

rates and specific industry and market conditions. There can be no assurance that changes in circumstances, estimates or

assumptions may result in additional impairment of all, or some portion of, goodwill or other intangible assets.

33

The Company performed its annual goodwill impairment analysis of the Community Banking reporting segment as of

December 31, 2016. The Company assessed qualitative factors to determine whether the existence of events and

circumstances indicated that it is more likely than not that the indefinite-lived intangible asset is impaired. Based on this

analysis, no further testing was determined to be necessary. During the first quarter of 2016, the Company recorded a

goodwill impairment loss of $142,000 relating to the winding down of an immaterial subsidiary.

Stock-based Compensation

We recognize expense in the income statement for the grant-date fair value of restricted shares and stock options as equity-

based forms of compensation issued to employees over the employees’ requisite service period (generally the vesting

period). The requisite service period may be subject to performance conditions. The fair value of the restricted shares is

based on the Company’s share price on the grant date. Management assumptions utilized at the time of grant impact the

fair value of the option calculated under the pricing model, and ultimately, the expense that will be recognized over the

expected service period related to each option.

Fair Value

A hierarchical disclosure framework associated with the level of pricing observability is utilized in measuring financial

instruments at fair value. The degree of judgment utilized in measuring the fair value of financial instruments generally

correlates to the level of pricing observability. Financial instruments with readily available active quoted prices or for which

fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a

lesser degree of judgment utilized in measuring fair value. Conversely, financial instruments rarely traded or not quoted will

generally have little or no pricing observability and a higher degree of judgment utilized in measuring fair value. Pricing

observability is impacted by a number of factors, including the type of financial instrument, whether the financial instrument

is new to the market and not yet established and the characteristics specific to the transaction.

RECENT ACCOUNTING PRONOUNCEMENTS

Information regarding Recent Accounting Pronouncements is included in Note 1 of the Notes to Consolidated Financial

Statements in Item 8 below.

RESULTS OF OPERATIONS—OVERVIEW

For the year ended December 31, 2016, net earnings available to common shareholders were $232.8 million, or $1.05 per

diluted common share, as compared to net earnings available to common shareholders of $222.2 million, or $1.01 per

diluted common share for the year ended December 31, 2015. The increase in net earnings available to common

shareholders in 2016 is principally attributable to a decline in non-interest expense, reflecting lower merger related expenses

and lower salaries and benefits expense, partially offset by higher mortgage banking expenses due to the increase in

mortgage originations. Total revenues increased from the prior year as increased mortgage banking revenues were offset by

lower average yields on interest-earning assets, along with a lower level of interest income arising from the accretion of the

credit discount recorded on acquired loans.

For the year ended December 31, 2015, net earnings available to common shareholders were $222.2 million, or $1.01 per

diluted common share, as compared to net earnings available to common shareholders of $147.2 million, or $0.78 per

diluted common share for the year ended December 31, 2014. The increase in net earnings available to common

shareholders in 2015 is principally attributable to net income contribution from the full year of the operations acquired from

Sterling, increased residential mortgage banking revenue resulting from the current mortgage interest rate environment, gain

on sale of portfolio loans, and lower merger related expenses.

The Company incurs significant expenses related to the completion and integration of mergers and acquisitions. It also

recognizes gains or losses on its junior subordinated debentures carried at fair value resulting from changes in interest rates

and the estimated market credit risk adjusted spread that do not directly correlate with the Company’s operating

performance. Additionally, it may recognize goodwill impairment losses that have no direct effect on the Company’s or the

Bank’s cash balances, liquidity, or regulatory capital ratios. The Company recognizes gains and losses related to the change

34

in the fair value of its MSR, which are primarily tied to movements in interest rates, and are not indicative of the fundamental

operating activities for the period. It also recognizes gains or losses related to the change in the fair value of its swap

derivatives, which are driven by movements in interest rates and are beyond our control. On occasion, the Company may sell

certain securities in its investment portfolio, and recognize an associated gain or loss, which can be highly discretionary

based on the timing of the sales, market opportunities, and interest rates, and therefore are not reflective of the Company’s

operating performance. The Company also may incur expenses related to the exit or disposal of certain business activities,

such as the consolidation of bank branches, which do not reflect the on-going operating performance of the Company.

Lastly, the Company may recognize one-time bargain purchase gains on certain acquisitions that are not reflective of the

Company’s on-going earnings power.

Accordingly, management believes that our operating results are best measured on a comparative basis excluding the

after-tax impact of merger related expenses, gains or losses on junior subordinated debentures carried at fair value, gains or

losses from the change in fair value of MSR asset, gains or losses from the change in fair value of the swap derivative, net

gains or losses on investment securities, exit or disposal costs and other charges related to business combinations such as

goodwill impairment charges or bargain purchase gains. The Company defines operating earnings as earnings available to

common shareholders before these items, and calculates operating earnings per diluted share by dividing operating earnings

by the same diluted share total used in determining diluted earnings per common share. Operating earnings and operating

earnings per diluted share are considered ‘‘non-GAAP’’ financial measures. Although we believe the presentation of

non-GAAP financial measures provides a better indication of our operating performance, readers of this report are urged to

review the GAAP results as presented in the Financial Statements and Supplementary Data in Item 8 below.

The following table provides the reconciliation of earnings available to common shareholders (GAAP) to operating earnings

(non-GAAP), and earnings per diluted common share (GAAP) to operating earnings per diluted share (non-GAAP) for the

years ended December 31, 2016, 2015, and 2014:

Reconciliation of Net Earnings Available to Common Shareholders to Operating Earnings

Years Ended December 31,

(in thousands, except per share data)

Net earnings available to common shareholders
Adjustments:

Loss from change in fair value of MSR asset
Gain on investment securities, net
Net loss on junior subordinated debentures carried at fair value
(Gain) loss from change in fair value of swap derivatives
Merger related expenses
Goodwill impairment
Exit or disposal costs

Total pre-tax adjustments

Income tax effect(1)

Net adjustments

Operating earnings

Per diluted share:
Net earnings available to common shareholders
Adjustments:

Loss from change in fair value of MSR asset
Gain on investment securities, net
Net loss on junior subordinated debentures carried at fair value
(Gain) loss from change in fair value of swap derivatives
Merger related expenses
Goodwill impairment
Exit or disposal costs

Total pre-tax adjustments

Income tax effect(1)

Net adjustments

Operating earnings

(1)

Income tax effect of operating earnings adjustments at 40% for tax-deductible items.

35

2016

2015

2014

$232,815

$222,182

$147,174

25,926
(858)
6,323
(1,497)
15,313
142
4,716

20,723
(2,922)
6,306
(162)
45,582
—
—

16,587
(2,904)
5,090
3,232
82,317
—
—

$ 50,065
(19,969)

$ 69,527
(27,811)

$104,322
(41,729)

30,096

41,716

62,593

$262,911

$263,898

$209,767

$

1.05

$

1.01

$

0.78

0.12
—
0.03
(0.01)
0.07
—
0.02

0.23
(0.09)

0.14

1.19

$

0.09
(0.01)
0.03
—
0.20
—
—

0.31
(0.13)

0.18

1.19

$

0.09
(0.02)
0.03
0.02
0.44
—
—

0.56
(0.22)

0.34

1.12

$

The following table presents the returns on average assets, average common shareholders’ equity and average tangible

common shareholders’ equity for the years ended December 31, 2016, 2015, and 2014. For each of the periods presented,

the table includes the calculated ratios based on reported net earnings available to common shareholders and operating

earnings as shown in the table above. Our return on average common shareholders’ equity is negatively impacted as the

result of capital required to support goodwill. To the extent this performance metric is used to compare our performance

with other financial institutions that do not have merger and acquisition-related intangible assets, we believe it beneficial to

also consider the return on average tangible common shareholders’ equity. The return on average tangible common

shareholders’ equity is calculated by dividing net earnings available to common shareholders by average shareholders’

common equity less average goodwill and intangible assets, net (excluding MSRs). The return on average tangible common

shareholders’ equity is considered a non-GAAP financial measure and should be viewed in conjunction with the return on

average common shareholders’ equity.

Return on Average Assets, Common Shareholders’ Equity and Tangible Common Shareholders’ Equity

For the Years Ended December 31,

(dollars in thousands)

Returns on average assets:
Net earnings available to common shareholders
Operating earnings
Returns on average common shareholders’ equity:
Net earnings available to common shareholders
Operating earnings
Returns on average tangible common shareholders’ equity:
Net earnings available to common shareholders
Operating earnings
Calculation of average common tangible shareholders’ equity:
Average common shareholders’ equity
Less: average goodwill and other intangible assets, net

2016

2015

2014

0.97%
1.09%

5.97%
6.74%

0.97%
1.15%

5.82%
6.91%

0.77%
1.09%

4.69%
6.69%

11.25%
12.70%

11.22%
13.32%

9.17%
13.07%

$ 3,898,599
(1,828,575)

$ 3,820,505
(1,839,599)

$ 3,137,858
(1,533,403)

Average tangible common shareholders’ equity

$ 2,070,024

$ 1,980,906

$ 1,604,455

Additionally, management believes tangible common equity and the tangible common equity ratio are meaningful measures

of capital adequacy. Umpqua believes the exclusion of certain intangible assets in the computation of tangible common

equity and tangible common equity ratio provides a meaningful base for period-to-period and company-to-company

comparisons, which management believes will assist investors in analyzing the operating results and capital of the Company.

Tangible common equity is calculated as total shareholders’ equity less preferred stock and less goodwill and other

intangible assets, net (excluding MSRs). In addition, tangible assets are total assets less goodwill and other intangible assets,

net (excluding MSRs). The tangible common equity ratio is calculated as tangible common shareholders’ equity divided by

tangible assets. The tangible common equity and tangible common equity ratio is considered a non-GAAP financial measure

and should be viewed in conjunction with the total shareholders’ equity and the total shareholders’ equity ratio.

36

The following table provides a reconciliation of ending shareholders’ equity (GAAP) to ending tangible common equity

(non-GAAP), and ending assets (GAAP) to ending tangible assets (non-GAAP) as of December 31, 2016 and December 31,

2015:

Reconciliations of Total Shareholders’ Equity to Tangible Common Shareholders’ Equity and Total Assets to Tangible

Assets

(dollars in thousands)

Total shareholders’ equity
Subtract:

Goodwill
Other intangible assets, net

Tangible common shareholders’ equity

Total assets
Subtract:

Goodwill
Other intangible assets, net

Tangible assets

Tangible common equity ratio

December 31,
2016

December 31,
2015

$

3,916,795

$

3,849,334

1,787,651
36,886

2,092,258

24,813,119

$

$

1,787,793
45,508

2,016,033

23,406,381

$

$

1,787,651
36,886

1,787,793
45,508

$

22,988,582

$

21,573,080

9.10%

9.35%

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited.

Although we believe these non-GAAP financial measure are frequently used by stakeholders in the evaluation of a company,

they have limitations as analytical tools, and should not be considered in isolation or as a substitute for analyses of results as

reported under GAAP.

NET INTEREST INCOME

Net interest income is the largest source of our operating income. Net interest income for 2016 was $844.6 million, a

decrease of $27.0 million or 3.1% compared to the same period in 2015. The decrease in net interest income in 2016 as

compared to 2015 is primarily attributable to lower average yields on interest-earning assets, specifically within the loan and

lease portfolio. The decrease was partially offset by growth in average interest-earning assets. The decrease in net interest

income also reflects a higher average cost of funds, primarily driven by an increase in the cost of time deposits due to the

utilization of longer-term maturities which typically carry a higher rate paid, as well as an increase in the interest expense on

junior subordinated debentures.

Net interest income for 2015 was $871.6 million, an increase of $97.8 million or 12.6% compared to the same period in

2014. The increase in net interest income in 2015 as compared to 2014 is attributable to an increase in average interest-

earning assets, primarily loans, loans held for sale and investment securities, partially offset by a lower level of accretion of

the credit discount recorded on loans acquired from Sterling.

The net interest margin (net interest income as a percentage of average interest-earning assets) on a fully tax equivalent

basis was 4.04% for 2016, a decrease of 40 basis points as compared to 2015. The decrease in net interest margin primarily

resulted from the lower level of accretion of the credit discount recorded on loans acquired from Sterling, as well as

decreased yields on earning assets. The yield on loans and leases for 2016 decreased by 55 basis points as compared to

2015. The total cost of interest-bearing liabilities for 2016 was 0.46%, representing an increase of 4 basis points compared to

2015. The cost of time deposits was 0.86% in 2016 compared to 0.64% in 2015.

37

The net interest margin on a fully tax-equivalent basis was 4.44% for 2015, a decrease of 29 basis points as compared to the

same period in 2014. The decrease in net interest margin primarily resulted from the lower level of accretion of the credit

discount recorded on loans acquired from Sterling, as well as decreased yields on earning assets.

Our net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing

liabilities, as well as changes in the yields earned on interest-earning assets and rates paid on deposits and borrowed funds.

The following table presents condensed average balance sheet information, together with interest income and yields on

average interest-earning assets, and interest expense and rates paid on average interest-bearing liabilities for years ended

December 31, 2016, 2015 and 2014:

Average Rates and Balances

(dollars in thousands)

INTEREST-EARNING ASSETS:
Loans held for sale
Loans and leases(1)
Taxable securities
Non-taxable securities(2)
Temporary investments and
interest-bearing deposits

Total interest earning assets
Allowance for loan and lease

losses
Other assets

Total assets

INTEREST-BEARING LIABILITIES:
Interest-bearing checking
Money market deposits
Savings deposits
Time deposits

2016

2015

2014

Interest
Income Average
Average
Yields
Balance Expense or Rates

or

Interest
Income Average
Average
Yields
Balance Expense or Rates

or

Interest
Income Average
Average
Yields
Balance Expense or Rates

or

$

416,724 $ 15,995
17,258,081 834,072
47,826
13,426

2,314,062
284,780

3.84% $
333,455 $ 12,407
4.83% 15,938,127 857,026
48,550
2.07% 2,275,512
14,684
310,684
4.71%

3.72% $
205,580 $ 8,337
5.38% 13,003,762 755,466
46,109
2.13% 2,072,936
15,692
301,535
4.73%

4.06%
5.81%
2.22%
5.20%

736,854

3,918

0.53%

869,253

2,236

0.26%

900,851

2,264

0.25%

21,010,501 915,237

4.36% 19,727,031 934,903

4.74% 16,484,664 827,868

5.02%

(132,492)
3,243,453

$24,121,462

(126,063)
3,304,573

$22,905,541

(96,513)
2,780,947

$19,169,098

$ 2,189,589 $ 2,415
10,499
655
21,671

6,773,939
1,248,831
2,518,507

0.11% $ 2,080,126 $ 1,957
9,491
0.15% 6,376,178
1,105
0.05% 1,063,151
17,286
0.86% 2,715,847

0.09% $ 1,721,452 $
0.15% 5,255,622
0.10%
829,737
0.64% 2,649,091

950
6,991
426
15,448

0.06%
0.13%
0.05%
0.58%

Total interest-bearing deposits

12,730,866

35,240

0.28% 12,235,302

29,839

0.24% 10,455,902

23,815

0.23%

Federal funds purchased and
repurchase agreements

Term debt
Junior subordinated debentures

Total interest-bearing liabilities

Non-interest-bearing deposits
Other liabilities

Total liabilities
Common equity

Total liabilities and

333,919
897,050
359,003

14,320,838
5,616,585
285,440

20,222,863
3,898,599

132
15,005
15,674

66,051

0.04%
1.67%
4.37%

321,079
923,992
352,872

0.46% 13,833,245
5,015,508
236,283

19,085,036
3,820,505

173
14,470
13,750

58,232

0.05%
1.57%
3.90%

303,358
815,017
301,525

346
12,793
11,739

0.11%
1.57%
3.89%

48,693

0.41%

0.42% 11,875,802
3,951,429
204,009

16,031,240
3,137,858

shareholders’ equity

$24,121,462

$22,905,541

$19,169,098

NET INTEREST INCOME

$849,186

$876,671

$779,175

NET INTEREST SPREAD
AVERAGE YIELD ON EARNING

ASSETS(1),(2)

INTEREST EXPENSE TO
EARNING ASSETS

NET INTEREST INCOME TO

EARNING ASSETS OR NET
INTEREST MARGIN(1),(2)

3.90%

4.36%

0.32%

4.04%

4.32%

4.74%

0.30%

4.44%

4.61%

5.02%

0.30%

4.73%

(1) Non-accrual loans and leases are included in the average balance.

38

(2) Tax-exempt income has been adjusted to a tax equivalent basis at a 35% tax rate. The amount of such adjustment was an

addition to recorded income of approximately $4.6 million, $5.0 million, and $5.3 million for the years ended 2016, 2015, and
2014, respectively.

The following table sets forth a summary of the changes in tax equivalent net interest income due to changes in average

asset and liability balances (volume) and changes in average rates (rate) for 2016 as compared to 2015 and 2015 compared

to 2014. Changes in tax equivalent interest income and expense, which are not attributable specifically to either volume or

rate, are allocated proportionately between both variances.

(in thousands)

INTEREST-EARNING ASSETS:

Loans held for sale

Loans and leases

Taxable securities

Non-taxable securities(1)

Temporary investments and interest bearing deposits

Total(1)

INTEREST-BEARING LIABILITIES:

Interest bearing demand

Money market

Savings

Time deposits

Repurchase agreements and federal funds

Term debt

Junior subordinated debentures

Total

2016 compared to 2015

2015 compared to 2014

Increase (decrease) in interest
income and expense due to
changes in

Increase (decrease) in interest
income and expense due to
changes in

Volume

Rate

Total

Volume

Rate

Total

$ 3,185

$

403

$

3,588

$

4,808

$

(738)

$

4,070

67,744

(90,698)

(22,954)

160,934

(59,374)

101,560

814

(1,538)

(1,221)

(386)

(37)

2,068

(724)

(1,258)

1,682

4,376

465

(80)

(1,935)

(1,473)

52

2,441

(1,008)

(28)

70,136

(89,802)

(19,666)

170,503

(63,468)

107,035

107

606

168

(1,332)

7

(431)

243

(632)

351

402

(618)

5,717

(48)

966

1,681

8,451

458

1,008

(450)

4,385

(41)

535

1,924

7,819

231

1,605

147

397

20

1,706

2,001

6,107

776

895

532

1,441

(193)

(29)

10

3,432

1,007

2,500

679

1,838

(173)

1,677

2,011

9,539

Net increase (decrease) in net interest income(1)

$70,768

$(98,253)

$ (27,485)

$164,396

$(66,900)

$ 97,496

(1) Tax exempt income has been adjusted to a tax equivalent basis at a 35% tax rate.

PROVISION FOR LOAN AND LEASE LOSSES

The provision for loan and lease losses was $41.7 million for 2016, as compared to $36.6 million for 2015, and $40.2 million

for 2014. As a percentage of average outstanding loans and leases, the provision for loan and lease losses recorded for

2016 was 0.24%, an increase of 1 basis point from 2015 and a decrease of 7 basis points from 2014.

The increase in the provision for loan and lease losses in 2016 as compared to 2015 is principally attributable to strong

growth in the loan portfolio, as well as an increase in net charge-offs. The economy in the Pacific Northwest has improved

causing the risk ratings of many of our borrowers, as well as the value of the underlying collateral for real estate collateral

loans, to improve as compared to prior years. The loan portfolio increased by $642.1 million since December 31, 2015. For

2016, there was a $262,000 recapture of the provision for loan and lease losses related to previously acquired loans that

were not purchased credit impaired as compared to $375,000 in the provision for loan and lease losses for the year ended

December 31, 2015. Net-charge offs for 2016 were $38.0 million compared to $22.4 million for 2015. The increase in

charge-offs related to the lease portfolio which has been a strong growth area for the past few years, although the credit

quality metrics for the portfolio remain strong.

The decrease in 2015 as compared to 2014 is principally attributable to decreasing credit factors used in the calculation of

the allowance for loan and lease losses due to the improving credit quality of the portfolio, offset by the increase in the

provision relating to new originations. The economy in the Pacific Northwest has improved causing the risk ratings of many

of our borrowers to improve as well as the value of the underlying collateral for real estate collateral loans to improve as

39

compared to prior years. For 2015, $375,000 of the provision for loan and lease losses related to previously acquired loans

that were not purchased credit impaired as compared to $1.1 million for the year ended December 31, 2014. Net-charge

offs for 2015 were $22.4 million compared to $19.2 million for 2014.

The Company recognizes the charge-off of impairment reserves on impaired loans in the period they arise for collateral

dependent loans. Therefore, the non-accrual loans of $27.8 million as of December 31, 2016 have already been

written-down to their estimated fair value, less estimated costs to sell, and are expected to be resolved with no additional

material loss, absent further decline in market prices.

NON-INTEREST INCOME

Non-interest income for 2016 was $299.9 million, an increase of $24.2 million, or 8.8%, as compared to the same period in

2015. Non-interest income for 2015 was $275.7 million, an increase of $94.6 million, or 52.2%, as compared to 2014. The

following table presents the key components of non-interest income for years ended December 31, 2016, 2015 and 2014:

Non-Interest Income

Years Ended December 31,

(dollars in thousands)

2016

2016 compared to 2015

Change Change
2015 Amount Percent

2015

2015 compared to 2014

Change Change
2014 Amount Percent

Service charges on deposits

$ 61,268

$ 59,740

$ 1,528

3% $ 59,740 $ 54,700 $ 5,040

Brokerage revenue

17,033

18,481

(1,448)

(8)%

18,481

18,133

348

Residential mortgage banking revenue,

net

157,863

124,722

33,141

27% 124,722

77,265

47,457

Gain on investment securities, net

Gain on sale of loans, net

Loss on junior subordinated

858

13,356

2,922

22,380

(2,064)

(9,024)

(71)%

(40)%

2,922

22,380

2,904

15,113

18

7,267

debentures carried at fair value

(6,323)

(6,306)

Change in FDIC indemnification asset

(82)

(853)

8,514

47,453

8,351

46,287

(17)

771

163

1,166

0%

(90)%

2%

3%

(6,306)

(5,090)

(1,216)

(853)

(15,151)

14,298

8,351

46,287

6,835

1,516

26,465

19,822

$299,940

$275,724

$24,216

9% $275,724 $181,174 $94,550

BOLI income

Other income

Total

nm = not meaningful

9%

2%

61%

1%

48%

24%

(94)%

22%

75%

52%

The increase in service charges on deposits in 2016 compared to 2015 and 2015 compared to 2014 is primarily the result of

organic growth in deposit balances during the periods.

Brokerage commissions and fees in 2016 decreased due to a decrease in managed account fees at Umpqua Investments.

Assets under management at Umpqua Investments was $3.2 billion at both December 31, 2016 and 2015. Brokerage

commissions and fees in 2015 increased due to the increase in managed account fees and new balances at Umpqua

Investments. In 2015, assets under management at Umpqua Investments increased to $3.2 billion as compared to

$2.8 billion at December 31, 2014.

Residential mortgage banking revenue for the year ended December 31, 2016 increased due to an increase in production,

partially offset by losses related to the change in fair value of MSR which were higher in 2016 as compared to 2015. Closed

mortgage volume for sale for 2016 was $4.0 billion, representing a 14% increase compared to 2015 production of

$3.5 billion. The gain on sale margin for 2016 was 3.72% compared to 3.36% for 2015. Cash flows received from the

servicing of the mortgage servicing rights’ underlying loans over the course of the year, offset by an increase in long-term

interest rates compared to the same period of the prior year has contributed to a $25.9 million decline in fair value on the

MSR asset in 2016, compared to a $20.7 million decline in fair value recognized in 2015. As of December 31, 2016, the

Company serviced $14.3 billion of mortgage loans for others, and the related mortgage servicing right asset is valued at

$143.0 million, or 1.00% of the total serviced portfolio principal balance.

40

In connection with the sale of investment securities, we recognized a gain on sale of $858,000 in 2016, and a gain on sale of

$2.9 million for 2015 and 2014. During 2016, the Company sold investment securities to reduce the price risk of the

portfolio if interest rates were to increase significantly.

The gain on loan sales for the year ended December 31, 2016, decreased by $9.0 million due to the mix of loans sold

during the year offset by the increase in the volume of loans sold.

A loss of $6.3 million was recognized in 2016 and 2015, compared to a loss of $5.1 million for 2014, which represents the

change of fair value on the junior subordinated debentures recorded at fair value. The increase in the loss during 2015 was

the result of the fair value election on the junior subordinated debentures assumed in the Sterling merger, which the

Company elected to account for at fair value on a recurring basis.

The change in FDIC indemnification asset represents a change in cash flows expected to be recoverable under the loss-share

agreements entered into with the FDIC in connection with FDIC-assisted acquisitions. The change has drastically decreased

as these loss-share agreements are ending.

BOLI income increased to $8.5 million in 2016. The increase as compared to prior years relates to increased cash surrender

value associated with BOLI assets.

Other income in 2016 compared to 2015 increased by $1.2 million, with increases attributable to various fees that have

increased due to the increase in loans and due to increased swap revenue of $1.7 million as compared to 2015. Other

income in 2015 as compared to 2014 increased by $19.8 million, with increases attributable to various fees that have

increased due to the increase in loans. Other income also increased in 2015 due to increased swap revenue of $8.4 million

as compared to 2014, as well as, BOLI death benefits received in 2015 of $5.4 million.

NON-INTEREST EXPENSE

Non-interest expense for 2016 was $737.2 million, a decrease of $26.5 million, or 3.5%, as compared to 2015. Non-interest

expense for 2015 was $763.6 million, an increase of $79.6 million, or 11.6%, as compared to 2014. The following table

presents the key elements of non-interest expense for the years ended December 31, 2016, 2015 and 2014.

Non-Interest Expense

Years Ended December 31,

(dollars in thousands)

2016 compared to 2015

2015 compared to 2014

2016

2015

Change Change
Amount Percent

2015

2014

Change Change
Amount Percent

Salaries and employee benefits

$424,830

$430,936

$ (6,106)

(1)% $430,936

$355,379

$ 75,557

Occupancy and equipment, net

151,944

142,975

8,969

6% 142,975

111,263

31,712

Communications

Marketing

Services
FDIC assessments

(Gain) loss on other real estate

owned, net

Intangible amortization

Merger related expenses

Goodwill impairment

Other expenses

21,265

10,913

42,795
15,508

(279)

8,622

15,313

142

20,615

11,419

46,379
13,480

1,894

11,225

45,582

—

46,102

39,137

650

(506)

(3,584)
2,028

3%

(4)%

(8)%
15%

(2,173)

(115)%

(2,603)

(30,269)

142

6,965

(23)%

(66)%

nm

18%

20,615

11,419

46,379
13,480

1,894

11,225

45,582

—

14,728

9,504

49,086
10,998

4,116

10,207

82,317

—

5,887

1,915

(2,707)
2,482

(2,222)

1,018

(36,735)

—

39,137

36,465

2,672

Total

$737,155

$763,642

$(26,487)

(3)% $763,642

$684,063

$ 79,579

21%

29%

40%

20%

(6)%
23%

(54)%

10%

(45)%

—%

7%

12%

Salaries and employee benefits costs decreased $6.1 million as compared to the prior year primarily related to decreased

employee stock-based compensation, as well as declines in certain employee benefits and commissions. The increase from

2014 to 2015 related to the full year of compensation expense relating to the employees who joined the Bank through the

41

Sterling merger which was completed in April 2014. In addition, salaries and employee benefit costs also increased due to

increased fixed and variable compensation expense associated with higher mortgage banking originations.

Net occupancy and equipment expense increased in 2016 as compared to the prior year as a result of additional

maintenance contracts related to certain infrastructure system contracts, following conversions over the past two years. The

increase for 2015 as compared to 2014 was due to a full year of rent expense and depreciation expense related to the full

year of activity from Sterling related operations, partially offset by store consolidations in 2015.

Communications costs increased in 2016 compared to 2015, and in 2015 compared to 2014, primarily due to increased data

processing costs as a result of the Company’s continued growth and expansion. Marketing expense decreased in 2016

compared to 2015 and increased in 2015 as compared to 2014 primarily related to costs associated with branding initiatives

in 2015. Services expense decreased in 2016 compared to 2015 and 2014 primarily due to decreased fees for hosting

services related to the system conversions.

FDIC assessments increased in 2016 compared to 2015 and 2014 due to the increase in the assets and deposits from

organic growth, as well as a surcharge in 2016.

In the year ended December 31, 2016, the Company recognized a net gain on OREO properties of $279,000, as compared

to net losses (which includes loss on sale and valuation adjustments) on OREO properties of $1.9 million and $4.1 million in

the years ended December 31, 2015 and 2014, respectively. The gain in 2016 and the decrease in the loss in 2015 is

primarily the result of improving real estate values, allowing for better realization of market values of existing OREO

properties.

We incur significant expenses in connection with the completion and integration of bank acquisitions that are not

capitalizable. These merger related expenses are recorded in accordance with a Board approved accounting policy with

respect to merger related charges, including internal and external charges. These expenses include acquisition related

expenses, certain facility closure related costs, customer communications, restructuring expenses (including associate

severance and retention charges) and expenses related to conversions of systems, including consulting costs. The merger

related expenses incurred in 2016, 2015, and 2014, relate to the merger with Sterling. In 2016, the merger related expenses

are the result of system and data conversions that continue through various completion phases.

Merger Related Expense

Years Ended December 31,

(in thousands)

Legal and professional
Premises and Equipment
Personnel
Communication
Contract termination
Charitable contributions
Investment banking fees
Other

$

$

2016

6,904
5,950
1,405
291
—
—
—
763

$

2015

21,849
6,640
11,564
2,309
154
—
—
3,066

Total merger related expense

$

15,313

$

45,582

$

2014

22,276
3,677
18,837
2,522
10,378
10,000
9,573
5,054

82,317

Other non-interest expense increased in 2016 as compared to 2015 and 2014 due to exit or disposal costs of $4.7 million for

the year ended December 31, 2016, which relates to the store consolidations that occurred during the second and third

quarters of 2016.

INCOME TAXES

Our consolidated effective tax rate as a percentage of pre-tax income for 2016 was 36.3%, compared to 35.9% for 2015 and

36.0% for 2014. The effective tax rates differed from the federal statutory rate of 35% and the apportioned state rate of

5.1% (net of the federal tax benefit) principally because of the relative amount of income we earn in each state jurisdiction,

non-taxable income arising from bank-owned life insurance, income on tax-exempt investment securities, nondeductible

merger expenses and tax credits arising from low income housing investments.

42

INVESTMENT SECURITIES

FINANCIAL CONDITION

The composition of our investment securities portfolio reflects management’s investment strategy of maintaining an

appropriate level of liquidity while providing a relatively stable source of interest income. The investment securities portfolio

also mitigates interest rate and credit risk inherent in the loan portfolio, while providing a vehicle for the investment of

available funds, a source of liquidity (by pledging as collateral or through repurchase agreements) and collateral for certain

public funds deposits.

Trading securities consist of securities held in inventory by Umpqua Investments for sale to its clients and securities invested

in trust for the benefit of certain executives or former employees of acquired institutions as required by agreements. Trading

securities were $11.0 million at December 31, 2016, as compared to $9.6 million at December 31, 2015. This increase is

principally attributable to an increase in Rabbi Trusts balances.

Investment securities available for sale were $2.7 billion as of December 31, 2016 compared to $2.5 billion at December 31,

2015. The increase is due to purchases of investment securities of $852.1 million of investment securities available for sale,

offset by a decrease in fair value of investments securities available for sale of $30.7 million, and paydowns of $619.8 million

and amortization of net purchase price premiums of $23.7 million.

Investment securities held to maturity were $4.2 million as of December 31, 2016 as compared to holdings of $4.6 million at

December 31, 2015. The change primarily relates to paydowns and maturities of investment securities held to maturity of

$501,000.

The following table presents the available for sale and held to maturity investment securities portfolio by major type as of

December 31 for each of the last three years:

Summary of Investment Securities

December 31,

2016

2015

2014

$

— $

— $

307,697
2,391,553
1,970

313,117
2,207,420
2,002

229
338,404
1,957,852
2,070

$2,701,220

$2,522,539

$2,298,555

$

$

4,216
—

4,216

$

$

4,609
—

4,609

$

$

5,088
123

5,211

(in thousands)

AVAILABLE FOR SALE
U.S. Treasury and agencies
Obligations of states and political subdivisions
Residential mortgage-backed securities and collateralized mortgage obligations
Investments in mutual funds and other equity securities

HELD TO MATURITY
Residential mortgage-backed securities and collateralized mortgage obligations
Other investment securities

43

The following table presents information regarding the amortized cost, fair value, average yield and maturity structure of the

investment portfolio at December 31, 2016.

Investment Securities Composition*

December 31, 2016

(dollars in thousands)

OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS

One year or less
One to five years
Five to ten years
Over ten years

OTHER SECURITIES
Residential mortgage-backed securities and collateralized mortgage obligations

Other investment securities

Total securities

Amortized
Cost

Fair
Value

Average
Yield

$

82,688
120,218
82,310
20,492

$

83,318
123,832
81,395
19,152

5.77%
5.51%
3.90%
3.71%

305,708

307,697

5.04%

2,432,603

2,396,770

1.78%

1,959

1,970

2.28%

$2,740,270

$2,706,437

2.15%

*Weighted average yields are stated on a federal tax-equivalent basis of 35%. Weighted average yields for available for sale

investments have been calculated on an amortized cost basis.

The mortgage-related securities in the table above include both pooled mortgage-backed issues and high-quality

collaterized mortgage obligation structures, with an average duration of 4.1 years. These mortgage-related securities provide

yield spread to U.S. Treasury or agency securities; however, the cash flows arising from them can be volatile due to

refinancing of the underlying mortgage loans.

The equity security in ‘‘Other investment securities’’ in the table above at December 31, 2016 and 2015, principally

represents an investment in a Community Reinvestment Act investment fund comprised largely of mortgage-backed

securities, although funds may also invest in municipal bonds, certificates of deposit, repurchase agreements, or securities

issued by other investment companies.

We review investment securities on an ongoing basis for the presence of other-than-temporary impairment (‘‘OTTI’’) or

permanent impairment, taking into consideration current market conditions, fair value in relationship to cost, extent and

nature of the change in fair value, issuer rating changes and trends, whether we intend to sell a security or if it is more likely

than not that we will be required to sell the security before recovery of our amortized cost basis of the investment, which

may be maturity, and other factors.

Gross unrealized losses in the available for sale investment portfolio was $44.0 million at December 31, 2016. This consisted

primarily of unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations of
$40.5 million. The unrealized losses were primarily caused by interest rate increases subsequent to the purchase of the

securities, and not credit quality. In the opinion of management, these securities are considered only temporarily impaired

due to changes in market interest rates or the widening of market spreads subsequent to the initial purchase of the

securities, and not due to concerns regarding the underlying credit of the issuers or the underlying collateral.

RESTRICTED EQUITY SECURITIES

Restricted equity securities were $45.5 million at December 31, 2016 and $46.9 million at December 31, 2015. The decrease

is attributable to net redemptions of Federal Home Loan Banks (‘‘FHLB’’) stock. Of the $45.5 million at December 31, 2016,

$44.1 million represents the Bank’s investment in the FHLBs of Des Moines and San Francisco. FHLB stock is carried at par

and does not have a readily determinable fair value. Ownership of FHLB stock is restricted to the FHLB and member

institutions, and can only be purchased and redeemed at par.

44

LOANS AND LEASES

Loans and Leases, net

Total loans and leases outstanding at December 31, 2016 were $17.5 billion, an increase of $642.1 million as compared to
year-end 2015. This increase is principally attributable to net new loan and lease originations of $1.2 billion, partially offset
by charge-offs of $49.9 million, transfers to other real estate owned of $5.9 million, and loans sold of $462.5 million during
the period.

The following table presents the composition of the loan and lease portfolio, net of deferred fees and costs, as of
December 31 for each of the last five years.

Loan and Lease Portfolio Composition

As of December 31,

(dollars in thousands)

Amount Percentage

Amount Percentage

Amount Percentage

Amount Percentage

Amount Percentage

2016

2015

2014

2013

2012

Commercial real estate, net

$ 9,395,062

53.7% $ 9,331,804

55.4% $ 8,903,660

58.1% $4,630,155

59.9% $4,582,768

Commercial, net

Residential, net

Consumer & other, net

3,575,627

3,899,815

638,159

20.4%

22.3%

3.6%

3,174,570

3,832,973

527,189

18.8%

22.7%

3.1%

2,948,823

3,097,275

389,036

19.2% 2,142,213

27.7% 1,757,660

20.2%

2.5%

907,485

52,375

11.7%

0.7%

792,604

43,638

63.9%

24.5%

11.0%

0.6%

Total loans and leases, net

$17,508,663

100.0% $16,866,536

100.0% $15,338,794

100.0% $7,732,228

100.0% $7,176,670

100.0%

Loan and Lease Concentrations

The following table presents the concentration distribution of our loan and lease portfolio by major type:

(dollars in thousands)

Commercial real estate

Non-owner occupied term, net
Owner occupied term, net
Multifamily, net
Construction & development, net
Residential development, net

Commercial
Term, net
LOC & other, net
Leases and equipment finance, net

Residential

Mortgage, net
Home equity loans & lines, net

Consumer & other, net

December 31, 2016

December 31, 2015

Amount

Percentage

Amount

Percentage

$ 3,330,442
2,599,055
2,858,956
463,625
142,984

1,508,780
1,116,259
950,588

2,887,971
1,011,844
638,159

19.0% $ 3,226,836
2,582,874
14.9%
3,151,516
16.3%
271,119
2.7%
99,459
0.8%

8.6%
6.4%
5.4%

16.5%
5.8%
3.6%

1,408,676
1,036,733
729,161

2,909,306
923,667
527,189

19.1%
15.3%
18.7%
1.6%
0.7%

8.4%
6.1%
4.3%

17.2%
5.5%
3.1%

Total, net of deferred fees and costs

$17,508,663

100.0% $16,866,536

100.0%

Maturities and Sensitivities of Loans to Changes in Interest Rates

The following table presents the maturity distribution of our commercial real estate and commercial loan portfolios and the
rate sensitivity of these loans to changes in interest rates as of December 31, 2016:

(in thousands)

Commercial real estate
Commercial(1)

One Year One Through
Five Years

or Less

Over Five
Years

Total

Fixed
Rate

Floating
Rate

$ 777,210
$1,326,760

$ 1,902,953
649,227
$

$6,714,899
$ 649,052

$9,395,062
$2,625,039

$1,389,318
$ 806,170

$7,228,534
$ 492,109

By Maturity

Loans Over One Year by
Rate Sensitivity

(1) Excludes the lease and equipment finance portfolio.

45

ASSET QUALITY AND NON-PERFORMING ASSETS

The following table summarizes our non-performing assets and restructured loans:

Non-Performing Assets

As of December 31,

(dollars in thousands)

2016

2015

2014

2013

2012

Loans and leases on non-accrual status

$

27,765

$

29,215

$

52,041

$

31,891

$

66,736

Loans and leases past due 90 days or more and

accruing(1)

Total non-performing loans and leases

Other real estate owned

Total non-performing assets

Restructured loans(2)

28,369

56,134

6,738

62,872

40,667

$

$

15,169

44,384

22,307

66,691

31,355

$

$

7,512

59,553

37,942

97,495

54,836

$

$

Allowance for loan and lease losses

Reserve for unfunded commitments

$ 133,984

$ 130,322

$ 116,167

3,611

3,574

3,539

Allowance for credit losses

$ 137,595

$ 133,896

$ 119,706

3,430

35,321

23,935

59,256

68,791

$

$

4,232

70,968

27,512

98,480

70,602

95,085

$ 103,666

1,436

1,223

96,521

$ 104,889

$

$

$

$

Asset quality ratios:

Non-performing assets to total assets

0.25%

0.28%

0.43%

0.51%

0.84%

Non-performing loans and leases to total loans

and leases

0.32%

0.26%

0.39%

0.46%

0.99%

Allowance for loan and lease losses to total

loans and leases

0.77%

0.77%

0.76%

1.23%

1.44%

Allowance for credit losses to total loans and

leases

Allowance for credit losses to total

non-performing loans and leases

0.79%

0.79%

0.78%

1.25%

1.46%

245%

302%

201%

273%

148%

(1) Excludes 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 $10.9 million, $19.2 million, $11.1 million, $4.1 million and

$237,000, as of December 31, 2016, 2015, 2014, 2013, and 2012, respectively.

(2) Represents accruing restructured loans performing according to their restructured terms.

Under acquisition accounting rules, loans (including those considered non-performing) acquired from Sterling were recorded

at their estimated fair value. The Company recognized the loan portfolio acquired from Sterling at fair value as of the

acquisition date, which resulted in a discount to the loan portfolio’s previous carrying value. Neither the credit portion nor
any other portion of the fair value mark is reflected in the reported allowance for loan and lease losses, or related allowance

coverage ratios, but we believe should be considered when comparing the current period ratios to similar ratios in periods

prior to the acquisition of Sterling due to the impact of the purchase credit impaired loans not being included in

non-performing loans, however, these acquired loans are included in the total loans and leases. In addition, the allowance for

credit loss ratios have declined from periods prior to the acquisition of Sterling due to the acquired loans being included in

total loans and leases, but not having a related allowance due to the application of the credit discount.

The purchased non-credit impaired loans had remaining credit discount that will accrete into interest income over the life of

the loans of $43.9 million and $72.8 million, as of December 31, 2016 and 2015, respectively. The purchased credit impaired

loan pools had remaining discount of $45.7 million and $68.0 million, as of December 31, 2016 and 2015, respectively.

Loans acquired with deteriorating credit quality are accounted for as purchased credit impaired pools. Typically this would

include loans that were considered non-performing or restructured as of acquisition date. Accordingly, subsequent to

acquisition, loans included in the purchased credit impaired pools are not reported as non-performing loans based upon

46

their individual performance status, so the categories of nonaccrual, impaired and 90 days past due and accruing do not

include any purchased credit impaired loans.

Restructured Loans

At December 31, 2016 and December 31, 2015, impaired loans of $40.7 million and $31.4 million were classified as

performing restructured loans, respectively. The restructurings were granted in response to borrower financial difficulty, by

providing modification of loan repayment terms. The performing restructured loans on accrual status represent principally the

only impaired loans accruing interest at December 31, 2016. In order for a restructured loan to be considered performing

and on accrual status, the loan’s collateral coverage generally will be greater than or equal to 100% of the loan balance, the

loan must be current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to

make payments from a verified source of cash flow. There were no available commitments for troubled debt restructurings

outstanding as of December 31, 2016 and December 31, 2015.

The following table presents a distribution of our performing restructured loans by year of maturity, according to the

restructured terms, as of December 31, 2016:

(in thousands)

Year

2017

2018

2019

2020

2021

Thereafter

Total

Amount

$

30,829

3

194

179

3,246

6,216

$

40,667

ALLOWANCE FOR LOAN AND LEASE LOSSES AND RESERVE FOR UNFUNDED COMMITMENTS

The allowance for loan and lease losses (‘‘ALLL’’) totaled $134.0 million at December 31, 2016, an increase of $3.7 million

from the $130.3 million at December 31, 2015. The increase in the ALLL from the prior year-end is a result of loan and lease

growth.

47

The following table provides a summary of activity in the ALLL by major loan type, net of deferred fees for each of the five

years ended December 31:

Allowance for Loan and Lease Losses

(dollars in thousands)

2016

2015

2014

2013

2012

Balance, beginning of period

$

130,322

$

116,167

$

95,085

$

103,666

$

107,288

Loans charged-off:

Commercial real estate, net

Commercial, net

Residential, net

Consumer & other, net

(3,137)

(35,545)

(1,885)

(9,356)

(6,797)

(20,247)

(970)

(7,557)

(8,030)

(16,824)

(1,855)

(3,469)

(9,748)

(20,810)

(3,655)

(1,285)

(25,270)

(13,822)

(5,878)

(2,158)

Total loans charged-off

(49,923)

(35,571)

(30,178)

(35,498)

(47,128)

Recoveries:

Commercial real estate, net

Commercial, net

Residential, net

Consumer & other, net

Total recoveries

Net charge-offs

Provision charged to operations

1,958

4,995

1,028

3,930

2,682

5,001

641

4,813

2,539

6,744

462

1,274

4,436

10,445

569

751

6,673

6,089

999

544

11,911

13,137

11,019

16,201

14,305

(38,012)

41,674

(22,434)

36,589

(19,159)

40,241

(19,297)

10,716

(32,823)

29,201

Balance, end of period

$

133,984

$

130,322

$

116,167

$

95,085

$

103,666

As a percentage of average loans and leases:

Net charge-offs

Provision for loan and lease losses

Recoveries as a percentage of charge-offs

0.22%

0.24%

23.86%

0.14%

0.23%

36.93%

0.15%

0.31%

36.51%

0.26%

0.15%

45.64%

0.49%

0.44%

30.35%

The unallocated portion of ALLL provides for coverage of credit losses inherent in the loan portfolio but not captured in the

credit loss factors that are utilized in the risk rating-based component, or in the specific impairment reserve component of

the allowance for loan and lease losses, and acknowledges the inherent imprecision of all loss prediction models. At both

December 31, 2016 and December 31, 2015, there was no unallocated allowance for loan and lease losses.

The following table sets forth the allocation of the allowance for loan and lease losses and percent of loans and leases in

each category to total loans and leases, net of deferred fees, as of December 31:

Allowance for Loan and Lease Losses Composition

As of December 31,

(dollars in thousands)

Amount

2016

%

Amount

2015

%

Amount

2014

%

Amount

2013

%

Amount

2012

%

Commercial real
estate, net
Commercial, net
Residential, net
Consumer & other,

net

Allowance for loan
and lease losses

$

47,795 53.7% $
58,840 20.4%
17,946 22.3%

54,293 55.4% $
47,487 18.8%
22,017 22.7%

55,184 58.1% $
41,216 19.2%
15,922 20.2%

59,538 59.9% $
27,028 27.7%
7,487 11.7%

67,038 63.9%
27,905 24.5%
7,729 11.0%

9,403

3.6%

6,525

3.1%

3,845

2.5%

1,032

0.7%

994

0.6%

$ 133,984

$ 130,322

$ 116,167

$

95,085

$ 103,666

At December 31, 2016, the recorded investment in loans classified as impaired totaled $54.0 million, with a corresponding

valuation allowance (included in the allowance for loan and lease losses) of $867,000. The valuation allowance on impaired

48

loans represents the impairment reserves on performing current and former restructured loans and nonaccrual loans. At

December 31, 2015, the total recorded investment in impaired loans was $52.1 million, with a corresponding valuation

allowance (included in the allowance for loan and lease losses) of $788,000. The valuation allowance on impaired loans

represents the impairment reserves on performing current and former restructured loans and nonaccrual loans at

December 31, 2015.

The following table presents a summary of activity in the reserve for unfunded commitments (‘‘RUC’’):

Summary of Reserve for Unfunded Commitments Activity

Years Ended December 31,

(in thousands)

Balance, beginning of period

Net change to other expense

Acquired reserve

Balance, end of period

2016

2015

2014

$

3,574

$

3,539

$

1,436

37

—

35

—

(1,863)

3,966

$

3,611

$

3,574

$

3,539

We believe that the ALLL and RUC at December 31, 2016 are sufficient to absorb probable losses inherent in the loan and

lease portfolio and credit commitments outstanding as of that date based on the best information available. This

assessment, based in part on historical levels of net charge-offs, loan and lease growth, and a detailed review of the quality

of the loan and lease portfolio, involves uncertainty and judgment. Therefore, the adequacy of the ALLL and RUC cannot be

determined with precision and may be subject to change in future periods. In addition, bank regulatory authorities, as part of

their periodic examination of the Bank, may require additional charges to the provision for loan and lease losses in future

periods if warranted as a result of their review.

RESIDENTIAL MORTGAGE SERVICING RIGHTS

The following table presents the key elements of our residential mortgage servicing rights asset as of December 31, 2016,

2015, and 2014:

Summary of Residential Mortgage Servicing Rights

Years Ended December 31,

(in thousands)

Balance, beginning of period

Acquired/purchased MSR

Additions for new MSR capitalized

Changes in fair value:

Due to changes in model inputs or assumptions(1)
Other(2)

Balance, end of period

2016

2015

$ 131,817

$ 117,259

$

—

37,082

—

35,284

2014

47,765

62,770

23,311

7,873
(33,799)

(380)
(20,346)

(5,757)
(10,830)

$ 142,973

$ 131,817

$ 117,259

(1) Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by

changes in interest rates.

(2) Represents changes due to collection/realization of expected cash flows over time.

Information related to our serviced loan portfolio as of December 31, 2016, 2015, and 2014 was as follows:

(dollars in thousands)

Balance of loans serviced for others

MSR as a percentage of serviced loans

December 31,
2016

December 31,
2015

December 31,
2014

$ 14,327,368

$ 13,047,266

$ 11,590,310

1.00%

1.01%

1.01%

49

Residential mortgage servicing rights are adjusted to fair value quarterly with the change recorded in residential mortgage
banking revenue. The value of residential mortgage servicing rights is impacted by market rates for mortgage loans.
Historically low market rates can cause prepayments to increase as a result of refinancing activity. To the extent loans are
prepaid sooner than estimated at the time servicing assets are originally recorded, it is possible that certain residential
mortgage servicing rights assets may decrease in value. Generally, the fair value of our residential mortgage servicing rights
will increase as market rates for mortgage loans rise and decrease if market rates fall.

GOODWILL AND OTHER INTANGIBLE ASSETS

At December 31, 2016 and 2015, we had goodwill of $1.8 billion. Goodwill is recorded in connection with business
combinations and represents the excess of the purchase price over the estimated fair value of the net assets acquired. For
the year ended December 31, 2016, goodwill impairment losses of $142,000 were recognized related to a small subsidiary
that is winding down operations. There were no goodwill impairment losses recognized during the years ended
December 31, 2015 and 2014.

At December 31, 2016, we had other intangible assets of $36.9 million, as compared to $45.5 million at December 31,
2015. As part of a business acquisition, the fair value of identifiable intangible assets such as core deposits, which includes
all deposits except certificates of deposit, are recognized at the acquisition date. Intangible assets with definite useful lives
are amortized to their estimated residual values over their respective estimated useful lives, and are also reviewed for
impairment. We amortize other intangible assets on an accelerated or straight-line basis over an estimated ten to fifteen year
life. Other intangible assets decreased in 2016 from 2015 as a result of amortization of the other intangible assets of
$8.6 million during the year. No impairment losses have been recognized in the periods presented.

DEPOSITS

Total deposits were $19.0 billion at December 31, 2016, an increase of $1.3 billion, or 7.4%, as compared to year-end 2015
due to growth in all deposit categories, but primarily non-interest bearing demand and money market accounts. The growth
reflects initiatives across the organization to focus on core deposit gathering.

The following table presents the deposit balances by major category as of December 31, 2016 and December 31, 2015:

Deposits

(dollars in thousands)

Non-interest bearing
Interest bearing demand
Money market
Savings
Time, $100,000 or greater
Time, less than $100,000

Total

December 31, 2016

December 31, 2015

Amount

Percentage

Amount

Percentage

$ 5,861,469
2,296,532
6,932,717
1,325,757
1,702,982
901,528

31% $ 5,318,591
2,157,376
12%
6,599,516
36%
1,136,809
7%
1,604,446
9%
890,451
5%

30%
12%
37%
6%
9%
6%

$19,020,985

100% $17,707,189

100%

The following table presents the scheduled maturities of time deposits of $100,000 and greater as of December 31, 2016:

Maturities of Time Deposits of $100,000 and Greater

(in thousands)

Three months or less
Over three months through six months
Over six months through twelve months
Over twelve months

Time, $100,000 and over

Amount

$ 388,543
204,130
456,933
653,376

$1,702,982

The Company has brokered deposits, including Certificate of Deposit Account Registry Service (‘‘CDARS’’) included in time
and money market deposits. These products are designed to enhance our ability to attract and retain customers and
increase deposits, by providing additional FDIC coverage to customers. At December 31, 2016, the Company’s brokered
deposits, including CDARS, were $1.0 billion compared to $758.9 million as of December 31, 2015.

50

BORROWINGS

At December 31, 2016, the Bank had outstanding $352.9 million of securities sold under agreements to repurchase and no

outstanding federal funds purchased balances. The Bank had outstanding term debt of $852.4 million at December 31,

2016, primarily with the Federal Home Loan Bank (‘‘FHLB’’). Term debt outstanding as of December 31, 2016 decreased

$36.4 million since December 31, 2015 as a result of maturity payoffs, offset by new advances. Advances from the FHLB are

secured by investment securities and loans secured by real estate. The FHLB advances have coupon interest rates ranging

from 0.73% to 7.10% and mature in 2017 through 2033.

JUNIOR SUBORDINATED DEBENTURES

We had junior subordinated debentures with carrying values of $363.1 million and $356.7 million at December 31, 2016 and

December 31, 2015, respectively. The increase is due to the change in fair value for the junior subordinated debentures

elected to be carried at fair value. As of December 31, 2016, the majority of the junior subordinated debentures had interest

rates that are adjustable on a quarterly basis based on a spread over three month LIBOR.

LIQUIDITY AND CASH FLOW

The principal objective of our liquidity management program is to maintain the Bank’s ability to meet the day-to-day cash

flow requirements of our customers who either wish to withdraw funds or to draw upon credit facilities to meet their cash

needs.

We monitor the sources and uses of funds on a daily basis to maintain an acceptable liquidity position. One source of funds

includes public deposits. Individual state laws require banks to collateralize public deposits, typically as a percentage of their

public deposit balance in excess of FDIC insurance. Public deposits represent 8.6% and 10.6% of total deposits at

December 31, 2016 and at December 31, 2015, respectively. The amount of collateral required varies by state and may also

vary by institution within each state, depending on the individual state’s risk assessment of depository institutions. Changes

in the pledging requirements for uninsured public deposits may require pledging additional collateral to secure these

deposits, drawing on other sources of funds to finance the purchase of assets that would be available to be pledged to

satisfy a pledging requirement, or could lead to the withdrawal of certain public deposits from the Bank. In addition to

liquidity from core deposits and the repayments and maturities of loans and investment securities, the Bank can utilize

established uncommitted federal funds lines of credit, sell securities under agreements to repurchase, borrow on a secured

basis from the FHLB or issue brokered certificates of deposit.

The Bank had available lines of credit with the FHLB totaling $5.9 billion at December 31, 2016 subject to certain collateral

requirements, namely the amount of pledged loans and investment securities. The Bank had available lines of credit with the

Federal Reserve totaling $348.0 million subject to certain collateral requirements, namely the amount of certain pledged

loans. The Bank had uncommitted federal funds line of credit agreements with additional financial institutions totaling

$450.0 million at December 31, 2016. Availability of lines is subject to federal funds balances available for loan and

continued borrower eligibility. These lines are intended to support short-term liquidity needs, and the agreements may

restrict consecutive day usage.

The Company is a separate entity from the Bank and must provide for its own liquidity. Substantially all of the Company’s

revenues are obtained from dividends declared and paid by the Bank. There were $164.0 million of dividends paid by the
Bank to the Company in 2016. There are statutory and regulatory provisions that could limit the ability of the Bank to pay

dividends to the Company. We believe that such restrictions will not have an adverse impact on the ability of the Company

to fund its quarterly cash dividend distributions to common shareholders and meet its ongoing cash obligations, which

consist principally of debt service on the outstanding junior subordinated debentures. As of December 31, 2016, the

Company did not have any borrowing arrangements of its own.

As disclosed in the Consolidated Statements of Cash Flows, net cash provided by operating activities was $421.6 million

during 2016, with the difference between cash provided by operating activities and net income largely consisting of

proceeds from the sale of loans held for sale of $4.1 billion, offset by originations of loans held for sale of $4.0 billion, as

well as the gain on sale of loans of $178.1 million. This compares to net cash provided by operating activities of

$376.7 million during 2015, with the difference between cash provided by operating activities and net income largely

consisting of proceeds from the sale of loans held for sale of $3.5 billion, offset by originations of loans held for sale of

$3.5 billion, as well as the gain on sale of loans of $150.9 million.

51

Net cash of $919.0 million used by investing activities during the 2016 consisted principally of $1.2 billion of net change in

loans and leases and $852.1 million of purchases of investment securities available for sale, partially offset by proceeds from

investment securities available for sale of $619.8 million and proceeds from sale of loans and leases of $475.8 million. This

compares to net cash of $1.8 billion used by investing activities during 2015, which consisted principally of net changes in

loans and leases of $1.8 billion and purchases of investment securities available for sale of $1.1 billion, partially offset by

proceeds from investment securities available for sale of $805.6 million and proceeds from sale of loans and leases of

$288.8 million.

Net cash of $1.2 billion provided by financing activities during 2016 primarily consisted of $1.3 billion increase in net

deposits and $490.0 million proceeds from term debt borrowings, partially offset by repayment of debt of $525.0 million and

dividends paid on common stock of $141.1 million. This compares to net cash of $548.7 million provided by financing

activities during 2015, which consisted primarily of $820.2 million increase in net deposits, partially offset by repayment of

term debt of $265.0 million and $134.6 million dividends paid on common stock.

Although we expect the Bank’s and the Company’s liquidity positions to remain satisfactory during 2017, it is possible that

our deposit balances for 2017 may not be maintained at previous levels due to pricing pressure or, in order to generate

deposit growth, our pricing may need to be adjusted in a manner that results in increased interest expense on deposits.

OFF-BALANCE-SHEET-ARRANGEMENTS

Information regarding Off-Balance-Sheet Arrangements is included in Note 18 and 19 of the Notes to Consolidated Financial

Statements in Item 8 below.

The following table presents a summary of significant contractual obligations extending beyond one year as of December 31,

2016 and maturing as indicated:

Future Contractual Obligations

As of December 31, 2016:

(in thousands)

Deposits(1)
Term debt
Junior subordinated debentures(2)
Operating leases
Other long-term liabilities(3)

Less than
1 Year

$ 17,992,981
255,000
—
32,765
4,021

$

1 to 3
Years

550,744
50,000
—
55,996
6,865

$

3 to 5
Years

More than
5 Years

471,343
540,000
—
38,352
7,457

$

5,917
5,146
475,427
48,822
51,000

Total

$ 19,020,985
850,146
475,427
175,935
69,343

Total contractual obligations

$ 18,284,767

$

663,605

$ 1,057,152

$ 586,312

$ 20,591,836

(1) Deposits with indeterminate maturities, such as demand, savings and money market accounts, are reflected as

obligations due in less than one year.

(2) Represents the issued amount of all junior subordinated debentures.
(3)

Includes maximum payments related to employee benefit plans, assuming all future vesting conditions are met.
Additional information about employee benefit plans is provided in Note 17 of the Notes to Consolidated Financial
Statements in Item 8 below.

The table above does not include interest payments or purchase accounting adjustments related to deposits, term debt or

junior subordinated debentures.

As of December 31, 2016, the Company has a liability for unrecognized tax benefits in the amount of $3.4 million, which

includes accrued interest of $354,000. As the Company is not able to estimate the period in which this liability will be paid

in the future, this amount is not included in the future contractual obligations table above.

CONCENTRATIONS OF CREDIT RISK

Information regarding Concentrations of Credit Risk is included in Note 2, 4, and 18 of the Notes to Consolidated Financial

Statements in Item 8 below.

CAPITAL RESOURCES

Shareholders’ equity at December 31, 2016 was $3.9 billion, an increase of $67.5 million from December 31, 2015. The

increase in shareholders’ equity during the year ended was principally due to net income of $232.9 million, offset by other

comprehensive loss, net of tax, of $18.8 million and common stock dividends declared of $141.4 million.

52

The Federal Reserve Board has in place guidelines for risk-based capital requirements applicable to U.S. banks and bank/

financial holding companies. These risk-based capital guidelines take into consideration risk factors, as defined by regulation,

associated with various categories of assets, both on and off-balance sheet.

On July 2, 2013, the federal banking regulators approved the final proposed rules that revise the regulatory capital rules to

incorporate certain revisions by the Basel Committee on Banking Supervision to the Basel capital framework (‘‘Basel III’’). The

phase-in period for the final rules began for the Company on January 1, 2015, with full compliance with the final rules entire

requirement phased in on January 1, 2019.

The final rules, among other things, include a common equity Tier 1 capital (‘‘CET1’’) to risk-weighted assets ratio, including

a capital conservation buffer, which will gradually increase from 4.5% on January 1, 2015 to 7.0% on January 1, 2019. The

final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% on January 1, 2015 to

8.5% on January 1, 2019, as well as require a minimum leverage ratio of 4.0%.

Under the final rule, as Umpqua is above $15.0 billion in assets as a result of an acquisition, the combined trust preferred

security debt issuances were phased out of Tier 1 and into Tier 2 capital (75% starting in the first quarter of 2015 and 100%

starting in the first quarter of 2016). It is possible the Company may accelerate redemption of the existing junior

subordinated debentures. This could result in adjustments to the carrying value of these instruments, including the

acceleration of losses on junior subordinated debentures carried at fair value within non-interest income. The Company

currently does not intend to redeem the junior subordinated debentures in order to support regulatory total capital levels.

The final rules also provide for a number of adjustments to and deductions from the new CET1. Under Basel III, the effects

of certain accumulated other comprehensive items are not excluded; however, the Company and the Bank have made a

one-time permanent election to continue to exclude these items in order to avoid significant variations in the level of capital

depending on the impact of interest rate fluctuations on the fair value of the Company’s securities portfolio. In addition,

deductions include, for example, the requirement that mortgage servicing rights, certain deferred tax assets not dependent

upon future taxable income and significant investments in non-consolidated financial entities be deducted from CET1 to the

extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1.

Under the BASEL III guidelines, capital strength is measured in three tiers, which are used in conjunction with risk-adjusted

assets to determine the risk-based capital ratios. The guidelines require an 8% total risk-based capital ratio, of which 6%

must be Tier 1 capital and 4.5% must be CET1. Our CET1 capital primarily includes shareholders’ equity less certain

deductions for goodwill and other intangibles, net of taxes, net unrealized gains (losses) on AFS securities, net of tax, and

certain DTAs that arise from tax loss and credit carryforwards, and totaled $2.1 billion at December 31, 2016. Tier 1 capital is

primarily comprised of common equity Tier 1 capital and qualifying trust preferred securities, less certain additional

deductions applied during the phase-in period, totaled $2.1 billion at December 31, 2016. Tier 2 capital components include

all, or a portion of, the allowance for loan and lease losses and the portion of trust preferred securities in excess of Tier 1

statutory limits. The total of Tier 1 capital plus Tier 2 capital components is referred to as Total Risk-Based Capital, and was

$2.7 billion at December 31, 2016. The percentage ratios, as calculated under the guidelines, were 11.47%, 11.47% and

14.72% for CET1, Tier 1 and Total Risk-Based Capital, respectively, at December 31, 2016. The CET1, Tier 1 and Total

Risk-Based Capital ratios at December 31, 2015 were 11.35%, 11.65% and 14.34%, respectively.

A minimum leverage ratio is required in addition to the risk-based capital standards and is defined as period-end
shareholders’ equity and qualifying trust preferred securities, less accumulated other comprehensive income, goodwill and

deposit-based intangibles, divided by average assets as adjusted for goodwill and other intangible assets. Although a

minimum leverage ratio of 4% is required for the highest-rated financial holding companies that are not undertaking

significant expansion programs, the Federal Reserve Board may require a financial holding company to maintain a leverage

ratio greater than 4% if it is experiencing or anticipating significant growth or is operating with less than well-diversified risks

in the opinion of the Federal Reserve Board. The Federal Reserve Board uses the leverage and risk-based capital ratios to

assess capital adequacy of banks and financial holding companies. Our consolidated leverage ratios at December 31, 2016

and 2015 were 9.21% and 9.73%, respectively. As of December 31, 2016, the most recent notification from the FDIC

categorized the Bank as ‘‘well-capitalized’’ under the regulatory framework for prompt corrective action. There are no

conditions or events since that notification that management believes have changed the Bank’s regulatory capital category.

53

During the year ended December 31, 2016, the Company made no contributions to the Bank. At December 31, 2016, all

four of the capital ratios of the Bank exceeded the minimum ratios required by federal regulation. Management monitors

these ratios on a regular basis to ensure that the Bank remains within regulatory guidelines.

During 2016, Umpqua’s Board of Directors approved a cash dividend of $0.16 per common share for each quarter. These

dividends were made pursuant to our existing dividend policy and in consideration of, among other things, earnings,

regulatory capital levels, the overall payout ratio and expected asset growth. We expect that the dividend rate will be

reassessed on a quarterly basis by the Board of Directors in accordance with the dividend policy.

There is no assurance that future cash dividends on common shares will be declared or increased. The following table

presents cash dividends declared and dividend payout ratios (dividends declared per common share divided by basic

earnings per common share) for the years ended December 31, 2016, 2015 and 2014:

Cash Dividends and Payout Ratios per Common Share

Dividend declared per common share
Dividend payout ratio

2016

2015

2014

$0.64
60%

$0.62
61%

$0.60
76%

The Company’s share repurchase plan, which was first approved by the Board and announced in August 2003, provided

authority to repurchase up to 15 million shares of our common stock. In 2015, the Board extended the repurchase program

for two years to July 31, 2017. As of December 31, 2016, a total of 10.8 million shares remained available for repurchase.

The Company repurchased 635,000 shares under the repurchase plan in 2016. The timing and amount of future repurchases

will depend upon the market price for our common stock, securities laws restricting repurchases, asset growth, earnings, and

our capital plan. In addition, our stock plans provide that option and award holders may pay for the exercise price and tax

withholdings in part or whole by tendering previously held shares.

ITEM 7A. QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk arises primarily from credit risk and interest rate risk inherent in our investment, lending and financing

activities. To manage our credit risk, we rely on various controls, including our underwriting standards and loan policies,

internal loan monitoring and periodic credit reviews as well as our allowance of loan and lease losses (‘‘ALLL’’) methodology,

all of which are administered by the Bank’s Credit Quality Group or ALLL Committee. Additionally, the Company’s Enterprise

Risk and Credit Committee provides board oversight over the Company’s loan portfolio risk management functions, the

Company’s Finance and Capital Committee provides board oversight over the Company’s investment portfolio and hedging

risk management functions, and the Bank’s Audit and Compliance Committee provides board oversight of the ALLL process

and reviews and approves the ALLL methodology.

Interest rate risk is the potential for loss resulting from adverse changes in the level of interest rates on the Company’s net

interest income. The absolute level and volatility of interest rates can have a significant impact on our profitability. The

objective of interest rate risk management is to identify and manage the sensitivity of net interest income to changing

interest rates to achieve our overall financial objectives. Based on economic conditions, asset quality and various other
considerations, management establishes tolerance ranges for interest rate sensitivity and manages within these ranges. Net

interest income and the fair value of financial instruments are greatly influenced by changes in the level of interest rates. We

manage exposure to fluctuations in interest rates through policies that are established by the Asset/Liability Management

Committee (‘‘ALCO’’). The ALCO meets monthly and has responsibility for developing asset/liability management policy,

formulating and implementing strategies to improve balance sheet positioning and earnings and reviewing interest rate

sensitivity. The Board of Directors’ Finance and Capital Committee provides oversight of the asset/liability management

process, reviews the results of the interest rate risk analyses prepared for the ALCO and approves the asset/liability policy on

an annual basis.

We measure our interest rate risk position on at least a quarterly basis using three methods: (i) gap analysis, (ii) net interest

income simulation; and (iii) economic value of equity (fair value of financial instruments) modeling. The results of these

analyses are reviewed by ALCO and the Finance and Capital Committee quarterly. If hypothetical changes to interest rates

cause changes to our simulated net interest income simulation or economic value of equity modeling outside of our

54

pre-established internal limits, we may adjust the asset and liability size or mix in an effort to bring our interest rate risk

exposure within our established limits.

Gap Analysis

A gap analysis provides information about the volume and repricing characteristics and relationship between the amounts of

interest-sensitive assets and interest-bearing liabilities at a particular point in time. An effective interest rate strategy attempts

to match how the volume of interest sensitive assets and interest bearing liabilities respond to changes in interest rates

within an acceptable timeframe, thereby minimizing the impact of interest rate changes on net interest income. Gap analysis

measures interest rate sensitivity at a point in time as the difference between the estimated volumes of asset and liability

cash flows or repricing characteristics across various time horizons: immediate to three months, four to twelve months, one to

five years, over five years, and on a cumulative basis. The differences are known as interest sensitivity gaps. The main focus

of this interest rate management tool is the gap sensitivity identified as the cumulative one year gap. The table below sets

forth interest sensitivity gaps for these different intervals as of December 31, 2016.

Interest Sensitivity Gap

(in thousands)

ASSETS

Interest bearing cash and temporary

investments

Trading account assets

Securities held to maturity

Securities available for sale

Loans held for sale

Loans and leases

By Estimated Cash Flow or Repricing Interval

0-3
Months

4-12
Months

1-5
Years

Over 5
Years

Non-Rate-
Sensitive

Total

$ 1,117,438

$

— $

— $

— $

— $ 1,117,438

10,964

1,759

122,267

390,857

—

59

—

95

—

5,044

336,917

1,083,670

1,110,148

—

—

—

—

(2,741)

48,218

(3,539)

10,964

4,216

2,701,220

387,318

5,842,069

2,312,940

7,373,239

1,926,057

54,358

17,508,663

Non-interest earning assets

—

—

—

—

3,083,300

3,083,300

Total assets

7,485,354

2,649,916

8,457,004

3,041,249

3,179,596

$24,813,119

LIABILITIES AND SHAREHOLDERS’

EQUITY

Interest bearing demand deposits

$ 2,296,532

$

— $

— $

— $

— $ 2,296,532

Money market deposits

Savings deposits

Time deposits

Securities sold under agreements to

repurchase

Term debt

Junior subordinated debentures, at fair

value

Junior subordinated debentures, at

amortized cost

Non-interest bearing liabilities and

shareholders’ equity

6,932,717

1,325,757

—

—

—

—

—

—

559,794

1,023,267

1,015,710

5,739

—

—

—

6,932,717

1,325,757

2,604,510

352,948
100,160

—
155,025

—
590,133

—
5,332

—
1,747

352,948
852,397

379,390

85,572

—

—

—

—

—

—

—

—

(117,181)

262,209

10,465

4,894

100,931

— 10,085,118

10,085,118

Total liabilities and shareholders’ equity

12,032,870

1,178,292

1,605,843

21,536

9,974,578

$24,813,119

Interest rate sensitivity gap

(4,547,516)

1,471,624

6,851,161

3,019,713

(6,794,982)

Cumulative interest rate sensitivity gap

$ (4,547,516) $(3,075,892) $3,775,269

$6,794,982

$

—

Cumulative gap as a % of earning

assets

(21)%

(14)%

17%

31%

55

The gap table has inherent limitations and actual results may vary significantly from the results suggested by the gap table.

The gap table is unable to incorporate certain balance sheet characteristics or factors. The gap table assumes a static

balance sheet and looks at the repricing of existing assets and liabilities without consideration of new loans and deposits

that reflect a more current interest rate environment. Changes in the mix of earning assets or supporting liabilities can either

increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread

between an asset and its supporting liability can vary significantly, while the timing of repricing for both the asset and the

liability remains the same, thus impacting net interest income. This characteristic is referred to as basis risk and generally

relates to the possibility that the repricing characteristics of short-term assets tied to the prime rate are different from those

of short-term funding sources such as certificates of deposit. Varying interest rate environments can create unexpected

changes in prepayment levels of assets and liabilities that are not reflected in the interest rate sensitivity analysis. These

prepayments may have a significant impact on our net interest margin.

For example, unlike the net interest income simulation, the interest rate risk profile of certain deposit products and floating

rate loans that have reached their floors cannot be captured effectively in a gap table. Although the table shows the amount

of certain assets and liabilities scheduled to reprice in a given time frame, it does not reflect when or to what extent such

repricings may actually occur. For example, interest-bearing checking, money market and savings deposits are shown to

reprice in the first three months, but we may choose to reprice these deposits more slowly and incorporate only a portion of

the movement in market rates based on market conditions at that time. Alternatively, a loan which has reached its floor may

not reprice upwards even though market interest rates increase causing such loan to act like a fixed rate loan regardless of

its scheduled repricing date. The gap table as presented cannot factor in the flexibility we believe we have in repricing

deposits or the floors on our loans.

Because of these factors, an interest sensitivity gap analysis may not provide an accurate or complete assessment of our

exposure to changes in interest rates. We believe the estimated effect of a change in interest rates is better reflected in our

net interest income and economic value of equity simulations.

Net Interest Income Simulation

Interest rate sensitivity is a function of the repricing characteristics of our interest earning assets and interest bearing

liabilities. These repricing characteristics are the time frames within which the interest bearing assets and liabilities are subject

to change in interest rates either at replacement, repricing or maturity during the life of the instruments. Interest rate

sensitivity management focuses on the maturity structure of assets and liabilities and their repricing characteristics during

periods of changes in market interest rates.

Management utilizes an interest rate simulation model to estimate the sensitivity of net interest income to changes in market

interest rates. This model is an interest rate risk management tool and the results are not necessarily an indication of our

future net interest income. This model has inherent limitations and these results are based on a given set of rate changes

and assumptions at one point in time. These estimates are based upon a number of assumptions for each scenario, including

changes in the size or mix of the balance sheet, new volume rates for new balances, the rate of prepayments, and the

correlation of pricing to changes in the interest rate environment. For example, for interest bearing deposit balances we may

choose to reprice these balances more slowly and incorporate only a portion of the movement in market rates based on

market conditions at that time. Our primary analysis assumes a static balance sheet, both in terms of the total size and mix

of our balance sheet, meaning cash flows from the maturity or repricing of assets and liabilities are redeployed in the same

instrument at modeled rates.

Changes that could vary significantly from our assumptions include loan and deposit growth or contraction, changes in the

mix of our earning assets or funding sources, the performance of loans accounted for under the expected cash flow method,

and future asset/liability management decisions, all of which may have significant effects on our net interest income. Also,

some of the assumptions made in the simulation model may not materialize and unanticipated events and circumstances

may occur. In addition, the simulation model does not take into account any future actions management could undertake to

mitigate the impact of interest rate changes or the impact a change in interest rates may have on our credit risk profile, loan

prepayment estimates and spread relationships, which can change regularly. Actions we could undertake include, but are not

limited to, growing or contracting the balance sheet, changing the composition of the balance sheet, or changing our

pricing strategies for loans or deposits.

56

The estimated impact on our net interest income over a time horizon of one year as of December 31, 2016, 2015, and 2014

are indicated in the table below. For the scenarios shown, the interest rate simulation assumes a parallel and sustained shift

in market interest rates ratably over a twelve-month period and no change in the composition or size of the balance sheet.

For example, the ‘‘up 200 basis points’’ scenario is based on a theoretical increase in market rates of 16.7 basis points per

month for twelve months applied to the balance sheet of December 31 for each respective year.

Interest Rate Simulation Impact on Net Interest Income

As of December 31,

Up 300 basis points

Up 200 basis points

Up 100 basis points

Down 100 basis points

Down 200 basis points

Down 300 basis points

2016

2015

2014

4.9%

3.5%

2.1%

2.5%

1.9%

1.2%

0.3%

0.5%

0.5%

(3.8)% (2.7)% (2.4)%

(7.4)% (5.7)% (5.2)%

(10.3)% (7.8)% (7.3)%

Asset sensitivity indicates that in a rising interest rate environment the Company’s net interest margin would increase and in a

decreasing interest rate environment the Company’s net interest margin would decrease. Liability sensitivity indicates that in

a rising interest rate environment a Company’s net interest margin would decrease and in a decreasing interest rate

environment the Company’s net interest margin would increase. For all years presented, we were ‘‘asset-sensitive’’ meaning

we expect our net interest income to increase as market rates increase. The relative level of asset sensitivity as of

December 31, 2016 has increased from the prior periods presented due to the following strategic actions: 1. greater

emphasis on C&I lending which typically carry shorter durations and more frequent repricing characteristics; 2. greater

emphasis on reducing long term asset exposure through targeted loan sales; 3. preference for higher interest bearing cash

balances which reprice daily; and 4. renewal and extension of term borrowings which enables the Company to secure long

term fixed rate stable funding. In the decreasing interest rate environments, we show a decline in net interest income as

interest bearing assets re-price lower and deposits remain at or near their floors. It should be noted that although net

interest income simulation results are presented through the down 300 basis points interest rate environments, we do not

believe the down 200 and 300 basis point scenarios are plausible in the near term given the current level of interest rates.

Interest rate sensitivity in the first year of the net interest income simulation for increasing interest rate scenarios is negatively

impacted by the cost of non-maturity deposits repricing immediately while interest earnings assets (primarily the loan and

leases held for investment portfolio) reprice at a slower rate based upon the instrument level repricing characteristics (refer to

the Interest Sensitivity Gap table above). As a result, interest sensitivity in increasing interest rates scenarios improves in

subsequent years as these assets reprice. Management also prepares and reviews the longer term trends of the net interest

income simulation to measure and monitor risk. This analysis assumes the same rate shift over the first year of the scenario

as described above, and holding steady thereafter. The estimated impact on our net interest income over the first and

second year time horizons as it relates to our balance sheet as of December 31, 2016 is indicated in the table below.

Interest Rate Simulation Impact on Net Interest Income

As of December 31, 2016

Up 300 basis points

Up 200 basis points

Up 100 basis points

Down 100 basis points

Down 200 basis points

Down 300 basis points

Year 1

Year 2

4.9%

3.5%

2.1%

6.1%

4.7%

2.8%

(3.8)%

(9.1)%

(7.4)% (17.8)%

(10.3)% (24.1)%

In general, we view the net interest income model results as more relevant to the Company’s current operating profile (a

going concern), and we primarily manage our balance sheet based on this information.

57

Economic Value of Equity

Another interest rate sensitivity measure we utilize is the quantification of economic value changes for all financial assets and

liabilities, given an increase or decrease in market interest rates. This approach provides a longer-term view of interest rate

risk, capturing all future expected cash flows. Assets and liabilities with option characteristics are measured based on

different interest rate path valuations using statistical rate simulation techniques. The projections are by their nature forward-

looking and therefore inherently uncertain, and include various assumptions regarding cash flows and discount rates.

The table below illustrates the effects of various instantaneous market interest rate changes on the fair values of financial

assets and liabilities (excluding mortgage servicing rights) as compared to the corresponding carrying values and fair values:

Interest Rate Simulation Impact on Fair Value of Financial Assets and Liabilities

As of December 31,

Up 300 basis points
Up 200 basis points
Up 100 basis points
Down 100 basis points
Down 200 basis points
Down 300 basis points

2016

2015

(8.8)% (8.1)%
(5.1)% (4.6)%
(2.3)% (1.9)%
0.6%
(2.4)%
3.4%
(1.0)%
2.9%
(1.8)%

As of December 31, 2016, our economic value of equity model indicates a liability sensitive profile. This suggests a sudden

or sustained increase in market interest rates would result in a decrease in our estimated economic value of equity. Our

overall sensitivity to market interest rate changes as of December 31, 2016 has increased as compared to December 31,

2015. As of December 31, 2016, our estimated economic value of equity (fair value of financial assets and liabilities)

exceeded our book value of equity. This result is primarily based on the value placed on the Company’s significant amount

of noninterest bearing and low cost interest bearing deposits. While noninterest bearing deposits do not impact the net

interest income simulation, the value of these deposits has a significant impact on the economic value of equity model,

particularly when market rates are assumed to rise.

IMPACT OF INFLATION AND CHANGING PRICES

A financial institution’s asset and liability structure is substantially different from that of an industrial firm in that primarily all

assets and liabilities of a bank are monetary in nature, with relatively little investment in fixed assets or inventories. Inflation

has an important impact on the growth of total assets and the resulting need to increase equity capital at higher than normal

rates in order to maintain appropriate capital ratios. We believe that the impact of inflation on financial results depends on

management’s ability to react to changes in interest rates and, by such reaction, reduce the inflationary impact on

performance. We have an asset/liability management program which attempts to manage interest rate sensitivity. In addition,

periodic reviews of banking services and products are conducted to adjust pricing in view of current and expected costs.

Our financial statements included in Item 8 below have been prepared in accordance with accounting principles generally

accepted in the United States, which requires us to measure financial position and operating results principally in terms of

historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The

primary effect of inflation on our results of operations is through increased operating costs, such as compensation,

occupancy and business development expenses. In management’s opinion, changes in interest rates affect the financial

condition of a financial institution to a far greater degree than changes in the rate of inflation. Although interest rates are

greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same

magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond our control, including U.S.

fiscal and monetary policy and general national and global economic conditions.

58

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Umpqua Holdings Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Umpqua Holdings Corporation and Subsidiaries (the

Company) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income,

changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. We also

have audited the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established

in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway

Commission. The Company’s management is responsible for these financial statements, for maintaining effective internal

control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,

included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to

express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over

financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained

in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence

supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and

significant estimates made by management, and evaluating the overall consolidated financial statement presentation. Our audit of

internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing

the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based

on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the

reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally

accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures

that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and

dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to

permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and

expenditures of the company are being made only in accordance with authorizations of management and directors of the

company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or

disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,

projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate

because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the

consolidated financial position of Umpqua Holdings Corporation and Subsidiaries as of December 31, 2016 and 2015, and

the consolidated results of their operations and their cash flows for each of the three years in the period ended

December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also in our

opinion, Umpqua Holdings Corporation maintained, in all material respects, effective internal control over financial reporting

as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by the

Committee of Sponsoring Organizations of the Treadway Commission.

/s/ Moss Adams LLP

Portland, Oregon

February 23, 2017

59

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2016 and 2015

(in thousands, except shares)

ASSETS
Cash and due from banks
Interest bearing cash and temporary investments

Total cash and cash equivalents

Investment securities

Trading, at fair value
Available for sale, at fair value
Held to maturity, at amortized cost

Loans held for sale, at fair value
Loans and leases
Allowance for loan and lease losses

Net loans and leases

Restricted equity securities
Premises and equipment, net
Goodwill
Other intangible assets, net
Residential mortgage servicing rights, at fair value
Other real estate owned
Bank owned life insurance
Deferred tax asset, net
Other assets

December 31,
2016

December 31,
2015

$

331,994
1,117,438

1,449,432

$

277,645
496,080

773,725

10,964
2,701,220
4,216
387,318
17,508,663
(133,984)

17,374,679
45,528
303,882
1,787,651
36,886
142,973
6,738
299,673
34,322
227,637

9,586
2,522,539
4,609
363,275
16,866,536
(130,322)

16,736,214
46,949
328,734
1,787,793
45,508
131,817
22,307
291,892
138,082
203,351

Total assets

$24,813,119

$23,406,381

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits

Noninterest bearing
Interest bearing

Total deposits

Securities sold under agreements to repurchase
Term debt
Junior subordinated debentures, at fair value
Junior subordinated debentures, at amortized cost
Other liabilities

Total liabilities

COMMITMENTS AND CONTINGENCIES (NOTE 18)

SHAREHOLDERS’ EQUITY
Common stock, no par value, shares authorized: 400,000,000 as of December 31, 2016

and 2015; issued and outstanding: 220,177,030 as of December 31, 2016 and
220,171,091 as of December 31, 2015

Retained earnings
Accumulated other comprehensive loss

Total shareholders’ equity

Total liabilities and shareholders’ equity

See notes to consolidated financial statements

$ 5,861,469
13,159,516

$ 5,318,591
12,388,598

19,020,985
352,948
852,397
262,209
100,931
306,854

17,707,189
304,560
888,769
255,457
101,254
299,818

20,896,324

19,557,047

3,515,299
422,839
(21,343)

3,520,591
331,301
(2,558)

3,916,795

3,849,334

$24,813,119

$23,406,381

60

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2016, 2015 and 2014

(in thousands, except per share amounts)

INTEREST INCOME

Interest and fees on loans and leases
Interest and dividends on investment securities:

Taxable
Exempt from federal income tax
Dividends
Interest on temporary investments and interest bearing deposits

Total interest income

INTEREST EXPENSE
Interest on deposits
Interest on securities sold under agreement to repurchase
Interest on term debt
Interest on junior subordinated debentures

Total interest expense

Net interest income

PROVISION FOR LOAN AND LEASE LOSSES

2016

2015

2014

$850,067

$869,433

$763,803

46,427
8,828
1,399
3,918

47,842
9,647
708
2,236

45,784
10,345
325
2,264

910,639

929,866

822,521

35,240
132
15,005
15,674

66,051

29,839
173
14,470
13,750

58,232

23,815
346
12,793
11,739

48,693

844,588
41,674

871,634
36,589

773,828
40,241

Net interest income after provision for loan and lease losses

802,914

835,045

733,587

NON-INTEREST INCOME

Service charges on deposits
Brokerage revenue
Residential mortgage banking revenue, net
Gain on investment securities, net
Gain on loan sales, net
Loss on junior subordinated debentures carried at fair value
Change in FDIC indemnification asset
BOLI income
Other income

Total non-interest income

NON-INTEREST EXPENSE

Salaries and employee benefits
Occupancy and equipment, net
Communications
Marketing
Services
FDIC assessments
(Gain) loss on other real estate owned, net
Intangible amortization
Merger related expenses
Goodwill impairment
Other expenses

Total non-interest expense

Income before provision for income taxes
Provision for income taxes

Net income

61

61,268
17,033
157,863
858
13,356
(6,323)
(82)
8,514
47,453

59,740
18,481
124,722
2,922
22,380
(6,306)
(853)
8,351
46,287

54,700
18,133
77,265
2,904
15,113
(5,090)
(15,151)
6,835
26,465

299,940

275,724

181,174

424,830
151,944
21,265
10,913
42,795
15,508
(279)
8,622
15,313
142
46,102

430,936
142,975
20,615
11,419
46,379
13,480
1,894
11,225
45,582
—
39,137

355,379
111,263
14,728
9,504
49,086
10,998
4,116
10,207
82,317
—
36,465

737,155

763,642

684,063

365,699
132,759

347,127
124,588

230,698
83,040

$232,940

$222,539

$147,658

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Continued)

For the Years Ended December 31, 2016, 2015 and 2014

(in thousands, except per share amounts)

Net income
Dividends and undistributed earnings allocated to participating securities

Net earnings available to common shareholders

Earnings per common share:

Basic
Diluted

Weighted average number of common shares outstanding:

Basic
Diluted

See notes to consolidated financial statements

2016

2015

2014

$232,940
125

$222,539
357

$147,658
484

$232,815

$222,182

$147,174

$
$

1.06
1.05

$
$

1.01
1.01

$
$

0.79
0.78

220,282
220,908

220,327
221,045

186,550
187,544

62

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended December 31, 2016, 2015 and 2014

(in thousands)

Net income

Available for sale securities:

Unrealized (losses) gains arising during the period

Income tax benefit (expense) related to unrealized gains

Reclassification adjustment for net realized gains in earnings

Income tax expense related to realized gains

Net change in unrealized (losses) gains

Held to maturity securities:

Accretion of unrealized losses related to factors other than credit to investment

securities held to maturity

Income tax benefit related to unrealized losses

Net change in unrealized losses related to factors other than credit

Other comprehensive (loss) income, net of tax

Comprehensive income

See notes to consolidated financial statements

2016

2015

2014

$232,940

$222,539

$147,658

(29,817)

(20,860)

11,558

(858)

332

8,031

(2,922)

1,125

31,215

(12,486)

(2,904)

1,162

(18,785)

(14,626)

16,987

—

—

—

—

—

—

94

(37)

57

(18,785)

(14,626)

17,044

$214,155

$207,913

$164,702

63

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Years Ended December 31, 2016, 2015 and 2014

(in thousands, except shares)

BALANCE AT JANUARY 1, 2014
Net income
Other comprehensive income, net of tax
Stock issued in connection with merger(1)
Stock-based compensation
Stock repurchased and retired
Issuances of common stock under stock plans(2)
Cash dividends on common stock ($0.60 per

share)

Common Stock

Shares

Amount

111,973,203

$1,514,485

Retained
Earnings

$ 214,408
147,658

104,385,087

(403,828)
4,206,658

1,989,030
15,292
(7,183)
7,692

(115,824)

Accumulated
Other
Comprehensive
Income (Loss)

$

(4,976)

17,044

Total

$1,723,917
147,658
17,044
1,989,030
15,292
(7,183)
7,692

(115,824)

Balance at December 31, 2014

220,161,120

$3,519,316

$ 246,242

$ 12,068

$3,777,626

BALANCE AT JANUARY 1, 2015
Net income
Other comprehensive loss, net of tax
Stock-based compensation
Stock repurchased and retired
Issuances of common stock under stock plans
Cash dividends on common stock ($0.62 per

share)

220,161,120

$3,519,316

$ 246,242
222,539

$ 12,068

(14,626)

(844,215)
854,186

14,383
(14,589)
1,481

(137,480)

$3,777,626
222,539
(14,626)
14,383
(14,589)
1,481

(137,480)

Balance at December 31, 2015

220,171,091

$3,520,591

$ 331,301

BALANCE AT JANUARY 1, 2016
Net income
Other comprehensive loss, net of tax
Stock-based compensation
Stock repurchased and retired
Issuances of common stock under stock plans
Cash dividends on common stock ($0.64 per

share)

220,171,091

$3,520,591

$ 331,301
232,940

(1,117,061)
1,123,000

9,790
(17,708)
2,626

(141,402)

$

$

(2,558)

$3,849,334

(2,558)

(18,785)

$3,849,334
232,940
(18,785)
9,790
(17,708)
2,626

(141,402)

Balance at December 31, 2016

220,177,030

$3,515,299

$ 422,839

$ (21,343)

$3,916,795

(1) The amount of common stock issued in connection with the merger is net of $784,000 of issuance costs.
(2) The shares issued include 2,889,996 warrants exercised.

See notes to consolidated financial statements

64

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

For the Years Ended December 31, 2016, 2015 and 2014

(in thousands)

2016

2015

2014

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating

activities:
Deferred income tax expense
Amortization of investment premiums, net
Gain on sale of investment securities, net
Gain on sale of other real estate owned, net
Valuation adjustment on other real estate owned
Provision for loan and lease losses
Change in cash surrender value of bank owned life insurance
Change in FDIC indemnification asset
Depreciation, amortization and accretion
Loss on sale of premises and equipment
Goodwill impairment
Additions to residential mortgage servicing rights carried at fair value
Change in fair value residential mortgage servicing rights carried at fair

value

Change in junior subordinated debentures carried at fair value
Stock-based compensation
Net (increase) decrease in trading account assets
Gain on sale of loans
Change in loans held for sale carried at fair value
Origination of loans held for sale
Proceeds from sales of loans held for sale
Change in other assets and liabilities:

Net (increase) decrease in other assets
Net increase in other liabilities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale
Proceeds from investment securities available for sale
Proceeds from investment securities held to maturity
Purchases of restricted equity securities
Redemption of restricted equity securities
Net change in loans and leases
Proceeds from sales of loans
Net change in premises and equipment
Proceeds from bank owned life insurance death benefit
Proceeds from redemption of bank owned life insurance cash surrender

value

Net change in proceeds from FDIC indemnification asset
Proceeds from sales of other real estate owned
Net cash paid in divestiture
Net cash acquired in acquisition, net of consideration paid

$ 232,940

$ 222,539

$ 147,658

115,650
23,743
(858)
(1,998)
1,719
41,674
(8,595)
82
59,256
6,737
142
(37,082)

99,966
23,544
(2,922)
(888)
2,782
36,589
(8,501)
853
51,593
3,655
—
(35,284)

80,027
20,822
(2,904)
(127)
3,728
40,241
(9,713)
15,151
39,209
1,482
—
(23,311)

25,926
6,752
9,790
(1,378)
(178,141)
3,517
(3,990,278)
4,127,503

20,726
6,163
14,383
413
(150,855)
696
(3,497,920)
3,549,226

16,587
5,849
15,292
452
(93,294)
(9,688)
(2,146,829)
2,267,471

(27,080)
11,622

24,692
15,290

(49,165)
38,632

421,643

376,740

357,570

(852,101)
619,752
501
(600)
2,021
(1,150,919)
475,810
(30,313)
814

(1,074,205)
805,640
598
—
72,442
(1,816,164)
288,805
(69,341)
5,351

—
140
15,855
—
—

6,476
684
22,803
—
—

(363,064)
1,238,676
741
—
5,615
(943,075)
356,464
(59,514)
3,723

—
(2,667)
15,931
(127,557)
116,867

Net cash (used) provided by investing activities

(919,040)

(1,756,911)

242,140

65

UMPQUA HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW (Continued)

For the Years Ended December 31, 2016, 2015 and 2014

(in thousands)

2016

2015

2014

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit liabilities
Net increase (decrease) in securities sold under agreements to repurchase
Proceeds from term debt borrowings
Repayment of term debt borrowings
Dividends paid on common stock
Proceeds from stock options exercised
Repurchases and retirement of common stock

1,315,886
48,388
490,000
(525,014)
(141,074)
2,626
(17,708)

820,210
(8,761)
150,000
(264,998)
(134,618)
1,481
(14,589)

905,396
(496,307)
—
(97,003)
(99,233)
9,368
(7,183)

Net cash provided by financing activities

1,173,104

548,725

215,038

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period

675,707
773,725

(831,446)
1,605,171

814,748
790,423

Cash and cash equivalents, end of period

$1,449,432

$ 773,725

$1,605,171

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:

Interest
Income taxes

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND

FINANCING ACTIVITIES:

Change in unrealized losses on investment securities available for sale, net

of taxes

Change in unrealized losses on investment securities held to maturity

related to factors other than credit, net of taxes

Cash dividend declared on common stock and payable after period-end
Change in GNMA mortgage loans recognized due to repurchase option
Transfer of loans to other real estate owned
Transfers from other real estate owned to loans due to internal financing
Acquisitions:

Assets acquired
Liabilities assumed

See notes to consolidated financial statements

$
$

$

$
$
$
$
$

$
$

70,796
8,164

$
$

67,884
13,263

$
$

55,235
7,098

(18,785)

$

(14,626)

$

16,987

— $
$
$
$
$

35,243
(8,319)
5,888
5,881

35,281
8,114
9,062

— $
$
$
$
— $

57
33,109
7,000
24,873
—

— $
— $

— $9,877,572
— $8,767,025

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Significant Accounting Policies

Nature of Operations—Umpqua Holdings Corporation (the ‘‘Company’’) is a financial holding company with headquarters in
Portland, Oregon, that is engaged primarily in the business of commercial and retail banking and the delivery of retail

brokerage services. The Company provides a wide range of banking, wealth management, mortgage and other financial

services to corporate, institutional and individual customers through its wholly-owned banking subsidiary Umpqua Bank (the

‘‘Bank’’). The Company engages in the retail brokerage business through its wholly-owned subsidiary Umpqua

Investments, Inc. (‘‘Umpqua Investments’’). The Bank also has a wholly-owned subsidiary, Financial Pacific Leasing Inc., a

commercial equipment leasing company. In 2015, we formed Pivotus Ventures, Inc. as a wholly-owned subsidiary of Umpqua

Holdings Corporation, which focuses on advancing bank innovation by developing new bank platforms that could have a

significant impact on the experience and economics of banking.

The Company and its subsidiaries are subject to regulation by certain federal and state agencies and undergo periodic

examination by these regulatory agencies.

Basis of Financial Statement Presentation—The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and with prevailing practices within the banking and securities

industries. In preparing such financial statements, management is required to make certain estimates and judgments that

affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the

balance sheet and the reported amounts of revenues and expenses for the reporting period. Actual results could differ

significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the

determination of the allowance for loan and lease losses, the valuation of mortgage servicing rights, the fair value of junior

subordinated debentures, and the valuation of goodwill and other intangible assets.

Consolidation—The accompanying consolidated financial statements include the accounts of the Company, the Bank,
Umpqua Investments, and Pivotus. All significant intercompany balances and transactions have been eliminated in

consolidation. As of December 31, 2016, the Company had 25 wholly-owned trusts (‘‘Trusts’’) that were formed to issue trust

preferred securities and related common securities of the Trusts. The Company has not consolidated the accounts of the

Trusts in its consolidated financial statements. As a result, the junior subordinated debentures issued by the Company to the

Trusts are reflected on the Company’s consolidated balance sheet as junior subordinated debentures.

Subsequent events—The Company has evaluated events and transactions through the time the consolidated financial
statements were issued for potential recognition or disclosure.

Cash and Cash Equivalents—Cash and cash equivalents include cash and due from banks, and temporary investments which
are federal funds sold and interest bearing balances due from other banks. Cash and cash equivalents generally have a

maturity of 90 days or less at the time of purchase.

Trading Account Securities—Debt and equity securities held for resale are classified as trading account securities and
reported at fair value. Realized and unrealized gains or losses are recorded in non-interest income.

Investment Securities—Debt securities are classified as held to maturity if the Company has both the intent and ability to
hold those securities to maturity regardless of changes in market conditions, liquidity needs or changes in general economic

conditions. These securities are carried at cost adjusted for amortization of purchase premiums and accretion of purchase

discounts, computed by the effective interest method over their contractual lives.

Securities are classified as available for sale if the Company intends and has the ability to hold those securities for an

indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale would

be based on various factors, including significant movements in interest rates, changes in the maturity mix of assets and

liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are carried at

fair value. Unrealized holding gains or losses are included in other comprehensive income (‘‘OCI’’) as a separate component

of shareholders’ equity, net of tax. Realized gains or losses, determined on the basis of the cost of specific securities sold,

are included in earnings. Premiums and discounts are amortized or accreted over the life of the related investment security

as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned.

67

Transfers of securities from available for sale to held to maturity are accounted for at fair value as of the date of the transfer.

The difference between the fair value and the par value at the date of transfer is considered a premium or discount and is

accounted for accordingly. Any unrealized gain or loss at the date of the transfer is reported in OCI, and is amortized over

the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or

discount, and will offset or mitigate the effect on interest income of the amortization of the premium or discount for that

held to maturity security.

We review investment securities on an ongoing basis for the presence of other-than-temporary impairment (‘‘OTTI’’) or

permanent impairment, taking into consideration current market conditions, fair value in relationship to cost, extent and

nature of the change in fair value, issuer rating changes and trends, whether we intend to sell a security or if it is more likely

than not that we will be required to sell the security before recovery of our amortized cost basis of the investment, which

may be maturity, and other factors. For debt securities, if we intend to sell the security or it is more likely than not that we

will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in

earnings as an OTTI. If we do not intend to sell the security and it is not more likely than not that we will be required to sell

the security but we do not expect to recover the entire amortized cost basis of the security, only the portion of the

impairment loss representing credit losses would be recognized in earnings. The credit loss on a security is measured as the

difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected

cash flows are discounted by the original or current effective interest rate depending on the nature of the security being

measured for potential OTTI. The remaining impairment related to all other factors, the difference between the present value

of the cash flows expected to be collected and fair value, is recognized as a charge to other comprehensive income.

Impairment losses related to all other factors are presented as separate categories within OCI. For investment securities held

to maturity, this amount is accreted over the remaining life of the debt security prospectively based on the amount and

timing of future estimated cash flows. The accretion of the OTTI amount recorded in OCI will increase the carrying value of

the investment, and would not affect earnings. If there is an indication of additional credit losses, the security is re-evaluated.

Loans Held for Sale—The Company has elected to account for loans held for sale, which is comprised of residential
mortgage loans, at fair value. Fair value is determined based on quoted secondary market prices for similar loans, including

the implicit fair value of embedded servicing rights. The change in fair value of loans held for sale is primarily driven by

changes in interest rates subsequent to loan funding and changes in the fair value of the related servicing asset, resulting in

revaluation adjustments to the recorded fair value. The inputs used in the fair value measurements are considered Level 2

inputs. The use of the fair value option allows the change in the fair value of loans to more effectively offset the change in

the fair value of derivative instruments that are used as economic hedges to loans held for sale. Loan origination fees and

direct origination costs are recognized immediately in net income. Interest income on loans held for sale is included in

interest income in the Consolidated Statements of Income and recognized when earned. Loans held for sale are placed on

nonaccrual in a manner consistent with loans held for investment. The Company recognizes the gain or loss on the sale of

loans when the sales criteria are met.

Acquired Loans and Leases—Purchased loans and leases are recorded at their fair value at the acquisition date. Credit
discounts are included in the determination of fair value; therefore, an allowance for loan and lease losses is not recorded at

the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased impaired or purchased
non-impaired. Purchased impaired loans reflect credit deterioration since origination such that it is probable at acquisition

that the Company will be unable to collect all contractually required payments.

Purchased impaired loans are aggregated into pools based on individually evaluated common risk characteristics and

aggregate expected cash flows were estimated for each pool. A pool is accounted for as a single asset with a single interest

rate, cumulative loss rate and cash flow expectation. The risk characteristics used to aggregate the purchased impaired loans

into different pools include risk rating, underlying collateral, type of interest rate (fixed or adjustable), types of amortization,

loan purpose, and other similar factors. A loan will be removed from a pool of loans only if the loan is sold, foreclosed, or

assets are received in full satisfaction of the loan, and will be removed from the pool at its carrying value. If an individual

loan is removed from a pool of loans, the difference between its relative carrying amount and its cash, fair value of the

collateral, or other assets received will be recognized in income immediately as interest income on loans and would not

affect the effective yield used to recognize the accretable yield on the remaining pool. If, at acquisition, the loans are

collateral dependent and acquired primarily for the rewards of ownership of the underlying collateral, or if cash flows

expected to be collected cannot be reasonably estimated, no accrual of income occurs.

68

The cash flows expected to be received over the life of the pool were estimated by management. These cash flows were

input into a loan accounting system which calculates the carrying values of the pools and underlying loans, book yields,

effective interest income and impairment, if any, based on actual and projected events. Default rates, loss severity, and

prepayment speed assumptions will be periodically reassessed and updated within the accounting system to update our

expectation of future cash flows. The excess of the cash flows expected to be collected over a pool’s carrying value is

considered to be the accretable yield and is recognized as interest income over the estimated life of the pool using the

effective yield method. The accretable yield may change due to changes in the timing and amounts of expected cash flows.

Changes in the accretable yield are disclosed quarterly.

The excess of the undiscounted contractual balances due over the cash flows expected to be collected is considered to be

the nonaccretable difference. The nonaccretable difference represents our estimate of the credit losses expected to occur

and was considered in determining the fair value of the loans as of the acquisition date. Subsequent to the acquisition date,

any increases in expected cash flows over those expected at purchase date in excess of fair value are adjusted through a

change to the accretable yield on a prospective basis. Any subsequent decreases in expected cash flows attributable to

credit deterioration are recognized by recording a provision for loan losses. The purchased impaired loans acquired are and

will continue to be subject to the Company’s internal and external credit review and monitoring.

The purchased impaired loan portfolio also includes revolving lines of credit with funded and unfunded commitments. The

funded portion of these loans, representing the balances outstanding at the time of acquisition, are accounted for as

purchased impaired. The unfunded portion of these loans as of the acquisition date as well as any additional advances on

these loans subsequent to the acquisition date are not classified as purchased impaired, and are accounted for similar to

newly originated loans.

For purchased non-impaired loans, the difference between the fair value and unpaid principal balance of the loan at the

acquisition date is amortized or accreted to interest income using the effective interest method over the remaining period to

contractual maturity or until repayment in full or sale of the loan.

For purchased leases and equipment finance loans, the difference in the cash flows expected to be collected over the initial

allocation of fair value to the acquired leases and loans is accreted into interest income over their related term based on the

effective interest method.

Originated Loans and Leases—Loans are stated at the amount of unpaid principal, net of unearned income and any
deferred fees or costs. All discounts and premiums are recognized over the contractual life of the loan as yield adjustments.

Leases are recorded at the amount of minimum future lease payments receivable and estimated residual value of the leased

equipment, net of unearned income and any deferred fees. Initial direct costs related to lease originations are deferred as

part of the investment in direct financing leases and amortized over their term using the effective interest method. Unearned

lease income is amortized over the term using the effective interest method.

Loans are classified as impaired when, based on current information and events, it is probable that the Bank will be unable

to collect the scheduled payments of principal and interest when due, in accordance with the terms of the original loan

agreement. The carrying value of impaired loans is based on the present value of expected future cash flows (discounted at

each loan’s effective interest rate), estimated note sale price, or, for collateral dependent loans, at fair value of the collateral,

less selling costs. If the measurement of each impaired loan’s value is less than the recorded investment in the loan, we

recognize this impairment and adjust the carrying value of the loan to fair value through the allowance for loan and lease

losses. This can be accomplished by charging off the impaired portion of the loan or establishing a specific component to be

provided for in the allowance for loan and lease losses.

Income Recognition on Non-Accrual and Impaired Loans—Loans, including impaired loans, are classified as non-accrual if
the collection of principal and interest is doubtful. Generally, this occurs when a loan is past due as to maturity or payment

of principal or interest by 90 days or more, unless such loans are well-secured and in the process of collection. Generally, if a

loan or portion thereof is partially charged-off, the loan is considered impaired and classified as non-accrual. Loans that are

less than 90 days past due may also be classified as non-accrual if repayment in full of principal and/or interest is in doubt.

Generally, when a loan is classified as non-accrual, all uncollected accrued interest is reversed to interest income and the

accrual of interest income is terminated. Generally, any cash payments are applied as a reduction of principal outstanding. In

cases where the future collectability of the principal balance in full is expected, interest income may be recognized on a cash

69

basis. A loan may be restored to accrual status when the borrower’s financial condition improves so that full collection of

future contractual payments is considered likely. For those loans placed on non-accrual status due to payment delinquency,

return to accrual status will generally not occur until the borrower demonstrates repayment ability over a period of not less

than six months.

Loans and leases are reported as past due when installment payments, interest payments, or maturity payments are past due

based on contractual terms. All loans and leases determined to be impaired are individually assessed for impairment except

for homogeneous loans which are collectively evaluated for impairment. The specific factors considered in determining that a

loan or lease is impaired include borrower financial capacity, current economic, business and market conditions, collection

efforts, collateral position and other factors deemed relevant. Generally, impaired loans and leases are placed on non-accrual

status and all cash receipts are applied to the principal balance. Continuation of accrual status and recognition of interest

income on impaired loans and leases is generally limited to performing restructured loans.

Loans are reported as troubled debt restructurings when the Bank grants a more than insignificant concession(s) to a

borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include

forgiveness of principal or accrued interest, extending the maturity date or providing a lower interest rate than would be

normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as the

Bank will not collect all amounts due, both principal and interest, in accordance with the terms of the original loan

agreement. Impairment reserves on non-collateral dependent restructured loans are measured by comparing the present

value of expected future cash flows on the restructured loans discounted at the interest rate of the original loan agreement

to the loan’s carrying value. These impairment reserves are recognized as a specific component to be provided for in the

allowance for loan and lease losses.

The decision to classify a loan as impaired is made by the Bank’s Allowance for Loan and Lease Losses (‘‘ALLL’’) Committee.

The ALLL Committee meets regularly to review the status of all problem and potential problem loans. If the ALLL Committee

concludes a loan is impaired but recovery of principal and interest is expected, an impaired loan may remain on accrual

status.

Allowance for Loan and Lease Losses—The Bank performs regular credit reviews of the loan and lease portfolio to
determine the credit quality of the portfolio and the adherence to underwriting standards. When loans and leases are

originated, they are assigned a risk rating that is reassessed periodically during the term of the loan through the credit

review process. The Company’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

allowance for loan and lease losses. The Bank has a management ALLL Committee, which is responsible for, among other

things, regularly reviewing the ALLL methodology, including loss factors, and ensuring that it is designed and applied in

accordance with generally accepted accounting principles. The ALLL Committee reviews and approves loans and leases

recommended for impaired status. The ALLL Committee also approves removing loans and leases from impaired status. The

Bank’s Audit and Compliance Committee provides board oversight of the ALLL process and reviews and approves the ALLL

methodology on a quarterly basis. Each risk rating is assessed an inherent credit loss factor that determines the amount of

the allowance for loan and lease losses provided for that group of loans and leases with similar risk rating.

Regular credit reviews of the portfolio also identify loans that are considered potentially impaired. A loan is considered

impaired when based on current information and events, we determine that it is probable that we will 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 this impairment reserve as a specific component 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. The combination of the risk rating-based allowance component

and the impairment reserve allowance component lead to an allocated allowance for loan and lease losses.

The Bank may also maintain an unallocated allowance amount to provide for other credit losses inherent in a loan and lease

portfolio that may not have been contemplated in the credit loss factors. This unallocated amount generally comprises less

than 5% of the allowance, but may be maintained at higher levels during times of economic conditions characterized by

70

falling real estate values. The unallocated amount is reviewed periodically based on trends in credit losses, the results of

credit reviews and overall economic trends.

As adjustments become necessary, they are reported in earnings in the periods in which they become known as a change in

the provision for loan and lease losses and a corresponding charge to the allowance. Loans, or portions thereof, deemed

uncollectible are charged to the allowance. Provisions for losses, and recoveries on loans previously charged-off, are added

to the allowance.

The adequacy of the ALLL is monitored on a regular basis and is 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.

Management believes that the ALLL was adequate as of December 31, 2016. There is, however, no assurance that future

loan 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. In addition, bank regulatory authorities, as part of their periodic examination of the Bank,

may require additional charges to the provision for loan and lease losses in future periods if warranted as a result of their

review.

Reserve for Unfunded Commitments—A reserve for unfunded commitments (‘‘RUC’’) is maintained at a level that, in the
opinion of management, is adequate to absorb probable losses associated with the Bank’s commitment to lend funds under

existing agreements, such as letters or lines of credit. Management determines the adequacy of the reserve for unfunded

commitments based upon reviews of individual credit facilities, current economic conditions, the risk characteristics of the

various categories of commitments and other relevant factors. The reserve is based on estimates, and ultimate losses may

vary from the current estimates. These estimates are evaluated on a regular basis and, as adjustments become necessary,

they are reported in earnings in the periods in which they become known. Draws on unfunded commitments that are

considered uncollectible at the time funds are advanced are charged to the allowance for loan and lease losses. Provisions

for unfunded commitment losses are added to the reserve for unfunded commitments, which is included in the Other

Liabilities section of the consolidated balance sheets.

Loan and Lease Fees and Direct Loan Origination Costs—Origination and commitment fees and direct loan origination
costs for loans and leases held for investment are deferred and recognized as an adjustment to the yield over the life of the

portfolio loans and leases.

Restricted Equity Securities—Restricted equity securities were $45.5 million and $46.9 million at December 31, 2016 and
2015, respectively. Federal Home Loan Bank stock amounted to $44.1 million and $45.5 million of the total restricted

securities as of December 31, 2016 and 2015, respectively. Federal Home Loan Bank stock represents the Bank’s investment

in the Federal Home Loan Banks of Des Moines and San Francisco (‘‘FHLB’’) stock and is carried at par value, which

reasonably approximates its fair value. Management periodically evaluates FHLB stock for other-than-temporary or

permanent impairment. Management’s determination of whether these investments are impaired is based on its assessment

of the ultimate recoverability of cost rather than by recognizing temporary declines in value. The determination of whether a

decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of any decline in net

assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time the situation has persisted,

(2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to

the operating performance of the FHLB, (3) the impact of legislative and regulatory changes on institutions and, accordingly,

the customer base of the FHLB, and (4) the liquidity position of the FHLB.

As a member of the FHLB system, the Bank is required to maintain a minimum level of investment in FHLB stock based on

specific percentages of its outstanding mortgages, total assets, or FHLB advances. At December 31, 2016, the Bank’s

minimum required investment in FHLB stock was $44.0 million. The Bank may request redemption at par value of any stock

in excess of the minimum required investment. Stock redemptions are at the discretion of the FHLB. The remaining restricted

equity securities balance primarily represents an investment in Pacific Coast Bankers’ Bancshares stock.

Premises and Equipment—Premises and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation is provided over the estimated useful life of equipment, generally three to ten years, on a straight-line or

accelerated basis. Depreciation is provided over the estimated useful life of premises, up to 39 years, on a straight-line or

71

accelerated basis. Generally, leasehold improvements are amortized over the life of the related lease, or the life of the

related asset, whichever is shorter. Expenditures for major renovations and betterments of the Company’s premises and

equipment are capitalized. The Company purchases, as well as internally develops and customizes, certain software to

enhance or perform internal business functions. Software development costs incurred in the preliminary project stages, as

well as costs incurred for software that is part of a hosting arrangement, are charged to non-interest expense. Costs

associated with designing software configuration, installation, coding programs and testing systems are capitalized and

amortized using the straight-line method over three to seven years.

Management reviews long-lived assets any time that a change in circumstance indicates that the carrying amount of these

assets may not be recoverable. Recoverability of these assets is determined by comparing the carrying value of the asset to

the forecasted undiscounted cash flows of the operation associated with the asset. If the evaluation of the forecasted cash

flows indicates that the carrying value of the asset is not recoverable, the asset is written down to fair value.

Goodwill and Other Intangibles—Intangible assets are comprised of goodwill and other intangibles acquired in business
combinations. Goodwill and intangible assets with indefinite useful lives are not amortized. Intangible assets with definite

useful lives are amortized to their estimated residual values over their respective estimated useful lives, and also reviewed for

impairment. Amortization of intangible assets is included in non-interest expense in the Consolidated Statements of Income.

The Company performs a goodwill impairment analysis on an annual basis as of December 31. On at least an annual basis,

we assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Additionally, the

Company performs a goodwill impairment evaluation on an interim basis when events or circumstances indicate impairment

potentially exists. A significant amount of judgment is involved in determining if an indicator of impairment has occurred.

Such indicators may include, among others, a significant decline in our expected future cash flows; a sustained, significant

decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate;

adverse action or assessment by a regulator; and unanticipated competition.

Residential Mortgage Servicing Rights (‘‘MSR’’)—The Company measures its residential mortgage servicing assets at fair
value and reports changes in fair value through earnings. Fair value adjustments that encompass market-driven valuation

changes and the runoff in value that occurs from the passage of time, are each separately reported. Under the fair value

method, the MSR is carried in the balance sheet at fair value and the changes in fair value are reported in earnings under

the caption residential mortgage banking revenue, net in the period in which the change occurs.

Retained MSR are measured at fair value as of the date of the related loan sale. Subsequent fair value measurements are

determined using a discounted cash flow model. In order to determine the fair value of the MSR, the present value of net

expected future cash flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds,

delinquency and foreclosure rates, and ancillary fee income net of servicing costs. This model is periodically validated by an

independent external model validation group. The model assumptions and the MSR fair value estimates are also compared

to observable trades of similar portfolios as well as to MSR broker valuations and industry surveys, as available.

The expected life of the loan can vary from management’s estimates due to prepayments by borrowers, especially when

rates change significantly. Prepayments outside of management’s estimates would impact the recorded value of the

residential mortgage servicing rights. The value of the residential mortgage servicing rights is also dependent upon the

discount rate used in the model, which management reviews on an ongoing basis using current market rates. A significant

increase in the discount rate would reduce the value of residential mortgage servicing rights.

GNMA Loan Sales—The Company originates government guaranteed loans which are sold to Ginnie Mae (‘‘GNMA’’).
Pursuant to GNMA servicing guidelines, the Company has the unilateral right to repurchase certain delinquent loans (loans

past due 90 days or more) sold to GNMA, if the loans meet defined delinquent loan criteria. As a result of this unilateral

right, once the delinquency criteria have been met, and regardless of whether the repurchase option has been exercised, the

Company accounts for the loans as if they had been repurchased. The Company recognizes these loans within loans and

leases, net and also recognizes a corresponding liability that is recorded in other liabilities. If the loan is repurchased, the

liability is settled and the loan remains.

SBA/USDA Loans Sales, Servicing, and Commercial Servicing Asset—The Bank, on a limited basis, sells or transfers loans,
including the guaranteed portion of Small Business Administration (‘‘SBA’’) and Department of Agriculture (‘‘USDA’’) loans

(with servicing retained) for cash proceeds equal to the principal amount of loans, as adjusted to yield interest to the investor

72

based upon the current market rates. The Bank records a servicing asset when it sells a loan and retains the servicing rights.

The servicing asset is recorded at fair value upon sale, and the fair value is estimated by discounting estimated net future

cash flows from servicing using discount rates that approximate current market rates and using estimated prepayment rates.

Subsequent to initial recognition, the servicing rights are carried at the lower of amortized cost or fair value, and are

amortized in proportion to, and over the period of, the estimated net servicing income.

For purposes of evaluating and measuring impairment, the fair value of Commercial and SBA servicing rights are measured

using a discounted estimated net future cash flow model as described above. Any impairment is measured as the amount by

which the carrying value of servicing rights for an interest rate-stratum exceeds its fair value. No impairment charges were

recorded for the years ended December 31, 2016, 2015 and 2014, related to these servicing assets.

A premium over the adjusted carrying value is received upon the sale of the guaranteed portion of an SBA or USDA loan.

The Bank’s investment in an SBA or USDA loan is allocated among the sold and retained portions of the loan based on the

relative fair value of each portion at the time of loan origination, adjusted for payments and other activities. Because the

portion retained does not carry an SBA or USDA guarantee, part of the gain recognized on the sold portion of the loan is

deferred and amortized as a yield enhancement on the retained portion in order to obtain a market equivalent yield.

Other Real Estate Owned—Other real estate owned (‘‘OREO’’) represents real estate which the Bank has taken control of in
partial or full satisfaction of loans. At the time of foreclosure, OREO is recorded at fair value less costs to sell the property,

which becomes the property’s new basis. Any write-downs at the date of acquisition are charged to the allowance for loan

and lease losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the

lower of its new cost basis or fair value, net of estimated costs to sell. Subsequent valuation adjustments are recognized

within net loss on OREO. Revenue and expenses from operations are included in other non-interest expense in the

Consolidated Statements of Income.

In some instances, the Bank may make loans to facilitate the sales of other real estate owned. Management reviews all sales

for which it is the lending institution to determine if it meets the criteria to recognize the sale for accounting purposes. Any

gains related to sales of other real estate owned may be deferred until the buyer has a sufficient initial and continuing

investment in the property.

Income Taxes—Income taxes are accounted for using the asset and liability method. Under this method a deferred tax asset
or liability is determined based on the enacted tax rates which will be in effect when the differences between the financial

statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company’s

income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes

the enactment date. Valuation allowances are established to reduce the net carrying amount of deferred tax assets if it is

determined to be more likely than not, that all or some portion of the potential deferred tax asset will not be realized.

Deferred tax assets are recognized subject to management’s judgment that realization is ‘‘more likely than not.’’ Uncertain tax

positions that meet the more likely than not recognition threshold are measured to determine the amount of benefit to

recognize. An uncertain tax position is measured at the amount of benefit that management believes has a greater than 50%

likelihood of realization upon settlement.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some

portion or all of the DTA will or will not be realized. The Company’s ultimate realization of the DTA is dependent upon the

generation of future taxable income during the periods in which temporary differences become deductible. Management

considers the nature and amount of historical and projected future taxable income, the scheduled reversal of deferred tax

assets and liabilities, and available tax planning strategies in making this assessment. The amount of deferred taxes

recognized could be impacted by changes to any of these variables.

Derivatives—The Bank enters into forward delivery contracts to sell residential mortgage loans or mortgage-backed
securities to broker/dealers at specific prices and dates in order to hedge the interest rate risk in its portfolio of mortgage

loans held for sale and its residential mortgage loan commitments. The commitments to originate mortgage loans held for

sale and the related forward delivery contracts are considered derivatives. The Bank also executes interest rate swaps with

commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are

hedged by simultaneously entering into an offsetting interest rate swap that the Bank executes with a third party, such that

the Bank minimizes its net risk exposure. The Company considers all free-standing derivatives as economic hedges and

73

recognizes these derivatives as either assets or liabilities in the balance sheet, and requires measurement of those

instruments at fair value through adjustments to current earnings. None of the Company’s derivatives are designated as

hedging instruments.

The fair value of the derivative residential mortgage loan commitments is estimated using the net present value of expected

future cash flows. Assumptions used include pull-through rate assumption based on historical information, current mortgage

interest rates, the stage of completion of the underlying application and underwriting process, direct origination costs yet to

be incurred, the time remaining until the expiration of the derivative loan commitment, and the expected net future cash

flows related to the associated servicing of the loan.

Operating Segments—Public enterprises are required to report certain information about their operating segments in its
financial statements. They are also required to report certain enterprise-wide information about the Company’s products and

services, its activities in different geographic areas, and its reliance on major customers. The basis for determining the

Company’s operating segments is the manner in which management operates the business. Management has identified two

primary business segments, Community Banking and Home Lending.

Share-Based Payment—We recognize in the income statement the grant-date fair value of restricted share awards, stock
options and other equity-based forms of compensation issued to employees over the employees’ requisite service period

(generally the vesting period). The requisite service period may be subject to performance conditions. The fair value of the

restricted share awards is based on the share price on the grant date.

Stock options and restricted stock awards generally vest ratably over three to five years and are recognized as expense over

that same period of time. The exercise price of each option equals the market price of the Company’s common stock on the

date of the grant, and the maximum term is ten years.

Restricted stock unit grants and certain restricted stock awards are subject to performance-based and market-based vesting

as well as other approved vesting conditions and cliff vest based on those conditions. Compensation expense is recognized

over the service period to the extent restricted stock units are expected to vest. The fair value of the restricted stock unit

grants is estimated as of the grant date using a Monte Carlo simulation pricing model.

Earnings per Share (‘‘EPS’’)—Nonvested share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents are participating securities and are included in the computation of EPS pursuant to the two-class

method. The two-class method is an earnings allocation formula that determines earnings per share for each class of

common stock and participating security according to dividends declared (or accumulated) and participation rights in

undistributed earnings. Certain of the Company’s nonvested restricted stock awards qualify as participating securities.

Net income is allocated between the common stock and participating securities pursuant to the two-class method, based on

their rights to receive dividends, participate in earnings or absorb losses. Basic earnings per common share is computed by

dividing net earnings available to common shareholders by the weighted average number of common shares outstanding

during the period, excluding participating nonvested restricted shares.

Diluted earnings per common share is computed in a similar manner, except that first the denominator is increased to

include the number of additional common shares that would have been outstanding if potentially dilutive common shares,

excluding the participating securities, were issued using the treasury stock method. For all periods presented, stock options,

certain restricted stock awards and restricted stock units are potentially dilutive non-participating instruments issued by the

Company. Next, we determine and include in diluted earnings per common share calculation the more dilutive effect of the

participating securities using the treasury stock method or the two-class method. Undistributed losses are not allocated to

the nonvested share-based payment awards (the participating securities) under the two-class method as the holders are not

contractually obligated to share in the losses of the Company.

Fair Value Measurements—Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. There is a three-level hierarchy for

disclosure of assets and liabilities measured or disclosed at fair value. The classification of assets and liabilities within the

hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or

unobservable. Observable inputs reflect market-derived or market-based information obtained from independent sources,

while unobservable inputs reflect our estimates about market data. In general, fair values determined by Level 1 inputs utilize

quoted prices for identical assets or liabilities traded in active markets that the Company has the ability to access. Fair values

74

determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or

liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and

inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are

observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include

situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair

value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which

the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the

fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value

measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

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 within the provision for income taxes 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.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards Update (‘‘ASU’’) No. 2014-09,

Revenue from Contracts with Customers (Topic 606), which creates Topic 606 and supersedes Topic 605, Revenue

Recognition. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which

postponed the effective date of 2014-09. Multiple ASUs and interpretative guidance have been issued in connection with

ASU 2014-09. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods

or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange

for those goods or services. In general, the new guidance requires companies to use more judgment and make more

estimates than under current guidance, including identifying performance obligations in the contract, estimating the amount

of variable consideration to include in the transaction price and allocating the transaction price to each separate

performance obligation. The standard is effective for public entities for interim and annual periods beginning after

December 15, 2017; early adoption is not permitted. For financial reporting purposes, the standard allows for either full

retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption,

meaning the standard is applied only to the most current period presented in the financial statements with the cumulative

effect of initially applying the standard recognized at the date of initial application. The Company has begun their process to

implement this new standard. The Company has started by reviewing all revenue sources to determine the sources that are

in scope for this guidance. As a bank, key revenue sources, such as interest income have been identified as out of scope of

this new guidance. The Company has not yet determined the financial statement impact this guidance will have.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and

Measurement of Financial Assets and Financial Liabilities. The new guidance is intended to improve the recognition and

measurement of financial instruments. This ASU requires equity investments (except those accounted for under the equity

method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair

value recognized in net income. In addition, the amendment requires public business entities to use the exit price notion

when measuring the fair value of financial instruments for disclosure purposes and requires separate presentation of financial

assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables)

on the balance sheet or the accompanying notes to the financial statements. This ASU also eliminates the requirement for

public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required

to be disclosed for financial instruments measured at amortized cost on the balance sheet. The amendment also requires a

reporting organization to present separately in other comprehensive income the portion of the total change in the fair value

75

of a liability resulting from a change in the instrument specific credit risk (also referred to as ‘‘own credit’’) when the

organization has elected to measure the liability at fair value in accordance with the fair value option for financial

instruments. ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017,

and interim periods within those fiscal years. Early adoption is permitted for certain provisions. The Company is currently

evaluating the impact of this ASU on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this update require lessees,

among other things, to recognize lease assets and lease liabilities on the balance sheet for those leases classified as

operating leases under previous authoritative guidance. This update also introduces new disclosure requirements for leasing

arrangements. ASU 2016-02 is effective for financial statements issued for fiscal years beginning after December 15, 2018,

including interim periods within those fiscal years, with early adoption permitted. The Company has established a project

team for the implementation of this new standard. The team is currently working with a vendor to put a new leasing software

in place that will support the current leasing process, as well as aid in the transition to the new leasing guidance. Although

an estimate of the impact of the new leasing standard has not yet been determined, the Company expects a significant new

lease asset and related lease liability on the balance sheet due to the number of leased properties the Bank currently has

that are accounted for under current operating lease guidance.

In March 2016, the FASB issued ASU No. 2016-07, Investments—Equity Method and Joint Ventures (Topic 323): Simplifying

the Transition to the Equity Method of Accounting. The ASU eliminates the requirement that when an investment qualifies

for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an

adjustment must be made to the investment, results of operations, and retained earnings retroactively on a step-by-step

basis as if the equity method had been in effect during all previous periods that the investment had been held. The ASU is

effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early

adoption of the update is permitted. The Company does not expect this ASU to have a material impact on the Company’s

consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit

Losses on Financial Instruments. The ASU is intended to improve financial reporting by requiring timelier recording of credit

losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the

measurement of all expected credit losses for certain financial assets held at the reporting date based on historical

experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will

now use forward-looking information to better inform their credit loss estimates, but will continue to use judgment to

determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to

help investors and other financial statement users better understand significant estimates and judgments used in estimating

credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include

qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial

statements. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased

financial assets with credit deterioration. The ASU is effective for fiscal years, and interim periods within those fiscal years,

beginning after December 15, 2019. Early application will be permitted for specified periods. The Company has formed a

cross-functional team to begin its implementation efforts of this new guidance. The team has started by reaching out to all
areas of the Company to begin its discussion of this new standard and how it will be a significant change for the Company.

An estimate of the impact of this standard has not yet been determined, however, the impact is expected to be significant.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash

Receipts and Cash Payments. The ASU provides guidance on the following eight specific cash flow issues: Debt prepayment

or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest

rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made

after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-

owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity

method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of

the predominance principle. The ASU is effective for annual periods beginning after December 15, 2017, including interim

periods within those fiscal years. Early adoption of the update is permitted. The Company does not expect a material impact

of this ASU on the Company’s consolidated financial statements.

76

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than

Inventory. The ASU was issued to improve the accounting for income tax consequences of intra-entity transfers of assets

other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset

transfer until the asset has been sold to an outside party; this update clarifies that an entity should recognize the income tax

consequences of an intra-entity transfer of assets other than inventory when the transfer occurs. The amendment is effective

for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early

adoption of the update is permitted. The Company does not expect this ASU to have a material impact on the Company’s

consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That

Are under Common Control. The ASU was issued to amend the consolidation guidance on how a reporting entity that is the

single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under

common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The primary

beneficiary of a VIE is the reporting entity that has a controlling financial interest in a VIE and, therefore, consolidates the

VIE. A reporting entity has an indirect interest in a VIE if it has a direct interest in a related party that, in turn, has a direct

interest in the VIE. The amendment is effective for annual reporting periods beginning after December 15, 2016, and interim

periods within those fiscal years. Early adoption of the update is permitted. The Company does not expect a material impact

of this ASU on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (230): Restricted Cash. The ASU will require

that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts

generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted

cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the

beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update

apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash

flows under Topic 230. The amendment is effective for annual reporting periods beginning after December 15, 2017, and

interim periods within those fiscal years. Early adoption of the update is permitted. The Company does not expect this ASU

to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for

Goodwill Impairment. The ASU was issued to simplify the subsequent measurement of goodwill and the amendment

eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by

comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the

amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not

exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible

goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if

applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the

quantitative impairment test is necessary. The amendment is effective for annual reporting periods beginning after

December 31, 2019. Early adoption is of the update is permitted. The Company does not expect this ASU to have a

material impact on the Company’s consolidated financial statements.

Reclassifications—Certain amounts reported in prior years’ financial statements have been reclassified to conform to the
current presentation. 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 4—Loans

and Leases and Note 5—Allowance for Loan and Lease Loss 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 recognize 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

77

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 reported.

Note 2—Cash and Cash Equivalents

The Bank is required to maintain an average reserve balance with the Federal Reserve Bank or maintain such reserve balance

in the form of cash. The amount of required reserve balance at December 31, 2016 and 2015 was approximately

$138.4 million and $130.5 million, respectively, and was met by holding cash and maintaining an average balance with the

Federal Reserve Bank.

Umpqua had restricted cash included in cash and due from banks on the balance sheet of $51.0 million as of December 31,

2016, and $58.8 million as of December 31, 2015, relating mostly to collateral required on interest rate swaps as discussed

in Note 19. There was no restricted cash included in interest bearing cash and temporary investments on the balance sheet

as of December 31, 2016, and $3.9 million as of December 31, 2015, relating to collateral requirements for derivatives for

mortgage banking activities.

Note 3—Investment Securities

The following table presents the amortized costs, unrealized gains, unrealized losses and approximate fair values of

investment securities at December 31, 2016 and 2015:

December 31, 2016

(in thousands)

AVAILABLE FOR SALE:

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value

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

4,216

$ 1,001

$ 1,001

$

$

— $

5,217

— $

5,217

78

December 31, 2015

(in thousands)

AVAILABLE FOR SALE:
Obligations of states and political subdivisions
Residential mortgage-backed securities and collateralized mortgage

obligations

Investments in mutual funds and other equity securities

HELD TO MATURITY:
Residential mortgage-backed securities and collateralized mortgage

obligations

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value

$ 300,998

$12,741

$

(622)

$ 313,117

2,223,742
1,959

7,218
43

(23,540)
—

2,207,420
2,002

$2,526,699

$20,002

$(24,162)

$2,522,539

$

$

4,609

4,609

$

$

981

981

$

$

— $

5,590

— $

5,590

Investment securities that were in an unrealized loss position as of December 31, 2016 and December 31, 2015 are

presented in the following tables, based on the length of time individual securities have been in an unrealized loss position.

In the opinion of management, these securities are considered only temporarily impaired due to changes in market interest

rates or the widening of market spreads subsequent to the initial purchase of the securities, and not due to concerns

regarding the underlying credit of the issuers or the underlying collateral.

December 31, 2016

(in thousands)

AVAILABLE FOR SALE:
Obligations of states and political

Less than 12 Months

12 Months or Longer

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

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

December 31, 2015

(in thousands)

AVAILABLE FOR SALE:
Obligations of states and political

Less than 12 Months

12 Months or Longer

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

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 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 published

credit ratings of these securities for material rating or outlook changes. As of December 31, 2016, 88% of these securities
were rated A3/A(cid:2) 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 December 31, 2016 are issued or guaranteed

by government sponsored enterprises. The unrealized losses on residential mortgage-backed securities and collateralized

79

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 not be settled at a price less than 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 these 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 contractual maturities of investment securities at December 31, 2016:

(in thousands)

AMOUNTS MATURING IN:
Three months or less
Over three months through twelve months
After one year through five years
After five years through ten years
After ten years
Other investment securities

Available For Sale

Held To Maturity

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

$

1,465
791
82,699
418,763
2,230,377
1,959

$

1,467
797
83,627
421,222
2,192,137
1,970

$ — $ —
2
—
10
5,205
—

2
—
10
4,204
—

$2,736,054

$2,701,220

$4,216

$5,217

The following table presents the gross realized gains and gross realized losses on the sale of securities available for sale for

the years ended December 31, 2016, 2015 and 2014:

(in thousands)

2016

2015

2014

Gains

Losses

Gains

Losses

Gains

Losses

U.S. Treasury and agencies
Obligations of states and political subdivisions
Residential mortgage-backed securities and collateralized

$ — $ — $

971

—

13
631

$ — $ — $ —
1

—

3

mortgage obligations

270

383

3,119

841

2,902

$1,241

$ 383

$3,763

$ 841

$2,905

$

—

1

The following table presents, as of December 31, 2016, investment securities which were pledged to secure borrowings,

public deposits, and repurchase agreements as permitted or required by law:

(in thousands)

To Federal Home Loan Bank to secure borrowings
To state and local governments to secure public deposits
Other securities pledged principally to secure repurchase agreements

Total pledged securities

Amortized
Cost

$

514
1,064,103
498,160

Fair
Value

$

521
1,059,453
490,879

$1,562,777

$1,550,853

80

Note 4—Loans and Leases

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

and 2015:

(in thousands)

Commercial real estate

Non-owner occupied term, net
Owner occupied term, net
Multifamily, net
Construction & development, net
Residential development, net

Commercial
Term, net
LOC & other, net
Leases and equipment finance, net

Residential

Mortgage, net
Home equity loans & lines, net

Consumer & other, net

December 31,
2016

December 31,
2015

$ 3,330,442
2,599,055
2,858,956
463,625
142,984

1,508,780
1,116,259
950,588

2,887,971
1,011,844
638,159

$ 3,226,836
2,582,874
3,151,516
271,119
99,459

1,408,676
1,036,733
729,161

2,909,306
923,667
527,189

Total loans, net of deferred fees and costs

$17,508,663

$16,866,536

The loan balances are net of deferred fees and costs of $67.7 million and $47.0 million as of December 31, 2016 and 2015,

respectively. Net loans also include discounts on acquired loans of $41.3 million and $105.6 million as of December 31, 2016

and 2015, respectively. As of December 31, 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 $368.2 million and $540.4 million at December 31, 2016 and 2015, respectively. The carrying balance of

purchased impaired loans was $280.4 million and $438.1 million at December 31, 2016 and 2015, respectively.

The following table presents the changes in the accretable yield for purchased impaired loans for the year ended

December 31, 2016, and 2015:

(in thousands)

Balance, beginning of period
Accretion to interest income
Disposals
Reclassifications from nonaccretable difference

Balance, end of period

Year Ended
December 31,

2016

2015

$132,829
(44,795)
(18,290)
25,835

$201,699
(60,065)
(32,586)
23,781

$ 95,579

$132,829

81

The following table presents the net investment in direct financing leases and loans as of December 31, 2016 and 2015:

(in thousands)

Minimum lease payments receivable
Estimated guaranteed and unguaranteed residual values
Initial direct costs—net of accumulated amortization
Unearned income
Equipment finance loans, including unamortized deferred fees and costs
Accretable yield/purchase accounting adjustments

Net investment in direct financing leases and loans
Allowance for credit losses

Net investment in direct financing leases and loans

December 31,
2016

December 31,
2015

$422,872
70,199
13,978
(91,630)
535,143
26

950,588
(31,976)

$345,495
38,447
12,336
(71,696)
404,364
215

729,161
(23,265)

$918,612

$705,896

The following table presents the scheduled minimum lease payments receivable, excluding equipment finance loans, as of

December 31, 2016:

(in thousands)

Year

2017
2018
2019
2020
2021
Thereafter

Loans and leases sold

Amount

$137,201
109,200
76,061
47,680
25,215
27,515

$422,872

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 loans and leases sold by loan portfolio during the years ended December 31, 2016 and

2015:

(in thousands)

Commercial real estate

Non-owner occupied term, net
Owner occupied term, net
Multifamily, net

Commercial
Term, net
LOC & other, net
Leases and equipment finance, net

Residential

Mortgage, net

Total

2016

2015

$ 20,693
33,986
129,879

$

7,955
49,991
435

11,849
—
26,851

6,212
750
—

239,196

201,081

$462,454

$266,424

Note 5—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 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.

82

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.

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 December 31, 2016. There is, however, no assurance that future

loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in additional charges to

the provision for loan and lease losses.

The 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.

83

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 years ended December 31, 2016 and 2015:

(in thousands)

Balance, beginning of period

Charge-offs
Recoveries
Provision (recapture)

Balance, end of period

Balance, beginning of period

Charge-offs
Recoveries
Provision

Commercial
Real Estate

Commercial

Residential

December 31, 2016

Consumer &
Other

Total

$

$

54,293
(3,137)
1,958
(5,319)

$

47,487
(35,545)
4,995
41,903

22,017
(1,885)
1,028
(3,214)

$

6,525
(9,356)
3,930
8,304

$ 130,322
(49,923)
11,911
41,674

$

47,795

$

58,840

$

17,946

$

9,403

$ 133,984

Commercial
Real Estate

Commercial

Residential

December 31, 2015

Consumer &
Other

Total

$

$

55,184
(6,797)
2,682
3,224

$

41,216
(20,247)
5,001
21,517

15,922
(970)
641
6,424

$

3,845
(7,557)
4,813
5,424

$ 116,167
(35,571)
13,137
36,589

Balance, end of period

$

54,293

$

47,487

$

22,017

$

6,525

$ 130,322

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 year ended December 31, 2016, and

$2.1 million for the year ended December 31, 2015, respectively. The increase due to the provision expense of the valuation

allowance on purchased impaired loans was offset by recaptured provision of $1.1 million for the year ended December 31,

2016, and $2.9 million for the year ended December 31, 2015, respectively.

The following table presents the allowance and recorded investment in loans and leases by portfolio segment and balances

individually or collectively evaluated for impairment as of December 31, 2016 and 2015:

(in thousands)

Allowance for loans and leases:

Commercial
Real Estate

Commercial

Residential

Collectively evaluated for impairment
Individually evaluated for impairment
Loans acquired with deteriorated credit quality

$

44,205
859
2,731

$

58,515
8
317

$

17,353
—
593

Total

Loans and leases:

$

47,795

$

58,840

$

17,946

Collectively evaluated for impairment
Individually evaluated for impairment
Loans acquired with deteriorated credit quality

$9,124,422
39,998
230,642

$3,555,660
13,976
5,991

$3,856,658
—
43,157

December 31, 2016

Consumer &
Other

Total

$

$

$

9,345
—
58

$

129,418
867
3,699

9,403

$

133,984

637,563
—
596

$17,174,303
53,974
280,386

Total

$9,395,062

$3,575,627

$3,899,815

$

638,159

$17,508,663

84

(in thousands)

Allowance for loans and leases:

Commercial
Real Estate

Commercial

Residential

December 31, 2015

Consumer &
Other

Total

Collectively evaluated for impairment
Individually evaluated for impairment
Loans acquired with deteriorated credit quality

$

51,316
281
2,696

$

46,710
507
270

$

21,215
—
802

$

6,423
—
102

$

125,664
788
3,870

Total

Loans and leases:

$

54,293

$

47,487

$

22,017

$

6,525

$

130,322

Collectively evaluated for impairment
Individually evaluated for impairment
Loans acquired with deteriorated credit quality

$8,962,565
31,408
337,831

$3,120,423
20,705
33,442

$3,769,106
—
63,867

$524,225
—
2,964

$16,376,319
52,113
438,104

Total

$9,331,804

$3,174,570

$3,832,973

$527,189

$16,866,536

Summary of Reserve for Unfunded Commitments Activity

The following table presents a summary of activity in the RUC and unfunded commitments for the years ended

December 31, 2016 and 2015:

(in thousands)

Balance, beginning of period
Net charge to other expense

Balance, end of period

(in thousands)

Unfunded loan and lease commitments:

December 31, 2016
December 31, 2015

Asset Quality and Non-Performing Loans and Leases

December 31,
2016

December 31,
2015

$3,574
37

$3,611

$ 3,539
35

$ 3,574

Total

$4,192,059
$3,723,520

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.

85

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

December 31, 2016 and December 31, 2015:

(in thousands)

Past Due

Past Due

Greater Than
Greater Than
30 to 59 Days 60 to 89 Days 90 Days and

Total
Accruing Past Due

December 31, 2016

Non-
accrual

Current &
Other(1)

Total
Loans
and Leases

Commercial real estate

Non-owner occupied term,

net

$

Owner occupied term, net
Multifamily, net
Construction &

development, net

Residential development, net

Commercial
Term, net
LOC & other, net
Leases and equipment

finance, net

Residential

Mortgage, net(2)
Home equity loans & lines,

net

Consumer & other, net

Total, net of deferred fees

718
974
—

—
—

319
1,673

5,343

$ 1,027
4,539
—

$ 1,047
1
—

—
—

233
27

—
—

—
—

$ 2,792 $ 2,100 $ 3,325,550 $ 3,330,442
2,599,055
2,858,956

2,589,150
2,858,480

5,514
—

4,391
476

—
—

—
—

463,625
142,984

463,625
142,984

552
1,700

6,880
4,998

1,501,348
1,109,561

1,508,780
1,116,259

6,865

1,808

14,016

8,920

927,652

950,588

10

3,114

33,703

36,827

— 2,851,144

2,887,971

289
3,261

848
1,185

2,080
587

3,217
5,033

— 1,008,627
633,126
—

1,011,844
638,159

and costs

$12,587

$17,838

$39,226

$69,651 $27,765 $17,411,247 $17,508,663

(1) Other includes purchased credit impaired loans of $280.4 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 $10.9 million at December 31, 2016.

86

(in thousands)

Past Due

Past Due

Greater Than
Greater Than
30 to 59 Days 60 to 89 Days 90 Days and

Total
Accruing Past Due

December 31, 2015

Non-
accrual

Current &
Other(1)

Total
Loans
and Leases

Commercial real estate

Non-owner occupied term,

net

Owner occupied term, net
Multifamily, net
Construction &

development, net

Residential development, net

Commercial
Term, net
LOC & other, net
Leases and equipment

finance, net

Residential

Mortgage, net(2)
Home equity loans & lines,

net

Consumer & other, net

Total, net of deferred fees

$

924
1,797
1,394

$ 2,776
1,150
—

$

137
423
—

$ 3,837 $ 2,633 $ 3,220,366 $ 3,226,836
2,582,874
3,151,516

2,573,576
— 3,150,122

3,370
1,394

5,928

—
—

297
1,907

2,933

2,959
—

333
92

—
—

—
8

2,959
—

—
—

268,160
99,459

271,119
99,459

630
2,007

15,185
664

1,392,861
1,034,062

1,408,676
1,036,733

3,499

822

7,254

4,801

717,106

729,161

31

2,444

29,233

31,708

— 2,877,598

2,909,306

1,084
3,271

643
889

3,080
642

4,807
4,802

—
4

918,860
522,383

923,667
527,189

and costs

$13,638

$14,785

$34,345

$62,768 $29,215 $16,774,553 $16,866,536

(1) Other includes purchased credit impaired loans of $438.1 million.
(2)

Includes government guaranteed GNMA mortgage loans that Umpqua has the right but no the obligation to repurchase
that are past due 90 days or more, totaling $19.2 million at December 31, 2015.

Impaired Loans

Loans with no related allowance reported generally represent non-accrual loans, which are also considered impaired loans.

The Bank recognizes the charge-off on impaired loans in the period it arises for collateral dependent loans. Therefore, the

non-accrual loans as of December 31, 2016 have already been written-down to their estimated net realizable value and are

expected to be resolved with no additional material loss, absent further decline in market prices. The valuation allowance on

impaired loans primarily represents the impairment reserves on performing restructured loans, and is measured by comparing

the present value of expected future cash flows on the restructured loans discounted at the interest rate of the original loan

agreement to the loan’s carrying value.

The following tables summarize our impaired loans by loan class for the years ended December 31, 2016 and 2015:

(in thousands)

Commercial real estate

Unpaid
Principal
Balance

Recorded Investment

Without
Allowance

With
Allowance

Related
Allowance

December 31, 2016

Non-owner occupied term, net

$

19,797

$

Owner occupied term, net

Multifamily, net

Construction & development, net

Residential development, net

Commercial

Term, net

LOC & other, net

8,467

4,015

1,091

7,304

16,875

8,279

278

1,768

476

—

—

5,982

4,755

$

19,116

$

6,445

3,520

1,091

7,304

3,239

—

524

131

123

9

72

8

—

Total, net of deferred fees and costs

$

65,828

$

13,259

$

40,715

$

867

87

(in thousands)

Commercial real estate

Non-owner occupied term, net
Owner occupied term, net
Multifamily, net
Construction & development, net
Residential development, net

Commercial
Term, net
LOC & other, net

$

Unpaid
Principal
Balance

11,944
6,863
3,519
1,704
7,889

22,795
3,470

December 31, 2015

Recorded Investment

Without
Allowance

With
Allowance

Related
Allowance

$

$

1,946
4,340
—
—
—

14,788
664

$

9,548
2,459
3,519
1,704
7,891

2,932
2,322

91
20
49
31
90

283
224

788

Total, net of deferred fees and costs

$

58,184

$

21,738

$

30,375

$

The following table summarizes our average recorded investment and interest income recognized on impaired loans by loan

class for the years ended December 31, 2016 and 2015:

(in thousands)

Commercial real estate

Non-owner occupied term, net

Owner occupied term, net

Multifamily, net

Construction & development, net

Residential development, net

Commercial

Term, net

LOC & other, net

Residential

Home equity loans & lines, net

December 31, 2016

December 31, 2015

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

$

14,766

$

6,475

3,971

1,532

7,666

16,843

3,851

—

530

146

121

72

315

217

60

—

$

21,668

$

12,233

3,579

1,214

8,634

21,215

6,183

—

677

232

123

62

338

178

152

7

Total, net of deferred fees and costs

$

55,104

$

1,461

$

74,726

$

1,769

The impaired loans for which these interest income amounts were recognized primarily relate to accruing restructured loans.

Credit Quality Indicators

As previously noted, the Bank’s risk rating methodology assigns risk ratings ranging from 1 to 10, where a higher rating

represents higher risk. The Bank differentiates its lending portfolios into homogeneous loans and leases and
non-homogeneous loans and leases. Homogeneous loans and leases are not risk rated until they are greater than 30 days

past due, and risk rating is based on the past due status of the loan or lease. The 10 risk rating categories can be generally

described by the following groupings for loans and leases:

Minimal Risk—A minimal risk loan or lease, risk rated 1, is to a borrower of the highest quality. The borrower has an
unquestioned ability to produce consistent profits and service all obligations and can absorb severe market disturbances with

little or no difficulty.

Low Risk—A low risk loan or lease, risk rated 2, is similar in characteristics to a minimal risk loan. Margins may be smaller or
protective elements may be subject to greater fluctuation. The borrower will have a strong demonstrated ability to produce

profits, provide ample debt service coverage and to absorb market disturbances.

Modest Risk—A modest risk loan or lease, risk rated 3, is a desirable loan or lease with excellent sources of repayment and
no currently identifiable risk associated with collection. The borrower exhibits a very strong capacity to repay the credit in

88

accordance with the repayment agreement. The borrower may be susceptible to economic cycles, but will have reserves to

weather these cycles.

Average Risk—An average risk loan or lease, risk rated 4, is an attractive loan or lease with sound sources of repayment and
no material collection or repayment weakness evident. The borrower has an acceptable capacity to pay in accordance with

the agreement. The borrower is susceptible to economic cycles and more efficient competition, but should have modest

reserves sufficient to survive all but the most severe downturns or major setbacks.

Acceptable Risk—An acceptable risk loan or lease, risk rated 5, is a loan or lease with lower than average, but still
acceptable credit risk. These borrowers may have higher leverage, less certain but viable repayment sources, have limited

financial reserves and may possess weaknesses that can be adequately mitigated through collateral, structural or credit

enhancement. The borrower is susceptible to economic cycles and is less resilient to negative market forces or financial

events. Reserves may be insufficient to survive a modest downturn.

Watch—A watch loan or lease, risk rated 6, is still pass-rated, but represents the lowest level of acceptable risk due to an
emerging risk element or declining performance trend. Watch ratings are expected to be temporary, with issues resolved or

manifested to the extent that a higher or lower rating would be appropriate. The borrower should have a plausible plan, with

reasonable certainty of success, to correct the problems in a short period of time.

Special Mention—A special mention loan or lease, risk rated 7, has potential weaknesses that deserve management’s close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset

or the institution’s credit position at some future date. They contain unfavorable characteristics and are generally undesirable.

Loans and leases in this category are currently protected but are potentially weak and constitute an undue and unwarranted

credit risk, but not to the point of a substandard classification. A special mention loan or lease has potential weaknesses,

which if not checked or corrected, weaken the asset or inadequately protect the Bank’s position at some future date. For

commercial and commercial real estate homogeneous loans and leases to be classified as special mention, risk rated 7, the

loan or lease is greater than 30 to 59 days past due from the required payment date at month-end. Residential and

consumer and other homogeneous loans are risk rated 7, when the loan is greater than 30 to 89 days past due from the

required payment date at month-end.

Substandard—A substandard asset, risk rated 8, is inadequately protected by the current worth and paying capacity of the
obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that

jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if

the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not

have to exist in individual assets classified substandard. Loans and leases are classified as substandard when they have

unsatisfactory characteristics causing unacceptable levels of risk. A substandard loan or lease normally has one or more

well-defined weaknesses that could jeopardize repayment of the debt. The likely need to liquidate assets to correct the

problem, rather than repayment from successful operations is the key distinction between special mention and substandard.

Commercial and commercial real estate homogeneous loans and leases that are classified as a substandard loan or lease, risk

rated 8, when the loan or lease 60 to 89 days past due from the required payment date at month-end. Residential and

consumer and other homogeneous loans are classified as a substandard loan, risk rated 8, when an open-end loan is 90 to
180 days past due from the required payment date at month-end or when a closed-end loan 90 to 120 days is past due

from the required payment date at month-end.

Doubtful—Loans or leases classified as doubtful, risk rated 9, have all the weaknesses inherent in one classified substandard
with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing

facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of

certain important and reasonably specific pending factors, which may work towards strengthening of the asset, classification

as a loss (and immediate charge-off) is deferred until more exact status may be determined. Pending factors include

proposed merger, acquisition, liquidation procedures, capital injection, and perfection of liens on additional collateral and

refinancing plans. In certain circumstances, a doubtful rating will be temporary, while the Bank is awaiting an updated

collateral valuation. In these cases, once the collateral is valued and appropriate margin applied, the remaining

un-collateralized portion will be charged-off. The remaining balance, properly margined, may then be upgraded to

substandard, however must remain on non-accrual. Commercial and commercial real estate homogeneous doubtful loans or

leases, risk rated 9, are 90 to 179 days past due from the required payment date at month-end.

89

Loss—Loans or leases classified as loss, risk rated 10, are considered un-collectible and of such little value that the
continuance as an active Bank asset is not warranted. This rating does not mean that the loan or lease has no recovery or

salvage value, but rather that the loan or lease should be charged-off now, even though partial or full recovery may be

possible in the future. For a commercial or commercial real estate homogeneous loss loan or lease to be risk rated 10, the

loan or lease is 180 days and more past due from the required payment date. These loans are generally charged-off in the

month in which the 180 day time period elapses. Residential, consumer and other homogeneous loans are risk rated 10,

when a closed-end loan becomes past due 120 cumulative days or when an open-end retail loan that becomes past due 180

cumulative days from the contractual due date. These loans are generally charged-off in the month in which the 120 or

180 day period elapses.

Impaired—Loans are classified as impaired when, based on current information and events, it is probable that the Bank will
be unable to collect the scheduled payments of principal and interest when due, in accordance with the terms of the original

loan agreement, without unreasonable delay. This generally includes all loans classified as non-accrual and troubled debt

restructurings. Impaired loans are risk rated for internal and regulatory rating purposes, but presented separately for

clarification.

The following table summarizes our internal risk rating by loan and lease class for the loan and lease portfolio, including

purchased credit impaired loans, as of December 31, 2016 and December 31, 2015:

(in thousands)

Pass/Watch

Mention Substandard

Doubtful

Loss

Impaired(1)

Total

Special

December 31, 2016

Commercial real estate
Non-owner occupied

term, net

$ 3,205,241 $

55,194 $

48,699 $

1,368 $

546 $

19,394 $ 3,330,442

Owner occupied term,

net

Multifamily, net
Construction &

2,466,247
2,828,370

75,189
11,903

46,781
14,687

development, net

458,328

1,712

2,494

134,491

—

1,189

1,458,699
1,063,305

15,716
10,565

24,678
37,387

927,378

5,614

6,866

9,752

972
—

—

—

119
3

1,653
—

8,213
3,996

2,599,055
2,858,956

—

—

347
244

978

1,091

463,625

7,304

142,984

9,221
4,755

1,508,780
1,116,259

—

950,588

2,830,547

1,803

53,607

1,006,647
633,098

1,490
4,446

2,727
527

—

—
—

2,014

— 2,887,971

980
88

— 1,011,844
638,159
—

Residential development,

net
Commercial
Term, net
LOC & other, net
Leases and equipment

finance, net

Residential

Mortgage, net(2)
Home equity loans &

lines, net

Consumer & other, net

Total, net of deferred

fees and costs

$17,012,351 $

183,632 $

239,642 $

12,214 $

6,850 $

53,974 $17,508,663

(1) The percentage of impaired loans classified as pass/watch, special mention, substandard and doubtful was 8.1%, 6.5%,

(2)

82.5%, and 2.9%, respectively, as of December 31, 2016.
Includes government guaranteed GNMA mortgage loans that Umpqua has the right but no the obligation to repurchase
that are past due 90 days or more, totaling $10.9 million at December 31, 2016, which is included in the substandard
category.

90

(in thousands)

Pass/Watch

Special
Mention

Substandard Doubtful

Loss

Impaired(1)

Total

December 31, 2015

Commercial real estate
Non-owner occupied

term, net

$ 3,033,962

$

92,038

$

88,793

$

270

$

279

$

11,494

$ 3,226,836

Owner occupied term,

net

Multifamily, net
Construction &

2,454,326
3,121,099

54,684
7,626

65,029
19,272

development, net

262,759

4,532

2,124

89,706

507

1,355

1,356,675
998,603

13,620
19,183

20,463
15,959

716,190

3,849

3,499

4,889

2,871,423

3,557

21,195

917,919
522,339

2,189
4,174

803
458

—

—
—

13,131

2,756
218

675
—

—

—

36
1

1,361
—

6,799
3,519

2,582,874
3,151,516

—

—

162
1

734

1,704

271,119

7,891

99,459

17,720
2,986

1,408,676
1,036,733

—

—

—
—

729,161

2,909,306

923,667
527,189

Residential development,

net
Commercial
Term, net
LOC & other, net
Leases and equipment

finance, net

Residential

Mortgage, net(2)
Home equity loans &

lines, net

Consumer & other, net

Total, net of deferred

fees and costs

$16,345,001

$

205,959

$

238,950

$ 5,871

$

18,642

$

52,113

$16,866,536

(1) The percentage of impaired loans classified as pass/watch, special mention, and substandard was 5.0%, 4.6%, and

(2)

90.4%, respectively, as of December 31, 2015.
Includes government guaranteed GNMA mortgage loans that Umpqua has the right but no the obligation to repurchase
that are past due 90 days or more, totaling $19.2 million at December 31, 2015, which is included in the substandard
category.

Troubled Debt Restructurings

At December 31, 2016 and December 31, 2015, impaired loans of $40.7 million and $31.4 million were classified as accruing

restructured loans, respectively. The restructurings were granted in response to borrower financial difficulty, and generally

provide for a temporary modification of loan repayment terms. In order for a restructured loan to be considered for accrual

status, the loan’s collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current

on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a

verified source of cash flow. Impaired restructured loans carry a specific allowance and the allowance on impaired

restructured loans is calculated consistently across the portfolios.

There were no available commitments for troubled debt restructurings outstanding as of December 31, 2016 and 2015.

91

The following tables present troubled debt restructurings by accrual versus non-accrual status and by loan class as of

December 31, 2016 and December 31, 2015:

December 31, 2016

(in thousands)

Commercial real estate, net
Commercial, net
Residential, net

Total, net of deferred fees and costs

(in thousands)

Commercial real estate, net
Commercial, net
Residential, net

Total, net of deferred fees and costs

Accrual Non-Accrual

Total
Status Modifications

$

Status

30,563
3,054
7,050

$

40,667

$

Status

21,185
5,253
4,917

$

31,355

$

$

—
3,345
—

3,345

$

30,563
6,399
7,050

$

44,012

December 31, 2015

$

$

1,324
8,528
—

9,852

$

22,509
13,781
4,917

$

41,207

Accrual Non-Accrual

Total
Status Modifications

The Bank’s policy is that loans placed on non-accrual will typically remain on non-accrual status until all principal and interest

payments are brought current and the prospect for future payment in accordance with the loan agreement appears relatively

certain. The Bank’s policy generally refers to six months of payment performance as sufficient to warrant a return to accrual

status.

The following tables present newly restructured loans that occurred during the years ended December 31, 2016 and 2015:

December 31, 2016

(in thousands)

Commercial real estate, net
Commercial, net
Residential, net
Consumer & other, net

Total, net of deferred fees and

costs

Total
Modifications Modifications Modifications Modifications Modifications Modifications

Payment Combination

Term Interest Only

Rate

$

$

—
—
—
—

—

$

$

—
—
—
—

—

$

$

—
—
—
—

—

$

$

—
—
—
—

—

$15,193 $
4,600
2,882
77

15,193
4,600
2,882
77

$22,752 $

22,752

December 31, 2015

Payment Combination
Modifications Modifications Modifications Modifications Modifications

Term Interest Only

Rate

Commercial real estate, net
Commercial, net
Residential, net
Consumer & other, net

Total, net of deferred fees and

costs

$

$

—
—
—
—

—

$

$

—
—
74
—

$

74

$

—
—
—
—

—

$

—
—
122
—

$ 4,723 $
8,388
3,990
—

Total

4,723
8,388
4,186
—

$

122

$17,101 $

17,297

For the periods presented in the tables above, the outstanding recorded investment was the same pre and post

modification.

There were $926,000 financing receivables modified as troubled debt restructurings within the previous 12 months for which

there was a payment default during the year ended December 31, 2016. There were $434,000 financing receivables

modified as troubled debt restructurings within the previous 12 months for which there was a payment default during the

year ended December 31, 2015.

92

Note 6—Premises and Equipment

The following table presents the major components of premises and equipment at December 31, 2016 and 2015:

(in thousands)

Land

Buildings and improvements

Furniture, fixtures and equipment

Software

Construction in progress and other

Total premises and equipment

Less: Accumulated depreciation and amortization

Premises and equipment, net

2016

2015

$ 43,820

$ 45,762

Estimated
useful life

229,341

142,265

78,669

23,104

232,635

7-39 years

156,031

4-20 years

70,195

13,781

3-7 years

517,199

518,404

(213,317)

(189,670)

$ 303,882

$ 328,734

Depreciation expense totaled $51.8 million, $47.6 million and $36.9 million for the years ended December 31, 2016, 2015

and 2014, respectively.

Umpqua’s subsidiaries have entered into a number of non-cancelable lease agreements with respect to premises and

equipment. See Note 18 for more information regarding rent expense, net of rental income, and minimum annual rental

commitments under non-cancelable lease agreements.

Note 7—Goodwill and Other Intangible Assets

The following table summarizes the changes in the Company’s goodwill and other intangible assets for the years ended

December 31, 2014, 2015 and 2016. Goodwill and all other intangible assets are related to the Community Banking

segment.

(in thousands)

Balance, December 31, 2013

Net additions

Balance, December 31, 2014

Net additions

Balance, December 31, 2015

Reductions

Balance, December 31, 2016

Gross

Accumulated
Impairment

Goodwill

Total

$

877,239

$

(112,934)

$

764,305

1,021,920

—

1,021,920

1,899,159

(112,934)

1,786,225

1,568

—

1,568

1,900,727

(112,934)

1,787,793

—

(142)

(142)

$ 1,900,727

$

(113,076)

$ 1,787,651

Other Intangible Assets

Balance, December 31, 2013

$

58,909

$

(46,531)

$

Gross

Accumulated
Amortization

54,562

—

113,471

—

113,471

—

—

(10,207)

(56,738)

(11,225)

(67,963)

(8,622)

Net

12,378

54,562

(10,207)

56,733

(11,225)

45,508

(8,622)

$

113,471

$

(76,585)

$

36,886

Net additions

Amortization

Balance, December 31, 2014

Amortization

Balance, December 31, 2015

Amortization

Balance, December 31, 2016

Goodwill represents the excess of the total acquisition price paid over the fair value of the assets acquired, net of the fair

value of liabilities assumed. Goodwill additions of $1.0 billion in 2014 relate to the Sterling Merger and the additions to

93

goodwill in 2015 of $1.6 million relates to correcting immaterial errors in acquisition accounting adjustments. The reduction

of goodwill in 2016 of $142,000 relates to a goodwill impairment loss recognized during the first quarter related to a small

subsidiary that is winding down operations.

Intangible asset additions in 2014 relate to the Sterling Merger and represent the value of core deposits, which includes all

deposits except certificates of deposit. Core deposit intangible asset values were determined by an analysis of the cost

differential between the core deposits inclusive of estimated servicing costs and alternative funding sources. The core

deposit intangible recorded in connection with the Merger will be amortized on an accelerated basis over a period of

10 years. No impairment losses separate from the scheduled amortization have been recognized in the periods presented.

The Company conducted its annual evaluation of goodwill for impairment at both December 31, 2016 and 2015,

respectively. The Company assessed qualitative factors to determine whether the existence of events and circumstances

indicated that it is more likely than not that the indefinite-lived intangible asset is impaired, and determined no factors

indicated any additional impairment. Based on this analysis, no further testing was determined to be necessary.

The table below presents the forecasted amortization expense for intangible assets at December 31, 2016:

(in thousands)
Year

2017
2018
2019
2020
2021
Thereafter

Expected
Amortization

$

6,756
6,166
5,618
4,986
4,520
8,840

$ 36,886

Note 8—Residential Mortgage Servicing Rights

The following table presents the changes in the Company’s residential mortgage servicing rights (‘‘MSR’’) for the years ended

December 31, 2016, 2015 and 2014:

(in thousands)

Balance, beginning of period
Acquired/purchased MSR
Additions for new MSR capitalized
Changes in fair value:

Due to changes in model inputs or assumptions(1)
Other(2)

Balance, end of period

2016

2015

2014

$ 131,817
—
37,082

$ 117,259
—
35,284

$ 47,765
62,770
23,311

7,873
(33,799)

(380)
(20,346)

(5,757)
(10,830)

$ 142,973

$ 131,817

$ 117,259

(1) Principally reflects changes in discount rates and prepayment speed assumptions, which are primarily affected by

changes in interest rates.

(2) Represents changes due to collection/realization of expected cash flows over time.

Information related to our serviced loan portfolio as of December 31, 2016, 2015 and 2014 is as follows:

(dollars in thousands)

Balance of loans serviced for others
MSR as a percentage of serviced loans

December 31,
2016

December 31,
2015

December 31,
2014

$ 14,327,368
1.00%

$ 13,047,266
1.01%

$ 11,590,310
1.01%

The amount of contractually specified servicing fees, late fees and ancillary fees earned, recorded in residential mortgage

banking revenue on the Consolidated Statements of Income, was $35.3 million, $28.0 million, and $20.8 million for the years

ended December 31, 2016, 2015 and 2014, respectively.

94

Key assumptions used in measuring the fair value of MSR as of December 31 were as follows:

Constant prepayment rate
Discount rate
Weighted average life (years)

2016

2015

2014

11.43% 11.70% 12.39%
9.17%
9.68%
6.4
6.5

9.69%
6.6

A sensitivity analysis of the current fair value to changes in discount and prepayment speed assumptions as of December 31,

2016 and December 31, 2015 is as follows:

Constant prepayment rate
Effect on fair value of a 10% adverse change
Effect on fair value of a 20% adverse change

Discount rate
Effect on fair value of a 100 basis point adverse change
Effect on fair value of a 200 basis point adverse change

December 31,
2016

December 31,
2015

$(6,075)
$(11,720)

$(5,337)
$(10,283)

$(5,817)
$(11,118)

$(4,936)
$(9,494)

The sensitivity analysis presents the hypothetical effect on fair value of the MSR. The effect of such hypothetical change in

assumptions generally cannot be extrapolated because the relationship of the change in an assumption to the change in fair

value is not linear. Additionally, in the analysis, the impact of an adverse change in one assumption is calculated

independent of any impact on other assumptions. In reality, changes in one assumption may change another assumption.

Note 9—Other Real Estate Owned, Net

The following table presents the changes in other real estate owned (‘‘OREO’’) for the years ended December 31, 2016,

2015 and 2014:

(in thousands)

Balance, beginning of period
Additions to OREO due to acquisition
Additions to OREO
Dispositions of OREO
Valuation adjustments in the period

Balance, end of period

2016

2015

2014

$ 22,307
—
5,888
(19,738)
(1,719)

$ 37,942
—
9,062
(21,915)
(2,782)

$ 23,935
8,666
24,873
(15,804)
(3,728)

$

6,738

$ 22,307

$ 37,942

As of December 31, 2016, 2015 and 2014, the Company had valuation allowances on its OREO balances of $365,000,

$4.1 million, and $5.6 million, respectively. Valuation allowances on OREO balances are based on updated appraisals of the

underlying properties as received during a period or management’s authorization to reduce the selling price of a property

during the period. As of December 31, 2016 and 2015, Umpqua had $1.6 million and $2.2 million, respectively, of

foreclosed residential real estate property held as other real estate owned. Umpqua’s recorded investment in consumer

mortgage loans collateralized by residential real estate property in process of foreclosure was $10.7 million and $5.3 million

as of December 31, 2016 and 2015, respectively.

95

Note 10—Other Assets

Other assets consisted of the following at December 31, 2016 and 2015:

(in thousands)

Accrued interest receivable
Derivative assets
Low-income housing tax credit investments
Prepaid expenses
Investment in unconsolidated trust subsidiaries
Commercial servicing asset
Income taxes receivable
Other

Total

2016

2015

$ 56,042
47,501
23,021
19,013
14,277
6,391
4,841
56,551

$ 52,835
43,549
14,782
15,021
14,277
7,944
10,715
44,228

$ 227,637

$ 203,351

The Company invests in limited partnerships that operate qualified affordable housing projects to receive tax benefits in the

form of tax deductions from operating losses and tax credits. The Company accounts for the investments using the

proportional amortization method; amortization of the investment in qualified affordable housing projects is recorded in the

provision for income taxes together with the tax credits and benefits received. The Company recognized $1.8 million as a

component of income tax expense for the year ended December 31, 2016 and recognized $2.4 million in affordable housing

tax credits and other tax benefits during the year. The Company recognized $1.7 million as a component of income tax

expense for the year ended December 31, 2015 and recognized $1.3 million in affordable housing tax credits and other tax

benefits during the year. The Company has federal low income housing tax credit carryforwards of $7.9 million and

$7.7 million as of December 31, 2016 and 2015, respectively. The Company’s remaining capital commitments to these

partnerships at December 31, 2016 and 2015 were approximately $12.7 million and $7.1 million, respectively. Such amounts

are included in other liabilities on the consolidated balance sheets.

Note 11—Income Taxes

The following table presents the components of income tax provision included in the Consolidated Statements of Income for

the years ended December 31:

(in thousands)

YEAR ENDED DECEMBER 31, 2016:

Federal
State

YEAR ENDED DECEMBER 31, 2015:

Federal
State

YEAR ENDED DECEMBER 31, 2014:

Federal
State

Current

Deferred

Total

$ 8,003
9,106

$102,031
13,619

$110,034
22,725

$17,109

$115,650

$132,759

$22,914
1,708

$ 81,267
18,699

$104,181
20,407

$24,622

$ 99,966

$124,588

$ 1,968
1,045

$ 70,583
9,444

$ 72,551
10,489

$ 3,013

$ 80,027

$ 83,040

96

The following table presents a reconciliation of income taxes computed at the Federal statutory rate to the actual effective

rate for the years ended December 31:

Statutory Federal income tax rate
State tax, net of Federal income tax
Tax-exempt income
BOLI
Tax credits
Nondeductible merger expenses
Other

Effective income tax rate

2016

2015

2014

35.0%
4.0%
(1.8)%
(0.9)%
(0.3)%
—%
0.3%

35.0%
4.0%
(1.8)%
(1.1)%
(0.1)%
—%
(0.1)%

35.0%
3.5%
(2.5)%
(1.6)%
(0.8)%
1.2%
1.2%

36.3%

35.9%

36.0%

The following table reflects the effects of temporary differences that give rise to the components of the net deferred tax

assets recorded on the consolidated balance sheets as of December 31:

(in thousands)

DEFERRED TAX ASSETS:

Allowance for loan and lease losses
Net operating loss carryforwards
Accrued severance and deferred compensation
Tax credits
Loan discount
Other

Total gross deferred tax assets

DEFERRED TAX LIABILITIES:

Residential mortgage servicing rights
Fair market value adjustment on preferred securities
Deferred loan fees
Intangibles
Other

Total gross deferred tax liabilities

Valuation allowance

Net deferred tax assets

2016

2015

$ 52,360
48,121
25,565
21,037
16,623
43,147

$ 54,048
137,302
28,893
15,778
40,068
32,350

206,853

308,439

57,858
45,958
23,800
18,710
25,115

54,112
48,407
13,731
17,417
35,600

171,441

169,267

(1,090)

(1,090)

$ 34,322

$138,082

In 2014, the Company acquired a $276.8 million net deferred tax asset before acquisition accounting adjustments in the

Sterling merger, including $238.4 million of federal and state NOL and tax credit carry-forwards. The Merger triggered an

‘‘ownership change’’ as defined in Section 382 of the Internal Revenue Service Code (‘‘Section 382’’). As a result of being

subject to Section 382, the Company will be limited in the amount of NOL carry-forwards that can be used annually to offset

future taxable income. The Company believes it is more likely than not that it will be able to fully realize the benefit of its

federal NOL carry-forwards. The Company also believes that it is more likely than not that the benefit from certain state NOL

and tax credit carry-forwards will not be realized and therefore has provided a valuation allowance of $1.1 million as of

December 31, 2016 and $1.1 million as of December 31, 2015 on the deferred tax assets relating to these state NOL and

tax credit carry-forwards. The Company has determined that no other valuation allowance for the remaining deferred tax

assets is required as management believes it is more likely than not that the remaining gross deferred tax assets of

$205.8 million and $307.3 million at December 31, 2016 and 2015, respectively, will be realized principally through future

reversals of existing taxable temporary differences. Management further believes that future taxable income will be sufficient

to realize the benefits of temporary deductible differences that cannot be realized through carry-back to prior years or

through the reversal of future temporary taxable differences.

The tax credits consist of state tax credits of $5.6 million and $6.6 million at December 31, 2016 and 2015, respectively, and

federal low income housing and alternative minimum tax credits of $15.4 million and $9.1 million at December 31, 2016 and

2015, respectively. The state tax credits will be utilized to offset future state income taxes. Most of the state tax credits

97

benefit a five-year period, with an eight-year carry-forward allowed. Federal low income housing credits have a twenty-year

carry forward and the alternative minimum tax credits may be carried forward indefinitely.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, as well as the majority of states and

Canada. The Company is no longer subject to U.S. federal tax examinations for years before 2013, and no longer subject to

other state tax authorities examinations for years before 2012, except in California, for years before 2005, and for Canadian
tax authority examinations for years before 2013.

The Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting

considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing

authorities’ examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar
transactions, if any, and the overall tax environment.

The Company had gross unrecognized tax benefits in the amounts of $3.0 million and $2.9 million recorded as of

December 31, 2016 and 2015, respectively. If recognized, the unrecognized tax benefit would reduce the 2016 annual

effective tax rate by 1%. During 2016, the Company recognized a benefit of $74,000 in interest reversed primarily due to the
lapse of statute of limitations. During 2015, the Company accrued $29,000 of interest related to unrecognized tax benefits.

Interest on unrecognized tax benefits is reported by the Company as a component of tax expense. As of December 31,

2016 and 2015, the accrued interest related to unrecognized tax benefits is $354,000 and $428,000, respectively.

Detailed below is a reconciliation of the Company’s unrecognized tax benefits, gross of any related tax benefits, for the years
ended December 31, 2016 and 2015, respectively:

(in thousands)

Balance, beginning of period
Changes for tax positions of current year
Changes for tax positions of prior years
Lapse of statute of limitations

Balance, end of period

Note 12—Interest Bearing Deposits

2016

2015

$ 2,888
118
561
(561)

$ 2,671
178
574
(535)

$ 3,006

$ 2,888

The following table presents the major types of interest bearing deposits at December 31, 2016 and 2015:

(in thousands)

Interest bearing demand
Money market
Savings
Time, $100,000 and over
Time less than $100,000

Total interest bearing deposits

2016

2015

$ 2,296,532
6,932,717
1,325,757
1,702,982
901,528

$ 2,157,376
6,599,516
1,136,809
1,604,446
890,451

$13,159,516

$12,388,598

As of December 31, 2016 and 2015, the Company had time deposits of $799.5 million and $689.3 million, respectively, that

meet or exceed the FDIC insurance limit. The following table presents the scheduled maturities of time deposits as of
December 31, 2016:

(in thousands)

Year

2017
2018
2019
2020
2021
Thereafter

Total time deposits

98

Amount

$1,576,506
377,011
173,733
138,439
332,904
5,917

$2,604,510

The following table presents the remaining maturities of time deposits of $100,000 or more as of December 31, 2016:

(in thousands)

Three months or less
Over three months through six months
Over six months through twelve months
Over twelve months

Time, $100,000 and over

Amount

$ 388,543
204,130
456,933
653,376

$1,702,982

Note 13—Securities Sold Under Agreements To Repurchase

The following table presents information regarding securities sold under agreements to repurchase at December 31, 2016

and 2015:

(dollars in thousands)

December 31, 2016

December 31, 2015

Repurchase
Amount

$ 352,948

$ 304,560

Weighted
Average
Interest
Rate

Carrying
Value of
Underlying
Assets

Market
Value of
Underlying
Assets

0.01% $ 409,927

$ 409,927

0.02% $ 402,003

$ 402,003

The securities underlying agreements to repurchase entered into by the Bank are for the same securities originally sold, with

a one-day maturity. In all cases, the Bank maintains control over the securities. Securities sold under agreements to

repurchase averaged approximately $333.9 million, $321.1 million, and $189.5 million for the years ended December 31,

2016, 2015 and 2014, respectively. The maximum amount outstanding at any month end for the years ended December 31,

2016, 2015 and 2014, was $360.2 million, $334.6 million, and $313.3 million, respectively. Investment securities are pledged

as collateral in an amount equal to or greater than the repurchase agreements.

Note 14—Federal Funds Purchased

At December 31, 2016 and 2015, the Company had no outstanding federal funds purchased balances. The Bank had

available lines of credit with the FHLB totaling $5.9 billion at December 31, 2016 subject to certain collateral requirements.

The Bank had available lines of credit with the Federal Reserve totaling $348.0 million subject to certain collateral

requirements, namely the amount of certain pledged loans at December 31, 2016. The Bank had uncommitted federal funds

line of credit agreements with additional financial institutions totaling $450.0 million at December 31, 2016. At December 31,

2016, the lines of credit had interest rates ranging from 0.6% to 1.3%. Availability of the lines is subject to federal funds

balances available for loan and continued borrower eligibility and are reviewed and renewed periodically throughout the

year. These lines are intended to support short-term liquidity needs, and the agreements may restrict consecutive day usage.

Note 15—Term Debt

The Bank had outstanding secured advances from the FHLB and other creditors at December 31, 2016 and 2015 with

carrying values of $852.4 million and $888.8 million, respectively.

The following table summarizes the future contractual maturities of borrowed funds as of December 31, 2016:

(in thousands)

Year

2017
2018
2019
2020
2021
Thereafter

Total borrowed funds

99

Amount

$255,000
50,000
—
150,000
390,000
5,146

$850,146 (1)

(1) Amount shows contractual borrowings, excluding acquisition accounting adjustments.

The maximum amount outstanding from the FHLB under term advances at a month end during 2016 was $900.2 million and
during 2015 was $1.0 billion. The average balance outstanding during 2016 was $894.2 million and during 2015 was
$919.1 million. The average contractual interest rate on the borrowings was 1.7% in 2016 and 1.9% in 2015. The FHLB
requires the Bank to maintain a required level of investment in FHLB and sufficient collateral to qualify for secured advances.
The Bank has pledged as collateral for these secured advances all FHLB stock, all funds on deposit with the FHLB, and its
investments and commercial real estate portfolios, accounts, general intangibles, equipment and other property in which a
security interest can be granted by the Bank to the FHLB.

Note 16—Junior Subordinated Debentures

Following is information about the Company’s wholly-owned trusts (‘‘Trusts’’) as of December 31, 2016:

(dollars in thousands)

Trust Name

AT FAIR VALUE:

Umpqua Statutory Trust II

Issue Date

Issued Carrying
Value (1)

Amount

Rate (2)

Effective
Rate (3)

Maturity Date

October 2002

$ 20,619 $ 15,764

Umpqua Statutory Trust III

October 2002

30,928

23,808

Umpqua Statutory Trust IV

December 2003

10,310

7,504

Umpqua Statutory Trust V

December 2003

10,310

7,458

Umpqua Master Trust I

August 2007

41,238

25,061

Umpqua Master Trust IB

September 2007

20,619

14,368

Sterling Capital Trust III

Sterling Capital Trust IV

April 2003

14,433

11,513

May 2003

10,310

8,138

Sterling Capital Statutory Trust V

May 2003

20,619

16,305

Sterling Capital Trust VI

Sterling Capital Trust VII

June 2003

10,310

8,107

June 2006

56,702

35,640

Sterling Capital Trust VIII

September 2006

51,547

32,670

Sterling Capital Trust IX

July 2007

46,392

28,384

Lynnwood Financial Statutory Trust I

March 2003

9,279

7,269

Lynnwood Financial Statutory Trust II

June 2005

10,310

6,793

Klamath First Capital Trust I

July 2001

15,464

13,427

AT AMORTIZED COST:
HB Capital Trust I
Humboldt Bancorp Statutory Trust I
Humboldt Bancorp Statutory Trust II

379,390

262,209

March 2000
February 2001
December 2001

5,310
5,155
10,310

6,050
5,702
11,110

Humboldt Bancorp Statutory Trust III

September 2003

27,836

29,953

CIB Capital Trust

November 2002

10,310

11,000

Western Sierra Statutory Trust I

July 2001

6,186

6,186

Western Sierra Statutory Trust II

December 2001

10,310

10,310

Western Sierra Statutory Trust III

September 2003

10,310

10,310

Western Sierra Statutory Trust IV

September 2003

10,310

10,310

96,037

100,931

Total

$475,427 $363,140

Floating rate, LIBOR plus
3.35%, adjusted quarterly
Floating rate, LIBOR plus
3.45%, adjusted quarterly
Floating rate, LIBOR plus
2.85%, adjusted quarterly
Floating rate, LIBOR plus
2.85%, adjusted quarterly
Floating rate, LIBOR plus
1.35%, adjusted quarterly
Floating rate, LIBOR plus
2.75%, adjusted quarterly
Floating rate, LIBOR plus
3.25%, adjusted quarterly
Floating rate, LIBOR plus
3.15%, adjusted quarterly
Floating rate, LIBOR plus
3.25%, adjusted quarterly
Floating rate, LIBOR plus
3.20%, adjusted quarterly
Floating rate, LIBOR plus
1.53%, adjusted quarterly
Floating rate, LIBOR plus
1.63%, adjusted quarterly
Floating rate, LIBOR plus
1.40%, adjusted quarterly
Floating rate, LIBOR plus
3.15%, adjusted quarterly
Floating rate, LIBOR plus
1.80%, adjusted quarterly
Floating rate, LIBOR plus
3.75%, adjusted
semiannually

10.875%
10.200%
Floating rate, LIBOR plus
3.60%, adjusted quarterly
Floating rate, LIBOR plus
2.95%, adjusted quarterly
Floating rate, LIBOR plus
3.45%, adjusted quarterly
Floating rate, LIBOR plus
3.58%, adjusted quarterly
Floating rate, LIBOR plus
3.60%, adjusted quarterly
Floating rate, LIBOR plus
2.90%, adjusted quarterly
Floating rate, LIBOR plus
2.90%, adjusted quarterly

5.54%

October 2032

5.65% November 2032

5.12%

January 2034

5.31%

March 2034

3.81% September 2037

5.33% December 2037

5.18%

5.14%

5.37%

April 2033

May 2033

June 2033

5.29% September 2033

3.96%

June 2036

4.09% December 2036

3.67%

October 2037

5.29%

March 2033

4.19%

5.58%

June 2035

July 2031

8.62%
March 2030
February 2031
8.54%
3.78% December 2031

3.23% September 2033

3.68% November 2032

4.47%

July 2031

4.59% December 2031

3.78% September 2033

3.78% September 2033

(1)

Includes acquisition accounting adjustments, net of accumulated amortization, for junior subordinated debentures assumed in connection with
previous mergers as well as fair value adjustments related to trusts recorded at fair value.

(2) Contractual interest rate of junior subordinated debentures.
(3)

Effective interest rate based upon the carrying value as of December 31, 2016.

100

The Trusts are reflected as junior subordinated debentures in the Consolidated Balance Sheets. The common stock issued by

the Trusts is recorded in other assets in the Consolidated Balance Sheets, and totaled $14.3 million at December 31, 2016

and December 31, 2015. As of December 31, 2016, all of the junior subordinated debentures were redeemable at par, at

their applicable quarterly or semiannual interest payment dates.

The Company selected the fair value measurement option for junior subordinated debentures originally issued by the

Company (the Umpqua Statutory Trusts) and for junior subordinated debentures acquired from Sterling.

Absent changes to the significant inputs utilized in the discounted cash flow model used to measure the fair value of these

instruments, the discounts will reverse over time in a manner similar to the effective interest rate method as if these

instruments were accounted for under the amortized cost method. Losses recorded resulting from the change in the fair

value of these instruments were $6.3 million, $6.3 million and $5.1 million for the years ended December 31, 2016, 2015

and 2014, respectively.

Note 17—Employee Benefit Plans

Employee Savings Plan—Substantially all of the Company’s employees are eligible to participate in the Umpqua Bank 401(k)

and Profit Sharing Plan (the ‘‘Umpqua 401(k) Plan’’), a defined contribution and profit sharing plan sponsored by the

Company. Employees may elect to have a portion of their salary contributed to the plan in conformity with Section 401(k) of

the Internal Revenue Code. At the discretion of the Company’s Board of Directors, the Company may elect to make

matching and/or profit sharing contributions to the Umpqua 401(k) Plan based on profits of the Bank. The Company’s

contributions charged to expense amounted to $7.3 million, $7.4 million, and $5.0 million for the years ended December 31,

2016, 2015 and 2014, respectively.

Supplemental Retirement Plans—The Company has established the Umpqua Holdings Corporation Deferred

Compensation & Supplemental Retirement Plan (the ‘‘DC/SRP’’), a nonqualified deferred compensation plan to help

supplement the retirement income of certain highly compensated executives selected by resolution of the Company’s Board

of Directors. The DC/SRP has two components, a supplemental retirement plan (‘‘SRP’’) and a deferred compensation plan

(‘‘DCP’’). The Company may make discretionary contributions to the SRP. For the years ended December 31, 2016, 2015 and

2014, the Company’s matching contribution charged to expense for these supplemental plans totaled $142,000, $178,000,

and $140,000, respectively. The SRP plan balances at December 31, 2016 and 2015 were $1.1 million and $889,000,

respectively, and are recorded in other liabilities. Under the DCP, eligible officers may elect to defer up to 50% of their salary

into a plan account. The DCP plan balance was $6.7 million and $4.9 million at December 31, 2016 and 2015, respectively.

In addition, the Company has established a supplemental retirement plan for the Executive Chairman of the Board of

Directors. The plan balance for this plan was $8.7 million as of both December 31, 2016 and 2015.

Acquired Plans—In connection with prior acquisitions, the Bank assumed liability for certain salary continuation, supplemental

retirement, and deferred compensation plans for key employees, retired employees and directors of acquired institutions.

Subsequent to the effective date of these acquisitions, no additional contributions were made to these plans. These plans

are unfunded, and provide for the payment of a specified amount on a monthly basis for a specified period (generally 10 to

20 years) after retirement. In the event of a participant employee’s death prior to or during retirement, the Bank in most
cases is obligated to pay to the designated beneficiary the benefits set forth under the plans. At December 31, 2016 and

2015, liabilities recorded for the estimated present value of future plan benefits totaled $33.4 million and $36.1 million,

respectively, and are recorded in other liabilities. For the years ended December 31, 2016, 2015 and 2014, expense

recorded for these plan’s benefits totaled $1.9 million, $1.1 million, and $2.9 million, respectively.

Rabbi Trusts—The Bank has established, for the DC/SRP plan noted above, and sponsors, for some deferred compensation

plans assumed in connection with prior mergers, irrevocable trusts commonly referred to as ‘‘Rabbi Trusts.’’ The trust assets

(generally cash and trading assets) are consolidated in the Company’s balance sheets and the associated liability (which

equals the related asset balances) is included in other liabilities. The asset and liability balances related to these trusts as of

December 31, 2016 and 2015 were $10.4 million and $9.6 million, respectively.

Bank-Owned Life Insurance—The Bank has purchased, or acquired through mergers, life insurance policies in connection with

the implementation of certain executive supplemental income, salary continuation and deferred compensation retirement

plans. These policies provide protection against the adverse financial effects that could result from the death of a key

employee and provide tax-exempt income to offset expenses associated with the plans. It is the Bank’s intent to hold these

101

policies as a long-term investment. However, there will be an income tax impact if the Bank chooses to surrender certain

policies. Although the lives of individual current or former management-level employees are insured, the Bank is the owner

and sole or partial beneficiary. At December 31, 2016 and 2015, the cash surrender value of these policies was

$299.7 million and $291.9 million, respectively. At December 31, 2016 and 2015, the Bank also had liabilities for

post-retirement benefits payable to other partial beneficiaries under some of these life insurance policies of $6.5 million and

$6.2 million, respectively. The Bank is exposed to credit risk to the extent an insurance company is unable to fulfill its

financial obligations under a policy. In order to mitigate this risk, the Bank uses a variety of insurance companies and

regularly monitors their financial condition.

Note 18—Commitments and Contingencies

Lease Commitments—The Bank leases 258 sites under non-cancelable operating leases. The leases contain various

provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined

escalation schedule. Substantially all of the leases provide the Company with the option to extend the lease term one or

more times following expiration of the initial term.

Rent expense for the years ended December 31, 2016, 2015 and 2014 was $38.5 million, $38.3 million, and $33.1 million.

Rent expense was offset by rent income for the years ended December 31, 2016, 2015 and 2014 of $2.0 million,

$1.4 million, and $512,000.

The following table sets forth, as of December 31, 2016, the future minimum lease payments under non-cancelable

operating leases and future minimum income receivable under non-cancelable operating subleases:

(in thousands)
Year

2017

2018

2019

2020

2021

Thereafter

Total

Lease
Payments

Sublease
Income

$ 32,765

$ 1,887

29,557

26,439

22,005

16,347

48,822

1,634

1,623

1,574

1,241

3,819

$ 175,935

$ 11,778

Financial Instruments with Off-Balance-Sheet Risk—The Company’s financial statements do not reflect various commitments

and contingent liabilities that arise in the normal course of the Bank’s business and involve elements of credit, liquidity, and

interest rate risk.

The following table presents a summary of the Bank’s commitments and contingent liabilities:

(in thousands)

Commitments to extend credit

Forward sales commitments

Commitments to originate loans held for sale

Standby letters of credit

As of December 31, 2016

$4,124,460

$ 556,202

$ 432,514

$

67,599

The Bank is a party to financial instruments with off-balance-sheet credit risk in the normal course of business to meet the

financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit

and financial guarantees. Those instruments involve elements of credit and interest-rate risk similar to the risk involved in

on-balance sheet items recognized in the Consolidated Balance Sheets. The contract or notional amounts of those

instruments reflect the extent of the Bank’s involvement in particular classes of financial instruments.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for

commitments to extend credit and standby letters of credit, and financial guarantees written, is represented by the

contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and

conditional obligations as it does for on-balance-sheet instruments.

102

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any covenant or

condition established in the applicable contract. Commitments generally have fixed expiration dates or other termination

clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn

upon, the total commitment amounts do not necessarily represent future cash requirements. While most standby letters of

credit are not utilized, a significant portion of such utilization is on an immediate payment basis. The Bank evaluates each

customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the

Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral varies but may

include cash, accounts receivable, inventory, premises and equipment and income-producing commercial properties.

Standby letters of credit and written financial guarantees are conditional commitments issued by the Bank to guarantee the

performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing

arrangements, including international trade finance, commercial paper, bond financing and similar transactions. The credit

risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The

Bank holds cash, marketable securities, or real estate as collateral supporting those commitments for which collateral is

deemed necessary. The Bank was required to perform on $150,000 of financial guarantees in connection with standby letters

of credit during the year ended December 31, 2016 and was not required to perform on any financial guarantees in

connection with standby letters of credit during the year ended December 31, 2015. At December 31, 2016, approximately

$47.7 million of standby letters of credit expire within one year, and $19.9 million expire thereafter. Upon issuance, the Bank

recognizes a liability equivalent to the amount of fees received from the customer for these standby letter of credit

commitments. Fees are recognized ratably over the term of the standby letter of credit. During the year ended

December 31, 2016, the Bank recorded approximately $818,000 in fees associated with standby letters of credit.

Residential mortgage loans sold into the secondary market are sold with limited recourse against the Company, meaning that

the Company may be obligated to repurchase or otherwise reimburse the investor for incurred losses on any loans that suffer

an early payment default, are not underwritten in accordance with investor guidelines or are determined to have pre-closing

borrower misrepresentations. As of December 31, 2016, the Company had a residential mortgage loan repurchase reserve

liability of $1.3 million. For loans sold to GNMA, the Bank has a unilateral right but not the obligation to repurchase loans

that are past due 90 days or more. As of December 31, 2016, the Bank has recorded a liability for the loans subject to this

repurchase right of $10.9 million, and has recorded these loans as part of the loan portfolio as if we had repurchased these

loans.

Legal Proceedings—The Bank owns 483,806 shares of Class B common stock of Visa Inc. which are convertible into Class A

common stock at a conversion ratio of 1.6483 per Class A share. As of December 31, 2016, the value of the Class A shares

was $78.02 per share. Utilizing the conversion ratio, the value of unredeemed Class A equivalent shares owned by the Bank

was $62.2 million as of December 31, 2016, and has not been reflected in the accompanying financial statements. The

shares of Visa Inc. Class B common stock are restricted and may not be transferred. Visa member banks are required to fund

an escrow account to cover settlements, resolution of pending litigation and related claims. If the funds in the escrow

account are insufficient to settle all the covered litigation, Visa Inc. may sell additional Class A shares and use the proceeds

to settle litigation, thereby reducing the conversion ratio. If funds remain in the escrow account after all litigation is settled,

the Class B conversion ratio will be increased to reflect that surplus.

On July 13, 2012, Visa, Inc. announced that it had entered into a memorandum of understanding obligating it to enter into

a settlement agreement to resolve the multi-district interchange litigation brought by the class plaintiffs in the matter styled

In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, Case No. 5-MD-1720 (JG) (JO) in the U.S.

District Court for the Eastern District of New York. The claims originally were brought by a class of U.S. retailers in 2005. The

settlement was approved by the Court on December 13, 2013, and Visa’s share of the settlement to be paid is estimated at

$4.4 billion. However, on June 30, 2016, the Second Circuit Court of Appeals vacated the class certification and reversed

approval of the settlement in this action and remanded the case to the U.S. District Court for further proceedings.

In the ordinary course of business, various claims and lawsuits are brought by and against the Company and its affiliates and

subsidiaries. In the opinion of management, there is no pending or threatened proceeding in which an adverse decision that

could result in a material adverse change in the Company’s consolidated financial condition or results of operations is

reasonably probable.

103

Concentrations of Credit Risk—The Bank grants real estate mortgage, real estate construction, commercial, agricultural and installment

loans and leases to customers throughout Oregon, Washington, California, Idaho, and Nevada. In management’s judgment, a

concentration exists in real estate-related loans, which represented approximately 76% and 78% of the Bank’s loan and lease portfolio

at December 31, 2016 and December 31, 2015. Commercial real estate concentrations are managed to assure wide geographic and

business diversity. Although management believes such concentrations have no more than the normal risk of collectability, a substantial

decline in the economy in general, material increases in interest rates, changes in tax policies, tightening credit or refinancing markets,

or a decline in real estate values in the Bank’s primary market areas in particular, could have an adverse impact on the repayment of

these loans. Personal and business incomes, proceeds from the sale of real property, or proceeds from refinancing, represent the

primary sources of repayment for a majority of these loans.

The Bank recognizes the credit risks inherent in dealing with other depository institutions. Accordingly, to prevent excessive exposure

to any single correspondent, the Bank has established general standards for selecting correspondent banks as well as internal limits for

allowable exposure to any single correspondent. In addition, the Bank has an investment policy that sets forth limitations that apply to

all investments with respect to credit rating and concentrations with an issuer.

Note 19—Derivatives

The Bank may use derivatives to hedge the risk of changes in the fair values of interest rate lock commitments, residential mortgage

loans held for sale, and residential mortgage servicing rights. None of the Company’s derivatives are designated as hedging

instruments. Rather, they are accounted for as free-standing derivatives, or economic hedges, with changes in the fair value of the

derivatives reported in income. The Company primarily utilizes forward interest rate contracts in its derivative risk management

strategy.

The Bank enters into forward delivery contracts to sell residential mortgage loans or mortgage-backed securities to broker/dealers at

specific prices and dates in order to hedge the interest rate risk in its portfolio of mortgage loans held for sale and its residential

mortgage loan commitments. Credit risk associated with forward contracts is limited to the replacement cost of those forward contracts

in a gain position. There were no counterparty default losses on forward contracts in 2016, 2015, and 2014. Market risk with respect to

forward contracts arises principally from changes in the value of contractual positions due to changes in interest rates. The Bank limits

its exposure to market risk by monitoring differences between commitments to customers and forward contracts with broker/dealers. In

the event the Company has forward delivery contract commitments in excess of available mortgage loans, the Company completes the

transaction by either paying or receiving a fee to or from the broker/dealer equal to the increase or decrease in the market value of

the forward contract. At December 31, 2016, the Bank had commitments to originate mortgage loans held for sale totaling

$432.5 million and forward sales commitments of $556.2 million, which are used to hedge both on-balance sheet and off-balance

sheet exposures.

The Bank’s mortgage banking derivative instruments do not have specific credit risk-related contingent features. The forward sales

commitments do have contingent features that may require transferring collateral to the broker/dealers upon their request. However,

this amount would be limited to the net unsecured loss exposure at such point in time and would not materially affect the Company’s

liquidity or results of operations.

The Bank executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.
Those interest rate swaps are hedged by simultaneously entering into an offsetting interest rate swap that the Bank executes with a

third party, such that the Bank minimizes its net risk exposure. As of December 31, 2016, the Bank had 516 interest rate swaps with an

aggregate notional amount of $2.3 billion related to this program. As of December 31, 2015, the Bank had 381 interest rate swaps

with an aggregate notional amount of $1.9 billion related to this program.

In connection with the interest rate swap program with commercial customers, the Bank has agreements with its derivative

counterparties that contain a provision where if the Bank defaults on any of its indebtedness, including default where repayment of the

indebtedness has not been accelerated by the lender, then the Bank could also be declared in default on its derivative obligations.

The Bank also has agreements with its derivative counterparties that contain a provision where if the Bank fails to maintain its status as

a well/adequately capitalized institution, then the counterparty could terminate the derivative positions and the Bank would be

required to settle its obligations under the agreements. Similarly, the Bank could be required to settle its obligations under certain of

its agreements if specific regulatory events occur, such as if the Bank were issued a prompt corrective action directive or a cease and

desist order, or if certain regulatory ratios fall below specified levels. If the Bank had breached any of these provisions at

December 31, 2016, it could have been required to settle its obligations under the agreements at the termination value.

104

As of December 31, 2016 and 2015, the termination value of derivatives in a net liability position, which includes accrued interest but

excludes any adjustment for nonperformance risk, related to these agreements was $34.9 million and $40.2 million, respectively. The

Bank has collateral posting requirements for initial or variation margins with its clearing members and clearing houses and has been

required to post collateral against its obligations under these agreements of $50.3 million and $58.7 million as of December 31, 2016

and 2015, respectively.

The fair value of the interest rate swaps is determined using the market standard methodology of netting the discounted future fixed

cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts)

are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. In addition,

the Bank incorporates credit valuation adjustments (‘‘CVA’’) to appropriately reflect nonperformance risk in the fair value measurements

of its derivatives.

The Bank also executes foreign currency hedges as a service for customers. These foreign currency hedges are then offset with hedges

with other third-party banks to limit the Bank’s risk exposure.

The following tables summarize the types of derivatives, separately by assets and liabilities and the fair values of such derivatives as of

December 31, 2016 and December 31, 2015:

(in thousands)
Derivatives not designated
as hedging instrument

Interest rate lock commitments

Interest rate forward sales commitments

Interest rate swaps

Foreign currency derivative

Total

Asset Derivatives

Liability Derivatives

December 31, December 31, December 31,
2016

2016

2015

December 31,
2015

$ 4,076

$ 3,631

$

—

$

8,054

34,701

670

1,155

38,567

196

1,318

34,871

874

—

971

40,238

305

$47,501

$43,549

$37,063

$41,514

The following table summarizes the types of derivatives and the gains (losses) recorded during the years ended 2016, 2015, and 2014:

(in thousands)
Derivatives not designated
as hedging instrument

Interest rate lock commitments

Interest rate forward sales commitments

Interest rate swaps

Foreign currency derivative

Total

December 31,

2016

2015

2014

$ 445

$ 763

$ 2,000

(3,730)

(4,752)

(23,463)

1,497

1,335

162

1,011

(3,232)

890

$ (453)

$(2,816)

$(23,805)

The Bank incorporates credit valuation adjustment (‘‘CVA’’) to appropriately reflect nonperformance risk in the fair value measurement

of its derivatives. As of December 31, 2016 and 2015, the net CVA decreased the settlement values of the Bank’s net derivative assets

by $241,000 and $1.9 million, respectively. Various factors impact changes in the CVA over time, including changes in the credit

spreads of the parties to the contracts, as well as changes in market rates and volatilities, which affect the total expected exposure of
the derivative instruments.

105

The following table summarizes the derivatives that have a right of offset as of December 31, 2016 and December 31, 2015:

(in thousands)

December 31, 2016

Derivative Assets

Interest rate swaps

Foreign currency derivative

Derivative Liabilities

Interest rate swaps

Foreign currency derivative

December 31, 2015

Derivative Assets

Interest rate swaps

Foreign currency derivative

Derivative Liabilities

Interest rate swaps

Foreign currency derivative

Gross Amounts
of Recognized
Assets/Liabilities

Gross Amounts
Offset in the
Statement of
Financial
Position

Net Amounts of
Assets/Liabilities
presented in the
Statement of
Financial Position

Gross Amounts Not
Offset in the Statement
of Financial Position

Financial
Instruments

Collateral

Posted Net Amount

$34,701

670

$34,871

874

$38,567

196

$40,238

305

$

$

$

$

—

—

—

—

—

—

—

—

$34,701

$(11,225)

$

670

—

—

—

$23,476

$34,871

$(11,225)

$(23,646)

$

874

—

$38,567

$

(198)

$

196

—

—

—

—

$40,238

$

(198)

$(40,040)

$

305

—

—

670

—

874

196

—

305

$38,369

Note 20—Stock Compensation and Share Repurchase Plan

Stock-Based Compensation

The compensation cost related to stock options, restricted stock and restricted stock units granted to employees and included in

salaries and employee benefits was $8.7 million, $13.6 million and $12.5 million for the years ended December 31, 2016, 2015, and

2014, respectively. The total income tax benefit recognized related to stock-based compensation was $3.3 million, $5.2 million and

$4.8 million for the years ended December 31, 2016, 2015, and 2014, respectively. During the year ended December 31, 2014,

vesting was accelerated for certain restricted stock units and stock options issued in connection with the Sterling Merger, resulting in

$2.8 million of accelerated compensation expense which was recorded in merger related expense.

As of December 31, 2016, there was $34,000 of total unrecognized compensation cost related to nonvested stock options which is

expected to be recognized over a weighted-average period of 0.64 years. As of December 31, 2016, there was $7.5 million of total

unrecognized compensation cost related to nonvested restricted stock awards which is expected to be recognized over a weighted-

average period of 1.39 years. As of December 31, 2016, there was $1.6 million of total unrecognized compensation cost related to

nonvested restricted stock units which is expected to be recognized over a weighted-average period of 0.94 years.

Stock Options

The following table summarizes information about stock option activity for the years ended December 31, 2016, 2015 and 2014:

2016

2015

2014

(shares in thousands)

Balance, beginning of period

Granted/assumed

Exercised

Forfeited/expired

Balance, end of period

Options exercisable, end of period

Options Weighted-Avg

Options Weighted-Avg
Outstanding Exercise Price Outstanding Exercise Price Outstanding Exercise Price

Options Weighted-Avg

472

—

(219)

(34)

219

211

$14.58

$ —

$11.95

$24.19

$15.74

$15.88

807

—

(83)

(252)

472

437

$16.80

$ —

$11.06

$22.88

$14.58

$14.78

981

440

(572)

(42)

807

676

$16.17

$12.12

$11.93

$19.28

$16.80

$17.71

106

The following table summarizes information about outstanding stock options issued under all plans as of December 31, 2016:

(shares in thousands)

Range of Exercise Prices

$9.23 to $11.89

$11.98 to $15.50

$26.12

Options Outstanding

Options Exercisable

Weighted Avg.
Remaining

Options
Outstanding

Contractual Life Weighted Avg.
Exercise Price

(Years)

Options Weighted Avg.
Exercise Price

Exercisable

76

93

50

219

3.01

3.39

0.18

2.52

$11.50

$13.61

$26.12

$15.74

76

85

50

211

$11.50

$13.75

$26.12

$15.88

The total intrinsic value (which is the amount by which the stock price exceeds the exercise price) as of December 31, 2016, was

$1.0 million for options outstanding and $978,000 options exercisable.

The weighted average remaining contractual term of options exercisable was 2.4 years as of December 31, 2016.

The total intrinsic value of options exercised was $1.2 million, $535,000, and $3.1 million, in the years ended December 31, 2016,

2015 and 2014, respectively.

During the years ended December 31, 2016, 2015 and 2014, the amount of cash received from the exercise of stock options was

$432,000, $195,000, and $4.6 million and total consideration was $2.6 million, $925,000, and $6.8 million, respectively.

The fair value of each option grant is estimated as of the grant date using the Black-Scholes option-pricing model. In 2014, there were

stock options assumed in the Sterling Merger, however, no additional stock options were granted. There were no stock options

granted in 2016 and 2015. The following weighted average assumptions were used to determine the fair value at the acquisition date

of stock option grants assumed from the Sterling Merger during the year ended December 31, 2014:

Dividend yield

Expected life (years)

Expected volatility

Risk-free rate

Weighted average fair value of options on date of grant

The above assumptions for 2016 and 2015 are not applicable as no stock options were granted in 2016 or 2015.

2014

3.25%

6.8

31%

0.91%

$ 3.22

Restricted Shares

The Company grants restricted stock periodically for the benefit of employees and directors. Restricted shares generally vest over a

three year period, subject to time or time plus performance vesting conditions. The following table summarizes information about

nonvested restricted share activity for the year ended December 31:

2016

2015

2014

(shares in thousands)

Balance, beginning of period

Granted

Vested/released

Forfeited/expired

Balance, end of period

Restricted Weighted Average
Grant Date

Shares
Fair Value Outstanding

Restricted Weighted Average
Grant Date

Shares
Fair Value Outstanding

Restricted Weighted Average
Grant Date
Fair Value

Shares
Outstanding

1,376

601

(766)

(115)

1,096

$16.18

$14.46

$15.87

$14.70

$15.61

1,386

639

(516)

(133)

1,376

$15.39

$15.83

$14.58

$15.22

$16.18

992

839

(399)

(46)

1,386

$12.79

$17.33

$12.42

$12.99

$15.39

The total fair value of restricted shares vested was $12.0 million, $8.6 million, and $7.1 million, for the years ended December 31,

2016, 2015 and 2014, respectively.

107

Restricted Stock Units

The Company granted restricted stock units in connection with the acquisition of Sterling as replacement awards, as well as part of the
2007 Long Term Incentive Plan for the benefit of certain executive officers. Restricted stock unit grants may be subject to performance-
based vesting as well as other approved vesting conditions. The total number of restricted stock units granted represents the
maximum number of restricted stock units eligible to vest based upon the performance and service conditions set forth in the grant
agreements.

The following table summarizes information about nonvested restricted stock units outstanding at December 31:

2016

2015

2014

(shares in thousands)

Balance, beginning of period
Assumed
Released
Forfeited/expired

Balance, end of period

Restricted Weighted Average
Grant Date

Stock Units
Fair Value Outstanding

Restricted Weighted Average
Grant Date

Stock Units
Fair Value Outstanding

Restricted Weighted Average
Grant Date
Fair Value

Stock Units
Outstanding

263
—
(137)
(48)

78

$18.58
$ —
$18.58
$18.58

$18.58

675
—
(254)
(158)

263

$18.03
$ —
$17.99
$18.48

$18.58

95
994
(342)
(72)

675

$10.41
$18.58
$16.91
$18.58

$18.03

The total fair value of restricted stock units vested and released was $2.2 million, $4.4 million, and $4.8 million for the years ended
December 31, 2016, 2015, and 2014 respectively.

For the years ended December 31, 2016, 2015 and 2014, the Company received income tax benefits of $5.9 million, $5.2 million, and
$6.3 million, respectively, related to the exercise of non-qualified employee stock options, disqualifying dispositions in the exercise of
incentive stock options, the vesting of restricted shares and the vesting of restricted stock units.

For the year ended December 31, 2016, the Company did not record a tax deficiency or benefit as a component of equity due to the
application of ASU 2016-09. For the years ended December 31, 2015 and 2014, the Company had a net excess tax benefit resulting
from tax deductions greater than the compensation cost recognized of $552,000 and $1.2 million, respectively. The tax deficiency or
benefit is now recorded as income tax expense or benefit in the period the shares are vested.

Share Repurchase Plan—The Company’s share repurchase plan, which was first approved by the Board and announced in August 2003,
and amended in September 2011, authorized the repurchase of up to 15 million shares of common stock. In 2015, the Board
extended the plan to run through July 31, 2017. As of December 31, 2016, a total of 10.8 million shares remained available for
repurchase. The Company repurchased 635,000 shares under the repurchase plan in 2016, repurchased 571,000 shares under the
repurchase plan in 2015, and repurchased no shares under the repurchase plan in 2014. The timing and amount of future repurchases
will depend upon the market price for our common stock, securities laws restricting repurchases, asset growth, earnings, and our
capital plan.

We also have certain stock option and restricted stock plans which provide for the payment of the option exercise price or withholding
taxes by tendering previously owned or recently vested shares. During the years ended December 31, 2016 and 2015, there were
154,000 and 52,000 shares tendered in connection with option exercises, respectively. Restricted shares cancelled to pay withholding
taxes totaled 279,000 and 135,000 shares during the years ended December 31, 2016 and 2015, respectively. There were 49,000
restricted stock units cancelled to pay withholding taxes for the years ended December 31, 2016 and 86,000 in 2015.

Note 21—Regulatory Capital

The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if
undertaken, could have a material effect on the Company’s operations and financial statements. Under capital adequacy guidelines,
the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain
off balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also
subject to qualitative judgments by the regulators about risk components, asset risk weighting, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and
ratios (set forth in the table below) of total capital, Tier 1 capital and Tier 1 common to risk-weighted assets (as defined in the
regulations), and of Tier 1 capital to average assets (as defined in the regulations). Management believes, as of December 31, 2016,
that the Company meets all capital adequacy requirements to which it is subject.

108

The Company’s capital amounts and ratios, as calculated under regulatory guidelines of Basel III at December 31, 2016 and

2015 are presented in the following table:

(dollars in thousands)

As of December 31, 2016

Total Capital

(to Risk Weighted Assets)

Consolidated

Umpqua Bank

Tier 1 Capital

(to Risk Weighted Assets)

Consolidated

Umpqua Bank

Tier 1 Common

(to Risk Weighted Assets)

Consolidated

Umpqua Bank

Tier 1 Capital

(to Average Assets)

Consolidated

Umpqua Bank

As of December 31, 2015

Total Capital

(to Risk Weighted Assets)

Consolidated

Umpqua Bank

Tier 1 Capital

(to Risk Weighted Assets)

Consolidated

Umpqua Bank

Tier 1 Common

(to Risk Weighted Assets)

Consolidated

Umpqua Bank

Tier 1 Capital

(to Average Assets)

Consolidated

Umpqua Bank

Amount

Actual

Ratio

For Capital Adequacy
purposes

To be Well Capitalized

Amount

Ratio

Amount

Ratio

$ 2,707,693

14.72% $ 1,471,577

8.00% $ 1,839,471

10.00%

$ 2,534,927

13.79% $ 1,470,731

8.00% $ 1,838,414

10.00%

$ 2,108,948

11.47% $ 1,103,682

6.00% $ 1,471,577

$ 2,397,449

13.04% $ 1,103,048

6.00% $ 1,470,731

$ 2,108,948

11.47% $

827,762

4.50% $ 1,195,656

$ 2,397,449

13.04% $

827,286

4.50% $ 1,194,969

$ 2,108,948

9.21% $

915,917

4.00% $ 1,144,896

$ 2,397,449

10.47% $

916,260

4.00% $ 1,145,325

8.00%

8.00%

6.50%

6.50%

5.00%

5.00%

$ 2,553,161

14.34% $ 1,424,127

8.00% $ 1,780,159

10.00%

$ 2,368,213

13.32% $ 1,422,495

8.00% $ 1,778,118

10.00%

$ 2,073,402

11.65% $ 1,068,096

6.00% $ 1,424,127

$ 2,234,458

12.57% $ 1,066,871

6.00% $ 1,422,495

$ 2,020,814

11.35% $

801,072

4.50% $ 1,157,104

$ 2,234,458

12.57% $

800,153

4.50% $ 1,155,777

$ 2,073,402

9.73% $

852,091

4.00% $ 1,065,114

$ 2,234,458

10.50% $

851,554

4.00% $ 1,064,443

8.00%

8.00%

6.50%

6.50%

5.00%

5.00%

The Company is a registered financial holding company under the Gramm-Leach-Bliley Act of 1999 (the ‘‘GLB Act’’), and is

subject to the supervision of, and regulation by, the Board of Governors of the Federal Reserve System (the ‘‘Federal

Reserve’’). The Bank is an Oregon state chartered bank with deposits insured by the Federal Deposit Insurance Corporation

(‘‘FDIC’’), and is subject to the supervision and regulation of the FDIC and the Director of the Oregon Department of

Consumer and Business Services, administered through the Division of Finance and Corporate Securities, as well as to the

supervision and regulation of the California, Washington, Idaho, and Nevada banking regulators. As of December 31, 2016,

the most recent notification from the FDIC categorized the Bank as ‘‘well-capitalized’’ under the regulatory framework for

prompt corrective action. There are no conditions or events since that notification that management believes have changed

the Bank’s regulatory capital category.

On July 2, 2013, the federal banking regulators approved the final proposed rules that revise the regulatory capital rules to

incorporate certain revisions by the Basel Committee on Banking Supervision to the Basel capital framework (‘‘Basel III’’). The

109

phase-in period for the final rules began for the Company on January 1, 2015, with full compliance with the final rules entire

requirement phased in on January 1, 2019.

The final rules, among other things, include a common equity Tier 1 capital (‘‘CET1’’) to risk-weighted assets ratio, including

a capital conservation buffer, which will gradually increase from 4.5% on January 1, 2015 to 7.0% on January 1, 2019. The

final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% on January 1, 2015 to

8.5% on January 1, 2019, as well as require a minimum leverage ratio of 4.0%.

Under the final rule, as Umpqua grew above $15.0 billion in assets as a result of an acquisition, the combined trust preferred

security debt issuances were phased out of Tier 1 and into Tier 2 capital (75% starting in the first quarter of 2015 and 100%

starting in the first quarter of 2016).

The final rules also provide for a number of adjustments to and deductions from the new CET1. Under Basel III, the effects

of certain accumulated other comprehensive items are not excluded; however, the Company and the Bank have made a

one-time permanent election to continue to exclude these items in order to avoid significant variations in the level of capital

depending on the impact of interest rate fluctuations on the fair value of the Company’s securities portfolio. In addition,

deductions include, for example, the requirement that mortgage servicing rights, certain deferred tax assets not dependent

upon future taxable income and significant investments in non-consolidated financial entities be deducted from CET1 to the

extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1.

Note 22—Fair Value Measurement

The following table presents estimated fair values of the Company’s financial instruments as of December 31, 2016 and

December 31, 2015, whether or not recognized or recorded at fair value in the Consolidated Balance Sheets:

(in thousands)

FINANCIAL ASSETS:

Cash and cash equivalents

Trading securities

Investment securities available for sale

Investment securities held to maturity

Loans held for sale, at fair value

Loans and leases, net

Restricted equity securities

Residential mortgage servicing rights

Bank owned life insurance assets

Derivatives

Visa Class B common stock
FINANCIAL LIABILITIES:

Deposits

Securities sold under agreements to repurchase

Term debt

Junior subordinated debentures, at fair value

Junior subordinated debentures, at amortized cost

Derivatives

December 31, 2016

December 31, 2015

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

$ 1,449,432

$ 1,449,432

$

773,725

$

773,725

10,964

10,964

9,586

9,586

2,701,220

2,701,220

2,522,539

2,522,539

4,216

387,318

5,217

387,318

4,609

363,275

5,590

363,275

17,374,679

17,385,156

16,736,214

16,661,079

45,528

142,973

299,673

47,501

—

45,528

142,973

299,673

47,501

59,107

46,949

131,817

291,892

43,549

—

46,949

131,817

291,892

43,549

58,751

Level

1

1,2

2

3

2

3

1

3

1

2,3

3

1,2

$19,020,985

$19,016,330

$17,707,189

$17,709,555

2

2

3

3

2

352,948

852,397

262,209

100,931

37,063

352,948

844,377

262,209

77,640

37,063

304,560

888,769

255,457

101,254

41,514

304,560

890,852

255,457

75,654

41,514

110

Fair Value of Assets and Liabilities Measured on a Recurring Basis

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring

basis as of December 31, 2016 and December 31, 2015:

(in thousands)
Description

Trading securities

Total

Level 1

Level 2

Level 3

December 31, 2016

Obligations of states and political subdivisions

$

662

$

— $

662

$

Equity securities

Investment securities available for sale

Obligations of states and political subdivisions

Residential mortgage-backed securities and collateralized

mortgage obligations

Investments in mutual funds and other equity securities

Loans held for sale, at fair value

Residential mortgage servicing rights, at fair value

Derivatives

Interest rate lock commitments

Interest rate forward sales commitments

Interest rate swaps

Foreign currency derivative

Total assets measured at fair value

Junior subordinated debentures, at fair value

Derivatives

Interest rate forward sales commitments

Interest rate swaps

Foreign currency derivative

10,302

10,302

—

307,697

2,391,553

1,970

387,318

142,973

4,076

8,054

34,701

670

—

—

—

—

—

—

—

307,697

2,391,553

1,970

387,318

—

—

8,054

34,701

670

—

—

—

—

—

142,973

4,076

—

—

$3,289,976

$ 262,209

$

$

10,302

$3,132,625

$ 147,049

— $

— $ 262,209

1,318

34,871

874

—

—

1,318

34,871

874

—

—

Total liabilities measured at fair value

$ 299,272

$

— $

37,063

$ 262,209

111

(in thousands)
Description

Trading securities

Total

Level 1

Level 2

Level 3

December 31, 2015

Obligations of states and political subdivisions

$

75

$

— $

Equity securities

Investment securities available for sale

9,511

9,511

$

75

—

Obligations of states and political subdivisions

313,117

Residential mortgage-backed securities and

collateralized mortgage obligations

Investments in mutual funds and other equity securities

Loans held for sale, at fair value

Residential mortgage servicing rights, at fair value

Derivatives

Interest rate lock commitments

Interest rate forward sales commitments

Interest rate swaps

Foreign currency derivative

Total assets measured at fair value

Junior subordinated debentures, at fair value

Derivatives

Interest rate forward sales commitments

Interest rate swaps

Foreign currency derivative

2,207,420

2,002

363,275

131,817

3,631

1,155

38,567

196

—

—

—

—

—

—

—

313,117

2,207,420

2,002

363,275

—

—

1,155

38,567

196

—

—

—

—

—

131,817

3,631

—

—

—

$ 3,070,766

$

255,457

$

$

9,511

$ 2,925,807

$

135,448

— $

— $

255,457

971

40,238

305

—

—

—

971

40,238

305

—

—

—

Total liabilities measured at fair value

$

296,971

$

— $

41,514

$

255,457

The following methods were used to estimate the fair value of each class of financial instrument above:

Cash and Cash Equivalents—For short-term instruments, including cash and due from banks, and interest bearing cash, the

carrying amount is a reasonable estimate of fair value.

Securities—Fair values for investment securities are based on quoted market prices when available or through the use of

alternative approaches, such as matrix or model pricing, or broker indicative bids, when market quotes are not readily

accessible or available. Management periodically reviews the pricing information received from the third-party pricing service

and compares it to a secondary pricing service, evaluating significant price variances between services to determine an

appropriate estimate of fair value to report.

Loans Held for Sale—Fair value for residential mortgage loans originated as held for sale is determined based on quoted

secondary market prices for similar loans, including the implicit fair value of embedded servicing rights. For loans not

originated as held for sale, these loans are accounted for at lower of cost or market, with the fair value estimated based on
the expected sales price.

Loans and Leases—Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated

by type, including commercial, real estate and consumer loans. Each loan category is further segregated by fixed and

adjustable rate loans. The fair value of loans is calculated by discounting expected cash flows at rates which similar loans are

currently being made. These amounts are discounted further by embedded probable losses expected to be realized in the

portfolio.

Restricted Equity Securities—The carrying value of restricted equity securities approximates fair value as the shares can only

be redeemed by the issuing institution at par.

112

Residential Mortgage Servicing Rights—The fair value of the MSR is estimated using a discounted cash flow model.

Assumptions used include market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and

ancillary fee income net of servicing costs. This model is periodically validated by an independent external model validation

group. The model assumptions and the MSR fair value estimates are also compared to observable trades of similar portfolios

as well as to MSR broker valuations and industry surveys, as available. Management believes the significant inputs utilized

are indicative of those that would be used by market participants.

Bank Owned Life Insurance—Fair values of insurance policies owned are based on the insurance contract’s cash surrender

value.

Visa Class B Common Stock—The fair value of Visa Class B common stock is estimated by applying a 5% discount to the

value of the unredeemed Class A equivalent shares. The discount primarily represents the risk related to the further potential

reduction of the conversion ratio between Class B and Class A shares and a liquidity risk premium.

Deposits—The fair value of deposits with no stated maturity, such as non-interest bearing deposits, savings and interest

checking accounts, and money market accounts, is equal to the amount payable on demand. The fair value of certificates of

deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently

offered for deposits of similar remaining maturities.

Securities Sold under Agreements to Repurchase—For short-term instruments, including securities sold under agreements to

repurchase and federal funds purchased, the carrying amount is a reasonable estimate of fair value.

Term Debt—The fair value of term notes is calculated based on the discounted value of the contractual cash flows using

current rates at which such borrowings can currently be obtained.

Junior Subordinated Debentures—The fair value of junior subordinated debentures is estimated using an income approach

valuation technique. The significant inputs utilized in the estimation of fair value of these instruments are the credit risk

adjusted spread and three month LIBOR. The credit risk adjusted spread represents the nonperformance risk of the liability,

contemplating the inherent risk of the obligation. The Company periodically utilizes an external valuation firm to determine

or validate the reasonableness of the inputs and factors that are used to determine the fair value. The ending carrying (fair)

value of the junior subordinated debentures measured at fair value represents the estimated amount that would be paid to

transfer these liabilities in an orderly transaction amongst market participants. Due to credit concerns in the capital markets

and inactivity in the trust preferred markets that have limited the observability of market spreads, we have classified this as a

Level 3 fair value measure.

Derivative Instruments—The fair value of the interest rate lock commitments and forward sales commitments are estimated

using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions

based on historical information, where appropriate. The pull-through rate assumptions are considered Level 3 valuation

inputs and are significant to the interest rate lock commitment valuation; as such, the interest rate lock commitment

derivatives are classified as Level 3. The fair value of the interest rate swaps is determined using a discounted cash flow

technique incorporating credit valuation adjustments to reflect nonperformance risk in the measurement of fair value.

Although the Bank has determined that the majority of the inputs used to value its interest rate swap derivatives fall within
Level 2 of the fair value hierarchy, the CVA associated with its derivatives utilize Level 3 inputs, such as estimates of current

credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2016, the

Bank has assessed the significance of the impact of the CVA on the overall valuation of its interest rate swap positions and

has determined that the CVA are not significant to the overall valuation of its interest rate swap derivatives. As a result, the

Bank has classified its interest rate swap derivative valuations in Level 2 of the fair value hierarchy.

113

Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)

The following table provides a description of the valuation technique, significant unobservable input, and qualitative

information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair

value on a recurring basis at December 31, 2016:

Financial Instrument

Valuation Technique

Unobservable Input

Weighted Average

Residential mortgage servicing rights

Discounted cash flow

Interest rate lock commitment

Internal Pricing Model

Junior subordinated debentures

Discounted cash flow

Constant Prepayment Rate

Discount Rate

Pull-through rate

Credit Spread

11.43%

9.69%

86.76%

5.26%

Generally, any significant increases in the constant prepayment rate and discount rate utilized in the fair value measurement

of the residential mortgage servicing rights will result in negative fair value adjustments (and a decrease in the fair value

measurement). Conversely, a decrease in the constant prepayment rate and discount rate will result in a positive fair value

adjustment (and increase in the fair value measurement).

An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative will

result in positive fair value adjustments (and an increase in the fair value measurement.) Conversely, a decrease in the

pull-through rate will result in a negative fair value adjustment (and a decrease in the fair value measurement.)

Management believes that the credit risk adjusted spread utilized in the fair value measurement of the junior subordinated

debentures carried at fair value is indicative of the nonperformance risk premium a willing market participant would require

under current market conditions, that is, the inactive market. Management attributes the change in fair value of the junior

subordinated debentures during the period to market changes in the nonperformance expectations and pricing of this type

of debt, and not as a result of changes to our entity-specific credit risk. The widening of the credit risk adjusted spread

above the Company’s contractual spreads has primarily contributed to the positive fair value adjustments. Future contractions

in the credit risk adjusted spread relative to the spread currently utilized to measure the Company’s junior subordinated

debentures at fair value as of December 31, 2016, or the passage of time, will result in negative fair value adjustments.

Generally, an increase in the credit risk adjusted spread and/or the forward swap interest rate curve will result in positive fair

value adjustments (and decrease the fair value measurement). Conversely, a decrease in the credit risk adjusted spread

and/or the forward swap interest rate curve will result in negative fair value adjustments (and increase the fair value

measurement).

114

The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable

inputs (Level 3) on a recurring basis during the years ended December 31, 2016 and 2015.

Beginning
Balance

Change
included in

Purchases
earnings and issuances

Sales and
settlements

Ending
Balance

Net change in
unrealized gains
or (losses) relating
to items held at
end of period

(in thousands)

2016

Residential mortgage servicing

rights, at fair value

$

131,817 $

(25,926) $

37,082 $

— $

142,973

$

(14,133)

Interest rate lock commitment

3,631

834

58,881

(59,270)

4,076

4,076

Junior subordinated debentures,

at fair value

255,457

17,815

—

(11,063)

262,209

17,815

2015

Residential mortgage servicing

rights, at fair value

$

117,259 $

(20,726) $

35,284 $

— $

131,817

$

(14,270)

Interest rate lock commitment

2,867

851

47,764

(47,851)

3,631

3,631

Junior subordinated debentures,

at fair value

249,294

16,005

—

(9,842)

255,457

16,005

Changes in residential MSR carried at fair value are recorded in residential mortgage banking revenue within non-interest

income. Gains (losses) on interest rate lock commitments carried at fair value are recorded in residential mortgage banking

revenue within non-interest income. Gains (losses) on junior subordinated debentures carried at fair value are recorded within

other non-interest income. The contractual interest expense on the junior subordinated debentures is recorded on an accrual

basis as interest on junior subordinated debentures within interest expense. Settlements related to the junior subordinated

debentures represent the payment of accrued interest that is embedded in the fair value of these liabilities.

Additionally, from time to time, certain assets are measured at fair value on a nonrecurring basis. These adjustments to fair

value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to

impairment.

115

Fair Value of Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The following table presents information about the Company’s assets and liabilities measured at fair value on a nonrecurring

basis for which a nonrecurring change in fair value has been recorded during the reporting period. The amounts disclosed

below represent the fair values at the time the nonrecurring fair value measurements were made, and not necessarily the fair

value as of the dates reported upon.

(in thousands)

Loans and leases

Other real estate owned

(in thousands)

Loans and leases

Other real estate owned

Total

Level 1

Level 2

Level 3

December 31, 2016

$

25,753

2,612

$

28,365

Total

$

24,690

802

$

25,492

$

$

$

$

— $

— $

25,753

—

—

2,612

— $

— $

28,365

December 31, 2015

Level 1

Level 2

Level 3

— $

— $

24,690

—

—

802

— $

— $

25,492

The following table presents the losses resulting from nonrecurring fair value adjustments for the years ended December 31,

2016, 2015 and 2014:

(in thousands)

Loans and leases

Other real estate owned

Total loss from nonrecurring measurements

2016

2015

2014

$

33,289

$

29,083

$

10,265

1,719

2,782

3,728

$

35,008

$

31,865

$

13,993

The following provides a description of the valuation technique and inputs for the Company’s assets and liabilities classified

as Level 3 and measured at fair value on a nonrecurring basis. Unobservable inputs and qualitative information about the

unobservable inputs are not presented as the fair value is determined by third-party information. The loans and leases

amount above represents impaired, collateral dependent loans that have been adjusted to fair value. When we identify a

collateral dependent loan as impaired, we measure the impairment using the current fair value of the collateral, less selling

costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external

appraisals. If we determine that the value of the impaired loan is less than the recorded investment in the loan, we recognize

this impairment and adjust the carrying value of the loan to fair value through the allowance for loan and lease losses. The

loss represents charge-offs or impairments on collateral dependent loans for fair value adjustments based on the fair value of

collateral.

The other real estate owned amount above represents impaired real estate that has been adjusted to fair value. Other real

estate owned represents real estate which the Bank has taken control of in partial or full satisfaction of loans. At the time of

foreclosure, other real estate owned is recorded at the lower of the carrying amount of the loan or fair value less costs to

sell, which becomes the property’s new basis. Any write-downs based on the asset’s fair value at the date of acquisition are

charged to the allowance for loan and lease losses. After foreclosure, management periodically performs valuations such that

the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Fair value adjustments

on other real estate owned are recognized within net loss on real estate owned. The loss represents impairments on other

real estate owned for fair value adjustments based on the fair value of the real estate.

116

Fair Value Option

The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of

loans held for sale accounted for under the fair value option as of December 31, 2016 and December 31, 2015:

December 31, 2016

Aggregate
Unpaid
Principal
Balance

Fair Value
Less Aggregate
Unpaid
Principal
Balance

Fair
Value

December 31, 2015

Aggregate
Unpaid
Principal
Balance

Fair Value
Less Aggregate
Unpaid
Principal
Balance

Fair
Value

(in thousands)

Loans held for sale

$

387,318

$

378,974

$

8,344

$

363,275

$

351,414

$

11,861

Residential mortgage loans held for sale accounted for under the fair value option are measured initially at fair value with

subsequent changes in fair value recognized in earnings. Gains and losses from such changes in fair value are reported as a

component of residential mortgage banking revenue, net in the Consolidated Statements of Income. For the years ended

December 31, 2016, 2015 and 2014, the Company recorded a net decrease of $3.5 million, a net decrease of $696,000, and

a net increase of $6.4 million, respectively, representing the change in fair value reflected in earnings.

The Company selected the fair value measurement option for existing junior subordinated debentures (the Umpqua Statutory

Trusts) and for junior subordinated debentures acquired from Sterling. The remaining junior subordinated debentures were

acquired through previous business combinations and were measured at fair value at the time of acquisition and

subsequently measured at amortized cost.

Accounting for the selected junior subordinated debentures at fair value enables us to more closely align our financial

performance with the economic value of those liabilities. Additionally, we believe it improves our ability to manage the

market and interest rate risks associated with the junior subordinated debentures. The junior subordinated debentures

measured at fair value and amortized cost are presented as separate line items on the balance sheet. The ending carrying

(fair) value of the junior subordinated debentures measured at fair value represents the estimated amount that would be paid

to transfer these liabilities in an orderly transaction amongst market participants under current market conditions as of the

measurement date.

Due to inactivity in the junior subordinated debenture market and the lack of observable quotes of our, or similar, junior

subordinated debenture liabilities or the related trust preferred securities when traded as assets, we utilize an income

approach valuation technique to determine the fair value of these liabilities using our estimation of market discount rate

assumptions. The Company monitors activity in the trust preferred and related markets, to the extent available, evaluates

changes related to the current and anticipated future interest rate environment, and considers our entity-specific

creditworthiness, to validate the reasonableness of the credit risk adjusted spread and effective yield utilized in our

discounted cash flow model. We also consider changes in the interest rate environment in our valuation, specifically the

absolute level and the shape of the slope of the forward swap curve. In the fourth quarter, we also identified a settlement of

a similar instrument in the market place, at a discount to the issued notional balance, relatively similar to the carrying value

of our junior subordinated debentures at fair value. This transaction supported the reduction of the liquidity premium

component within the credit spread, and is the primary contributor to the decline in the credit spread from the prior year.

117

Note 23—Earnings Per Common Share

The following is a computation of basic and diluted earnings per common share for the years ended December 31, 2016,

2015 and 2014:

(in thousands, except per share data)

NUMERATORS:

Net income

Less:

2016

2015

2014

$232,940

$222,539

$147,658

Dividends and undistributed earnings allocated to participating securities (1)

125

357

484

Net earnings available to common shareholders

$232,815

$222,182

$147,174

DENOMINATORS:

Weighted average number of common shares outstanding—basic

Effect of potentially dilutive common shares (2)

220,282

220,327

186,550

626

718

994

Weighted average number of common shares outstanding—diluted

220,908

221,045

187,544

EARNINGS PER COMMON SHARE:

Basic

Diluted

$

$

1.06

1.05

$

$

1.01

1.01

$

$

0.79

0.78

(1) Represents dividends paid and undistributed earnings allocated to nonvested restricted stock awards.

(2) Represents the effect of the assumed exercise of stock options, vesting of non-participating restricted shares, and

vesting of restricted stock units, based on the treasury stock method.

The following table presents the weighted average outstanding securities that were not included in the computation of

diluted earnings per common share because their effect would be anti-dilutive for the years ended December 31, 2016,

2015 and 2014.

(in thousands)

Stock options

Restricted stock

Note 24—Segment Information

2016

2015

2014

51

—

95

3

323

443

The Company operates two primary segments: Community Banking and Home Lending. The Community Banking segment’s

principal business focus is the offering of loan and deposit products to business and retail customers in its primary market

areas. As of December 31, 2016, the Community Banking segment operated 346 locations throughout Oregon, California,

Washington, Idaho, and Nevada.

The Home Lending segment, which operates as a division of the Bank, originates, sells and services residential mortgage

loans.

118

Summarized financial information concerning the Company’s reportable segments and the reconciliation to the consolidated

financial results is shown in the following tables:

Year Ended December 31, 2016

(in thousands)

Interest income
Interest expense

Net interest income

Provision (recapture) for loan and lease losses
Non-interest income
Non-interest expense

Income before income taxes

Provision for income taxes

Net income

Total assets
Total loans and leases
Total deposits

Year Ended December 31, 2015

(in thousands)

Interest income
Interest expense

Net interest income

Provision for loan and lease losses
Non-interest income
Non-interest expense

Income before income taxes

Provision for income taxes

Net income

Total assets
Total loans and leases
Total deposits

Community
Banking

$

791,433
57,731

733,702
44,740
136,413
608,842

216,533
78,612

$

Home
Lending

119,206
8,320

110,886
(3,066)
163,527
128,313

149,166
54,147

Consolidated

$

910,639
66,051

844,588
41,674
299,940
737,155

365,699
132,759

$

137,921

$

95,019

$

232,940

$21,569,519
$14,823,482
$18,791,627

$ 3,243,600
$ 2,685,181
229,358
$

$24,813,119
$17,508,663
$19,020,985

$

$

Community
Banking

823,885
49,081

774,804
32,808
130,877
646,492

226,381
81,252

Home
Lending

105,981
9,151

96,830
3,781
144,847
117,150

120,746
43,336

Consolidated

$

929,866
58,232

871,634
36,589
275,724
763,642

347,127
124,588

$

145,129

$

77,410

$

222,539

$ 20,195,322
$ 14,164,743
$ 17,689,815

$ 3,211,059
$ 2,701,793
17,374
$

$ 23,406,381
$ 16,866,536
$ 17,707,189

119

Year Ended December 31, 2014

(in thousands)

Interest income
Interest expense

Net interest income

Provision for loan and lease losses
Non-interest income
Non-interest expense

Income before income taxes

Provision for income taxes

Net income

Total assets
Total loans and leases
Total deposits

Note 25—Related Party Transactions

Community
Banking

Home
Lending

Consolidated

$

$

755,374
43,077

712,297
40,241
93,177
615,275

149,958
54,427

$

67,147
5,616

61,531
—
87,997
68,788

80,740
28,613

822,521
48,693

773,828
40,241
181,174
684,063

230,698
83,040

$

95,531

$

52,127

$

147,658

$ 20,095,189
$ 13,181,463
$ 16,850,682

$ 2,525,776
$ 2,157,331
41,417
$

$ 22,620,965
$ 15,338,794
$ 16,892,099

In the ordinary course of business, the Bank has made loans to its directors and executive officers (and their associated and

affiliated companies). All such loans have been made in accordance with regulatory requirements.

The following table presents a summary of aggregate activity involving related party borrowers for the years ended

December 31, 2016, 2015 and 2014:

(in thousands)

Loans outstanding at beginning of year
New loans and advances
Less loan repayments
Reclassification(1)

Loans outstanding at end of year

2016

2015

2014

$10,302
2,006
(2,472)
—

$ 19,718
7,165
(16,506)
(75)

$13,307
11,392
(2,490)
(2,491)

$ 9,836

$ 10,302

$19,718

(1) Represents loans that were once considered related party but are no longer considered related party, or loans that were

not related party that subsequently became related party loans.

At December 31, 2016 and 2015, deposits of related parties amounted to $9.9 million and $9.5 million, respectively.

120

Note 26—Parent Company Financial Statements

Condensed Balance Sheets

December 31,

(in thousands)

ASSETS

Non-interest bearing deposits with subsidiary bank
Investments in:

Bank subsidiary
Nonbank subsidiaries

Other assets

Total assets

LIABILITIES AND SHAREHOLDERS’ EQUITY

Payable to bank subsidiary
Other liabilities
Junior subordinated debentures, at fair value
Junior subordinated debentures, at amortized cost

Total liabilities
Shareholders’ equity

Total liabilities and shareholders’ equity

Condensed Statements of Income

Year Ended December 31,

(in thousands)

INCOME

Dividends from subsidiaries
Other income

Total income

EXPENSES

Management fees paid to subsidiaries
Other expenses

Total expenses

Income before income tax benefit and equity in undistributed earnings of

subsidiaries

Income tax benefit

Net income before equity in undistributed earnings of subsidiaries
Equity in undistributed earnings of subsidiaries

Net income
Dividends and undistributed earnings allocated to participating securities

2016

2015

$

92,540

$

91,354

4,204,591
43,488
3,914

4,132,630
44,976
3,742

$4,344,533

$4,272,702

$

75
64,523
262,209
100,931

$

36
66,621
255,457
101,254

427,738
3,916,795

423,368
3,849,334

$4,344,533

$4,272,702

2016

2015

2014

$ 164,481
(6,284)

$ 153,437
(6,272)

$ 250,848
(5,196)

158,197

147,165

245,652

946
17,389

18,335

139,862
(8,887)

148,749
84,191

232,940
125

447
15,564

16,011

131,154
(7,269)

138,423
84,116

222,539
357

533
12,966

13,499

232,153
(7,336)

239,489
(91,831)

147,658
484

Net earnings available to common shareholders

$ 232,815

$ 222,182

$ 147,174

121

Condensed Statements of Cash Flows

Year Ended December 31,

(in thousands)

OPERATING ACTIVITIES:

2016

2015

2014

Net income
Adjustment to reconcile net income to net cash provided by operating activities:

$ 232,940

$ 222,539

$ 147,658

Equity in undistributed earnings of subsidiaries
Depreciation, amortization and accretion
Change in fair value of junior subordinated debentures
Net decrease (increase) in other assets
Net decrease in other liabilities

(84,191)
(322)
6,752
972
(2,112)

(84,116)
(322)
6,163
617
(2,903)

91,831
(322)
5,849
(6,020)
(8,708)

Net cash provided by operating activities

154,039

141,978

230,288

INVESTING ACTIVITIES:
Change in subsidiaries
Acquisitions

Net cash provided (used) by investing activities

FINANCING ACTIVITIES:

Net increase (decrease) in payables to subsidiaries
Dividends paid on common stock
Stock repurchased
Proceeds from exercise of stock options

Net cash used by financing activities

Change in cash and cash equivalents
Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

3,258
—

3,258

(5,000)
—

6
(102,143)

(5,000)

(102,137)

45
(141,074)
(17,708)
2,626

—
(134,618)
(14,589)
1,481

(4)
(99,233)
(7,183)
7,692

(156,111)

(147,726)

(98,728)

1,186
91,354

(10,748)
102,102

29,423
72,679

$

92,540

$ 91,354

$ 102,102

122

Note 27—Quarterly Financial Information (Unaudited)

The following tables present the summary results for the eight quarters ended December 31, 2016:

(in thousands, except per share information)

December 31

September 30

June 30

March 31

2016

Four
Quarters

Interest income
Interest expense

Net interest income

Provision for loan and lease losses
Non-interest income
Non-interest expense

Income before provision for income taxes

Provision for income taxes

Net income
Dividends and undistributed earnings allocated

to participating securities

Net earnings available to common shareholders

Basic earnings per common share
Diluted earnings per common share
Cash dividends declared per common share

$ 224,703
16,907

$ 226,419
16,527

$ 225,453
16,255

$ 234,064
16,362

$ 910,639
66,051

207,796
13,171
98,620
183,468

109,777
40,502

69,275

33

69,242

0.31
0.31
0.16

$

$
$
$

209,892
13,091
80,710
181,187

96,324
34,515

61,809

31

61,778

0.28
0.28
0.16

$

$
$
$

209,198
10,589
74,659
188,511

84,757
30,470

54,287

32

54,255

0.25
0.25
0.16

$

$
$
$

$

$
$
$

217,702
4,823
45,951
183,989

74,841
27,272

47,569

844,588
41,674
299,940
737,155

365,699
132,759

232,940

29

125

47,540

$ 232,815

0.22
0.22
0.16

(in thousands, except per share information)

December 31

September 30

June 30

March 31

2015

Four
Quarters

Interest income
Interest expense

Net interest income

Provision for loan and lease losses
Non-interest income
Non-interest expense

Income before provision for income taxes

Provision for income taxes

Net income
Dividends and undistributed earnings allocated

to participating securities

Net earnings available to common shareholders

Basic earnings per common share
Diluted earnings per common share
Cash dividends declared per common share

$ 235,205
15,371

$ 233,802
14,587

$ 231,788
14,322

$ 229,071
13,952

$ 929,866
58,232

219,834
4,545
69,345
185,911

98,723
35,704

63,019

96

62,923

0.29
0.28
0.16

$

$
$
$

219,215
8,153
61,372
183,194

89,240
31,633

57,607

84

57,523

0.26
0.26
0.16

$

$
$
$

217,466
11,254
81,102
201,918

85,396
30,612

54,784

93

54,691

0.25
0.25
0.15

$

$
$
$

$

$
$
$

215,119
12,637
63,905
192,619

73,768
26,639

47,129

871,634
36,589
275,724
763,642

347,127
124,588

222,539

84

357

47,045

$ 222,182

0.21
0.21
0.15

123

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES.

On a quarterly basis, we carry out an evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer, Principal Financial Officer, and Principal Accounting Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange
Act of 1934. As of December 31, 2016, our management, including our Chief Executive Officer, Principal Financial Officer,
and Principal Accounting Officer, concluded that our disclosure controls and procedures were effective in timely alerting
them to material information relating to us that is required to be included in our periodic SEC filings.

Although we change and improve our internal controls over financial reporting on an ongoing basis, we do not believe that
any such changes occurred in the fourth quarter 2016 that materially affected or are reasonably likely to materially affect our
internal control over financial reporting.

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Umpqua Holdings Corporation is responsible for establishing and maintaining adequate internal control
over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal
control system is designed to provide reasonable assurance to our management and Board of Directors regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. The Company’s internal control over financial reporting includes those policies and
procedures that:

(cid:129) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the

transactions and dispositions of the Company’s assets;

(cid:129) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial

statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with the authorizations of management
and directors of the Company; and

(cid:129) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or

disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016.
In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control—Integrated Framework (2013). Based on our assessment and those criteria, we believe that,
as of December 31, 2016, the Company maintained effective internal control over financial reporting.

The Company’s independent registered public accounting firm has audited the Company’s consolidated financial statements
that are included in this annual report and the effectiveness of our internal control over financial reporting as of
December 31, 2016 and issued their Report of Independent Registered Public Accounting Firm, appearing under Item 8. The
audit report expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting
as of December 31, 2016.

February 23, 2017

ITEM 9B. OTHER INFORMATION.

Not Applicable

124

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The response to this item is incorporated by reference to Umpqua’s Proxy Statement for the 2017 annual meeting of

shareholders under the captions ‘‘Item 1. Election of Directors,’’ ‘‘Information About Executive Officers,’’ ‘‘Corporate

Governance Overview’’ and ‘‘Section 16(a) Beneficial Ownership Reporting Compliance.’’

ITEM 11. EXECUTIVE COMPENSATION.

The response to this item is incorporated by reference to the Proxy Statement, under the captions ‘‘Director Compensation,’’

‘‘Compensation Discussion and Analysis,’’ ‘‘Compensation Committee Report,’’ and ‘‘Compensation Tables.’’

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED

STOCKHOLDER MATTERS

The response to this item is set forth in Part II, Item 5, ‘‘Equity Compensation Plan Information’’ of this Annual Report on

Form 10-K, and is incorporated by reference to the Proxy Statement, under the caption ‘‘Security Ownership of Management

and Others.’’

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The response to this item is incorporated by reference to the Proxy Statement, under the captions ‘‘Item 1. Election of

Directors’’ and ‘‘Related Party Transactions.’’

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The response to this item is incorporated by reference to the Proxy Statement, Item 2-Ratification of Auditor Appointment

under the caption ‘‘Item 3. Ratification (Non-Binding) of Registered Public Accounting Firm Appointment—Independent

Registered Public Accounting Firm.’’

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(1) Financial Statements:

The consolidated financial statements are included as Item 8 of this Form 10-K.

(2) Financial Statement Schedules:

All schedules have been omitted because the information is not required, not applicable, not present in

amounts sufficient to require submission of the schedule, or is included in the financial statements or notes

thereto.

(3) The exhibits filed as part of this report and incorporated herein by reference to other documents are listed on the

Exhibit Index to this annual report on Form 10-K, immediately following the signatures.

125

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Umpqua Holdings Corporation has

duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on February 23, 2017.

UMPQUA HOLDINGS CORPORATION (Registrant)

/s/ Cort L. O’Haver

February 23, 2017

Cort L. O’Haver, President and Chief Executive Officer

Signature

Title

Date

/s/ Cort L. O’Haver

Cort L. O’Haver

President, Chief Executive Officer and Director

February 23, 2017

(Principal Executive Officer)

/s/ Ronald L. Farnsworth

Executive Vice President, Chief Financial Officer

February 23, 2017

Ronald L. Farnsworth

/s/ Neal T. McLaughlin

Neal T. McLaughlin

Luanne Calvert

/s/ Raymond P. Davis

Raymond P. Davis

/s/ Peggy Y. Fowler

Peggy Y. Fowler

Stephen M. Gambee

/s/ James S. Greene

James S. Greene

/s/ Luis F. Machuca

Luis F. Machuca

/s/ Maria M. Pope

Maria M. Pope

/s/ John F. Schultz

John F. Schultz

Susan F. Stevens

/s/ Hilliard C. Terry, III

Hilliard C. Terry, III

/s/ Bryan L. Timm

Bryan L. Timm

(Principal Financial Officer)

Executive Vice President, Treasurer

February 23, 2017

(Principal Accounting Officer)

Director

February 23, 2017

Executive Chairman

February 23, 2017

Lead Independent Director

February 23, 2017

Director

Director

Director

Director

Director

Director

Director

February 23, 2017

February 23, 2017

February 23, 2017

February 23, 2017

February 23, 2017

February 23, 2017

February 23, 2017

Vice Chairman

February 23, 2017

126

Exhibit
#

3.1

3.2

4.1

4.2

10.1**

10.2**

10.2.a**

10.3**

10.4**

10.5**

10.6**

10.7**

10.7.a**

10.7.b**

10.8**

10.9**

10.10**

10.11**

EXHIBIT INDEX

Description

Location

Restated Articles of Incorporation, as amended

Bylaws, as amended

Specimen Common Stock Certificate

The Company agrees to furnish upon request to the
Commission a copy of each instrument defining the
rights of holders of senior and subordinated debt of
the Company.

Third Restated Supplemental Executive Retirement
Plan effective April 16, 2008 between the Company
and Raymond P. Davis

Incorporated by reference to Exhibit 3.1 to Form 10-Q
filed May 7, 2014

Incorporated by reference to Exhibit 3.2 to Form 8-K
filed April 22, 2008

Incorporated by reference to Exhibit 4 to the
Registration Statement on Form S-8 (No. 333-77259)
filed with the SEC on April 28, 1999

Incorporated by reference to Exhibit 99.1 to
Form 8-K/A filed April 22, 2008

Employment Agreement dated July 1, 2003, between
the Company and Raymond P. Davis

Incorporated by reference to Exhibit 10.4 to
Form 10-Q filed August 14, 2003

First Amendment to Employment Agreement between
the Company and Raymond P. Davis effective
January 1, 2017

Filed herewith

Split-Dollar Insurance Agreement dated April 16, 2008
between the Company and Raymond P. Davis

Incorporated by reference to Exhibit 99.2 to Form 8-K
filed April 22, 2008

2003 Stock Incentive Plan, as amended, effective
March 5, 2007

Incorporated by reference to Appendix A to Form
DEF 14A filed March 14, 2007

Form of Employment Agreement with executive
officers Farnsworth and Neal

Incorporated by reference to Exhibit 99.1 to Form 8-K
filed March 7, 2008

Form of First Amendment to form of Employment
Agreement with executive officers Farnsworth,
McLaughlin and Neal

Incorporated by reference to Exhibit 99.1 to Form 8-K
filed January 14, 2013

Employment Agreement dated effective March 21,
2010 between the Company and Cort O’Haver

Incorporated by reference to Exhibit 10.1 to
Form 10-Q filed November 4, 2010

First Amendment to Employment Agreement with
Cort O’Haver dated effective December 1, 2014

Incorporated by reference to Exhibit 10.9 to
Form 10-K filed February 23, 2015.

Second Amendment to Employment Agreement with
Cort O’Haver dated effective January 1, 2017

Filed herewith

Employment Agreement dated effective
November 23, 2015 between Umpqua Bank and Tory
Nixon

Filed herewith

Employment Agreement dated effective June 1, 2010
between the Company and David Shotwell

Incorporated by reference to Exhibit 10.2 to
Form 10-Q filed November 4, 2010

Umpqua Holdings Corporation 2013 Incentive Plan,
effective December 14, 2012, as amended

Filed herewith

Form of Restricted Stock Award Agreement under
2013 Incentive Plan (Service Vesting)

Incorporated by reference to Exhibit 10.11 to
Form 10-K filed February 25, 2016

127

Exhibit
#

10.12**

10.13**

10.14**

10.15**

12.0

21.1

23.1

31.1

31.2

31.3

32

Description

Location

Form of Restricted Stock Award Agreement under
2013 Incentive Plan (Performance Vesting)

Incorporated by reference to Exhibit 10.12 to
Form 10-K filed February 25, 2016

Sterling Financial Corporation 2010 Long-Term
Incentive Plan

Incorporated by reference to Exhibit 99.1 to the
Registration Statement on Form S-8 of Sterling
Financial Corporation filed December 9, 2010

Employment Agreement between the Company and
Andrew Ognall dated as of May 1, 2014

Incorporated by reference to Exhibit 10.16 to
Form 10-K filed February 25, 2016

Employment Agreement between the Company and
Neal McLaughlin dated as of March 1, 2005

Filed herewith

Ratio of Earnings to Fixed Charges

Subsidiaries of the Registrant

Consent of Independent Registered Public Accounting
Firm—Moss Adams LLP

Certification of Chief Executive Officer under
Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Financial Officer under
Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Accounting Officer under
Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer, Principal
Financial Officer and Principal Accounting Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002

Filed herewith

Filed herewith

Filed herewith

Filed herewith

Filed herewith

Filed herewith

Filed herewith

101.INS XBRL Instance Document *

101.SCH XBRL Taxonomy Extension Schema Document *

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document *

101.DEF XBRL Taxonomy Extension Definition Linkbase Document *

101.LAB XBRL Taxonomy Extension Label Linkbase Document *

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *

*

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration

statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of

the Securities and Exchange Act of 1934, as amended and otherwise are not subject to liability under those sections.

**

Indicates compensatory plan or arrangement

128

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Stock Trading Market
Umpqua Holdings Corporation trades 
on the NASDAQ Global Select Market 
under the symbol UMPQ

Headquarters and Investor Information
Umpqua Holdings Corporation
One SW Columbia Street, Suite 1200
Portland, OR 97258
503-727-4226
www.umpquaholdingscorp.com

Transfer Agent
Computershare
PO Box 30170  
College Station, TX 02940-3006
1-800-922-2641
www.computershare.com/investor

Annual Shareholders’ Meeting
The annual meeting of Umpqua Holdings 
Corporation will be held at 2:00 pm, local time, 
on April 19, 2017 at the RiverPlace Hotel, 
1510 SW Harbor Way, Portland, OR 97201